Will New EPA Rules Hurt Wisconsin’s Economy?
Looking at the impact of efforts to combat global warming.
The federal Environmental Protection Agency has released new regulations to reduce emissions of gases related to global warming. Is this needed, and what will be the effect on the US and Wisconsin economies, on global warming, and on Wisconsin’s ability to take advantage of these changes? Let us consider the data.
Global Land & Sea Anomaly
1. How real is global warming?
A small industry has formed around denying what has been found on the effect of human activities on global warming. A May 21 opinion column in the Milwaukee Journal Sentinel titled “A power grab by political con artists” is a typical example of the genre:
“The world isn’t warming. Scientists measuring surface temperatures and atmospheric temperatures using satellites — including scientists who believe in the global warming theory — say the Earth hasn’t warmed since the Clinton administration.”
As is typical, the article neither shows the temperature record nor tells the reader where to find it. The chart above shows the temperature “anomaly”—the difference between the actual temperature and the average long-term temperature–since 1970 for years running from May to the following April. The last point on the chart includes the most recent winter. Despite our experience in Wisconsin, globally the past winter was one of the warmest on record.
Global Land & Sea Anomaly
The next chart shows the same data as a statistician might analyze them, using linear regression. The fit, shown by the solid line, is pretty good, explaining 85 percent of the variation in the weather. The temperature record shows year-to-year fluctuations around an upward trend line.
The dotted lines are the upper and lower (95 percent of forecast) limits. Note that the value for 1998 falls just above the upper limit. When the opinion piece refers to the Clinton administration it presumably means 1998. In 1998 the odds of a temperature anomaly that was at least .6 above the long-term average was around out one in 40. Today the odds are at lease one in two or 50 percent.
Global Land & Sea Anomaly
Climate deniers seem to take a novel approach to statistical analysis. Rather than estimate the mean values, they connect the extreme values, the hottest years so far, as shown in the next chart. Because 1998 was so hot, the line after that date is mostly flat, allowing global warming deniers to argue that warming stopped.
Another approach deniers take is claiming the theory is controversial among scientists. Yet there is considerable evidence to the contrary. For instance, a study of peer reviewed articles on climate change found that 97% of those expressing a position on the consensus position that humans are causing global warming endorsed it.
2. Will the EPA proposal cripple the US economy?
Shortly before the proposal was released, the US Chamber of Commerce issued a report entitled Energy Institute Report Finds That Potential New EPA Carbon Regulations Will Damage U.S. Economy. Since the Chamber is a strong opponent of the regulations, one can safely assume that the report gives a worst-case scenario. Among other claims, it argues that a program to reduce carbon emissions would:
- Lower U.S. Gross Domestic Product (GDP) by $51 billion on average every year through 2030, and
- Lead to 224,000 fewer U.S. jobs on average every year through 2030.
These numbers sound big until one compares them to the US economy. $51 billion is about 0.3% of the $17 trillion US GDP and represents about 1 month’s GDP growth. With current US jobs at 138 million in April, a loss of 224,000 is 0.16 percent of total employment or the amount of growth in about one month. Thus even taking the Chamber’s calculations at face value, the proposal would have a negligible effect on the US economy.
An opinion column from the Wisconsin Manufacturers and Commerce extends these claims to Wisconsin: “31,700 jobs will be lost in the five-state census region that includes Wisconsin.” Even though all five states currently lag national job growth, this loss represents less than two months of job growth for the region. To say this will cripple the five states is clearly a gross exaggeration.
3. Is US action futile because other nations will not follow suit?
It’s certainly true that effectively addressing climate change requires international action. Recently China replaced the United States as the leading producer of carbon dioxide, in part because of the switch from coal to natural gas that is already taking place in the U.S. But China and India can argue the U.S. does far more damage on a per capita basis. It seems reasonable to expect American influence on other countries will be greater if it is a leader rather than a laggard in reducing emissions. Countries refusing to reduce their carbon emissions could find their products subject to “carbon tariffs” aimed at equalizing the burden on domestic manufacturers (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2026879)
In the unfortunate event that some countries still refuse to adopt reforms, Americans will still reap the benefits of the cleaner environment — and more modern economy — that will result from a switch from coal to natural gas, more solar and wind energy, and increased conservation.
