ISSUE BRIEF

P
resident Obama recently released his Climate Action Plan, which is a continuation of the costly, ineffective policies from his rst four years in office: Solyndra-style loan guarantees, nice-sounding but too expensive efficiency mandates, and his war on coal. It is this war on coal that would prove the most costly, with hundreds of thousands of lost jobs and $1.47 trillion of lost national income by 2030. Bankrupting Coal Hurts American Families. When Senator and presidential candidate Barack Obama pushed his cap-and-trade plan in 2008, he said that if someone wants to build a coal-powered plant, they can. Its just that it will bankrupt them because they are going to be charged a huge sum for all that greenhouse gas thats being emitted.1 Congress rejected his and other cap-and-trade plans, but in his recent speech on climate change, President Obama vowed to go around Congress to reduce greenhouse gas emissions. In case anyone thinks the Administration has since backed off from the anti-coal agenda, Obama climate advisor Daniel Schrag just this week said that a war on coal is exactly whats needed.2 In a speech on June 25, President Obama called on the Environmental Protection Agency (EPA) to

No. 3978 | JUnE 27, 2013

Cost of a Climate Policy: The Economic Impact of Obamas Climate Action Plan
David W. Kreutzer, PhD, Nicolas D. Loris, and Kevin D. Dayaratna

This paper, in its entirety, can be found at http://report.heritage.org/ib3978 Produced by the Center for Data Analysis The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org Nothing written here is to be construed as necessarily reecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

reduce carbon dioxide emissions from new and existing power plants, which would adversely affect coalred plants the most. These regulations are part of a broader effort from the President to signicantly reduce coal as an affordable, reliable energy source the effect of which is to drive up prices for American families and businesses. The Heritage Foundation modeled the effects of signicantly reducing coalred plants in America and found devastating economic effects. Regulations Pile On. With 497 billion tons of recoverable coal in the United Statesenough to provide electricity for 500 years at current consumption rates3coal has the potential to be an important resource long into the future. The EPAs constant attacks on coal threaten to close off access to this dependable energy source. In March 2012, the EPA proposed a rule that would prohibit new power plants from emitting more than 1,000 pounds of carbon dioxide per megawatt of electricity generated. Without the addition of carbon capture and sequestration, a prohibitively costly and technologically challenging requirement,4 the regulation would effectively ban the construction of new coal-red plants.5 Whether the nal rule reects the proposed rule remains to be seen. The Presidents recent announcement also threatens existing plants and would adversely affect the more than 1,100 coal-red generators at nearly 600 plant locations that generate 40 percent of Americas affordable, reliable energy.6 Last year, the EPA nalized new mercury and air toxics standards that will force utilities to use maximum achievable control technology standards to reduce mercury emissions and other hazardous air

BACKGROUNDER
No. 2824 | JULY 11, 2013

James Jay Carafano, PhD, and James Phillips

Egypt: A Way Forward After a Step Back

gypts army recently ousted President Mohamed Morsi, just as it removed Hosni Mubarak in 2011, to prevent growing civil disorder from undermining the power of the state and its own privileges within the state. The intervention was widely applauded by opposition political parties and the overwhelming majority of the millions of protesters who demanded that Morsi step down. By taking steps to preserve public order, the military could help to salvage Egypts chances of making the difficult transition to a stable democracy. Clearly, Egypt was headed for a civil war as a result of a surging rebellion against Morsis increasingly authoritarian rule. To salvage the increasingly difficult situation in Egypt, the United States should press the Egyptian military to lay the groundwork for a return to civilian rule as soon as possible, attach tighter strings to U.S. aid, and recalibrate the U.S. aid program to focus on ghting terrorism and preventing food shortagesthe chief threats to Egypts future. President Mohamed Morsi was his own worst enemy. He ruled in a secretive, authoritarian, and exclusionary manner that derailed Egypts democratic experiment and alienated far too many Egyptians, even some of his former supporters. During his year in office, he focused more on maximizing his own power and that of the Muslim Brotherhood than on addressing Egypts worsening economic, social, and political problems. When challenged, he arrogantly ignored, marginalized, and demonized

