The climate legislation that awaits passage in the House will raise the cost of electricity as new sources displace coal-fired plants, the worst greenhouse gas offender.
But by how much is impossible to say, according to experts. There are too many critical unknowns in the equation, from the amount of forest land in developing nations that the United States can ransom from clear-cutting to the costs and timing of massive investments to capture and store coal-fired power plant carbon emissions.
In the past weeks, as the House neared a vote on the climate bill sponsored by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.), a fusillade of computer models and studies have been fired into the scuffle by opposing sides, obscuring rather than clarifying the debate.
The Congressional Budget Office issued a forecast that the Waxman-Markey legislation would cost the average U.S. household $175 in higher energy costs in 2020. American Petroleum Institute President Jack Gerard called that another "rosy scenario" yesterday, and put the bill's cost at least $3,300 per family, including a projected impact on the overall economy. The Natural Resources Defense Council said API was lying.
Back came the American Council for an Energy Efficient Economy with its assessment that the Waxman-Markey bill and this year's stimulus legislation will spur energy conservation and efficiency, lowering household energy costs by an average of $4,400 by 2030.
"It's quite a quagmire now," said Tom Wilson, manager of climate programs for EPRI, the Electric Power Research Institute.
Wilson was a commentator on an EPRI-sponsored roundtable last year on an earlier round of quarreling climate cost models put forward by CRA International, U.S. EPA, the Energy Information Administration, the Clean Air Task Force and the American Council on Capital Formation.
Questioning forest offsets
The problem was not the models. "None are great predictors," Wilson concluded at the time, but all were credible. Their differences resulted either from true uncertainties or the assumptions chosen by the organizations that produced the estimates.
John Sterman, a Massachusetts Institute of Technology professor who directs an MIT program on systems analysis, said the climate debate is clouded and undermined by the way many climate models are used. Sterman spoke at a recent conference on climate analysis at the Woodrow Wilson International Center for Scholars.
Without specifying which models he was referring to, Sterman said, "most of the time models are used in the protective mode. They are used to prove a preselected point, keep your assumptions hidden, use the data that only buttresses your position and cover up everything else.
"That does not work. It seems like it works in the short run," he added. "Ultimately it leads to chaos." Sterman said the MIT model, and the assumptions behind it, are open to view.
CRA International, in a report last month commissioned by the National Black Chamber of Commerce, said the bill would reduce an average household's budget by between $600 and $1,600 a year in 2020.
"This is the kind of unavoidable uncertainty about impacts" that policymakers face, CRA said.
The high price in CRA's model assumes that international carbon emission credits or offsets -- a crucial part of the Waxman-Markey legislation -- will not be available.
"In fact, they can't do it," said CRA Vice President W. David Montgomery. "We're talking about countries in Latin America, Africa and Indonesia, where we're seeing tremendous amounts of deforestation occurring." These countries typically lack well-defined property rights in forests and in some cases have a limited ability to control what happens there, he said.
'Dartboard projections' on carbon capture
Low estimates of the climate legislation's economic impact assume that U.S. factories and power plants can make payments to foreign governments to stop deforestation in designated areas, and that these international offset payments will prove to be a lot cheaper than building new nuclear plants or capturing and sequestering carbon from coal-fired plants to meet carbon limits.
It is going to take some nations a lot more than money, Montgomery said. "In some of them, it takes a very big army," he added.
But other analysts could reach a very different view about the likelihood that deforestation policies can succeed over the next decade or two.
CRA's high price is linked to its assumption that lowering carbon emissions will require a massive deployment of carbon capture and sequestration, Montgomery said. Wilson said that CRA's price of carbon capture is twice that of EIA's. Most experts agree that the possibilities of carbon capture, and the costs if it proves possible, are still dartboard projections.
CRA's analysis assumes that wind power, both on- and off-shore, triples between 2010 and 2030 -- and then does not increase at all -- an assumption wind power advocates would not accept.
The American Petroleum Institute study also assumes that no international offsets will be available, said senior economic adviser Russell Jones. API used a Congressional Budget Office projection that says without international offsets, the price of carbon emission permits in the Waxman-Markey bill would soar from $26 a ton of carbon dioxide equivalent in 2019 to $86, he said. That causes the household impact to quadruple.
API also assumes that the free carbon emission allowances that the bill grants to businesses and governments will not be shared with consumers. The Edison Electric Institute, in supporting Waxman-Markey, says the legislation is designed to channel those savings to utility customers.
Calculating the benefits of conservation
The American Council for an Energy Efficient Economy says that high-cost scenarios are short-changing the impact of energy efficiency programs that can shave the demand for high-cost peak power during summer heat waves. An expansion of demand management and efficiency programs would limit the number of future power plants that will be required and reduce the use of the most expensive plants, said ACEE's Rachel Gold.
ACCEE's projection has assumptions on how federal grants to states and local governments will be spent, to favor investments in efficiency over investments in renewable energy.
"A range [of estimates] would definitely be a more accurate way of presenting this," Gold said. "But depicting a range would be particularly difficult," she said. And ACEEE was in a hurry to get its story out with the others.
The benefits of conservation and efficiency may be substantial. The Brattle Group co-authored a recent study for the Federal Energy Regulatory Commission that estimated peak demand for electricity could be reduced by 5 percent in 2019, compared to current trends, using what it says are conservative assumptions about a nationwide expansion of demand management policies by utilities and a partial installation of advanced meters that incentivize customers to conserve electricity when it is most expensive. An "achievable" scenario for demand management could knock peak demand down by nearly 10 percent in 2019, compared to current trends.
In a separate study, Brattle estimated that a 5 percent reduction in peak demand would be worth $66 billion over 20 years. If peak demand could be cut by 25 percent over two decades, the savings would come to an estimated $322 billion, said Brattle Group principal Ahmad Faruqui.
But that analysis appeals more to one side of the debate than the other.
'Make them use better numbers'
The Waxman-Markey bill "is free -- or it costs two arms and a leg," API's Jones said. "We need to better understand how this all fits together."
Most of the studies look only at the costs of new climate legislation. "The costs of reducing emissions should be considered along with the costs of inaction," advised a Rand Corp. report last year.
Howard Gruenspecht, acting administrator of the Energy Information Administration, said his department will soon produce its estimate of the costs of the new climate legislation. "One of the important things we can tell them is how these different uncertainties affect outcomes. That's one of the things we plan to include in our report."
Nick Mabey, a former senior adviser to the British prime minister's strategic planning unit, told the Woodrow Wilson Center conference that politicians will use the numbers that support their position. He quoted British economist John Maynard Keynes: "'There is nothing a government hates more than to be well-informed; for it makes the process of arriving at decisions much more complicated and difficult.'"
"If you don't want them to use bad numbers, you've got to make them use better numbers," Mabey said. "If you do it right, you construct a way to work through the uncertainties in a way that's meaningful. Keep it grounded in best available science and expert knowledge. ... Otherwise, it's just advocacy."