Selected category: Markets 101

Dysfunctional gas market cost New England electric customers $3.6 billion

This blog post was co-authored with Levi Marks, Charles Mason and Matthew Zaragoza-Watkins

New England natural gas and electricity prices have undergone dramatic spikes in recent years, spurring talk about the need for a costly new pipeline to meet the region’s needs as demand for gas seemed ready to overtake suppliers’ available capacity to deliver it. For example, during the polar vortex of 2013-14, the gas price at New England’s main gas trading hub regularly exceeded $20/MMBtu (million British Thermal Units, the measure commonly used in the gas industry) and reached a record high of $78/MMBtu on January 22, 2014, compared to the annual average of $5.50/MMBtu.

In an efficient market, we would indeed expect prices to be high during events like the polar vortex. We would also expect pipelines delivering gas to regions like the Boston area – in this case the Algonquin Gas Transmission (AGT) pipeline – to be fully utilized. But this is not what we observed when we analyzed the scheduling patterns on the AGT pipeline from 2013 to 2016.

What 8 million data points told us about artificial shortages

Our research group spent 18 months looking at eight million data points covering the three-year period from mid-2013 to mid-2016. We discovered that during this period, a handful of New England gas utilities owned by two large energy companies routinely scheduled large deliveries, then cancelled orders at the last minute. These scheduling practices created an artificial shortage when in fact there was far more pipeline capacity on the system than it appeared.

As a result, we estimate that New England electricity customers paid $3.6 billion more over this period than they would have if the unused pipeline capacity had been available to deliver gas for electricity generation (for more information on how we calculated this number, visit our methodology page). As for the need for a new pipeline, our analysis shows that energy prices over this period were inflated, which means they should not be used to assess how much, if any, additional pipeline capacity is needed. Both conclusions illustrate why it’s so important (and how valuable it could be) to fix the interface between the gas and electric markets.

Why unused pipeline capacity impacts electricity prices

Although it was natural gas that was supposedly in short supply over this period, electricity prices also experienced large price spikes. That’s due to the way electricity prices are set, and the fact that much of the electricity in New England, as in much of the country, is increasingly generated using natural gas.

About half of the electricity traded in New England’s wholesale electricity market, ISO New England (ISO-NE), comes from gas-fired generators. For any given hour, the wholesale electricity price for all generators in this market is determined by the last (highest) bid needed to meet customer demand (or “clear the market”). This market clearing price is typically (75 percent of the time) set by a natural gas plant, which means their cost for gas and pipeline transportation tends to drive the price of electricity. That cost is largely determined by the spot price of natural gas at Algonquin Citygate, New England’s main gas trading hub, served by the Algonquin Pipeline.

Policy paper: Aligning natural gas and electricity markets »

The figure below shows a stylized generation supply curve for ISO-NE. The lower cost resources to the left (typically solar, wind and hydro) are generally used before the higher cost plants to the right (coal, gas, petroleum). The plants situated where demand meets the supply curve set the overall market price in any given hour (bids are submitted a day ahead of time in the day ahead market). This is typically one of the natural gas plants represented by the red dots on the middle part of the curve. A higher spot price for natural gas increases the marginal cost of gas-fired generators, shifting the generation supply curve up as seen in the second panel. This translates into a higher marginal cost of meeting a given level of electricity demand and thus a higher wholesale electricity price P*.

 

Stylized generation supply curve for ISO-NE.

What price do electric generators pay for gas? The secondary market for natural gas

In New England, as in many other markets, gas-fired electricity generators generally procure gas from a secondary market, where sellers are usually natural gas utilities that purchase long-term contracts at regulated prices directly from the pipeline company. The secondary market exists because these long-term contracts allow contract holders to sell any unused capacity at unregulated prices to gas-fired generators or others.

Generators buying in the secondary market for gas do so because they have decided it is more cost-effective to procure natural gas transportation that way than to grapple with rigid, long-term contracts for pipeline capacity that don’t fit their highly variable needs.

While the amount of pipeline capacity available to deliver natural gas to New England is fixed, demand for gas fluctuates significantly with external factors such as temperature, as seen by the price spikes experienced during the polar vortex

On days like these, holders of long-term contracts can pocket the difference between the price that buyers in the secondary market are willing to pay for gas deliveries, as indicated by the Algonquin Citygate spot price, and the regulated price they themselves pay the pipeline for that same capacity. In the case of utilities, revenues from such sales are typically to a large extent refunded back to the ratepayers that paid for those long-term contracts in the first place.