Key Points

Egypts army was justified in ousting President Mohamed Morsi, whose increasingly authoritarian rule was leading Egypt into a civil war. The army, however, is sitting on a volcano and knows it. The U.S. must recognize that Egypt is much closer to becoming a failed state or economic basket case than it is to becoming a genuine democracy. To salvage the increasingly difficult situation in Egypt, the United States should press the Egyptian military to lay the groundwork for a return to civilian rule as soon as possible. Washington should attach tighter strings to U.S. aid and recalibrate the aid program to focus on fighting terrorism and preventing food shortagesthe chief threats to Egypts future. No amount of aid from Washington can resolve Egypts deep economic problems, but the U.S. can encourage Cairo to undertake free-market economic reforms to rejuvenate its economy.

Morsis Threat to Democracy

This paper, in its entirety, can be found at http://report.heritage.org/bg2824 Produced by the Douglas and Sarah Allison Center for Foreign Policy Studies The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org Nothing written here is to be construed as necessarily reecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

BACKGROUNDER
No. 2821 | JULY 11, 2013

Winning Without Fighting: The Chinese Psychological Warfare Challenge

Dean Cheng
Abstract

Beijing hopes to win future conicts without ring a shot. How? By using psychological warfare to manipulate both a nations leaders and its populaceaffecting the thought processes and cognitive frameworks of allies and opponents alike. Indeed, the PRCs psychological warfare operations are already underway despite the fact that there is no active conict. It is therefore essential that the United States counter such psychological operations now while preparing to use its own arsenal of political warfare weapons should a conict ever arise.

Key Points

Over the past decade, the Peoples Republic of China has exhibited growing interest in waging asymmetrical warfare. To this end, the PRC released political work regulations for the Peoples Liberation Army addressing the importance of waging the three warfares: public opinion warfare, psychological warfare, and legal warfare. The three warfares represent the PRCs commitment to expanding potential areas of conflict from the purely military (i.e., involving the direct or indirect use of military forces) to the more political. Such expansion will be supported by manipulation of an enemys leadership, including through intimidation and coercion, alienation, and deception. To avoid being psychologically outmaneuvered by a PRC intent on winning without firing a shot, the U.S. must strengthen its own psychological warfare capabilities, including strategic communications, public diplomacy, and media outreach capabilities, as well as dedicated psychological operations units.

ne of the elements distinguishing the Chinese Peoples Liberation Army (PLA) from many of its counterparts is its continued role as a Party army. The PLA is, rst and foremost, the armed wing of the Chinese Communist Party (CCP). This distinction both obligates the PLA to help maintain the CCPs grip on power and gives it an additional set of tools with which to defend the CCP and the Chinese state. At the moment, the PLA is not only planning for operations on the physical battleeld; it is also preparing to conduct political warfare, including what is termed the three warfares: public opinion warfare, legal warfare, and psychological warfare. Psychological warfare is in some ways the most far-reaching of the three warfares. It involves the application of specialized information and media in accordance with a strategic goal and in support of political and military objectives.1 Such efforts are aimed at a variety of potential audiences and usually involve operational missions against an opponents psychology and cognitive capacities.

This paper, in its entirety, can be found at http://report.heritage.org/bg2821 Produced by the Asian Studies Center The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org Nothing written here is to be construed as necessarily reecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

