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Energy and Consumer Impacts of EPA146s Clean Power Plan


In November 2015 NERA prepared a report Energy and Consumer Impacts of EPA146s Clean Power Plan CPP on behalf of the American Coalition for Clean Coal Electricity The report estimated the economic imp

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Document on Subject : "Energy and Consumer Impacts of EPA146s Clean Power Plan"— Transcript:

1 Energy and Consumer Impacts of EPA’
Energy and Consumer Impacts of EPA’s Clean Power Plan In November 2015, NERA prepared a report, Energy and Consumer Impacts of EPA’s Clean Power Plan (CPP), on behalf of the American Coalition for Clean Coal Electricity. The report estimated the economic impacts of various implementations of the final CPP (published in the Federal Register in October 2015). This fact sheet describes seceral factors that are important to evaluating the quality and integrity of the NERA analysis. NERA has extensive experience and technical expertise in the use of economic models to estimate the economic impacts of major public policies. Evaluations of the quality and technical consideration of three key sets of attributes: 1. Model methodology . The model’s solution logic (its “methodology”) should be widely accepted within the community of modeling professionals for the type of regulation or policy change being evaluated. 2. Model assumptions . The model’s assumptions should come from reliable sources and, as a set, be mutually consistent with each other. 3. Model reported results . The measures of economic to each affected group, rather than provide a partial estimate that could be misleading. NERA’s November 2015 analysis of the final CPP met each of these three criteria. NERA’s model (N ew ERA) is a state-of-the-art methodology for CO 2 policy analysis. • N ew ERA is a computable general equilibrium (CGE) macroeconomic model integrated with a detailed, unit-level electricity sector model that estimates electricity sector operational and investment decisions simultaneously and consistent with macroeconomic conditions. • Anintegrated ew ERA is appropriate for analysis of the CPP because it captures two important elements of that policy: (1) the detailed effects that the policy can have on the electric sector and (2) the ways that electricity sector costs ripple through the rest of the economy. • Recognizingtheimportanceofsuchanintegrated modeling framework, researchers at MIT and Electric Power Research Institute have now implemented similar methodology in their own preferred models for CO 2 policy analyses. • N ew ERA is publicly documented, has been the topic of papers in peer-reviewed journals, and Fact Sheet NERA’s Economic Impact Modeling of the Clean Power Plan has been subjected to multiple reviews through ongoing participation in Stanford University’s Energy Modeling Forum. NERA used a “gold standard” source for the baseline modeling assumptions in the CPP Report. • NERAsourcedthevastmajorityoftheassumptions within N ew ERA from annual projections provided by the US Energy Information Administration (EIA). » The EIA was established in the 1970s as the single federal government authority for energy information. By law, EIA is independent from the rest of the federal government with respect to the contents of its studies and analyses . • Eachyear,theEIAproducesthe Annual Energy Outlook (AEO), which provides “ internally consistent assumptions about key sources of uncertainty ” that serve as a reliable and mutually consistent independent source of input assumptions for energy economic models. » Assumptions drawn from the AEO results are preferred because they are based on consistent economic and policy conditions (as opposed to studies that draw assumptions from different sources with different underlying conditions). • BecausetheEIAhadnotprovidedassumptionsabout additional amounts of energy efficiency potential beyond the amount already built into its baseline forecast, our CPP analysis used EPA’s estimates for first- year cost and quantity of energy efficiency. We did not adopt EPA’s assumption that these costs decrease as more of the efficiency potential is adopted—instead, we assume the costs are constant—because of the uncertainty cited by EPA in its own review of the evidence (see EPA’s Demand-Side Energy Efficiency Technical Support Document ) and because of the inconsistency of EPA’s assumption with standard economic logic regarding increasing marginal costs. • Additionalinformationontheassumptionsunderlying NERA’s November 2015 analysis of the final CPP can be found in Testimony of Anne E. Smith, Ph.D. to the Committee on Science, Space, and Technology, United States House of Representatives, 18 November 2015 . NERA’s report provides impact estimates that are comprehensive for key affected groups. • NERA’sstudyreportsmultiplepolicy-relevantresults, including impacts on US consumption, energy sector expenditure, retail electricity rates, natural gas prices, electricity capacity and generation, and power sector CO 2 emissions. • USconsumptioncapturesallcostsborneby households, including effects on electricity bills and energy efficiency investments paid for directly by consumers. It is thus a more complete measure of consumer impacts than just electricity bills. • Incrementalenergysectorexpenditurecapturesall costs borne by the electricity sector and is thus the most complete measure of impact to the sector directly affected by the CPP. • Theothermarketimpactsprovideusefulinformation explaining the comprehensive impacts. Power sector CO 2 emissions indicate the CPP’s effectiveness. NERA’s study of the energy and consumer impacts of EPA’s CPP meets all three important criteria for a sound empirical study: (1) N ew ERA is a technically-appropriate