Will Trump nominee protect clean power or pocketbooks?

For Democrats, the nomination of Oklahoma Attorney General Scott Pruitt as the next director of the Environmental Protection Agency is an ominous sign about President-elect Donald Trump’s views on the Clean Power Plan devised by the Obama administration. They fear Pruitt could dismantle the CPP, which calls for replacing the coal-fired power plants Wisconsin relies on and increasing renewable forms of energy such as wind and solar.

Wayne Winegarden

If Pruitt succeeds in taking the plan apart, the biggest beneficiaries won’t actually be fossil-fuel interests or the utility sector, they’ll be low-income Wisconsinites who could avoid 50% hikes in their electricity bills, according to Wayne Winegarden, a George Mason University economist and senior fellow at the Pacific Research Institute. Winegarden has modeled the Clean Power Plan’s impact and he contends it could force Wisconsin’s lowest-income residents to devote 11% of their income to electricity.

In this Take Five interview, he explains why the CPP should be scrapped, an idea that will make for a contentious confirmation hearing for Pruitt, one of 24 state attorneys general who has sued to block the plan.

IB: If Pruitt’s appointment is approved, would you expect him to blow up the Clean Power Plan or slowly dismantle it?

Winegarden: To address the Clean Power Plan is not as simple as just completely undoing it with a wave of your hand. There is a long process that has to be undertaken. People are still figuring out exactly what that process is. I would expect they are going to pursue rolling back the Clean Power Plan regulations, but how that is manifested and how they do that is still uncertain.

I’ve been putting a lot of thought into that and I am confident in saying I have no idea. Part of it is that it’s not simply what the federal government does, and so I believe it’s very likely the EPA may stop defending the cases. From what I understand, there are other parties to the case that might keep it going in the same way. Since it’s an established rule, without an act of Congress you simple can’t say we’re going to change this rule. You have to go through the entire rule-making process. Now, they can refuse to enforce it, but again it’s much more economically beneficial when you create certainty in terms of the regulatory structure. From an operations perspective and from a utilities perspective you need to change the rules correctly, not just say we’re not going to enforce it, then wink and nod.

When utilities make an investment, it’s making a 30- to 50-year investment. You’re not going to make it based on the implementation of a regulation by one administration. It’s very important that it’s done correctly and that it’s done the proper way, but that is a long-term process. I imagine that unless you get some Congressional action, you need to go through the entire rule-making process again. That means you have to open it up for comments and it could be a couple of years before it happens. That’s why I say it’s a very complicated process, and it’s not simply dependent on what the federal government does because if they drop out of the suits, the environmental codefendants could pick it up. So it depends on their actions, as well.

IB: You would argue that the plan basically establishes a regressive tax that hurts economically disadvantaged families the most, correct?

Winegarden: That’s 100% correct. A lot of it is just arithmetic. All necessities consume a larger share of low-income budgets than middle class or upper-income families. When you raise the cost of a necessity such as electricity, the burden is going to fall more harshly or be more burdensome on lower-income families compared to the upper-income families. Even when you adjust for the fact that higher-income families tend to consume more electricity than low-income families, you still find that it is more burdensome on low-income families.

IB: CPP advocates would dispute this, but business interests like Wisconsin Manufacturers and Commerce have said previously that the CPP is a job killer. Did you do any research into the impacts on businesses, or just their residential customers?

Winegarden: We only looked at this from a household perspective. We didn’t look at the impacts on businesses, which again could actually have an amplifying effect on economic activity depending on its impact on jobs. I would suspect that of the jobs that would be impacted, you might see middle class and lower middle class families affected, based on some of the job impacts of those commercial increases in costs.

IB: Local supporters of the CPP say it would force necessary energy-efficiency steps and would actually end up saving costs for homes and businesses.

Winegarden: There are two issues when people talk about forced savings. If you have a perfectly good asset and you toss it out, there is an economic cost to that. That’s the first step. If you have a perfectly good power plant, just like if you have a perfectly good car, and you just toss it out, the cost of replacing it is a real cost. It impacts your balance sheet to acquire that asset.

Now when you are looking at the usage costs in terms of running a utility, right now natural gas tends to be cheaper. But if you are looking at other alternatives — solar and wind power — those subsidized are not cheaper. So when you are operating a plant, if you’re moving toward a solar plant or a wind-powered plant, you’re not going to end up with cheaper energy. There are some market movements going away from coal toward natural gas. Some of that is regulatory; some of that is the fracking [hydraulic fracturing] boom, which is a market evolution. So if you were getting rid of a coal plant and moving toward natural gas, there could be some advantages there.

But you still have the fact that you are taking a viable asset and tossing it out, and that will always have costs involved.

(Continued)

 

IB: Is it really possible to gain the level of energy efficiency envisioned by the CPP, to make up for the loss of coal-fired energy generation, by 2030?

Winegarden: One, it depends on the source you are talking about. Two, it depends on the unknown evolution of technology. Certainly nuclear power has the ability to lower GHG [greenhouse gasses], and it has a very competitive pricing point. That’s always a viable alternative. Natural gas has lower GHG emissions than coal, so switching from coal to natural gas is an evolution that could reduce GHG emissions and is a viable source. As it currently stands, if you’re talking about wind or solar those [efficiencies] don’t currently exist, but there is all sorts of exciting research. Technologically, it is unknown whether they will become viable by 2030. As it stands now, they are not.

IB: Is there enough flexibility in the CPP to make adjustments if that doesn’t materialize?

Winegarden: I don’t think you need the plan if you have an exciting technological evolution. It seems to me that low GHG sources are in demand. So if you had something that was viable, you could have a very natural market evolution to those sources without any type of federal mandates, simply because of supply and demand and people’s preferences. [However], the problem as it stands right now is those sources aren’t economically viable or competitive, so when you force that transition that’s when you end up creating the economic costs and the economic losses.

The most important thing is enabling technological growth so you’re not doing things that would have a negative impact. There is a very strong relationship after you reach a certain point of economic development, which we certainly are at, where greater growth tends to lead to less pollution because 1) you can afford it, and 2) you have the resources to experiment and come up with the better technologies. We’re an energy-dependent economy and forcing people to use a more expensive, less reliable source is going to harm economic growth. It seems to me that what we really want to be doing is obviously encouraging greater growth so we are able to best invest in the new technologies and have as much experimentation as possible. The demand is there. What we really want is 1,000 different experiments to come up with a viable source. Is it wind? Is it some sort of solar technology where we can actually store power within a battery as opposed to use it or lose it?

There are all sorts of possibilities, and we just don’t know yet what’s viable and what’s not viable. Nuclear is a very exciting source that we’re not utilizing. There are all sorts of implications that are important and environmental issues with the radioactive material, which needs to be properly regulated and managed. There is also a national security angle, but it is also a very low-cost, low GHG energy source. It’s certainly something that should be explored.

IB: So you would not be a climate change denier or skeptic. You just think there is a better way to go about this?

Winegarden: Correct. I think about the prioritization. Bjorn Lomborg has done some fantastic work on the Copenhagen Consensus. In his book, The Skeptical Environmentalist, he outlines the impacts we’re going to have on these policies compared to the costs we’re going to incur. If we were devoted to other factors we could make a difference and actually change that path, whereas we would only have a marginal impact on global warming or climate change [if we remain on the same course]. It’s very much about prioritization and cost-benefit analysis.

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