4. Are the proposed rules a threat or an opportunity for Wisconsin’s economy?
In the search for explanations for Wisconsin’s recent poor economic performance I am struck by how similar the results are across the region. Here are examples:
- In job growth since 2011, Wisconsin lags all of its neighbors except Illinois. But all of these neighbors have growth that falls short of the national average.
- Both Milwaukee and its metropolitan are gaining population at a rate greater than all other cities on the Great Lakes except Chicago. But this is hardly something to celebrate since most of the other cities are losing population.
- The most recent index of entrepreneurship from the Kauffman has Wisconsin tied for 46th place. This is not good but Indiana, Minnesota, and Iowa rank even worse.
A pattern like this suggests that the Wisconsin problem is a regional problem. Thus it is useful to ask what these states have in common besides cold weather. One answer is that for much of the 20th century Great Lakes states were the manufacturing powerhouse of the nation. But in a globalizing economy manufacturers whose success was based primarily on low costs moved elsewhere. Mass production of commodity goods is unlikely to return to Wisconsin or the Midwest.
What is missing from both state policy and the state’s major business group is a strategy for Wisconsin to take advantage of the changes that will result from the new regulations. The EPA’s proposals will be a boon for firms developing new energy sources and those offering ways to conserve energy. In a free market, firms will arise to take advantage of these opportunities. But will they be from Wisconsin?
Though there is no reliable model to predict where economic development will occur, one factor is certainly the role of startup companies offering new kinds of products. This came home to me in the early 1980s when I stated a firm to sell software for the first personal computers. It turned out that far more of our customers were in California than Wisconsin. After discouraging visits to Wisconsin retailers, I was amazed when I visited a computer fair in San Francisco and quickly sold all my stock. It should not be surprising that this company (after a subsequent consolidation) was ultimately based in California.
The point is that there is often a real advantage for entrepreneurs to be located close to a market that wants these new products. If successful locally these firms expand to additional markets. States in the West and the Northeast have already formed cap and trade consortia. Will Wisconsin? Will it support new wind and solar companies rather than continuing to emphasize the importation of gas and coal? The challenge for Wisconsin and other Great Lakes states is whether to let demands to protect the old economy strangle the opportunity to encourage a new generation of innovative firms.
Data Wonk
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Bruce, thank you for a most thoughtful article. And, while I am not sure I quite understand the regression analysis, one thing we and especially policy makers need understand is that making the transition from fossil to renewable sources of energy will not be easy nor without costs but it will continue to happen. The question is will Wisconsin and Wisconsin businesses be leaders or laggards and currently we seem to have a political climate which encourages the latter. Wisconsin already has some renewable energy manufacturers and/or those “playing with new ideas” for creation of new ways to create and store energy. We need to consider how to encourage such and more.
Transitions are hard to make because change scares us but this is a time for this transition, which has begun, to gain momentum and traction. Let’s just hope for our grand-children’s sakes it isn’t too late. Thanks again for your work.
Bruce, I have a number of concerns.
From section 1, your regression analysis (where is the dataset from btw?) is just a function of the variability for your chosen time frame. If you shorten or lengthen the timeframe we’re looking at you see much less warming (if any at all). I’m not a true global warming skeptic in that I don’t deny global warming or anthropogenic global warming exists, but I question if we really know enough to make some of the bold claims that are made. For example, how much is the planet actually going to be warming (all the models have been very wrong so far)? How much of that warming is caused by humans? Of the anthropogenic global warming, how much is from CO2 emissions? and more.
From section 2, maybe cripple isn’t a good term… but those numbers you cite are still significant. It’s ironic to me that people who are often most concerned with income inequality, the general welfare of low income groups, and other such income related disparities are also the ones who are so quick to cause prices to rise on things that most affect those groups. Gas, electricity, food, and more are all a much higher portion of low income families spending.
An average families disposable income is expected to decrease by an average of over $200 a year because of this new mandate. That’s a total of over $3,400 between now and 2030. How does this help our supposedly ever expanding income inequality?
