RL33165 - Costs and Benefits of Clear Skies: EPA's Analysis of Multi-Pollutant Clean Air Bills
23-Nov-2005; James E. McCarthy and Larry B. Parker; 19 p.
Abstract: The electric utility industry is a major source of air pollution, particularly sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury (Hg), as well as suspected greenhouse gases, particularly carbon dioxide (CO2). On October 27, 2005, the Environmental Protection Agency (EPA) released a long-awaited analysis comparing the costs and benefits of alternative approaches to controlling this pollution. The alternative schemes focus on using market-oriented mechanisms directed at multiple pollutants to achieve health and environmental goals. The new analysis compares four versions of the Administration-based “Clear Skies” proposal to bills introduced by Senator Jeffords (S. 150) and Senator Carper (S. 843 of the 108th Congress), which would impose more stringent requirements.
This report, which will not be updated, examines EPA's analysis and adjusts some of its assumptions to reflect current regulations. The most important adjustment is the choice of baseline. The agency’s analysis assumes as a baseline that, in the absence of new federal legislation, EPA and the states will take no additional action to control SO2, NOx, Hg, or CO2 emissions beyond those actions finalized by mid-2004. This baseline is put forth despite three rules recently promulgated by EPA that limit SO2, NOx, and Hg emissions on a timeframe similar to that proposed by the Clear Skies legislation.
CRS reexamines EPA's data, producing cost and benefit estimates for each bill incremental to the costs and benefits of current law and promulgated regulations. The reanalysis finds that Clear Skies would have negligible incremental costs and added benefits of $6 billion in 2010 and $3 billion in 2020. For the same years, S. 843 would have annual net benefits 8 and 5 times as great as Clear Skies at annual costs of $4.2 billion and $3 billion, and S. 150 would have annual net benefits 10 and 16 times those of Clear Skies at annual costs of $23.6 billion and $18.1 billion.
EPA conducted limited sensitivity analyses to examine the effect on cost of select combinations of assumptions, including (1) the responsiveness of electricity demand to changes in price; (2) the availability of skilled labor to install control equipment; and (3) the growth of electricity demand and natural gas prices. However, some potentially useful combinations of assumptions were not examined. For example, if EPA had combined a relaxed skilled labor constraint with some responsiveness of electricity demand to changes in price, the cost of S. 150 and S. 843 would be substantially reduced. CRS also concluded that the Hg control costs used in the analysis may be substantially overstated because of dated assumptions.
Numerous benefits were not estimated by EPA, partly because of
methodological difficulties. Benefits not estimated include the environmental (as
opposed to health) benefits of controlling the pollutants; the health effects of mercury
control; and any benefits from controlling CO2 emissions. Thus, even though
benefits exceeded costs for each of the options in both EPA's and our analysis, one
should perhaps view the benefit estimates as a floor rather than a best estimate,
particularly for S. 150 and S. 843, which include significant Hg and CO2 reductions. [read report]