What's behind President Trump's mystery math?

This post originally appeared on EDF's Climate 411

By this time, your eyes may have glazed over from reading the myriad of fact checks and rebuttals of President Trump’s speech announcing the United States’ withdrawal from the Paris climate agreement. There were so many dizzying falsehoods in his comments that it is nearly impossible to find any truth in the rhetorical fog.

Of all the falsehoods, President Trump’s insistence that compliance with the Paris accord would cost Americans millions of lost jobs and trillions in lowered Gross Domestic Product was particularly brazen, deceptive, and absurd. These statements are part of a disturbing pattern, the latest in a calculated campaign to deceive the public about the economics of reducing climate pollution.

Based on a study funded by industry trade groups

Let’s be clear: the National Economic Research Associates (NERA) study underpinning these misleading claims was paid for by the U.S. Chamber of Commerce and the American Council for Capital Formation (ACCF) – two lobbying organizations backed by fossil fuel industry funding that have a history of commissioning exaggerated cost estimates of climate change solutions. When you pay for bad assumptions, you ensure exaggerated and unrealistic results.

In the past five years alone, NERA has released a number of dubious studies funded by fossil fuel interests about a range of environmental safeguards that protect the public from dangerous pollution like mercury, smog, and particulate matter – all of which cause serious health impacts, especially in the elderly, children, and the most vulnerable. NERA’s work has been debunked over and over. Experts from MIT and NYU said NERA’s cost estimates from a 2014 study on EPA’s ozone standards were “fraudulent” and calculated in “an insane way.” NERA’s 2015 estimates of the impacts of the Clean Power Plan, which are frequently quoted by President Trump’s EPA Administrator Scott Pruitt and others, have also been rebutted due to unrealistic and pessimistic assumptions.

The study does not account for the enormous costs of climate pollution

In his speech about the Paris agreement, President Trump crossed a line that made even NERA so uncomfortable that it released a statement emphasizing that its results were mischaracterized and that the study “was not a cost-benefit analysis of the Paris agreement, nor does it purport to be one.”

The most important point embedded in this statement is that the study does not account for the enormous benefits of reducing the carbon pollution causing climate change. Climate change causes devastating impacts including extreme weather events like flooding and deadly storms, the spread of disease, sea level rise, increased food insecurity, and other disasters. These impacts can cost businesses, families, governments and taxpayers hundreds of billions of dollars through rising health care costs, destruction of property, increased food prices, and more. The costs of this pollution are massive, and communities all around the U.S. are already feeling the impacts – yet the President and his Administration continue to disregard this reality as well as basic scientific and economic facts.

Cherry-picking an impractical and imaginary pathway to emission reductions

The statistics the President used were picked from a specific scenario in the study that outlined an impractical and imaginary pathway to meet our 2025 targets designed to be needlessly expensive, as experts at the World Resources Institute and the Natural Resources Defense Council have noted. The study’s “core” scenario assumes sector by sector emission reduction targets (which do not exist as part of the Paris accord) that result in the most aggressive level of mitigation being required from the sectors where it is most expensive. This includes an almost 40 percent reduction in industrial sector emissions – a disproportionate level not envisioned in any current policy proposal – which results in heavily exaggerated costs.

An expert at the independent think tank Resources for the Future, Marc Hafstead, pointed out:

The NERA study grossly overstates the changes in output and jobs in heavy industry.

Yale economist Kenneth Gillingham said of these numbers:

It’s not something you can cite in a presidential speech with a straight face … It’s being used as a talking point taken out of context.

The NERA analysis also includes a scenario that illustrates what experts have known for decades – that a smarter and more cost-effective route to achieving deep emission reductions is a flexible, economy-wide program that prices carbon and allows the market to take advantage of the most cost-effective reductions across sectors. Even NERA’s analysis shows that this type of program would result in significantly lower costs than their “core” scenario. Not surprisingly, that analysis is buried in the depths of the report, and has been entirely ignored by the Chamber of Commerce and ACCF as well as President Trump.

Study ignores potential innovation and declining costs of low carbon energy

Finally, the NERA study assumes that businesses would not innovate to keep costs down in the face of new regulations – employing pessimistic assumptions that ignore the transformational changes already moving us towards the expansion of lower carbon energy. Those assumptions rely on overly-conservative projections for renewable energy costs, which have been rapidly declining. They also underestimate the potential for reductions from low-cost efficiency improvements, and assume only minimal technological improvements in the coming years.