model for investigating the CPP’s economic impacts; (2) the assumptions underlying NERA’s CPP analysis reflect the best-available integrated set of assumptions, sourced from an independent US government agency that develops authoritative energy information; and (3) NERA presented impact measures accounting for full costs to key affected groups, including the energy sector and US consumers. About NERA NERA Economic Consulting ( www.nera.com ) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific. has been subjected to multiple reviews through ongoing participation in Stanford University’s Energy Modeling Forum.NERA used a “gold standard” source for the • NERA sourced the vast majority of the assumptions within NERA from annual projections provided by the US Energy Information Administration (EIA). he EIA was established in the 1970s as the single federal government authority for energy information. By law, EIA is independent from the rest of the federal government with respect to the contents of its studies and analyses • Each year, the EIA produces the Annual Energy Outlook(AEO), which provides “internally consistent assumptions about key sources of uncertainty” that serve as a reliable and mutually consistent independent source of input assumptions for energy economic models. ssumptions drawn from the AEO results are preferred because they are based on consistent economic and policy conditions (as opposed to studies that draw assumptions from different sources with different underlying conditions). • Because the EIA had not provided assumptions about additional amounts of energy efficiency potential beyond the amount already built into its baseline forecast, our CPP analysis used EPA’s estimates for first-year cost and quantity of energy efficiency. We did not adopt EPA’s assumption that these costs decrease as more of the efficiency potential is adopted—instead, we assume the costs are constant—because of the uncertainty cited by EPA in its own review of the evidence (see EPA’s Demand-Side Energy Efficiency Technical Support Document) and because of the inconsistency of EPA’s assumption with standard economic logic regarding increasing marginal costs. • Additional information on the assumptions underlying NERA’s November 2015 analysis of the final CPP can be found in Testimony of Anne E. Smith, Ph.D. to the Committee on Science, Space, and Technology, United States House of Representatives, 18 November 2015NERA’s report provides impact estimates that are comprehensive for key affected groups. • NERA’s study reports multiple policy-relevant results, including impacts on US consumption, energy sector expenditure, retail electricity rates, natural gas prices, electricity capacity and generation, and power sector emissions. • US consumption captures all costs borne by households, including effects on electricity bills and energy efficiency investments paid for directly by consumers. It is thus a more complete measure of consumer impacts than just electricity bills. • Incremental energy sector expenditure captures all costs borne by the electricity sector and is thus the most complete measure of impact to the sector directly affected by the CPP. • The other market impacts provide useful information explaining the comprehensive impacts. Power sector emissions indicate t

2 he CPP’s effectiveness.NERA’s
he CPP’s effectiveness.NERA’s study of the energy and consumer impacts of EPA’s CPP meets all three important criteria for a sound empirical study: (1) NERA is a technically-appropriate model for investigating the CPP’s economic impacts; (2) the assumptions underlying NERA’s CPP analysis reflect the best-available integrated set of assumptions, sourced from an independent US government agency that develops authoritative energy information; and (3) NERA presented impact measures accounting for full costs to key affected groups, including the energy sector and US consumers.About NERANERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific. Energy and Consumer Impacts of EPA’s Clean Power PlanIn November 2015, NERA prepared a report, Energy and Consumer Impacts of EPA’s Clean Power Plan (CPP), on behalf of the American Coalition for Clean Coal Electricity. The report estimated the economic impacts of various implementations of the final CPP (published in the Federal Register in October 2015). This fact sheet describes seeral factors that are important to evaluating the quality and integrity of the NERA analysis.NERA has extensive experience and technical expertise in the use of economic models to estimate the economic impacts of major public policies. Evaluations of the quality and technical credibility of a modeling analysis should be based on the consideration of three key sets of attributes: 1. Model methodology. The model’s solution logic (its “methodology”) should be widely accepted within the community of modeling professionals for the type of regulation or policy change being evaluated. 2. Model assumptions. The model’s assumptions should come from reliable sources and, as a set, be mutually consistent with each other. 3. Model reported results. The measures of economic impact that are reported should represent the full impact to each affected group, rather than provide a partial estimate that could be misleading.NERA’s November 2015 analysis of the final CPP met each of these three criteria.NERA’s model (Nmethodology for CO• NERA is a computable general equilibrium (CGE) macroeconomic model integrated with a detailed, unit-level electricity sector model that estimates electricity sector operational and investment decisions simultaneously and consistent with macroeconomic conditions. • An integrated model such as ERA is appropriate for analysis of the CPP because it captures two important elements of that policy: (1) the detailed effects that the policy can have on the electric sector and (2) the ways that electricity sector costs ripple through the rest of the economy. • Recognizing the importance of such an integrated modeling framework, researchers at MIT and Electric Power Research Institute have now implemented similar methodology in their own preferred models for CO policy analyses.