Beware dire predictions on Obama's war on coal

July 3, 2013: 1:59 PM ET
NEW YORK (CNNMoney)

When President Obama announced steps to rein in greenhouse gases last week, the condemnation was swift and fierce.

"It is astonishing that President Obama is unilaterally imposing new regulations that will cost jobs and increase energy prices," House Speaker John Boehner said of Obama's plan, which would heavily target emissions from coal-fired power plants.

How steep of a cost do critics fear? Some 500,000 jobs lost and $1.65 trillion shaved off the national income by 2030 if all coal plants have to close, according to a Heritage Foundation report released the day after Obama announced his plan.

Yet there's reason to doubt these and similarly dire predictions.

Related: Global CO2 emissions at record high in 2012

Environmental clean up is a difficult thing to measure. Early estimates on how much it would cost to clean air or water have often turned out to be way off.

The debate over acid rain is a good example. In the late 1980s, the nation was considering tough new rules on coal-fired power plants and other industrial emitters to curb what was then a major problem.

The Environmental Protection Agency estimated the new rules would total $6 billion in both retrofit costs and in knock-on effects to the economy -- such as higher energy prices that cause manufactures to set up shop elsewhere -- according to Robert Stavins, director of the Environmental Economics Program at Harvard University. Some industry estimates had the cost as high as $8 billion.

Actual cost? About $1 billion.

"Some of these projections do come from parties that have an interest, and they are going to use the highest estimates," said Stavins. "Then there's technological change that brings down costs."

A similar thing happened with rules that took lead out of gasoline and ozone-depleting CFCs out of refrigerants.

On cost projections studied for 25 environmental regulations by economists at the research group Resources for the Future, two underestimated the cost, five got it right, six were inconclusive, and 12 -- nearly half -- overestimated how much the rules would cost to implement.

But Heritage's David Kreutzer, one of the economists that wrote the report, argues that historically, not all environmental regulations end up being cheaper than predicted.

Related: Coal companies hit by oversupply, Obama

Another reason environmental regulations are notoriously difficult to predict is that technological advancement and innovations like carbon trading can lower costs significantly.

"There's good reason to be skeptical of predictions of economic catastrophe from climate regulation," said Pete Nelson, a spokesman at Resources for the Future. "The evidence shows that industry and the regulatory system have the ability to adapt and respond in ways that lower the cost of compliance."

Key to lowering costs is designing regulations that are flexible and market based, said Dallas Burtraw, a researcher at RFF. Broad rules that allow companies to trade credits among themselves and average in savings among their entire line of operations tend to foster innovation and end up being far cheaper than specific directives from regulators.

When Obama issued his order last week, he instructed the EPA to use market-based mechanisms as much as possible.

But while early estimates may prove to be high, cutting greenhouse gases will certainly not be cheap. A program that targets carbon dioxide emissions is much broader in scope than the ones that went after acid rain, CFC's, or probably any other pollutant.

Burtraw thinks coal plants will still be around 20 years from now, just using more advanced technology that is not economical yet, to capture carbon emissions. In its study, Heritage Foundation assumes coal will be totally phased out -- an assumption that's not out of the realm of possibility.

Still, there's ample reason not to take the most alarming numbers at face value.

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