In reality, clean energy is outpacing previous forecasts and clean energy jobs are booming. There are more jobs in solar energy than in oil and natural gas extraction in the U.S. right now, and more jobs in wind than in coal mining.

The truth is that the clean energy revolution is the economic engine of the future. President Trump’s announcement that he will withdraw the U.S. from the Paris accord cedes leadership and enormous investment opportunities to Europe, China, and the rest of the world. His faulty math will not change these facts.

Posted in International, Politics, Trump's energy plan, Uncategorized| Leave a comment

Why the EPA gives Taxpayers the Biggest Bang for their Hard-earned Buck

This blog was co-authored with Gernot Wagner

The Trump administration’s proposed federal budget for fiscal year 2017 slashes the Environmental Protection Agency’s (EPA) budget by 31 percent, targeting an entity that already operates with one of the smallest budgets in the government – of every 10 dollars the federal government spends, EPA only gets 2 cents.

But absolute numbers aren’t the right metric. The big question is what the public (President Trump’s employer) gets for its investment. And using that metric, the EPA generates the biggest benefits of any agency, bar none.

 

 

Between 2005 and 2015, EPA regulations produced on average $9 in benefits for every $1 spent towards compliance. These benefits include: keeping Americans safe from dirty air, water, and dangerous chemicals – all of which can cause increased hospitalizations, missed work days, premature death, and birth defects. While numerous agencies across the federal government provide vital, lifesaving services, as well, EPA has the best benefits-to-costs ratio of any U.S. agency, according to the Office of Management and Budget (OMB), which produces an annual report tallying the benefits and the costs of major federal rules for every U.S. agency.

Total numbers are even more staggering: over those ten years, EPA is responsible for $376 billion in social benefits after subtracting the costs incurred by its regulations. That’s an order of magnitude higher than any other U.S. agency.

The message is clear: EPA provides large benefits at a bargain. In fact, while a high benefit-to-cost ratio is good, the goal isn’t to maximize the ratio. The goal is to maximize net benefits to society. EPA has been extremely successful at doing exactly that. Now is not the time to walk back that kind of progress.

 

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What Night-time Lights Tell us about the World and its Inhabitants

Night viewMost people are familiar with the iconic image of North Korea at night—Pyongyang stands as a beacon of light amid of what looks almost like a large body of water—but what is, in fact, land draped in complete darkness. That imagery revealed details about what was previously unknowable due to the country's cloak of secrecy—its meager electricity use and level of poverty. My colleagues Daniel Zavala-Araiza, Gernot Wagner and I took an even deeper look at how well night-time lights can account for other measures of socio-economic activity in a new article published today in the journal PLOS ONE.

I got interested in what these images could tell us back in 2012 when I started attending the Geo for Good conference, an annual event hosted by Google where nonprofits and researchers learn how to use geospatial tools such as Earth Engine. Gernot, Daniel and I started wondering what interesting applications we could explore with night-time lights data, and see what we could learn by examining the entire 21-year record of the National Oceanic and Atmospheric Administration’s Defense Meteorological Satellite Program (DMSP) at the country level. We took that dataset and compared it to a much wider scope of other datasets. By using a distributed, parallelized platform such as Earth Engine, the scope of this research and our analysis is able to be larger than prior studies.

The prevalence and magnitude of night-time light is an alternative, standardized, and relatively unbiased way to gather information about important socio-economic indicators like CO2 emissions, GDP, and other measures that would in some cases be unknowable. For example, these data helped estimate the size of the informal economy of Mexico in a 2009 study by Ghosh et al.

We’re hoping that by combining all of these methods, data sets, and tools, researchers can develop an even better understanding of how we relate to the environment, so we can ultimately become better stewards of it. Google Earth Engine, Hadoop and Spark are powerful examples of such tools —our hope is that our fellow researchers will ask and pursue new questions, so we can advance the conversation even further.