BACKGROUNDER
No. 2824 | JULY 11, 2013

James Jay Carafano, PhD, and James Phillips

Egypt: A Way Forward After a Step Back

gypts army recently ousted President Mohamed Morsi, just as it removed Hosni Mubarak in 2011, to prevent growing civil disorder from undermining the power of the state and its own privileges within the state. The intervention was widely applauded by opposition political parties and the overwhelming majority of the millions of protesters who demanded that Morsi step down. By taking steps to preserve public order, the military could help to salvage Egypts chances of making the difficult transition to a stable democracy. Clearly, Egypt was headed for a civil war as a result of a surging rebellion against Morsis increasingly authoritarian rule. To salvage the increasingly difficult situation in Egypt, the United States should press the Egyptian military to lay the groundwork for a return to civilian rule as soon as possible, attach tighter strings to U.S. aid, and recalibrate the U.S. aid program to focus on ghting terrorism and preventing food shortagesthe chief threats to Egypts future. President Mohamed Morsi was his own worst enemy. He ruled in a secretive, authoritarian, and exclusionary manner that derailed Egypts democratic experiment and alienated far too many Egyptians, even some of his former supporters. During his year in office, he focused more on maximizing his own power and that of the Muslim Brotherhood than on addressing Egypts worsening economic, social, and political problems. When challenged, he arrogantly ignored, marginalized, and demonized

Key Points

Egypts army was justified in ousting President Mohamed Morsi, whose increasingly authoritarian rule was leading Egypt into a civil war. The army, however, is sitting on a volcano and knows it. The U.S. must recognize that Egypt is much closer to becoming a failed state or economic basket case than it is to becoming a genuine democracy. To salvage the increasingly difficult situation in Egypt, the United States should press the Egyptian military to lay the groundwork for a return to civilian rule as soon as possible. Washington should attach tighter strings to U.S. aid and recalibrate the aid program to focus on fighting terrorism and preventing food shortagesthe chief threats to Egypts future. No amount of aid from Washington can resolve Egypts deep economic problems, but the U.S. can encourage Cairo to undertake free-market economic reforms to rejuvenate its economy.

Morsis Threat to Democracy

This paper, in its entirety, can be found at http://report.heritage.org/bg2824 Produced by the Douglas and Sarah Allison Center for Foreign Policy Studies The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org Nothing written here is to be construed as necessarily reecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

BACKGROUNDER | NO. 2824 JULY 11, 2013

opposition political parties, which he linked to foreign conspiracies. Under these conditions, Egypts army justiably intervened to restore order in support of the majority of Egyptians who were rebelling against an Islamist authoritarian regime. On July 3, Egyptian Defense Minister General Abdel-Fattah el-Sissi announced that Morsi, who had failed to meet the demands of the people, was relieved of his duties and that the Islamist-written constitution was suspended. Unlike Gamal Abdel Nassers coup in 1952 or the 2011 coup that brought down Hosni Mubarak, this time the military sought the endorsement of religious leaders, political leaders, and youth activists, many of whom shared the stage when General el-Sissi announced Morsis ouster in a televised statement.

During his year in office, Mohamed Morsi focused more on maximizing his own power and that of the Muslim Brotherhood than on addressing Egypts worsening economic, social, and political problems.
The next day, the military authorities announced that Adly Mansour, chief justice of the Supreme Constitutional Court, had been sworn in as interim president. Mansour is a little-known but respected low-key technocrat. As a judge, he could be well suited to steering the writing of a new constitution to replace the Islamist document that Morsi had rammed through in December. mr. Mansour pledged to continue the democratic reforms of the 2011 revolution so that we stop producing tyrants and said that new elections were the only way forward, although he gave no indication of when they would be held. President Mansour initially chose former opposition leader Mohamed el-Baradei as prime minister of the interim government on July 6, but this appointment was later rescinded under pressure from the Nour Party, one of the few Islamist groups that supported the coup. Baradei, a secular liberal who led the National Salvation Front, a coalition of
1.