• NERA is publicly documented, has been the topic of papers in peer-reviewed journals, and Fact Sheet NERA’s Economic Impact Modeling of the Clean Power Plan has been subjected to multiple reviews through ongoing participation in Stanford University’s Energy Modeling Forum.NERA used a “gold standard” source for the •NERA sourced the vast majority of the assumptions within NERA from annual projections provided by theUS Energy Information Administration (EIA). The EIA was established in the 1970s as the single federal government authority for energy information.By law, EIA is independent from the rest of the federalgovernment with respect to the contents of its studiesand analyses •Each year, the EIA produces the Annual Energy Outlook AEO), which provides “internally consistent assumptionsabout key sources of uncertainty” that serve as a reliableand mutually consistent independent source of inputassumptions for energy economic models. Assumptions drawn from the AEO results are preferred because they are based on consistent economic andpolicy conditions (as opposed to studies that drawassumptions from different sources with differentunderlying conditions). •Because the EIA had not provided assumptions about additional amounts of energy efficiency potentialbeyond the amount already built into its baselineforecast, our CPP analysis used EPA’s estimates for first-year cost and quantity of energy efficiency. We did notadopt EPA’s assumption that these costs decrease asmore of the efficiency potential is adopted—instead,we assume the costs are constant—because of theuncertainty cited by EPA in its own review of theevidence (see EPA’s Demand-Side Energy EfficiencyTechnical Support Document) and because of theinconsistency of EPA’s assumption with standardeconomic logic regarding increasing marginal costs. •Additional information on the assumptions underlying NERA’s November 2015 analysis of the final CPP canbe found in Testimony of Anne E. Smith, Ph.D. to theCommittee on Science, Space, and Technology, UnitedStates House of Representatives, 18 November 2015NERA’s report provides impact estimates that are comprehensive for key affected groups. •NERA’s study reports multiple policy-relevant results, including impacts on US consumption, energy sectorexpenditure, retail electricity rates, natural gas prices,electricity capacity and generation, and power sector emissions. •US consumption captures all costs borne by households, including effects on electricity bills andenergy efficiency investments paid for directly byconsumers. It is thus a more complete measure ofconsumer impacts than just electricity bills. •Incremental energy sector expenditure captures all costs borne by the electricity sector and is thus themost complete measure of impact to the sectordirectly affected by the CPP. •The other market impacts provide useful information explaining the comprehensive impacts. Power sector emissions indicate the CPP’s effectiveness.NERA’s study of the energy and consumer impacts of EPA’s CPP meets all three important criteria for a sound empirical study: (1) NERA is a technically-appropriate model for investigating the CPP’s economic impacts; (2)the assumptions underlying NERA’s CPP analysisreflect the best-available integrated set of assumptions,sourced from an independent US government agencythat develops authoritative energy information; and(3)NERA presented impact measures accounting forfull costs to key affected groups, including the energysector and US consumers.About NERANERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific. NERA has extensive experience and technical expertise in the use of economic models to estimate the economic impacts of major public policies. Evaluations of the quality and technical credibility of a modeling analysis should be based on the consideration of three key sets of attributes: 1. Model methodology. The model’s solution logic (its“methodology”) should be widely accepted within thecommunity of modeling professionals for the type ofregulation or policy change being evaluated. 2. Model assumptions. The model’s assumptions shouldcome from reliable sources and, as a set, be mutuallyconsistent with each other. 3. Model reported results. The measures of economicimpact that are reported should represent the full impactto each affected group, rather than provide a partialestimate that could be misleading.NERA’s November 2015 analysis of the final CPP met each of these three criteria.NERA’s model (Nmethodology for CO•NERA is a computable general equilibrium (CGE)macroeconomic model integrated with a detailed,unit-level electricity sector model that estimateselectricity sector operational and investmentdecisions simultaneously and consistent withmacroeconomic conditions. •An integrated model such as ERA is appropriatefor analysis of the CPP because it captures twoimportant elements of that policy: (1) the detailedeffects that the policy can have on the electric sectorand (2) the ways that electricity sector costs ripplethrough the rest of the economy. •Recognizing the importance of such an integrated modeling framework, researchers at MIT and ElectricPower Research Institute have now implementedsimilar methodology in their own preferred modelsfor CO policy analyses.•NERA is publicly documented, has been thetopic of papers in peer-reviewed journals, and Fact Sheet NERA’s Economic Impact Modeling of the Clean Power Plan