WASHINGTON, Dec. 4, 2015 /PRNewswire-USNewswire/ -- The estimated benefits of the U.S. Environmental Protection Agency's (EPA) proposed rule for methane and volatile organic compounds emissions from the oil and gas sector are based on assumptions that are not reasonable and insufficiently reviewed to be used to support regulatory policy making, according to a new report commissioned by the American Council for Capital Formation (ACCF). The study, conducted by NERA Economic Consulting, analyzed EPA's use of the social cost of methane in its proposed changes to emissions standards for the oil and natural gas sector. The study found that under reasonable assumptions the EPA's proposed methane rule could lead to net costs if implemented instead of the net benefits that EPA claims.
"There is an exceptional degree of sensitivity of the net benefits estimates to alternative reasonable assumptions. This, combined with the lack of full scientific peer review of the assumptions and approach EPA used, render EPA's estimates of social costs of methane inappropriate for use in supporting major national policy decisions," said NERA Vice President Dr. Anne Smith. "Our review of a number of alternative assumptions for estimating the social cost of methane indicates a high likelihood that the Proposed Rule will result in negative net societal benefits, contrary to EPA's conclusions."
NERA study concludes that any estimate of benefits from methane reductions using the social cost of methane is highly uncertain and likely overstated for multiple reasons:
- The EPA's social cost of methane estimates are based upon a single study (Marten et al., 2014) whose estimates are significantly greater than, and inconsistent with, available estimates in other published papers.
- EPA relies on social cost of methane estimates that reflect global benefits rather than domestic benefits, a practice that is contrary to the Office of Management and Budget's (OMB's) Circular A-4 (OMB, 2003) and inconsistent with the theoretical underpinnings of benefit-cost analysis that endow the method with its ability to guide a society towards policies that will improve its citizens' well-being.
- EPA's use of social cost of methane estimates based on a 2.5% discount rate is inconsistent with the short atmospheric lifespan of methane. Its inclusion overstates EPA's social cost of methane estimates and hence its net benefits.
- EPA's use of an assumption to regarding indirect radiative forcing effects of atmospheric methane is not clearly supported by the scientific literature but increases the benefits estimates by about 40%.
- EPA's use of scenarios that assume no future emissions control policies to estimate the benefit of reducing a ton of emissions in the near-term also overstates the social cost of methane estimates.
In addition, the absence of a full scientific peer review of the methodology behind EPA's social cost of methane estimates calls into question the reliability of all of the RIA's estimated benefits and net benefits, which the NERA study demonstrates may be greatly overstated quantitatively.
"The technical flaws in EPA's benefit analysis cannot be ignored," said ACCF Senior Economic Advisor Margo Thorning. "The sweeping changes proposed in the methane emissions rule will have a severe economic impact and should be placed on hold until a more rigorous analysis can be conducted."
Download Report: Technical Comments on the Social Cost of Methane as used in the Regulatory Impact Analysis for the Proposed Emissions Standards for New and Modified Sources in the Oil and Natural Gas Sector
Founded in 1973, The American Council for Capital Formation (www.accf.org) is a nonprofit, nonpartisan economic policy organization dedicated to the advocacy of pro-growth tax, energy, environmental, trade and economic policies that encourage saving and investment.
SOURCE American Council for Capital Formation