EPA Fails to Correct Flaws in Analysis of Climate Legislation

May 20, 2009

EPA Fails to Correct Flaws in Analysis of Climate Legislation

EPA’s Assumptions Create Grossly Misleading Figures

Washington, D.C.,  - The Environmental Protection Agency has still not addressed concerns that it underestimated the costs of climate change legislation being considered in Congress this week, said Rep. Jim Sensenbrenner, R-Wis., ranking Republican on the House Select Committee on Energy Independence and Global Warming in letters to the EPA and House Energy and Commerce Committee leaders.

In the letters, Sensenbrenner said that the EPA’s revised analysis of the American Clean Energy and Security Act (ACES) of 2009 (H.R. 2454) still didn’t take into account concerns raised this week in a report by the Republican staff of the House Select Committee on Energy Independence and Global Warming. The EPA revised its analysis of ACES after House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., and Energy and Environment Subcommittee Chairman Ed Markey, D-Mass., released a new version of the ACES bill earlier this week.

“The EPA is grossly underestimating the costs of this bill,” Sensenbrenner said.  “The EPA’s original report was rushed, incomplete, and relied on several questionable assumptions provided by the Democratic staff of the House Energy and Commerce Committee. EPA revised its analysis, but didn’t take any of these concerns into account. This analysis is still deeply flawed.”

The Republican staff report highlighted several flaws in the EPA analysis, including:

(1)   EPA’s analysis relied on incorrect offset numbers.  The analysis assumes that covered entities can offset up to 2 billion tons of their annual emissions through projects to reduce emissions outside the scope of the cap.  Neither the draft nor H.R. 2454 allows for offsets that even approach these levels.  In its analysis, EPA wrote, “without international offsets the allowance price would increase 96 percent.”  Further, in EPA’s briefing with Select Committee Republican staff, EPA officials stated that offsets were one of the biggest drivers of compliance costs.  In other words, the offset levels that they relied on were one of the key reasons they were able to estimate such low costs.

(2)   EPA assumed a significantly lower GDP growth rate than the Obama Administration relied on for its recent Budget Blueprint. The lower growth rate leads to a smaller projected economy, and ultimately, lower compliance costs.

(3)   EPA’s analysis did not consider the effects of the draft ACES Act’s Renewable Energy Standard RES).  H.R. 2454 contains numerous provisions that will increase the costs of its implementation.  EPA’s analysis, however, focuses solely on the cap-and-tax provisions.  EPA acknowledged that the RES would have an effect.  In its reply to a letter I sent on April 24, 2009, EPA wrote, “there would be a cost associated with implementing the ACES renewable energy standard.”

(4)   EPA’s assumptions for carbon capture and sequestration (CCS) are unrealistic.  If technological progress does not match EPA’s assumption, consumer costs will increase.  If, as most experts predict, CCS technology develops more slowly than EPA assumes, power plants would have higher emissions and would be required to purchase more allowances.  EPA’s analysis of the Lieberman-Warner Act found that “not allowing CCS until after 2030 increased allowance prices by ~80 percent.”

(5)   EPA’s analysis assumes a nationwide impact.  The actual impacts of the draft ACES Act, however, will be regional. 

(6)   EPA assumes that nuclear energy will increase by 150 percent by 2050.  Given the numerous regulatory hurdles and historic opposition to nuclear power, this increase is optimistic. 

Sensenbrenner sent the letters to Waxman, Markey and House Energy and Commerce Ranking Republican Joe Barton, Texas, and Energy and Commerce Subcommittee Ranking Republican Fred Upton, Mich. He sent a separate letter to EPA Administrator Lisa Jackson. Both letters are below.

 

# # # #

Administrator
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue, N.W.
Washington, DC 20460

Dear Administrator Jackson:

The Environmental Protection Agency’s recent memorandum titled, Ways in Which Revisions to the American Clean Energy and Security Act Change the Projected Economic Impacts of the Bill, concludes that “compared to the draft bill, H.R. 2454 would likely result in lower allowance prices, a smaller impact on energy bills, and a smaller impact on household consumption.” 

I have attached a copy of the Republican Staff’s report.  I would appreciate new analysis of the bill that includes more realistic assumptions and limits the allowable offsets to those provided for in the bill.

Sincerely,
 

F. James Sensenbrenner, Jr. 
Ranking Member
House Select Committee on Energy Independence and Global Warming

cc: Edward Markey, Chairman, Select Committee on Energy Independence and Global Warming 

# # # #

 

May 19, 2009

 

Chairman Waxman                                                     Ranking Member Barton
House Energy and Commerce Committee                 House Energy and Commerce Committee
2125 Rayburn House Office Building                         2322-A Rayburn House Office Building
Washington, DC 20515                                              Washington, DC 20515

Chairman Markey                                                        Ranking Member Upton
Subcommittee on Energy and the Environment               Subcommittee on Energy and the Environment
2125 Rayburn House Office Building                        2322-A Rayburn House Office Building
Washington, DC 20515                                             Washington, DC 20515

 

I want to call your attention to a Report by the Republican staff of the Select Committee on Energy Independence and Global Warming, which found that EPA drastically underestimated the costs associated with the ACES draft.  Many, if not all, of these concerns are still valid with regard to H.R. 2454, the ACES Act as introduced.

To summarize, the report found:

(1)   EPA’s analysis relied on incorrect offset numbers.  The analysis assumes that covered entities can offset up to 2 billion tons of their annual emissions through projects to reduce emissions outside the scope of the cap.  Neither the draft nor H.R. 2454 allows for offsets that even approach these levels.  In its analysis, EPA wrote, “[w]ithout international offsets the allowance price would increase 96 percent.”  Further, in EPA’s briefing with Select Committee Republican staff, EPA officials stated that offsets were one of the biggest drivers of compliance costs.  In other words, the offset levels that they relied on were one of the key reasons they were able to estimate such low costs.

(2)   EPA assumed a significantly lower GDP growth rate than the Obama Administration relied on for its recent Budget Blueprint. The lower growth rate leads to a smaller projected economy, and ultimately, lower compliance costs.

(3)   EPA’s analysis did not consider the effects of the draft ACES Act’s Renewable Energy Standard RES).  H.R. 2454 contains numerous provisions that will increase the costs of its implementation.  EPA’s analysis, however, focuses solely on the cap-and-tax provisions.  EPA acknowledged that the RES would have an effect.  In its reply to a letter I sent on April 24, 2009, EPA wrote, “[t]here would be a cost associated with implementing the ACES renewable energy standard.”

(4)  EPA’s assumptions for carbon capture and sequestration (CCS) are unrealistic.  If technological progress does not match EPA’s assumption, consumer costs will increase.  If, as most experts predict, CCS technology develops more slowly than EPA assumes, power plants would have higher emissions and would be required to purchase more allowances.  EPA’s analysis of the Lieberman-Warner Act found that “not allowing CCS until after 2030 increased allowance prices by ~80%.”

(5) EPA’s analysis assumes a nationwide impact.  The actual impacts of the draft ACES Act, however, will be regional. 

(6) EPA assumes that nuclear energy will increase by 150% by 2050.  Given the numerous regulatory hurdles and historic opposition to nuclear power, this increase is optimistic. 

I have attached a copy of the report for your reference.

Sincerely,

 

F. James Sensenbrenner, Jr.
Ranking Member
House Select Committee on Energy Independence and Global Warming

# # # #


Select Committee on Energy Independence and Global Warming - Republicans
H2-344 Ford House Office Building
Washington, D.C. 20515
Phone: (202) 225-0110 | Fax: (202) 225-0095

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