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August 7, 2015
FACT SHEET
Policy Insight on EPA’s Clean Power Plan
Energy Price Differentials, Indirect Effects Key to Understanding Impacts on State Economies
Summary
 Clean energy prices are often higher than conventional fuels but the gaps (differentials) are falling
 Expenditures on clean energy typically stimulate more direct jobs and growth than conventional fuels
 Macroeconomic gains can be outstripped in the broader economy if clean energy prices are too high
 Falling clean energy price differentials are shrinking and open the door for new economic benefits
 Cost-benefit analysis, price, and rate impacts don’t explain macroeconomic impacts or opportunities
 Careful policy selection, design, and analysis of both direct and indirect economic impacts enables states
to measure and create jobs, income, and economic growth
New goals announced in the final Clean Power Plan rule under Section 111d of the Clean Air Act will require
shifts in many states toward lower levels of electricity demand and higher levels of clean energy supplies, such
as renewable energy. In some states this may involve shifts toward higher energy prices, at least in the short
term, while in others prices may immediately fall and continue to deepen over time.
As clean energy programs are implemented, impacts on the prices of conventional versus alternative energy
sources can have significant indirect or macroeconomic effects (jobs, income, and overall economic growth) on
states. These macroeconomic impacts of clean energy choices are important, but may not be immediately
obvious from traditional cost-benefit or cost-effectiveness analyses or assessment of price and rate impacts.
They are, however, critical to determining the best economic pathways for state Clean Power Plan compliance.
Many states have grappled with potential tradeoffs between the benefits of new clean energy sources and
higher energy prices for consumers. It is often assumed that higher prices are inevitable and bad for the
economy, and this has inhibited deployment of clean energy. This may not be the case. Higher energy prices are
not necessarily indicators of broader economic losses and can be associated with higher levels of jobs, growth,
and income, depending on circumstances. State level macroeconomic evaluations of renewable energy indicate
significant potential for the stimulus of jobs and economic growth1 as well as the need for caution when large
price differentials exist between clean and conventional energy.
Here is why: Renewable energy tends to be more labor intensive than conventional fossil fuels, such as coal.
Shifts toward renewables and away from conventional fossil-fuel generation in these cases will directly lead to
1
See, for instance, CCS’ REMI studies of state climate and energy plans here.
net increases in jobs and growth in the energy sector, but could also have countervailing effects if the price
differential between new renewables and existing conventional energy is too great. An excessive price premium
for renewable energy can lead to increased prices of goods and services in the overall economy, and
consequently suppress jobs and growth in other sectors.2
However, as price differentials between renewable and conventional energy sources fall or reverse (as is
occurring and expected), renewable energy becomes increasingly attractive in the energy economy as well as
the overall economy. Under these conditions, renewable energy can have a stimulus effect on the whole
economy in addition to the energy sector3. Depending on scale of the shift, this economic benefit may be large.
Key studies support these findings. For instance, CCS has conducted numerous assessments of clean energy
programs in US states through intensive stakeholder and agency consensus building processes and customized
policy approaches and analyses.4 In 2009, CCS conducted a national scale-up of state climate action plans in
cooperation with Johns Hopkins University. The study was designed to determine the feasibility of sector-based
approaches in all 50 states that would meet combined economic, energy, and environmental goals.5 In 2011, this
work was updated and intensified under the CCS Security and Investment Project.6
The 2009 study included design and evaluation of a national renewable energy standard. At the time, the study
team was unable identify a program design that tested positively for economy-wide macroeconomic impacts
due to the significant price differential between new renewable energy supplies and conventional fossil fuels.
In 2011, however, price differentials were lower due to reduced electricity demand and lower forecasted prices
of renewable energy (due to technology and market expansion). Analysis of updated baselines and policy design
showed positive impacts of a national clean energy standard on economic growth and indicated a progressive
shift in favor of renewable energy. Price differentials since the time of the study have dropped further and
expanded the macroeconomic potential of renewable energy scale up.
Given the trends toward lower prices of renewables and higher prices for fossil fuels, the longer time frames
(2022 versus 2020 for initial compliance) announced in the final EPA Clean Power Plan rule make it more likely
that states can find strategies for expanded deployment of renewable energy that expand their economies and
employment. This is particularly true if new clean energy sources and related supply chains involved in Clean
Power Plan compliance are homegrown.
Expansion of energy efficiency programs, if they are cost-effective, could accelerate these positive
macroeconomic trends by reducing overall energy prices through reduced demand. Spending that is freed up
through these programs can be reinvested for more productive economic uses. When renewable energy and
2
Wei, D. and Rose, A. 2014. “Macroeconomic Impacts of the California Global Warming Solutions Act on the Southern California
Economy,” Economics of Energy and Environmental Policy 3(2): 101-118.
3 “Climate Policy as Economic Stimulus: Evidence and Opportunities from the States,” The Center for Climate Strategies, 2008
<http://www.climatestrategies.us/library/library/view/1016>
4 For a complete listing of the work of CCS in US states, see http://www.climatestrategies.us/about/partners-allies. For a listing of key
state studies on state clean energy programs, see http://www.climatestrategies.us/compliance_planning.
5 Peterson, T., Rose, A., and Wei, D. (2010). Impacts of Comprehensive Climate and Energy Policy Options on the US Economy. Center
for Climate Strategies & John Hopkins University, < http://www.climatestrategies.us/library/library/view/105>
6 Delaquil, P., Goldstein, G., Nelson, H., Peterson, T., Roe, S., Rose, A., Wei, D., and Wennberg, J. (2012). Developing and Assessing
Investment Options for Economic, Energy, and Climate Security Gains in the US, 2012 International Energy Workshop Paper, Center
for Climate Strategies, Johns Hopkins University. <http://www.climatestrategies.us/library/library/view/988>. See also, Delaquil, P.,
et al. (2014). Developing and Assessing Investment Options for Economic, Energy, and Climate Security Gains in the United States.
Low Carbon Economy 5(1).
energy efficiency programs are combined, they are synergistic and provide significant potential for expanded
economic growth and employment, depending on the timing, level of effort, and relative costs and savings
produced7.
EPA has opened the door for states to capitalize on the positive dynamics of renewable energy and energy
efficiency under the final rule of the Clean Power Plan to grow state economies, create jobs, and improve
income. But careful analysis and planning will be needed to develop specific programs that attain these
macroeconomic benefits in each particular state.
For information about how to develop highly customized approaches that enable states to comply with Clean
Power Plan rules while maximizing economic and energy benefits, see The Electricity Journal article by
CCS[8] that reviews planning procedures and lessons learned from a decade of experiences on state climate and
energy planning.[9] Additional information on state examples and economic tools can be found on
our Compliance Planning webpage. If you are interested in learning more about our work and services, please
contact us at [email protected].
7
Peterson, Thomas D., and Wennberg, Jeff. (2008) “Economic Stimulus, Recovery, and Climate Mitigation: Policy and Program
Opportunities form the States.” The Center for Climate Strategies. < http://www.climatestrategies.us/library/library/view/1042>