For section 3, you can argue the US has more emissions per capita, but how long until this is no longer true? The US has already decreased it CO2 emissions by what… 14% if I remember correctly? This is during the same time their emissions continue to climb. Ofcourse… ideally we get everyone on board… but unless everyone IS getting on board, we’re just creating more economic challenges for ourselves.
Which brings me to section 4… we already struggle in manufacturing for which we were formerly a powerhouse. You say it’s out of nostalgia that we focus on manufacturing but we still have a strong core of new manufacturing industries that can’t be, or wouldn’t be economical, to outsource… or others that somehow against all odds we manage to hold on to. It’s not crazy to think we’d like to keep these manufacturers and attract more… why burden ourselves further without fully understanding the impacts?
My point is… we really don’t know how much we affect the global temperatures and what those temperatures really mean for us and the planet. We also don’t know how much we’re be able to reverse the warming that has taken place. We don’t have any assurances that others will take up these causes with us… all while putting further economic strain on our country that is struggling to come out of the recession as-is. Finally, I’m constantly hearing about how the income inequality is continuing to grow… yet this mandate will only further widen the gap. There is just too much downside for making the drastic and quick changes they are trying to make and nothing stated here convinces me otherwise.
Start here Andy.
http://www.fs.fed.us/ccrc/climate-basics/climate-primer.shtml
About 98% of scientists agree that climate change is already in full swing and will have drastic impacts worldwide. We know through ice core analysis that the historic changes might take a few decades. Now some of the new analysis shows the switch may happen in one year’s time with alterations in ocean currents, and global wind patterns. Changing these patterns can alter the climate for hundreds and thousands of years. Most plant, animal, and human species are not able to respond quickly to these kinds of changes.
We will have no choice but to adapt our living conditions to a new coming climate. The opportunities are re-modeling our buildings, transportation systems, infrastructure, agriculture, food supply and it will mean millions of jobs, or we can roll over and wither away as a desperate defeated people. Right now we have the most ill-informed least educated divisive state legislature in modern history, more concerned about taking away union, voter, human rights, etc. with laws written by ALEC and funded by corporations. On the federal level, they are stuck in the sand as well with obstructionist policies. For the current time, we cannot expect much out of government and we are wasting time that could be spent productively solving policy problems.
Wisconsin sends $12 Billion annually out of state for fuels. If we maximized our efforts in Wisconsin alone with existing technology with energy efficiency, renewable energy production, consumer education, time of use rates, consumer energy storage, and load management control, improved mass transit and efficiency, we could cut the export of these dollars in half. That would mean $6 Billion annually would remain in state churning our local economy.
We Energies took the path of constructing a $2.3 Billion coal plant in Oak Creek that sits idle on many days. What if that funding and commitment had taken the path of energy efficiency and renewable energy instead?
While I appreciate the link John G, I don’t need the basic global warming 101.
My philosophical position is influenced more by the question of social vs environmental cost/benefit analysis than whether global warming exists or not. That’s further complicated by the fact that we base a lot of the science on such a short period of time and do not have a clear understanding of the long term effects.
The last Ice Age ended a mere 11,000 years ago and we entered what is called the Holocene Period of more moderate and warmer temperatures where the human population exploded to where it is today with 7 Billion on the planet and rising fast. We will be entering a period of escalating extreme climate events with storms, prolonged droughts, and rainfall events. We need water for survival and some places in the near future on the planet may be without rainfall for thousands of years. And many locations will be under ocean water where millions of people still reside today.
The USA consumes 40% of the available energy on the planet, with about 5% of the population and has been the number one contributor to greenhouse gases. China will bypass the USA this year as the largest economy and polluter.
The planet has already entered a period of resource constraints of energy, food supplies, water, metal resources. Energy resources that are vital for a USA lifestyle will go towards the highest bidder on the planet, likely to be China that also has the largest middle class while the USA middle class shrinks. A Department of Energy report was released and then tucked away in 2005 stating that by 2030, Saudi Arabia would no longer have oil for export, it would all be needed for domestic use and their growing population. More than half the easy energy on the planet has been consumed. The remainder if more costly to extract and carries more potential for environmental damages. More than 90% of the large fish stocks have been plundered from the oceans.