How could pipeline capacity go unused during the polar vortex?

We see four local gas utilities (two owned by Eversource, two by Avangrid) that scheduled far more pipeline capacity the day before gas delivery than they ended up using the next day. Repeatedly, these companies downscheduled their orders only at the end of the gas delivery day–too late for that unused capacity to be made available to the secondary market.

The threshold at which last-minute down-scheduling of gas orders impacts gas and electric prices varies depending on daily demand. As a proxy, we looked at how far the scheduling patterns at delivery “nodes” on the pipeline operated by Eversource and Avangrid-owned utilities deviated from the overall system average.

  • On 434 days during the study period, at least one Eversource node made downward scheduling changes more than two standard deviations larger than the average scheduling change made by all firms on the pipeline.
  • On 351 days, at least one Eversource location had a schedule change more than three standard deviations larger than the average.

The Eversource utilities primarily made large downscheduling changes on cold days, while Avangrid made large scheduling cuts far more often.

  • On 1043 days, at least one Avangrid location made downward scheduling change more than two standard deviations larger than the average.
  • On 1031 days, at least one Avangrid location made a downward change more than three standard deviations larger than the average.

Total unused capacity exceeded 100,000 MMBtu on 37 days in the three-year period we looked at, which is roughly 7% of the pipeline’s total daily capacity and 28% of the typical total daily supply to gas-fired generators. That these large amounts of downscheduled pipeline capacity were not made available to New England’s gas-fired generators raised both the gas price for generators as well as the price of electricity for New England’s electricity customers. We estimate that unused pipeline capacity increased average gas and electricity prices by 38% and 20%, respectively, over the three-year period we study.

While this behavior may have been within the companies’ contractual rights, the significant impacts in both the gas and electricity markets show the need to consider improvements to market design and regulation. The gas transportation market must become more transparent and flexible to better ensure that existing pipeline capacity is optimally utilized and that unbiased price signals in both the gas and electricity markets lead to cost-efficient investment in energy infrastructure.

 

Also posted in Energy efficiency| 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.

Also posted in Politics, Trump's energy plan| Leave a comment

Ensuring Environmental Outcomes from a Carbon Tax

How can we ensure that a carbon tax delivers on its pollution reduction potential? An innovative, new idea could provide greater certainty over the environmental outcome.

As momentum intensifies around the world for action to fight climate change, the United States is emerging as a leader in the new low-carbon economy. But if we are going to reduce climate pollution at the pace and scale required — cutting emissions 26-28% below 2005 levels by 2025 and at least 83% by 2050, on a path to zero net emissions —we need to roll up our sleeves on a new generation of ambitious climate policies that harness the power of the economy and American innovation. An emerging idea could be a game-changer for the prospects of a carbon tax to help tackle climate pollution.

Economics 101 teaches us that market-based policies, including cap-and-trade programs as well as carbon taxes, are the most cost-effective and economically efficient means of achieving results. Both put a price on carbon emissions to reduce dangerous pollution. Cap-and-trade programs place a “cap” on the total quantity of allowable emissions, directly limiting pollution and ensuring a specific environmental result, while allowing prices to fluctuate as pollution permits are traded. The “guarantee” that the cap provides is a primary reason this tool has been favored by EDF and other stakeholders focused on environmental performance. That U.S. targets are based on quantities of pollution reductions also speaks to the need for policy solutions tied to these pollution limits.

In comparison, a carbon tax sets the price per unit of pollution, allowing emissions to respond to the changes in behavior this price encourages. The problem, from an environmental standpoint, is that a carbon tax lacks an explicit connection to a desired pollution reduction target — and therefore provides no assurance that the required reductions will actually be achieved. We know that a carbon tax will impact emissions, but even the most robust modeling cannot provide certainty over the magnitude of that impact. Furthermore, fundamental factors like energy or economic market dynamics can change over time, affecting the performance of a tax. Because greenhouse gas pollution accumulates in the atmosphere over time, even being slightly off the desired path over several decades can produce significant consequences for cumulative emissions, and thus climate damages.

