URBANA, Ill. – The Obama administration introduced the Clean Power Plan (CPP) in 2015 to significantly reduce carbon emissions from the U.S. electricity sector. However, the Trump administration repealed the CPP in 2016, claiming the costs to energy production outweighed the environmental benefits.

A new University of Illinois study examines the economic consequences of repealing the CPP and provides suggestions for future strategies to reduce environmental damages from global warming.

“Our research takes a closer look at what greenhouse gas emission reductions would have been under the CPP, and what it would have cost for consumers and generators of electricity from all sources, including fossil fuels and renewable fuels,” says Madhu Khanna, distinguished professor in the Department of Agricultural and Consumer Economics at U of I and Sustainability Theme Leader in the Center for Advanced Bioenergy and Bioproducts Innovation (CABBI). Khanna is lead author of the paper, which appears in the American Journal of Agricultural Economics.

“We find the repeal of the CPP imposed significant economic costs and environmental damages in the form of additional greenhouse gas emissions in the next decade,” Khanna states.

The CPP outlined a national strategy with state-by-state targets for reductions in carbon emissions by 2030. It was an addition to the renewable portfolio standards (RPS), which are state-level policies on what share of electricity needs to come from renewable sources.

Khanna and co-authors Anthony Oliver, Weiwei Wang, and Xiaoguang Chen, who were graduate students in ACE when they conducted the research, analyzed economic data from the U.S. Energy Information Administration and other government sources.

“Our analysis looked at the additional costs and benefits of implementing the CPP over and above the renewable portfolio standards. We also estimated the distribution of costs among consumers, fossil fuel producers, and renewable energy producers,” Khanna says.

“To evaluate the environmental impact of reducing greenhouse gas emissions, you need to look at the social cost of carbon emissions; that is, not only the economic cost of these policies, but also the monetized value of the environmental benefits you will get, or the damages you will avoid, by implementing those measures,” she notes.

The Trump administration took a very narrow view of the social costs, looking only at the potential damages for the U.S., and not for the rest of the world, Khanna explains.

“But if you take into account the full global impact of emission reductions, you’ll find the benefits are higher than the costs. Our analysis shows that estimating damages and benefits correctly is really important for evaluating the value of these types of government policies,” she says. 

Khanna’s team also analyzed the difference between a national greenhouse gas standard and state-specific standards, and they conclude the most efficient policy is a national standard that provides flexibility to the states on their targets and strategies for reducing emissions.

As the Biden administration considers new policy measures to combat the effects of global warming, this provides an opportunity, Khanna states.

“The CPP would have been an improvement over the renewable portfolio standards. But now that it has been repealed and we’ve had time to rethink it, we can implement something even better,” she notes. “Whether it comes to greenhouse gas emissions or policies to increase the share of renewable electricity, our analysis shows the most efficient strategy is to set a national policy with standards that allow for flexibility in how states meet overall reduction targets.”

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The Department of Agricultural and Consumer Economics is in the College of Agricultural, Consumer and Environmental Sciences, University of Illinois.

The paper, “Repeal of the Clean Power Plan: Social cost and distributional implications,” is published in the American Journal of Agricultural Economics. [https://doi.org/10.1111/ajae.12189]

Authors include Madhu Khanna, Anthony Oliver, Weiwei Wang, and Xiaoguang Chen.

Funding for this research was provided by USDA National Institute of Food and Agriculture and DOE Center for Advanced Bioenergy and Bioproducts Innovation. Xiaoguang Chen also received funding from the National Natural Science Foundation of China.