leftist and liberal parties, frequently clashed with the United States over the Iran nuclear issue when he led the International Atomic Energy Agency. It is expected that President Mansour will soon announce the formation of a new government with a cabinet composed of technocrats and caretakers. Morsi has been detained at an undisclosed location. The authorities have sought to arrest more than 200 top leaders of the Muslim Brotherhood and other Islamist organizations on charges of inciting their followers to kill anti-Morsi demonstrators, but Islamist leaders have vowed not to give up without a ght. Mohammed Badie, the supreme leader of the Muslim Brotherhood, has called for continued protests until Morsi is reinstated as president. Speaking at Cairos Rabaa Mosque during a demonstration on Rejection Friday, Badie warned, We are all willing to sacrice our necks and our souls for him.1 Tens of thousands of Morsi supporters poured out of mosques on Friday to protest Morsis ouster. ProMorsi demonstrations were quickly countered by anti-Morsi protests in a highly charged atmosphere that degenerated into widespread clashes, leaving at least 36 dead and more than 1,000 injured. On Monday, at least 51 of Morsis supporters were killed when troops responded to an attack on the Republican Guard headquarters where Morsi was last seen before his ouster. Egypts mushrooming political violence will be hard to control. Even in the unlikely event that the Muslim Brotherhood reins in its members as part of some deal to allow it to compete in future elections, more radical Islamists are sure to push back violently. Islamist militants in the northern Sinai, a hotbed of Islamist extremism, launched coordinated attacks against police facilities and an airport at El Arish, the provincial capital. Ansar al-Sharia in Egypt (Supporters of Islamic Law), a new Islamist group, announced its formation on an online forum for militants in the Sinai region and proclaimed that it will gather arms and train recruits for a jihad against Egypts new government. Similar organizations in Libya, Yemen, and Tunisia have served as front groups for attracting recruits to al-Qaedalike terrorist organizations.

Matt Bradley, Tamer El-Ghobashy, and Reem Abdellatif, Post-Coup Violence Spreads in Egypt, The Wall Street Journal, July 6, 2013, http:/ / online.wsj.com/article/SB10001424127887323899704578587131736732940.html (accessed July 8, 2013). 2

BACKGROUNDER | NO. 2824 JULY 11, 2013

Islamist militants will likely soon expand their attacks beyond the Sinai region to include army, police, and government facilities; anti-Morsi political groups; symbols of the anti-Morsi revolution such as Tahrir Square; and symbols of foreign conspiracies such as the U.S. embassy, American companies, and other Western companies. Egypts Coptic Christian minority, about 10 percent of Egypts more than 80 million people, will likely become even more of a lightning rod for terrorist attacks. Islamists charge that Egypts ancient Christian community was complicit in inciting protests to bring down Morsi. There will likely be a surge in anti-Christian attacks, particularly in southern Egypt, a focal point for sectarian violence. The splintered Islamist movement is by no means unied in support of Morsi. The Nour Party, a Salast movement that favors the immediate imposition of Sharia law and resented Morsis high-handed efforts to monopolize political power, joined non-Islamist opposition parties in pushing for early elections. Other Islamists will likely increasingly criticize and ostracize the Nour leaders, who supported the military intervention. An outburst of violence by Islamist extremists could open a dangerous new chapter in Egypts unnished revolution. Left unchecked, it could devolve into an even bloodier version of Algerias civil war, which has consumed more than 100,000 lives since the Algerian Army stepped in to avert an Islamist election victory in 1991. Egypts army is sitting on a volcano and knows it. Egypt has fallen into dire economic straits, and political stability will likely be elusive until the countrys worsening economic situation is reversed. Nearly one-quarter of Egypts workers are unemployed, and the gure is much higher for young men, who form the shock troops for street protests. Egypts economic woes have created a huge reservoir of unemployed youth who are vulnerable to the siren call of radical ideologies, particularly Islamist extremism. The political turmoil and rising crime rates of the past two years have severely hurt tourism, which formerly generated the bulk of Egypts foreign currency earnings and provided jobs to about one of every seven workers. Morsi further sabotaged the tourism industry by appointing as governor of Luxor

Province a member of the Islamist terrorist group that massacred 62 tourists in Luxor in 1997not exactly a reassuring signal for nervous tourists. Islamist extremists will likely target tourists once again to undermine the new government.