A new approach: Environmental Integrity Mechanisms (EIMs)

Two recently-released papers by the Nicholas Institute at Duke University and Resources for the Future (RFF) directly address this key concern with a carbon tax —and suggest an innovative path forward. They illustrate how a suite of provisions – we’ll call them “Environmental Integrity Mechanisms” or “EIMs,” though each paper uses different terminology – could provide greater levels of certainty regarding the emissions outcome, by allowing for adjustment of the carbon tax regime over time to course-correct and keep us on track for meeting our targets.

EIMs – if carefully designed – can play an important role in connecting a carbon tax to its performance in reducing pollution. They are a type of built-in insurance mechanism: they may never be triggered if the initial price path achieves its projected impact, but provide a back-up plan in case it does not.

These mechanisms are analogous to well-studied “cost containment” provisions in cap-and-trade that are designed to provide greater certainty over prices. Cost containment provisions are included in several successful cap-and-trade programs around the world. For example, California’s cap-and-trade program includes a price collar that sets a floor as well as a ceiling that triggers the release of a reserve of allowances.

EIMs are a parallel effort to introduce greater emissions certainty into a carbon tax system. With the recent publication of these two papers, EIMS are beginning to receive well-deserved greater attention. These provisions help bridge the gap between caps and taxes, merging the strengths of each to create powerful hybrid programs.

How EIMs might work

Let’s take a closer look at how these “EIMs” could work.

• First, the initial tax level and/or growth rate could be adjusted depending on performance against an emissions trajectory or carbon budget benchmark. This could occur either automatically via a simple formula built into the legislation, by Congressional intervention at a later date based on expert recommendations, or by delegation of authority to a federal or independent agency or group of agencies.

There are clear advantages to including an automatic adjustment in the legislation. This avoids having to go back to a sluggish Congress to act; and there is no guarantee that Congress would make appropriate adjustments. Moreover, Congress is likely to be loath to relinquish its tax-setting authority to an executive agency — and such delegation could even face legal challenges. Delegating tax-setting authority to an executive agency could also introduce additional political uncertainty in rate setting.

In designing such an automatic adjustment, policy makers will need to consider the type, frequency and size of these adjustments, as well as how they are triggered. The RFF paper in particular discusses some of the resulting trade-offs. For example, an automatic adjustment will reduce the price certainty that many view as the core benefit of a tax. On the other hand, by explicitly and transparently specifying the adjustments that would occur under certain conditions, a high degree of price predictability can still be maintained – with the added benefit of increased emissions certainty.

• Second, the Nicholas Institute brief discusses regulatory tools that could be employed if emission goals were not met –including existing opportunities under the Clean Air Act, or even new authority. The authors point out that relative to automatic adjustment mechanisms, regulatory options are more difficult to “fine-tune.” Nevertheless, they could provide a powerful safeguard if alternatives fail.

• Finally, as the Nicholas Institute brief discusses, a portion of tax revenue could be used to fund additional reductions if performance goals were not being met. This approach could tap into cost-effective reductions in sectors where the carbon tax might be more challenging to implement (e.g. forestry or agriculture). The revenue could also be used to secure greater reductions from sectors covered by the tax — for example, by funding investments in energy efficiency. In a neat twist, the additional revenue needed to fund these emissions reductions would be available when emissions were higher than expected — that is, precisely when more mitigation was needed.

EDF’s take

Our goal is to reduce the amount of carbon pollution we put into the atmosphere in as cost-effective and efficient a manner as possible. This means putting a limit and a price on carbon pollution.

Even at this preliminary stage in the exploration of EIM design, one takeaway is clear: all carbon tax proposals should include an EIM with an automatic adjustment designed to meet the desired emissions path and associated carbon budget.

More work is needed to develop and evaluate the range and design of EIMs. And while a cap is still the most sure-fire means of guaranteeing an emissions outcome, this growing consideration by economists and policy experts opens a new path for the potential viability of carbon taxes as a pollution reduction tool in the United States.

The bottom line is this: The fundamental test of any climate policy is environmental integrity. For a carbon tax, that means an EIM.

Also posted in Cap and Trade, Uncategorized| 1 Response

PBS NewsHour Making Sen$e with Paul Solman

Q&A accompanying a re-broadcast of a PBS NewsHour segment featuring Climate Shock:

Everyone is talking about 2 degrees Celsius. Why? What happens if the planet warms by 2 degrees Celsius?

Martin L. Weitzman: Two degrees Celsius has turned into an iconic threshold of sorts, a political target, if you will. And for good reason. Many scientists have looked at so-called tipping points with huge potential changes to the climate system: methane being released from the frozen tundra at rapid rates, the Gulfstream shutting down and freezing over Northern Europe, the Amazon rainforest dying off. The short answer is we just don’t — can’t — know with 100 percent certainty when and how these tipping points will, in fact, occur. But there seems to be a lot of evidence that things can go horribly wrong once the planet crosses that 2 degree threshold.

In “Climate Shock,” you write that we need to insure ourselves against climate change. What do you mean by that?

Gernot Wagner: At the end of the day, climate is a risk management problem. It’s the small risk of a huge catastrophe that ultimately ought to drive the final analysis. Averages are bad enough. But those risks — the “tail risks” — are what puts the “shock” into “Climate Shock.”

Martin L. Weitzman: Coming back to your 2 degree question, it’s also important to note that the world has already warmed by around 0.85 degrees since before we started burning coal en masse. So that 2 degree threshold is getting closer and closer. Much too close for comfort.

What do you see happening in Paris right now? What steps are countries taking to combat climate change?

Gernot Wagner: There’s a lot happening — a lot of positive steps being taken. More than 150 countries, including most major emitters, have come to Paris with their plans of action. President Obama, for example, came with overall emissions reductions targets for the U.S. and more concretely, the Clean Power Plan, our nation’s first ever limit on greenhouse gases from the electricity sector. And earlier this year, Chinese President Xi Jinping announced a nation-wide cap on emissions from energy and key industrial sectors commencing in 2017.

It’s equally clear, of course, that we won’t be solving climate change in Paris. The climate negotiations are all about building the right foundation for countries to act and put the right policies in place like the Chinese cap-and-trade system.

How will reigning in greenhouse gases as much President Obama suggests affect our economy? After all, we’re so reliant on fossil fuels.
Gernot Wagner: That’s what makes this problem such a tough one. There are costs. They are real. In some sense, if there weren’t any, we wouldn’t be talking about climate change to begin with. The problem would solve itself. So yes, the Clean Power Plan overall isn’t a free lunch. But the benefits of acting vastly outweigh the costs. That’s what’s important to keep in mind here. There are trade-offs, as there always are in life. But when the benefits of action vastly outweigh the costs, the answer is simple: act. And that’s precisely what Obama is doing here.

And what steps should the countries in Paris this week take to combat climate change?

Martin L. Weitzman: If it were entirely up to me, I would have a very simple solution: negotiate one uniform price on carbon dioxide applicable to everyone. That doesn’t mean some imaginary world government would be in charge — not at all. Every country — every government — can implement their own policy, keep the revenue and decrease taxes elsewhere. But the price is universal across the world.

Gernot Wagner: Pricing carbon, of course, is indeed the answer. It’s the obvious one or at least it should be. Now, the negotiations themselves, of course, are messy, and there currently is no negotiation around a uniform, globally applicable carbon price. Instead, what’s happening is many large countries — the U.S., the EU, and chief among them China — are putting forward internal policies that will put a price on carbon and other greenhouse gases. That’s also where Paris comes in: putting a framework on all these country actions.

Are you hopeful?

Gernot Wagner: I am. The climate problem is, in fact, a lot worse than many people realize. The climate shock is real. But there are solutions. They work. They are getting better and cheaper by the day. And we are largely moving in the right direction.

Martin L. Weitzman: Climate change is an extremely difficult problem to solve, certainly among the most difficult I have seen in my lifetime. But I’m guardedly optimistic, yes.

Gernot Wagner: In the end, it’ll take Washington, Wall Street and Silicon Valley to make this right by pricing carbon, deploying clean technologies at scale and investing in research and development that will lead to new, even cleaner technologies we can’t yet even imagine. A lot is happening on all these fronts. A lot more, of course, needs to be done.

Originally published on the PBS NewsHour Making Sen$e blog, on December 3rd, 2015.

Also posted in 1000 words| Leave a comment

Capping Pollution from Coast to Coast

As the second auction in California’s landmark cap and trade program approaches, a coalition of states on the opposite side of the country – that have been cost-effectively reducing their carbon pollution while saving their consumers money – announced plans to strengthen their emission reduction goals.  Last week, the Regional Greenhouse Gas Initiative (RGGI) – the nation’s first cap and trade program which sets a cap on carbon dioxide pollution from the electric power sector in 9 Northeastern states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont) – released an updated Model Rule containing a number of improvements to the program, primarily a significantly lower (by 45%) overall cap, realigning it with current emissions levels.

