Doing the Math on the Clean Power Plan

Critics of the Clean Power Plan argue it will increase electricity costs so much that companies operating here in the U.S. will shift their jobs to China. The local business leaders with whom we work see it differently. Nineteen out of 20 of them support the Clean Power Plan, because the immediate cost of switching from coal to cleaner energy is far smaller than the current cost of severe weather-driven by climate change. Over time, those weather costs will grow.

Any discussion of increased regulation should compare the economic cost of the regulation with the cost of doing nothing. The costs and risks associated with doing nothing about climate change are substantial. Higher temperatures, severe weather, and drought are distorting commodity prices, disrupting supply chains, damaging plants and equipment, and hurting consumer demand.

Restaurants face higher food costs; manufacturers face shipping delays on parts; hotels face higher HVAC cost; and property owners face higher storm damage risk. While Washington plays politics over climate change, companies like these have responded by changing where and how they build their facilities, warning their investors of growing climate change costs, and hedging their weather-related risks.

By comparison, the cost of implementing the CPP is small. For example, a manufacturer’s total cost would rise 0.03 percent (electricity, which represents less than one percent of its costs, would increase by three percent before dropping over the long term). In other words, if it costs a manufacturer $100 to produce and sell its product, the CPP would increase that cost by only three cents. That’s why nearly 1,100 of our business leaders submitted testimony to the EPA in support of the CPP.

An example from America’s largest manufacturing sector (automobiles) demonstrates the economics of severe weather: About 60 percent of an automaker or auto supplier’s total cost is in its supply chain; less than 1 percent of its total cost is electricity. For automakers and suppliers, the CPP adds about $4 to the cost of a $30,000 sedan.

In recent years, auto manufacturers’ supply chains have been disrupted by typhoons in Thailand, hurricanes in the Gulf of Mexico, droughts across the Southwest, tornadoes in Kentucky, falling water levels across the Great Lakes, and flooding in the Northeast. Each hour of weather-related downtime is growing more expensive, because supply chains are growing bigger, more specialized, and incredibly fast. The very characteristics that make auto supply chains more efficient also make them more interdependent—and vulnerable.

In fact, an assembly plant loses more to 30 minutes of severe weather-related downtime that it will spend in a year on higher electricity prices under CPP.

An example from one of our biggest services industries (restaurants) also helps. About 1 in 10 jobs nationwide are supported by the restaurant business. The chefs with whom we work are worried about food prices, not electricity.

If you operate a restaurant, the CPP will add one penny to the cost of a restaurant meal. Meanwhile, your food prices increased about 25 percent over the past five years, due largely to severe heat and drought in the Southwest. At that rate, your food price for that $20 meal will increase by $1.36 in the time it will take for CPP to add one penny.

Administrator Pruitt talks a lot about helping business and making America great again. You can’t help if you refuse to do the math.

Learn more about how businesses are already responding to climate change and severe weather: