Saturday, May 13, 2017

Methane Rule: unnecessary costs?

From Environmental Economics - Time Haab and John Whitehead's "Cromulent Economics Blog" at

Timothy Cama and Devin Henry via
Three Republicans joined Senate Democrats on Wednesday to reject an effort to overturn an Obama administration rule limiting methane emissions from oil and natural gas drilling.
Only 49 senators voted to move forward with debate on legislation to undo the Bureau of Land Management (BLM) rule, short of the 51 votes needed.  ...
The failure of the resolution is a loss for congressional Republicans, who had targeted the methane rule as one of the main Obama regulations they wanted to reverse. Opponents of the rule argue that it unnecessarily adds costs to oil and natural gas drilling on federal land. 
"Unnecessarily adds costs" suggests that the benefits are less than the costs, right? I hadn't been paying much attention to the methane rule ... so I wondered what the benefit-cost analysis concluded. I used ... Google and found all the anti-methane rule stuff. If you want to read one with the industry funded criticism..., go here: Here is an example: 
NERA Economic Consulting took a look at [social cost of methane] models to evaluate EPA’s methane rule. NERA corrected the flawed assumptions regarding the discount rate, radiative forcing rates, geographic inconsistencies in the analysis, and inappropriate extrapolations about future mitigation policy. ...
NERA's study can be found here [PDF]. [Don't try the link in the excerpt because it is broken.] NERA didn't really correct anything, because who says that NERA is correct? They're paid to say that they are correct, sure, but that payment sniffs of bias in their analysis.  The study was funded by the American Council for Capital Formation which has funding from Exxon and the Koch Brothers. Here is one thing that the ACCF says about the methane rule on their website right now:
The rule is expected to cost producers up to $297 million per year to comply, while BLM estimates it would reduce global greenhouse gas emissions by only 0.0092 percent.
Comparisons of benefits and costs are a red flag. For example, did you know that the benefits are $360 million per year and the costs are only 0.0018% of annual GDP? My bias radar is flashing (and why does this stuff play ... does it only play with already biased people? [note*]). 
Disgusted, I realized that Resources for the Future probably had an unbiased review of the government study. They did (The agency vs Industry: Who's got it right on methane?). Alan Krupnick:
Last week, the US Environmental Protection Agency (EPA) issued its proposed rules for reducing methane from new and modified oil and natural gas wells, processes, pipelines, and storage facilities. The agency’s goal is to cut emissions of methane, a greenhouse gas, from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. These rules, however, were attacked out of the gate by the American Petroleum Institute (API). The charges: they are duplicative of ongoing industry practices, costly, and unnecessary. ...
The top-level question that should be asked is whether these rules offer society greater benefits than costs. According to EPA’s regulatory impact assessment (RIA), net benefits are positive. Note that I restricted my purview to the New Source Performance Standard (NSPS) rules. The RIA counts the benefits of methane reduction from reducing greenhouse gas emissions (valued at around $45 per ton based on the potency of methane as a greenhouse gas relative to carbon dioxide (CO2, termed CO2e) and the administration’s social cost of carbon), subtracts out the engineering costs of the rules over an estimate of what the industry would otherwise be doing, and adds the value of any natural gas the industry would capture that would otherwise have leaked away. Overall and on a per ton basis, according to the RIA, the rules cost $40 per ton whereas the benefits are a bit higher, so net benefits are around $8 per ton of CO2 emissions. Excluded from the calculation are the reductions of emissions of volatile organic compounds, which could fairly be allocated some of the costs of the rule. These are also important because these reductions would help lower the costs of meeting ozone standards. Also not counted are ancillary benefits from reducing hazardous air pollutants. So, the rules benefit society.
*For example:
  1. The oil and gas industry doesn't like a regulation that adds costs
  2. Pays a consulting firm money to write a report criticizing a study that finds the benefits of the regulation exceed the costs
  3. The oil and gas industry makes big campaign contributions to politicians who waive the study around and try to get rid of the legislation
Yes, that's how it works. The wonder is why anyone pays attention to any such study? And I'm looking at you (with a stupid grin) Exxon and BP funded economists who critique the CVM and DCE

Environmental Economics - "The Cromulent Economics Blog"
Posted by John Whitehead on May 12, 2017

No comments:

Post a Comment