The cost effectiveness argument is mute, since the upcoming changes will be forced upon us, or we can twiddle away in despair and misery. We can face them with educated responses and cooperative solution solving, or continue sticking heads in the sand and head between the the knees to kiss ourselves goodbye. The solutions are many, and no one magic area will solve it all.
My time is shorter on Earth as I am retired and reaching my last few decades of a joyful life. I use my broad knowledge and education to stick up for a quality future for my children, grandchildren, and all humans and the environment.
David Ciepluch, I appreciate those concerns and share many similar ones… but is making fast and drastic changes really worth the social fallout? If we make quick changes, that many admit won’t affect the environment for decades, that further destroy our middle class and make life even more unaffordable for the poor, drive business offshore, and ultimately just shift the polluting to less developed countries that will spill as much or more of the pollutants we are trying to eradicate… what problems does that really solve?
For a better alternative… instead of putting these abrupt restrictions on coal… why not phase the rules in as older coal plants near the end of their natural life cycle when it makes more economic sense to replace them?
And can we discuss ideas like the expanded use of nuclear power once again?
“but is making fast and drastic changes” Aren’t the EPA rules to cut power plant emission 30% by 2030?
One of the main changes that will take place without EPA rules, is the increased application of solar energy. Prices on panels have plummeted over the last few years making it a more affordable product for a consumer to regain some of the advantage over the utility. This will downsize the need for fossil produced electrical energy across the country and planet. It will also reduce the need for generating capacity of utilities and they really fear this change in the market place. Solar produces energy when utilities can sell it for the highest price.
Combine all the other attributes of energy efficiency, increased use of renewable energy (other adjacent states are producing 25% of their energy from wind and will sell it here at lower cost than coal), education, consumer side energy storage, time of use rates,and load management. This will have a direct effect on overall energy consumption. This is a great thing and will provide jobs with labor and local materials. It does take educated planning and implementation to move forward.
Saving on the outflow of dollars from Wisconsin for fossil fuels is a great thing. This is a fundamental law of economics and should be a conservative principle of efficient use of resources. Relying on willfully ignorant politicians for answers and Republicans that have forgotten real conservative principles is a problem in our state and federally.
Utilities in a monopolistic culture that they have grown accustomed to and swinging to the political winds of the current time will not really serve their and our long term interests. They could become a real partner with customers and potentially be the leader, share in the costs and benefits of reconstruction. We need an educated Public Service Commission with Commissioners that understand what is at stake instead of protecting a dead end status quo approach. We have already fallen behind neighboring states in a race and will lose out in the long run. We are running out of time.
Climate change is a symptom of the path we have been on for the last 150 years of industrial fuel burning and population explosion. I have suggested a few large treatments that can actually be rather stimulating and exciting to implement to the regional economy. Dealing with energy issues is a huge benefit to our society, stands on its own merit with payback many times over in the coming decades and centuries, and as a byproduct reduces air pollution emissions. Some fossil fuel burning will always go on.
There are many known and unknown impacts from a changing climate that will cause great upheaval. I am just dealing with one area. Think of people that live along coast lines, and the agriculture industry, and population centers that are strapped for water now, and will enter periods without rain for decades and perhaps centuries.
Implementation does not take one or two years. It takes decades. During the process, newer technologies emerge and implemented. Solar panels installed today, will need replacement with improved models in 25-30 years and will be more cost effective. LED lighting will make advances in the coming years and be used more heavily.
I get it… environment at all costs. Immediate problems concerning the well being of the poor and middle class mean less than the long term effects of something we do not fully understand. That’s certainly a valid opinion, I just feel differently and would rather take a more calculated approach.
The environment is our only real wealth. We live on a very fragile planet, and it is only in the last 10,000 years that humans have really prospered under moderating temperatures of the Holocene Period. We damage the environment and that wealth at all our peril. When a corporation or person damages the environment by way of water, air, soil, exploitation of resources without regard to infliction of damages, they steal, plunder, and rob from all of us and the lingering and future health problems associated with that damage.
It is really very simple – how would you like it on a daily basis if neighbors dumped all their garbage, dog droppings, spent car oil, medical waste, chemical waste, etc. into your vegetable garden. Environmental degradation on a larger scale by companies is no different but in many ways is hidden from an ignorant and uniformed public at large. Many companies thrive and increase their profits at the expense of the public and shift that burden onto them.