Posted in International, Technology, Uncategorized| Leave a comment

Alternative Facts: 6 Ways President Trump’s Energy Plan Doesn’t Add Up

Photos by lovnpeace and KarinKarin

This blog was co-authored with Jonathan Camuzeaux and is the first in an occasional series on the economics of President Trump's Energy Plan

Just 60 days into Trump’s presidency, his administration has wasted no time in pursuing efforts to lift oil and gas development restrictions and dismantle a range of environmental protections to push through his “America First Energy Plan.” An agenda that he claims will allow the country to, “take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own.”

Putting aside the convenient roundness of this number, the sheer size of it makes this policy sound appealing, but buyer beware. Behind the smoke and mirrors of this $50 trillion is a report commissioned by the industry-backed Institute for Energy Research (IER) that lacks serious economic rigor. The positive projections from lifting oil and gas restrictions come straight from the IER’s advocacy arm, the American Energy Alliance. Several economists reviewed the assessment and agreed: “this is not academic research and would never see the light of day in an academic journal.”

Here is why Trump’s plan promises a future it can’t deliver:

1. No analytical back up for almost $20 trillion of the $50 trillion.
Off the bat, it’s clear that President Trump’s Plan relies on flawed math. What’s actually estimated in the report is $31.7 trillion, not $50 trillion, based on increased revenue from oil, gas and coal production over 37 years (this total includes estimated increases in GDP, wages, and tax revenue). The other roughly half of this “$50 trillion” number appears to be conjured out of thin air.

2. Inflated fuel prices
An average oil price of $100 per barrel and of $5.64 per thousand cubic feet of natural gas (Henry Hub spot price) was used to calculate overall benefits. Oil prices are volatile: in the last five years, they reached a high of $111 per barrel and a low of $29 per barrel. They were below $50 a barrel a few days ago. A $5.64 gas price is not outrageous, but gas prices have mostly been below $5 for several years. By using inflated oil and gas prices and multiplying the benefits out over 37 years, the author dismisses any volatility or price impacts from changes in supply. There’s no denying oil and gas prices could go up in the future, but they could also go down, and the modeling in the IER report is inadequate at best when it comes to tackling this issue.

3. Technically vs. economically recoverable resources
The IER report is overly optimistic when it comes to the amount of oil and gas that can be viably produced on today’s restricted federal lands. Indeed, the report assumes that recoverable reserves can be exploited to the last drop over the 37-year period based on estimates from a Congressional Budget Office report. A deeper look reveals that these estimates are actually for “technically recoverable resources,” or the amount of oil and gas that can be produced using current technology, industry practice, and geologic knowledge. While these resources are deemed accessible from a technical standpoint, they cannot always be produced profitably. This is an important distinction as it is the aspect that differentiates technically recoverable from economically recoverable resources. The latter is always a smaller subset of what is technically extractable, as illustrated by this diagram from the Energy Information Administration. The IER report ignores basic industry knowledge to present a rosier picture.

4. Lack of discounting causes overestimations
When economists evaluate the economic benefits of a policy that has impacts well into the future, it is common practice to apply a discount rate to get a sense of their value to society in today’s terms. Discounting is important to account for the simple fact that we generally value present benefits more than future benefits. The IER analysis does not include any discounting and therefore overestimates the true dollar-benefits of lifting oil and gas restrictions. For example, applying a standard 5% discount rate to the $31.7 trillion benefits would reduce the amount to $12.2 trillion.

5. Calculated benefits are not additional to the status quo
The IER report suggests that the $31.7 trillion would be completely new and additional to the current status quo. This is false. One must compare these projections against a future scenario in which the restrictions are not lifted. Currently, the plan doesn’t examine a future in which these oil and gas restrictions remain and still produce large economic benefits, while protecting the environment.

6. No consideration of environmental costs
Another significant failure of IER’s report: even if GDP growth was properly estimated, it would not account for the environmental costs associated with this uptick in oil and gas development and use. This is not something that can be ignored, and any serious analysis would address it.

We know drilling activities can lead to disastrous outcomes that have real environmental and economic impacts. Oil spills like the Deepwater Horizon and Exxon Valdez have demonstrated that tragic events happen and come with a hefty social, environmental and hard dollar price tag. The same can be said for natural gas leaks, including a recent one in Aliso Canyon, California. And of course, there are significant, long-term environmental costs to increased emissions of greenhouse gases including more extreme weather, damages to human health and food scarcity to name a few.