The army cannot stabilize Egypt without resolving Egypts worsening economic problems, which will require considerable American and international support.
Egypt is imploding in a bitter political struggle fought amid economic collapse, social turmoil, surging crime rates, widespread unemployment, falling standards of living, and rising sectarian tensions. The imminent bankruptcy of Egypts state-dominated economy could quickly lead to catastrophic food shortages, bread riots, labor strikes, and growing political polarization. Foreign currency reserves are nearly exhausted, which will make it difficult to pay for wheat imports, which provide nearly half of Egypts food consumption. The army needs to put Egypts house in order quickly and then get out of the way. It inevitably will lose popular support the longer it rules, as it did between Mubaraks fall in February 2011 and Morsis purge of top army leaders in August 2012. The army can only do so much to repair Egypts dysfunctional political system. Moreover, it cannot stabilize Egypt without resolving Egypts worsening economic problems, which will require considerable American and international support.

Sitting on a Volcano

Egypt, the largest Arab country, is a bellwether for the Arab Middle East. The United States has a national interest in stabilizing Egypt, preventing the rise of an Islamist totalitarian state, and preventing the eruption of a full-blown civil war on the scale of Algerias in the heart of the Arab world. Washington also has a humanitarian interest in preventing food shortages if Egypts social fabric continues to unravel. The Obama Administration has been asleep at the switch for much of the past two years. It eagerly
3

U.S. Help Needed in the Struggle for Freedom

BACKGROUNDER | NO. 2821 JULY 11, 2013

very perceptions that inform decision making, from the context to the biases. Successful psychological operations will therefore have repercussions at every level of operations, inuencing the course of the conict. To be effective, however, psychological warfare operations cannot be limited to wartime. Instead, peacetime psychological operations are necessary, both to understand an opponent better and to lay the groundwork for effective wartime operations.

PLA writings emphasize that modern information technology blurs the lines between peacetime and wartime, between military and civilian, and among strategy, operations, and tactics.
Peacetime applications of psychological warfare techniques involve inuencing and altering an opponents unconscious, implicit views in order to make that opponent more susceptible to coercion. By employing various forms of strategic communications, including diplomatic efforts, one can foster a positive national image and increase foreign sympathy and support for ones own policies and goals. At the same time, such techniques attempt to isolate opponents, undermining their positions, portraying them as fostering ill intentions, and forcing them to react to a variety of charges so that their energy is dispersed. In addition, employing all the tools of communications, including various forms of media, emphasizes ones own strengths as well as a willingness to employ that strength to deter and coerce opponents more effectively. All the while, one must be working to counter opponents efforts to foster their own image of strength and unity. It is also likely that an opponent will attempt to demoralize ones populace and that appropriate defensive measures will have to be taken. In wartime, psychological operations shift emphasis towards more specically military targets and goals. The primary objective of such efforts is to generate confusion, doubt, anxiety, fear, terror,

regret, and exhaustion in an opponent, especially among senior military and civilian leaders. Ideally, such a campaign will induce neglect and maximize the chances of an opponent making mistakes. Wartime psychological warfare operations also aim to generate a sense of uncertainty and indecisiveness at all levels, thereby degrading opposition decision-making processes. The ability to interfere with an opponents information systems, coupled with efforts to inuence decision makers, can create a strong psychological impact. Another facet of wartime psychological operations is the sowing of discord and a sense of hopelessness in the enemy. Not only will this help generate war-weariness among enemy forces and populations and discourage resistance, but once the conict is concluded, such operations may facilitate peace negotiations and induce more concessions. When one defeats the enemy, it is not solely by killing the enemy, or winning a piece of ground, but is mainly in terms of cowing the enemys heart.6 In order to undermine the opponents morale, one must emphasize information favorable to oneself through various forms of media as well as through third parties, friendly elements in the opponents society, and similar outlets. Finally, offensive psychological warfare operations must be complemented by defensive measures, since an opponent will also be trying to undermine ones own forces, population, and leaders. One must therefore attempt to solidify popular support for the conict, highlight ones successes and the enemys failures, and instill condence and support for the Party and the state. Such defensive measures require tight control of information ows in ones own society and the insulation of ones decision-makers and decision-making processes from enemy information warfare efforts. This need for control explains Beijings efforts to limit cyber access to the larger population, including the Great Firewall of China.