I do know better, since I spent 40 years as an environmental professional.
Let’s say it for what it is, the planet isn’t fragile, it’s humans living comfortably on the planet that is fragile. The planet has gone through far bigger swings throughout history then humans could ever attempt to affect. That being said… humans have thrived most in history during the planets warmest years. Does not that matter now? Maybe we should be trying to make the planet warmer?
OK, I’m being a bit tongue in cheek there… but in the US our air is cleaner, our water is cleaner, our CO2 emissions are down to a 20 year low. Some of this is from regulation and some of it is even from free market changes! The advent of our huge stocks of natural gas, buildings being made more energy efficient for cost savings, solar becoming less expensive, and more are causing all kinds of positive environmental changes.
I’m not advocating for pollution.. I’m advocating for smart, calculated, measured changes from both the free market side and practical regulation when needed, in order to have the most positive outcome without destroying our middle class.
We can realistically reduce our energy consumption of fossil fuels by 50% in a few decades and get the same amount of work of it. That is what making efficient use of resources is all about and it is measurable. We know how to do it with today’s technology that continues to improve over time.
All fossil fuels are finite and even now coal from the USA is being mined and shipped to China. All the natural gas being mined is seeking liquification seaports to export as well. That keeps the price high and life span of the sources reduced. At one time the USA had 250 years of coal reserves left in this country, and that has been reduced to 100 years now since companies like Exxon export it. A smart thing would be to reserve the fossil fuels for future generations, we do not have to be such greedy gluttons as humans. We are 5% of the world’s population, consuming 40% of available energy on Earth.
Utilities have moved to burning more natural gas for electrical production. This is not a smart move since the efficiency of their fuel to electric conversion is probably less than 40% where commercial and residential users convert more than 80% to usable energy. Utility use drives the price up for all of us – a hidden tax especially during the winter months. Instead of more winter liquification storage during summer off peak months, it is burned for electric production for air conditioning needs. That is where solar and wind turbine could pick up more of the peak demand for electric.
There really is no such thing as a free market other than EBay, Craigs’ List, and rummage sales. All the other markets are heavily managed and manipulated. Our tax system is not a fair one when companies hide money in off shore accounts and the regular citizens have to pick up the tab for them. If you had to pay the real cost of a gallon of gasoline, with defense spending added on the true cost if $500/gal. Most Trade Agreements are just that, how they can rig and fix the market to their benefit.
The planet would work fine without humans on it if we happen to make it inhospitable for ourselves. It has been here for about 5 Billion years, while modern humans as we know have been around for about 40,000 to 50,000 years in very small numbers at first.
We’re just going in circles now… I get it, like you said… environment at all costs.
With the right amount of money and/or sacrifice we could do anything. Maybe we’d be better off to run a lottery to round people up and eliminate large swaths of the population. That’d probably make huge strides in saving the world from us and ensuring our great great grand-children’s health and happiness through earthly wealth.
I’m not sure what part of measured, reasonable, or calculated you have such difficulty with.
Andy,
I am not sure you are capable of understanding a cost benefit relationship to the consumer of saving money. The suggestions I make pay for themselves many times over every year. Plus dollars do not leave the state. This is still a conservative principal, but not a Republican one since they support whatever a corporation wants over the citizen and usually the environment for their benefit and profit only.
I am not sure you are capable of understanding the wealth of the planet in the environment. Too many fish removed from the ocean, stops the breeding cycle, and no more fish to eat. Take to much and the cycle of wealth stops. Humans have removed 90% of the large fish stocks in the oceans.
Wind power is the biggest, fastest, cheapest way to meet the EPA’s proposed carbon rules.
American wind power’s ability to cut carbon pollution has been impressive and with smart policy in place can continue to cut more. Installed wind power already reduces enough carbon emissions to take the equivalent of 20 million cars off the road.
Fortunately we don’t have to sacrifice economic growth in order to cut carbon. Wind power supports over 50,000 jobs and attracts up to $25 billion a year into our economy.
Wind power is affordable too. It may be better to erase everything you thought you knew about wind power’s costs.
