Clean Power Plan

RFF's Linn discusses new economic analysis of court stay

A new Resources for the Future economic analysis of the Supreme Court's stay of the Clean Power Plan considers the impacts of implementation during the stay on the coal industry. During today's OnPoint, Joshua Linn, senior fellow at Resources for the Future, explains why he believes claims of irreparable harm to the coal sector during litigation are unsubstantiated. Linn also says the coal industry could see some economic recovery if the rule is overturned.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Joshua Linn, senior fellow at Resources for the Future. Josh, thank you for joining me.

Joshua Linn: Thanks for having me.

Monica Trauzzi: So, Josh, you've co-authored a new economic analysis of the Supreme Court stay of the Clean Power Plan and its implications. You believe that one of two conditions for the stay has potentially not been met. Explain the reasoning and the framework you used for the analysis.

Joshua Linn: Sure. Happy to. So first of all, following the Supreme Court stay, there were a lot of discussion about, sort of legal aspects of this action, why did they do it, how unusual or unexpected was this and what are the implications. Missing from that discussion, we thought, was a sort of an economic analysis, since one of the major arguments was made was that there would be a potential, large -- very large and irreparable harm to the coal sector immediately during the period of litigation. And so that was the claims being made to support the stay.

Now, we, in thinking through this, what -- under what conditions would it actually make sense or might there be large harm to the coal sector, and really we want to separate sort of two aspects of the problem. One is sort of what's the magnitude of the costs to the coal sector, and the other is what's the timing of those costs. And so our assessment of the magnitude of the costs, really need to think about the context of the Clean Power Plan and how it fits in with the path that we're on in the electric power sector already, and there is a sort of convergence of factors including market forces like low natural gas prices, innovation for wind and solar, policies supporting renewables. You know, a whole bunch of influences that are leading us to generate less of our power from coal and more from other sources, and that's reducing emissions -- carbon emissions as a result.

So, we're on this path and the Clean Power Plan, given the timing of the deadlines and the magnitude of the deadlines, it's furthering us down this path of reducing emissions. And as a result, we would expect to see major changes happening, major changes and reductions not until the middle of the next decade. And so, when we think about what are the magnitude and timing of the costs, the cost to the coal sector could be substantial, right. I mean, we're expecting a further shift away from coal, but we don't expect this to happen until eight or 10 years from now.

Monica Trauzzi: So did the court make a mistake?

Joshua Linn: So, we look at one particular argument that was made in support of the stay. The Supreme Court did not say why they were issuing the stay. There are other arguments about cost estates and things like that. When we look at the arguments around the harms to the coal sector, including coal-fired plants, coal mines, coal workers and associated economies, we don't find any support for those claims.

Monica Trauzzi: Many states have halted their planning on the rule pending litigation, and you contend that if implementation of the rule proceeds, industry should still be able to follow the current compliance schedule, which is pretty tight if you consider how late in the game that might be once litigation is over. What about the states, though, who actually have to come up with the compliance mechanisms?

Joshua Linn: Right. So there are two separate questions about, one is sort of the timeline states are under and sort of their deadlines they have for submitting plans and putting together a plan to meet their emissions reductions. And then there's a second question of, how are the electricity generators and how are the utilities and the power sector, how are they going to meet and comply with those plans. And so, there's a particular schedule for the states to come up with their plans and, as I mentioned, there has been a fair bit of momentum for states to sort of work together and try to coordinate their actions, and there can be great benefits of setting up market-based programs and coordinating action among states, can generate some real cost savings. Then when states sort of come up with those plans then, it's up to the power sector to start reducing emissions, and those emissions reductions, even if the courts reach their final decisions next year or even early 2018, given the trends that we're on, the actual emission reductions that would have to start in the mid-2020s are just not all that great and are things that can be achieved by using more of existing technologies, more of a shift from coal to gas.

Monica Trauzzi: The coal industry would say that bankruptcies and the overall market slowdown has come in part due to the knowledge of pending regulations, even if those regulations are currently not in place. Does uncertainty itself hurt the industry?

Joshua Linn: So, in our paper, we emphasize the sort of convergence of these trends and forces that are, no doubt, affecting the coal sector and really are contributing to the -- and causing these shutdowns, these bankruptcies, and so there's no question that that's going on. And there's also no question that the Clean Power Plan sort of adds to the pressure on the coal sector. The question at hand in sort of thinking about the stay is, how much pressure is the Clean Power Plan putting on individual businesses and when would that pressure occur. And our argument is that there will be some pressure and it will occur in the mid-2020s. Now, how they deal with the uncertainty around the litigation is basic, sort of standard economic theory would say that any business that faces uncertainty ought to delay decisions until after that uncertainty -- after you learn something. And in this case, there's a lot that's going to be learned once their courts reach their final decisions. And so there's every reason in the world to delay any decisions that you're going to make until after that litigation is done and therefore, that's another reason sort of supporting this conclusion that they're not going to do anything that they can't undo in this time period now because they're going to want to wait until they see what happens, see what the courts decide and then make their decision.

Monica Trauzzi: I recently interviewed West Virginia Attorney General Patrick Morrisey, who is leading the state lawsuit against EPA on the power plan, and he believes that though coal jobs might not be on the same level as in the past because of the market slowdown, some damage to the coal economy could be reversed if the rule were to be struck down. Do you think that the coal industry could in some way recover if we see the rule struck down?

Joshua Linn: You know, as I see it, there are these major forces in the power sector that I mentioned that are putting a lot of pressure on the coal sector. And so if you take out one of those pressure points, take out the Clean Power Plan, I would expect to see sort of a bit of an increase in the amount of coal that's used for generation, production from coal mines. But we're talking about sort of a shift off of a downward trend in the sector that's coming about for other reasons, right, for low natural gas prices, innovation in renewables, other environmental regulations besides the Clean Power Plan.

Monica Trauzzi: All right, we will end it right there. Thank you so much for coming on the show.

Joshua Linn: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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