Chinese Concept of Psychological Warfare Tasks

For the PLA, psychological warfare is the resposibility of the General Political Department (GPD), working in coordination with the rest of the PLA. The GPD not only ensures political orthodoxy

6. Guo, Psychological Warfare Knowledge, p. 14. 3

BACKGROUNDER | NO. 2824 JULY 11, 2013

embraced Morsis Muslim Brotherhooddominated government and was surprised that Egypts people so quickly became violently opposed to Islamist rule. The Administration gambled that the practical responsibilities of governing would dilute the hostile anti-Western ideology of the Muslim Brotherhood. Yet once in office, Morsi relentlessly expanded his own power in a winner-take-all manner while neglecting Egypts festering economic problems. The Obama Administrations enthusiasm for the Muslim Brotherhood led it to turn a blind eye to Morsis power grabs, the rising persecution of Egypts Coptic Christian minority, the crackdown on pro-democracy nongovernmental organizations (NGOs) that the Mubarak regime formerly tolerated, and the restrictions that the Morsi government placed on freedom of the press, freedom of speech, and freedom of religion. The Obama Administration failed to publicly criticize Morsis excesses, power grabs, and abuses. This led Egypts secular and liberal opposition to turn to Egypts army in despair, angry that the Obama Administration uncritically supported the Morsi regime. Many protesters demonstrating against Morsi before the coup also carried signs protesting President Obamas support for the Morsi regime. Morsi, for his part, felt no need to compromise with the opposition or temper his Islamist ambitions because the Administration was reluctant to use the leverage afforded by $1.5 billion in annual U.S. aid to Egypt. Secular, democratic, and liberal Egyptians opposed to an Islamist takeover should be natural allies of the U.S., not leading a backlash against American policy. The fact that Egyptians resent the Obama Administrations courting of the Muslim Brotherhood should be a wake-up call for the White House. It is a sad sign that U.S. policy toward Egypt has gone off the rails. Egyptian advocates of freedom should know that Americans support their efforts and do not side with an Islamist authoritarian leader who is hostile to American values and policies. The United States should support freedom in Egypt to advance its own interests as well as those of the Egyptian people. The interim government established by the army has a better chance of laying the groundwork for a democratic transition than did Morsis regime, which was headed for dictatorship.

Military coups have advanced the prospects for democracy at least two times in the past: Portugal in 1974, and Egypt in 2011. It remains to be seen whether Egypts latest coup will succeed in salvaging Egypts dim democratic prospects. However, General el-Sissi reportedly was a student at the U.S. Army War College in 2006, in which case he may have absorbed the professional standards and nonpartisan apolitical tradition of the U.S. Army. In any event, Egypts military leaders are much more likely than Morsis cronies to advance freedom in Egypt, support economic reforms to revive the economy, and play a stabilizing role in the volatile Middle East.

What the U.S. Should Do

In addressing Egypts deepening crisis, the United States should:

Press Egypts army to hold elections and step aside as soon as possible. General el-Sissis road map for a democratic transition included no dates. President Mansour has laid out a vague timetable for a constitutional referendum in four and a half months and parliamentary elections in six months. Washington should urge the interim government to adhere to this timetable. It should also nd an inclusive way of writing a new constitution to establish the rules of the political competition before elections. The lack of a shared understanding of the rules of the game enabled Morsi to stage a power grab. The Administration has called for a transparent and inclusive political transition process, but the Muslim Brotherhood and other Islamist parties should be allowed to participate only if they publicly choose a path of nonviolence. Attach tight strings to any U.S. aid. The Obama Administration has stopped short of calling the armys intervention a coup to avoid triggering an aid cutoff. Section 7008 of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2012, as contained in the Consolidated Appropriations Act, 2012, bars any assistance to the government of any country whose duly elected head of government is deposed by military coup dtat or decree or, after the date of enactment of this Act, a coup dtat or decree

ISSUE BRIEF | NO. 3978 JUnE 27, 2013

pollutants. By the agencys own admission, the rule will cost $10 billion by 2015 but have only $6 million in purported benets from mercury reductions.7 In addition, the EPA is also regulating coal combustion residues and cooling water intake structures and is considering more stringent smog standards, all of which make the use of coal power more expensive. Most recently, the Supreme Court granted the EPAs request to review its cross-state air pollution rule, which would compel companies to retire three to seven gigawatts of electricity generation and retrot up to 576 plants.8 In the absence of these new regulations, U.S. air quality has improved signicantly over the past several decades. Emission of toxic pollutants has dropped as much as 96 percent since 1980.9 The attack on coal reaches well beyond power plant construction and operation. Although not a new problem, regulations from the Office of Surface Mining Reclamation and Enforcement and the Mine Safety and Health Administration make building new coal mining operations or expanding existing operations increasingly difficult.10 Coal mining operations are subject to 10 federal environmental laws as well as state requirements and regulations. Climate Policy and Coal. While it may not be clear exactly which policies will be used, it seems clear that zeroing-out coal-red electric power plants is a goal of this Administrations environmental team.

This paper will analyze the economic impact of setting such a target. We look at the rst 16 years of a 20-year phase-out of coal power: 20152030. The analysis shows signicant economic losses extend beyond the obvious areas of coal mining and power generation. In particular, we nd that by 2030:

Employment falls by more than 500,000 jobs; Manufacturing loses over 280,000 jobs; A family of fours annual income drops more than $1,000 per year, and its total income drops by $16,500 over the period of analysis; Aggregate gross domestic product (GDP) decreases by $1.47 trillion; Electricity prices rise by 20 percent; Coal-mining jobs drop 43 percent; and Natural gas prices rise 42 percent.

The Energy Markets Respond. The analysis was carried out using the Heritage Energy Model (HEM).11 As coal-red power generation is ratcheted

1. 2. 3. 4. 5. 6. 7.

Senator Barack Obama (DIL), interview with the San Francisco Chronicle editorial board, January 17, 2008, http:/ /www.youtube.com/ watch?v=DpTIhyMa-Nw (accessed June 26, 2013). Aaron Blake, Obama Science Adviser Calls for War on Coal, The Washington Post, June 25, 2013, http:/ /www.washingtonpost.com/blogs/ post-politics/wp/2013/06/25/obama-science-adviser-calls-for-war-on-coal/ (accessed June 26, 2013). Institute for Energy Research, North American Energy Inventory, December 2011, http:/ /www.energyforamerica.org/wp-content/ uploads/2012/06/Energy-InventoryFINAL.pdf (accessed June 24, 2013). To date, no one has successfully operated a utility-scale carbon-capture power plant. Perhaps even more problematic is how to dispose of the 1520 super tankers worth of liquid carbon dioxide that widespread carbon capture would create. Under the proposed rule, those plants already in the permitting process would not be included. U.S. Department of Energy, Energy Information Administration, What Is the Role of Coal in the United States? July 18, 2012, http:/ /www.eia. gov/energy_in_brief/article/role_coal_us.cfm (accessed June 24, 2013). Anne E. Smith, Technical Comments on the Regulatory Impact Analysis Supporting EPAs Proposed Rule for Utility MACT and Revised NSPS (76 FR 24976), NERA Economic Consulting, August 3, 2011, http:/ /www.nera.com/nera-les/PUB_Smith_EPA_report_0811.pdf (accessed June 24, 2013). North American Electric Reliability Corporation, 2010 Special Reliability Scenario Assessment: Resource Adequacy Impact of Potential U.S. Environmental Regulations, October 2010, http://www.nerc.com/les/EPA_Scenario_Final_v2.pdf (accessed June 24, 2013). Steven F. Hayward, 2011 Almanac of Environmental Trends, American Enterprise Institute, April 2011, p. 34, http:/ /www.aei.org/ les/2011/04/20/Hayward-almanac2011.pdf (accessed June 25, 2013).

8. 9.