In just four years wind power’s costs have dropped 43%. Taller towers, longer blades, improved gearboxes, and over 30 years of experience in siting wind turbines to maximize their power output have helped drive down costs.
Consumers are saving more with wind power. New Department of Energy data show the eleven states with the most wind energy have saved more on their electric bills than ratepayers in all other states.
The largest system operator in the world, PJM, recently reported adding up to 30 percent of wind power to its mix and would save up to $15 billion a year while maintaining electricity reliability.
Across the country and around the world, adding wind power makes the market more competitive and benefits consumers. Grid operators, state governments, and academic experts have analyzed electricity markets in the Midwest, Mid-Atlantic, New England, the Southeast, and even Europe and found wind energy drives electricity prices down.
David Ward, AWEA
Thanks David. Neighboring states have seen fit to have a goal of 25% renewable energy production with a great deal of that coming from wind energy owned by the utilities. Instead of Wisconsin having more home grown energy, they will still be importing it from the west.
Solar electric owned by consumers will be one of the very cost effective game changers that has utilities on the defensive and protecting the status quo of their current business model.
David, the fundamental reason we disagree is because we have differing views on the cost benefit analysis of this new set of regulations. I don’t think reducing a families annual income by $3,400 a year is worth it for the insignificant effect it would have on anthropomorphic global warming. You apparently don’t care about that. Which I will remember next time you comment on an article about the growing income gap.
Meanwhile, we have other options that won’t put the same burdens on the poor and middle class. We’ve already reduced CO2 emissions from coal plants, and as more come to the end of their useful life then those too will be eliminated and/or upgraded with reasonable regulations or market forces that drive them to other fuel sources.
This isn’t like particulate pollution or mercury discharged into waterways… those have an immediate impact and needed to be addressed right away. The small effect that these new regs will have in comparison to the costs just don’t have the same payoff and the same results could be had by stretching them out through the normal lifecycle of the assets.
This doesn’t even address the fact that there are smarter ways of reducing our dependence on coal and energy of all kinds. Ways that actually pay for themselves. The Empire State Building is a model for what can be done when we apply energy efficiency principles to a facility that is due for a retrofit. The energy efficient upgrades made there were financed and paying for themselves. The building is now 38% more efficient then it was and the cost savings are projected to get up to 4.4 million dollars a year.
Buildings use 40% of the nations energy. That percentage rises to 75% in dense urban areas. If we can make upgrades like the ones to the Empire State to all buildings we can see the same benefits that the EPA’s mandate would give us but without the great costs to those who can least afford it. (Even that is actually not true, since the EPA would allow a de facto cap and trade program that would likely mean no short term reduction in coal CO2 emissions. Short term the only thing it would do is drive energy prices up)
It’s clear you believe that no cost today is too great to preserve the planet for tomorrow… regardless of any alternative ideas.
Andy, If you read and understand my comments, I recommend a high reliance on energy efficiency, consumer owned renewable energy, education, making use of time of use rates, in home or business energy storage, and load management control. This can reduce fossil fuel consumption for electric needs by about 50%. I managed programs of this kind and I know what the return on investment is for various actions.
The idea that everything has to have a pay back is a ridiculous one. In our society, many things are done with a negative payback. A large one is the war in Iraq that will eventually cost trillions, was based on lies, and gained nothing. People install granite kitchen counters, siding, and new windows that have no payback at all – it is done for appearance only. No if remodeling is performed and energy savings is part of the design and implementation package, then there is an annual savings and every dollar that stays in the state stimulates the local economy.
There could be many jobs from implementing and remodeling buildings and using as many locally made materials as possible.
Some Wisconsin utilities have added about 3 large wind farms that add to the renewable mix. As David Ward so well stated, large wind turbines are cost effective and it is why states to our west have added up to 25% renewable generation into their utility portfolios that will wind up being sold to Wisconsin on occasions if it is the low cost provider, which it generally is without any air emissions. My preference is more in-state production with large wind systems.
Andy,
Some of these issues are actually easier to talk about in person. So maybe over a beer sometime at Chill on the Hill, Transfer Pizza, or Humboldt Park has the beer garden that I want to check out this summer.
David, I’m 100% on board with that idea!