Since the program took effect in 2009, emission reductions in the RGGI region have occurred faster and at lower cost than originally expected.  This has primarily been the result of increased electric generation from natural gas and renewables which have displaced more carbon-intensive sources like coal and oil, as well as investments in energy efficiency that lower overall electricity demand.  These reductions have been accompanied by lower electricity prices in the region (down 10% since the program began) and significant economic benefits:  a study from the Analysis Group estimated that electric consumers would save $1.1 billion on their bills over 10 years from the energy efficiency improvements funded by allowance revenue, and further, that these savings would generate over $1.6 billion in economic benefits for the region.

The new lower cap allows RGGI to secure the reductions already achieved, and push forward towards more ambitious pollution reduction goals.  The changes to the program are the result of a transparent and comprehensive program review process set in motion through RGGI’s original Memorandum of Understanding – a mechanism that is successfully fulfilling its original intention by allowing the states to evaluate results and make critical improvements.

While the changes will go a long way to fortify the program, there is room in the future for the RGGI states to look to California’s strong program design for additional enhancements.  For example, RGGI’s updated Model Rule creates a Cost Containment Reserve (CCR) – a fixed quantity of allowances which are made available for sale if allowance prices exceed predefined “trigger prices”.  A CCR is a smart design feature which provides additional flexibility and cost containment – however, RGGI’s CCR allowances are designed to be additional to the cap, rather than carved out from underneath it as in CA’s program (ensuring the overall emission reduction goals will be met).  California’s program has displayed enormous success already, with a strong showing in their first auction.

In the meantime, the RGGI states should be commended for their success thus far, and for their renewed leadership as they take important steps to strengthen the program.  These states have achieved significant reductions in emissions of heat-trapping pollutants at lower costs than originally projected, all while saving their citizens money and stimulating their economies, transitioning their power sector towards cleaner, safer generation sources, and laying a strong foundation for compliance with the Carbon Pollution Standards for power plants being developed under the Clean Air Act.  Such impressive achievements provide a powerful, concrete example of how to tackle harmful carbon pollution and capture the important co-benefits of doing so.

The bottom line is that cap and trade is alive and well on both coasts as the states continue to lead the charge on tackling climate change in the U.S. while delivering clear economic benefits.

Also posted in California, Cap and Trade, Cap and Trade Watch, Clean Air Act, Politics| Leave a comment

Newsflash: Clean Air Act saves lives, boosts GDP

We have sometimes been the bearers of bad news on jobs in the past. Not bad news, really. Realistic news. So excuse me for being a bit giddy at the sight of the latest piece of very realistic—and very good—news.

The EPA just released a new White Paper that turns out to be as green as it is red, white, and blue.

Lives and health at a bargain price

First, it starts with what really matters when considering the impact of the Clean Air Act—health and the corresponding social and economic benefits:

  • 18 million child respiratory illnesses prevented in 1990 alone,
  • 200,000 lives saved that year (160,000 in 2010),
  • total benefits outpacing costs 30:1 since 1990.

These are the key figures we need to keep in mind. Always.

Healthy kids means a healthy workforce

For anyone who isn't yet satisfied but worries about the economic impact of the Clean Air Act, there's more good news:

Protecting children from neurotoxins leads to workers with higher IQs.

That should be an obvious statement. It also turns out to come with real economic benefits. The latest study by Harvard's Dale Jorgenson et al shows that the Clean Air Act has boosted productivity and growth:

GDP in 2010 is 1.5 percent higher than it would have been without the Clean Air Act.

Again, that's GDP. Hard economic growth. The number that measures everything except that which makes life worthwhile.

Clean and competitive

Lastly, the paper concludes with a look at competitiveness concerns. The verdict: the Clean Air Act does not harm competitiveness.

That's not as strong as saying that the Clean Air Act improves U.S. competitiveness. Improving productivity also improves competitiveness, and combining the standard competitiveness arguments with Jorgenson's productivity results may well show that to be the case.

But no one to my knowledge has done that yet credibly. (Of course, I'd love to be proven wrong on that point.) To the full credit of EPA and the credibility of its analysis, the paper does not go that far either.

The White Paper stays well within the mainstream of economic analysis of the Clean Air Act and bears plenty of good news for health, wealth, and the planet.

Read it at your own peril. It may well be the first piece of economic analysis that makes you giddy yourself.

Also posted in Politics, Technology| 1 Response
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