Friday, January 18, 2013

Coal industry front group scapegoats EPA

Laurie Johnson, Chief Economist, Climate Center, Washington, DC
Today E&E reported (subscription required) a "study" by the coal industry front group American Coalition for Clean Coal Electricity (ACCCE). The author of the report, ACCCE lawyer Eugene M. Trisko, calculates that household energy expenditures as a fraction of household income have increased in recent years. This, he falsely claims, is a result of EPA regulations on coal.
I almost feel sorry (not really...) for the author in writing this blog. I don't have time to deconstruct his distorted calculations, but a few observations should suffice to prevent any more credence being given to the report:
The author confuses nominal with inflation-adjusted prices
  • The most glaring mistake in the report is the author's use of nominal, rather than inflation-adjusted, numbers. If an economist had done this, he would never get another job in his profession. This is a basic economic principle taught in every introductory economics course. Perhaps I should cut the author some slack because he is a lawyer...but don't lawyers take introductory economics?
  • With this confusion, the author makes the case for the exact opposite of what he is trying to argue. He writes in the executive summary that "electricity prices have increased by 54% in nominal dollars since 1990, below the rate of inflation..." (emphasis added). This means that in real terms (inflation-adjusted), electricity prices have actually declined. That's *good* for households...Oh my.
The author confuses coal-related energy costs with other energy expenditures
  • The author includes gasoline and other non-coal sources of energy in his calculation. Coal is used almost exclusively for electricity production and, as discussed above, those costs have gone down in real terms. Coal's real troubles are with natural gas, which is increasingly pushing coal out of the market because it is more competitive, not with environmental regulations.
The author distorts the data by presenting energy expenditures as a fraction of household income
  • The author unwittingly provides inflation-adjusted household income levels, which have significantly decreased in recent years. Given his confusion with nominal versus real prices, perhaps he does not know he is revealing a major flaw in his analysis. Without doing the actual calculation, I would bet that much of the author's main result (increased household energy expenditures as a fraction of household income) is driven by the fact that nominal household income (which he uses in his denominator) is growing at a much slower rate than nominal total household energy expenditures (which he uses in the numerator). Had nominal household incomes increased more relative to household energy expenditures, household energy expenditures would have declined as a percentage of household income. Conveniently for the author, the statistics worked in favor of his distorted calculation.
These flaws in the analysis make the headline of the E&E article all the more disturbing: "COAL: Industry group faults EPA for higher electric bills." A more accurate headline would have read: "Coal industry front group scapegoats EPA."