The Bottom Line: The $50 Trillion is An Alternative Fact but the Safeguards America will Lose are Real
These factors fundamentally undercut President Trump’s promise that Americans will reap the benefits of a $50 trillion dollar future energy industry. Most importantly, the real issue is what is being sacrificed if we set down this path. That is, a clean energy future where our country can lead the way in innovation and green growth; creating new, long-term industries and high-paying jobs, without losing our bedrock environmental safeguards. If the administration plans to upend hard-fought restrictions that provide Americans with clean air and water, we expect them to provide a substantially more defensible analytical foundation.

Posted in Markets 101, Politics, Trump's energy plan| Leave a comment

Trump Moves to Cook the Books, Undercutting Common Sense Climate Protections

This blog was co-authored with Martha Roberts

It’s reported that the Trump Administration is poised to continue its barrage of attacks on some of our most vital health and environmental protections, following last week’s assault on broadly supported fuel economy and greenhouse gas safeguards for cars and light trucks. Here’s one attack that they may try to sneak under the radar—a move that would undercut common sense climate protection all across the federal government: directing federal agencies to abandon the use of social cost of carbon estimates in their evaluation of new policy.

The social cost of carbon is a measure of the economic harm from the impacts of climate change. Specifically, it’s the dollar value of the total damages from emitting one ton of carbon dioxide into the atmosphere. Weakening or eliminating the use of the social cost of carbon would result in skewed and biased policy-making that ignores the benefits of crucial safeguards and stacks the deck against actions to protect communities from the mounting costs of climate change.

The devastating impacts of climate change on health and the environment – such as extreme weather events, the spread of disease, sea level rise, and increased food insecurity – can cost American businesses, families, governments and taxpayers hundreds of billions of dollars through rising health care costs, destruction of property, increased food prices, and more. Many of these impacts are already being felt by communities across the country, as the government’s leading scientific agencies have found.

When the federal government develops policy affecting the carbon pollution causing climate change, it is both reasonable and essential that it takes these costs into account. The social cost of carbon is a tool that allows policy-makers to do just that.

Currently, the federal government uses a social cost of carbon estimate—roughly $40 per ton of carbon pollution—that was developed through a transparent and rigorous interagency process, relied on the latest peer-reviewed science and economics available, and allowed for repeated public comment as well as input from the National Academy of Sciences.

But that may not last much longer. As we’ve seen, the Trump Administration is waging war against an array of our most crucial health and environmental protections, ignoring the urgent threat of climate change while prioritizing fossil fuel interests. President Trump’s new Administrator of the Environmental Protection Agency, Scott Pruitt, denies that carbon pollution is a primary contributor to climate change, and built his political career by suing EPA 14 times as Oklahoma Attorney General to block protections from mercury, arsenic and smog pollution, hand in hand with the worst elements of the fossil fuel industry. Meanwhile the Administration is proposing devastating cuts to the budgets for EPA and climate research, and is moving towards revoking the Clean Power Plan, America’s first-ever nationwide limits on carbon pollution from power plants.

All of this points to a clear disregard for basic science, economic principles, and our nation’s clean air laws. Eliminating or weakening the social cost of carbon is another pernicious tactic by the Administration to undermine the development of crucial climate safeguards – by erroneously making it appear as though reducing carbon pollution has little or no benefit to society and the economy. Even the current figure is very likely a conservative lower bound since it does not yet include all of the widely recognized and accepted impacts of climate change.

The details of the upcoming attack are still unclear. It’s possible that the Administration may end use of the uniform social cost of carbon estimate at the federal level—despite its rigorous basis and judicial precedent. Other indications suggest that the Administration may choose to artificially and arbitrarily discount the costs of climate change for the health and economic well-being of our kids, grandkids, and future generations—ignoring the growing consensus among economists that supports valuing these impacts more, as does a recent report from the Council of Economic Advisors. Or the Administration may decide to disregard the fact that our greenhouse gas pollution has harmful impacts outside U.S. borders that can have costly repercussions for Americans.

Throwing out the social cost of carbon may play well with President Trump’s supporters in the fossil fuel industry. But the importance and appropriateness of accounting for these costs is a matter of both economics and law. We also know that nearly two thirds of Americans are concerned about climate change. Undermining limits on pollution—protections that are rooted in rigorous scientific research, reflecting long-standing bipartisan economic principles—will ultimately harm the health and environmental safety of all Americans, including Trump’s supporters.

Posted in Politics, Social Cost of Carbon, Uncategorized| Leave a comment

The United States Could Lead the Next Tech Revolution by Investing in Clean Energy

New Risky Business Report Finds Transitioning to a Clean Energy Economy is both Technologically and Economically Feasible

In the first Risky Business report, a bi-partisan group of experts focused on the economic impacts of climate change at the country, state and regional levels and made the case that in spite of all that we do understand about the science and dangers of climate change, the uncertainty of what we don’t know could present an even more devastating future for the planet and our economy.

The latest report from the Risky Business Project, co-chaired by Michael R. Bloomberg, Henry M. Paulson, Jr., and Thomas F. Steyer, examines how best to tackle the risks posed by climate change and transition to a clean energy economy by 2050, without relying on unprecedented spending or unimagined technology. The report focuses on one pathway that will allow us to reduce carbon emissions by 80 percent by 2050 through the following three shifts:

1. Electrify the economy, replacing the dependence on fossil fuels in the heating and cooling of buildings, vehicles and other sectors. Under the report’s scenario, this would require the share of electricity as a portion of total energy use to more than double, from 23 to 51 percent.
2. Use a mix of low- to zero-carbon fuels to generate electricity. Declining costs for renewable technologies contribute in making this both technologically and economically feasible.
3. Become more energy efficient by lowering the intensity of energy used per unit of GDP by about two thirds.

New Investments Will Yield Cost Savings

Of course, there would be costs associated with achieving the dramatic emissions reductions, but the authors argue that these costs are warranted. The report concludes that substantial upfront capital investments would be offset by lower long-term fuel spending. And even though costs would grow from $220 billion per year in 2020 to $360 billion per year in 2050, they are still likely far less than the costs of unmitigated climate change or the projected spending on fossil fuels. They’re also comparable in scale to recent investments that transformed the American economy. Take the computer and software industry, which saw investments more than double from $33 billion in 1980 to $73 billion in 1985. And those outlays continued to grow exponentially—annual investments topped $400 billion in 2015. All told, the United States has invested $6 trillion in computers and software over the last 20 years.

This shift would also likely boost manufacturing and construction in the United States, and stimulate innovation and new markets. Finally, fewer dollars would go overseas to foreign oil producers, and instead stay in the U.S. economy.

The Impact on American Jobs

The authors also foresee an impact to the U.S. job market. On the plus side, they predict as many as 800,000 new construction, operation and maintenance jobs by 2050 would be required to help retrofit homes with more efficient heating and cooling systems as well as the construction, operation and maintenance of power plants. However, job losses in the coal mining and oil and gas sectors, mainly concentrated in the Southern and Mountain states, could offset these employment gains. As we continue to grow a cleaner-energy economy, it will be essential to help workers transition from high-carbon to clean jobs and provide them with the training and education to do so.

A Call for Political and Private Sector Leadership

Such a radical shift won’t be easy, and both business and policy makers will need to lead the transition to ensure its success. First and foremost, the report asserts that the U.S. government will need to create the right incentives.  This will be especially important if fossil fuel prices drop, which could result in increased consumption.  Lawmakers would also need to wean industry and individuals off of subsidies that make high-carbon and high-risk activities cheap and easy while removing regulatory and financial barriers to clean-energy projects. They will also need to help those Americans negatively impacted by the transition as well as those who are most vulnerable and less resilient to physical and economic climate impacts.

Businesses also need to step up to the plate by auditing their supply chains for high-carbon activities, build internal capacity to address the impacts of climate change on their businesses and put internal prices on carbon to help reduce risks.

To be sure, this kind of transformation and innovation isn’t easy, but the United States has sparked technological revolutions before that have helped transform our economy—from automobiles to air travel to computer software, and doing so has required collaboration between industry and policymakers.

We are at a critical point in time—we can either accelerate our current path and invest in a clean energy future or succumb to rhetoric that forces us backwards. If we choose to electrify our economy, reduce our reliance on dirty fuels and become more energy efficient, we will not only be at the forefront of the next technological revolution, but we’ll also help lead the world in ensuring a better future for our planet.

Posted in Energy efficiency, Politics, Technology| Leave a comment
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