10. Nicolas D. Loris, The Assault on Coal and the American Consumer, Heritage Foundation Backgrounder No. 2709, July 23, 2012, http:/ /www. heritage.org/research/reports/2012/07/the-assault-on-coal-and-american-consumers. 11. See the appendix for a description of the HEM and the methodology used in this paper. 2

ISSUE BRIEF | NO. 3978 JUnE 27, 2013

down, HEM creates the least-cost adjustment to the lost power generation. This adjustment includes increases in natural-gas power and renewable electricity along with conservation as consumers respond to the higher energy prices. However, the adjustments do not fully compensate for the lost coal power and result in higher energy prices. By 2030, the higher electricity prices induce a 42 percent increase in the amount of wind and solar power, but this increase is from a very small base compared to coal power. The increase in all renewable power generation replaces only 4.5 percent of the lost coal power.12 An increase in natural gas production and a diversion of natural gas from other uses replaces 74 percent of the lost coal power. Increases in nuclear power close the gap about 3 percent, but that leaves about 19 percent of the lost coal power with no replacement. In addition, there is a surprisingly large increase in natural gas prices as this resource is shifted away from other uses (such as manufacturing) to power generation. The net loss in production and the associated higher prices for electricity force consumers to reduce usage. The higher cost of electricity and natural gas increases the cost of production across most of the economy. At the same time, consumers have less to spend on non-energy items. This combination reduces employment and national income. Mandates Do Not Help. The Presidents Climate Action Plan employs the same wishful thinking on efficiency mandates as previous climate policies. The fallacy here is assuming that efficiency standards for buildings, appliances, and vehicles would reduce the cost of meeting the energy cuts necessitated by

the carbon policy. The logic of efficiency mandates assumes consumer indifference to energy efficiency. However, there is already a robust demand for costeffective energy efficiency. Indeed, the energy used per real dollar of GDP has dropped by 48 percent since 1980.13 The attempt to soften the impact of energy cuts with efficiency mandates is like an employer trying to soften the impact of a 30 percent pay cut by telling employees that they have to shop at discount stores. Employees already shop at discount stores when it makes sense. Likewise, manufacturers make the costly efficiency improvements when the energy savings justify the additional expense. Efficiency mandates actually increase the cost of meeting carbon reduction targets by forcing technologies whose cost is not fully offset by savings. This perverse impact is known to both liberal and conservative economists.14 A Salvo in the War on Coal. The Presidents recently released Climate Action Plan continues his Administrations war on coal. Though other aspects of the plan would add even more costs, our analysis shows that the war on coal would cut GDP by $1.47 trillion, raise electricity prices by 20 percent, cut employment by over 500,000 jobs, and decimate the coal industry. A family of four would lose more than $1,000 per year on average for the years 2015 to 2030. David W. Kreutzer, PhD, is a Research Fellow for Energy Economics and Climate Change in the Center for Data Analysis, Nicolas D. Loris is Herbert and Joyce Morgan Fellow in the Thomas A. Roe Institute for Economic Policy Studies, and Kevin D. Dayaratna is Research Programmer and Policy Analyst in the Center for Data Analysis at The Heritage Foundation.

12. Natural gas replaces more coal power than renewables do because gas is a generally cheaper option. For an explanation of wind powers high cost, see George Taylor and Thomas Tanton, The Hidden Costs of Wind Electricity: Why the Full Cost of Wind Generation Is Unlikely to Match the Cost of Natural Gas, Coal or Nuclear Generation, American Tradition Institute, December 2012, http:/ /www.atinstitute.org/wpcontent/uploads/2012/12/Hidden-Cost.pdf (accessed June 25, 2013). 13. U.S. Department of Energy, Energy Information Administration, Monthly Energy Review, June 25, 2013, Table 1.7, http:/ /www.eia.gov/ totalenergy/data/monthly/pdf/sec1_16.pdf (accessed June 26, 2013). 14. For instance, see Adele Morris, Fuel Efficiency Standards: A Detour from the Cheapest Climate Protection, Brookings Institution, February 3, 2009, http://www.brookings.edu/opinions/2009/0203_climate_change_morris.aspx (accessed June 24, 2013). 3