Calculating the Benefits of EPA Clean Power Plan
If you thought the previous discussions of Clean Power Plan (Paper #1, Paper #2, Paper #3, Paper#4) were complicated, you have seen nothing yet. The benefit discussion of the Clean Power Plan moves into the world of art versus science. This section requires one to delve into philosophy and at the same time, process math. My one semester of philosophy in college perhaps may not cut it, but I will try my best. The most complete discussion of the benefits of the Clean Power Plan is found in the Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plants. The title for the report foreshadows the complexity of the subject.
There are two major categories of benefits that are quantified by the EPA – Global Climate Change Benefits and the Air Pollution Health Co-Benefits. For the Global Climate Change calculation, they refer to another long titled report Technical Support Document: – Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – Under Executive Order 12866. In this report they are running models that have the supposed capability to model carbon dioxide dispersion and global temperature responses which lead to sea elevation changes and agriculture impact. This is certainly a grand model. Once again, the validity of these models are questionable given the lack of documentation of backcasting actual historical years. However, some credit can be given to these models given that they seem well thought out. They even include human adaption profile as climate change occurs. They note adaption is likely, but limited, therefore they mitigate some of the damages being computed due to adaptation. All the calculations were focused on damages and avoided the value of life calculations. The biggest outcome of the report was the following statement: “…climate change presents a problem that the United States alone cannot solve. Even if the United States were to reduce its greenhouse gas emissions to zero, that step would be far from enough to avoid substantial climate change.” Therefore to give a value of benefit of CO2 reduction could be all for nothing unless the world is collaborating. This makes EPA’s claim of the $30 Billion dollars of climate benefit in 2030 very questionable given the lack of global participation to mitigate CO2 emissions in the world.
The Air Pollution Health Co-Benefits, unlike the Global Climate Change, is very dependent on the value of life. As noted in their footnote on many of the benefit tables – “The air pollution health co-benefits reflect reduced exposure to PM2.5 and ozone associated with emission reductions of directly emitted PM2.5, SO2 and NOX. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 90 percent of total monetized co-benefits from PM2.5 and ozone.” This is a very interesting footnote, as this was also noted for the Mercury Air Toxics Standards (MATS). “The reduction in premature fatalities each year accounts for over 90% of total monetized benefits….The great majority of the estimates are attributable to co-benefits from 4,200 to 11,000 fewer PM2.5-related premature mortalities”. Section 4.3.2 in the RIA details the calculation for the Clean Power Plan. EPA notes “Avoided premature deaths account for 98 percent of monetized PM-related co-benefits and over 90 percent of monetized ozone-related co-benefits.” Therefore out of the $25-59 Billion identified in net benefits 90+% comes from premature deaths. EPA noted they used the value of statistical life (VSL) at $10 million in 2030. At $10 Million dollars a life, the reduction of premature mortality amounts to 2,500 to 5,900 less than 0.1% of babies born a year in the US. I have no expertise to argue the merits of this, but I can put this into perspective. Based on the EPA logic, as a society it may be cost effective to require swimming lessons. According to the CDC, 3,533 fatal unintentional drowning occurs per year outside boating related incidents. Using EPA calculation method, this amounts to 35 Billion dollars a year of benefit if drowning could be prevented. If everyone in the US took a group swimming lesson (7 classes) for $66 this could produce a net benefit of 7 Billion assuming ¾ of the deaths could be prevented by attending swimming classes. Consider another perspective. As a society, we should probably invest a lot more in mammograms and screening tools given 10,000 women die a year because of ineffective screening tools. If this could be prevented, a benefit of $100 Billion would occur using EPA calculation. With $100 billion on the benefit side of the equation, many programs and additional screening could be done and still produce a net benefit. Here is one final perspective on the logic employed by EPA for justifying the cost having to do with prohibition. Using this analysis, one could quantify the benefits for banning alcohol based on mitigating alcohol abuse deaths. According to the CDC, 88,000 Americans die each year due to alcohol abuse. Using EPA benefit analysis, almost a trillion dollars would be placed on the benefit side of the equation for prohibition. Does the cost of prohibition add up to a trillion dollars?
If we remove the life portion of benefit, this leaves the Air Pollution Co-benefits of between $2.5 – 5.9 Billion. They did note other benefits they did not quantify, such as health reduction from direct exposure to mercury, SO2, NO2, and CO. In addition, there is value for visibility improvement not added into their benefits. They do not talk about the positive externalities that occur because of low cost power which could be eliminated with this program. This is a point missing in general academia. There are externalities that are also positive as I noted in my previous article.
In conclusion, many of the benefits are questionable, since they depend on global participation, or they are valuing benefits on a value of life calculation which needs to be measured accordingly with other worthwhile life savings initiatives. As noted in my previous article on cost, it would seem the cost is underestimated, and the benefits could be overestimated. The benefits are much more subjective and require a level of knowledge few may have obtained – including myself. Understanding and valuing life plus quantifying a range of externalities certainly require more art than science. Cost, on the other hand, is much more science than art. This subject certainly stretched my comfort zone, but this analysis shows the importance of reviewing the numbers behind the numbers and the value of taking philosophy classes.
Your Ever Willing to Learn More Energy Consultant,
David
David K. Bellman
Founder & Principal
All Energy Consulting LLC
“Independent analysis and opinions without a bias.”
614-356-0484
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blog: http://allenergyconsulting.com/blog/category/market-insights/
