No, Obama’s Climate Plan Is Not a National Energy Tax

But EPA admits that consumers and businesses will pay higher power bills — initially.

PALO ALTO, CA -JULY 12: Power line towers are shown July 12, 2002 in Palo Alto, California. The Federal Energy Regulatory Commission boosted the maximum price of electricity from $55.26 per megawatt hour to $91.87 in the wake of record-breaking temperatures for the week, including 112 degrees in Redding, California today. One megawatt is enough to power about 750 homes. 
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Ben Geman
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Ben Geman
June 3, 2014, 10:31 a.m.

Seni­or Re­pub­lic­ans are ac­cus­ing Pres­id­ent Obama of push­ing a “Na­tion­al En­ergy Tax” with pro­posed new EPA rules to cut power plants’ car­bon pol­lu­tion.

That’s non­sense — or at least a tre­mend­ous stretch of the truth: The plan wouldn’t cre­ate, raise, or cut any taxes. Only Con­gress can do that.

In­stead, EPA’s plan would force states to lower the car­bon emis­sions from their power plants, of­fer­ing states and power com­pan­ies a menu of op­tions for reach­ing their state-spe­cif­ic tar­gets. In total, the draft reg­u­la­tion is aimed at cut­ting na­tion­wide power-plant emis­sions by 30 per­cent by 2030 com­pared with 2005 levels.

To do so, EPA of­fers states op­tions in­clud­ing use of more nat­ur­al gas and re­new­ables to dis­place coal-fired power gen­er­a­tion; im­ple­ment­ing con­sumer en­ergy-con­ser­va­tion pro­grams; mak­ing coal plants more ef­fi­cient; and us­ing state and re­gion­al cap-and-trade pro­grams to achieve these ends. EPA also said Monday that states in the­ory could use a state-level car­bon tax as a way to com­ply — but on a na­tion­al level, there’s not a tax to be found.

But the “na­tion­al en­ergy tax” charge does get at some of the cent­ral ques­tions of the white-hot lob­by­ing fight over the rule: Will the plan make elec­tri­city more ex­pens­ive and cost con­sumers more in en­ergy bills?

Here’s a look at what the pock­et­book fight is about.

Will The EPA Plan Make Elec­tri­city More Ex­pens­ive?

Yes.

That will hap­pen as the na­tion’s power gen­er­a­tion is shoved fur­ther away from coal to­ward lower-car­bon and zero-car­bon sources.

EPA’s fore­casts say as much. The agency pre­dicts that re­tail elec­tri­city costs will rise un­der the reg­u­la­tion.

Un­der EPA’s fore­cast, re­tail power costs in the lower 48 states would be 6 to 7 per­cent high­er in 2020, and roughly 3 per­cent high­er in 2030 com­pared to where they’d be without the rule. (The pro­jec­ted changes also vary a lot by re­gion. (See for your­self on pages 129-131 of EPA’s ana­lys­is here.)

That Means Monthly Power Bills Will Rise, Right?

That’s trick­i­er. EPA’s an­swer to that ques­tion is: “Yes and no.” Ac­tu­ally it’s: “Yes, and then no.”

The agency ar­gues that states’ and power com­pan­ies’ use of en­ergy-ef­fi­ciency ini­ti­at­ives to help com­ply with the rule will help con­sumers use less en­ergy. So even if power prices are high­er, that would be more than off­set by lower power use, and bills will fall — even­tu­ally.

EPA pre­dicts that the rule would push av­er­age monthly power bills 3 per­cent high­er in 2020 com­pared with what they’d oth­er­wise be.

But even­tu­ally ef­fi­ciency in­vest­ments bear fruit, so EPA fore­casts that the na­tion­al av­er­age monthly util­ity bills for house­holds, busi­ness, and in­dus­tri­al cus­tom­ers would be around 8 or 9 per­cent lower in 2030.

“This is a res­ult of the in­creas­ing pen­et­ra­tion of de­mand-side pro­grams that more than off­set in­creased prices to end users by their ex­pec­ted sav­ings from re­duced elec­tri­city use,” the rule states.

In an in­ter­view with PBS that aired Monday even­ing, EPA Ad­min­is­trat­or Gina Mc­Carthy ac­know­ledges there would be a “short-term hit” to con­sumers. But she then noted it “all de­pends what states want to do.”

“They can look at de­vel­op­ing ef­fi­ciency pro­grams that will re­duce de­mand, and in fact we see that as the most cost-ef­fect­ive strategy for most states, so by 2030 we are ac­tu­ally look­ing at elec­tri­city bills for fam­il­ies go­ing down by 8 per­cent. There is a short in­vest­ment op­por­tun­ity where bills could go up a slight amount, but that’s nor­mal fluc­tu­ations of bills we see every day,” Mc­Carthy said.

Does Every­one Buy EPA’s Ar­gu­ment?

Not at all. In­dustry of­fi­cials con­test EPA claims that the reg­u­la­tion will ul­ti­mately lower power bills for house­holds and busi­nesses for sev­er­al reas­ons.

Jeff Holmstead, who rep­res­ents power com­pan­ies at the lob­by­ing and law firm Bracewell & Gi­uliani, said on NPR’s The Di­ane Rehm Show on Tues­day that us­ing more “real­ist­ic” mod­el­ling as­sump­tions would show great­er in­creases in power rates than EPA pro­jects.

Matt Le­tourneau of the U.S. Cham­ber of Com­merce said the group ques­tions EPA’s views and as­sump­tions on ef­fi­ciency gains that EPA be­lieves will en­able power bills to fall even as power rates in­crease.

He ar­gues that EPA’s tar­get of states reach­ing 1.5 per­cent in an­nu­al elec­tri­city sav­ings is “very, very op­tim­ist­ic.”

“They rely on na­tion­wide ef­fi­ciency gains that ex­ceed what we think is pos­sible,” said Le­tourneau, the com­mu­nic­a­tions dir­ect­or for the Cham­ber’s In­sti­tute for 21st Cen­tury En­ergy.

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