A Free-Market Energy Blog

Obama’s Energy Plan to Plug California Leakage (to Texas)

By Wayne Lusvardi and Charles Warren -- June 24, 2014

“A government is the only known vessel that leaks from the top,” newspaper journalist James Reston once wrote.

There could be no more apropos example of this than Barack Obama’s new proposed rules to mothball “dirty” coal power plants; to reduce CO2 power plant emissions 30 percent from their 2005 level by 2030; and to set voluntary targets for the percentage of renewable energy in each state by 2029.

Obama’s new push is an attempt to address leakage, at least within the United States. The term is not meant to describe the leakage in a high-voltage electric transmission line that can cause fires, damage, or electrocution. Rather, it is meant to describe the migrating of jobs, industries, population, and votes to other states due to planned higher electricity rates mainly in California and other Blue states as a result of forcing a shift to inferior renewable energies.

California Wins, Neighbors Lose

Tell-it-like-it-is economics writer Robert J. Samuelson has noted the inequity of Obama’s Climate Plan for California versus neighboring states. Consider the following:

* California has no large in-state coal power plants connected to the power grid, although several cities in Los Angeles County get their power from coal-fired power plants in Nevada, Arizona and Utah under contracts pending expiration by 2020.

· Roughly 80 fossil-fuel power plants in California subject to 30 percent reduction in C02 emissions from 2005 would be normally retired by 2030 and replaced with more energy efficient natural gas power plants and unreliable wind and solar power plants.

· The setting of a 34.1 percent renewable energy target for California by 2029 would be mostly superfluous because the state is on course to reach 33 percent by 2020. However, the renewable energy target of 91.7 percent for the State of Washington and 85.3 percent for Oregon may reduce cheap hydropower availability to California because these states would have to use their cheap hydropower to meet Obama’s new renewable power goals. Conversely, Arizona’s target would be 10.9 percent and Utah 6.9 percent. The inconsistency in percentages seems to be to cut California off from the cheapest electricity source of hydroelectric power.

· The highly touted $90 billion in nation-wide health care savings from less pollution would have occurred anyway as old plants are mothballed and, moreover, such claims are superficially plausible, but empirically exaggerated.

Adds Samuelson: “Whether [Obama’s power plant rules] would affect the world’s climate is more questionable.”

The potential big impact for California could be in less availability of cheap hydropower from Washington and Oregon, especially during cold snaps or heat waves. Washington and Oregon, however, would be prone to keep their cheap hydropower to meet their high renewable energy targets. Today, Washington and Oregon produce 57 and 49.9 percent hydropower respectively.

Existing Renewable Energy Level, Proposed Renewable Energy Generation Goals With and Without Hydropower (percent of annual generation.

(A) State (B) Party (C) Renewable Energy Performance Level – No hydro (D) Proposed Renewable Energy Generation Goals Excluding Hydropower (E) Proposed Renewable Energy Targets Including Hydropower
Year-> 2012 2020 2029 2020 2029
California Dem. 15% 20% 21% 32.5% 34.1%
Oregon Dem. 12% 19% 21% 79.7% 85.3%
Nevada Dem. 8% 14% 18% 17.6% 25.2%
Washington Dem. 7% 12% 15% 85.5% 91.7%
Utah Rep. 3% 5% 7% 5.5% 6.9%
Arizona Rep. 2% 3% 4% 9.3% 10.9%
Source: Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electricity Generation Units, Proposed Rule 2014, U.S. EPA and GHG Abatement Measures, U.S. EPA, June 2014.

California does not count hydropower under its Warming Solutions Act of 2006. However, the U.S. EPA’s draft new renewable energy targets for each state leave it open whether hydropower will count or not.

Claiming the Health High Ground?

Pres. Obama legitimized his new rules on the basis of public health: “In America, we do not have to choose between the health of our economy and the health of our children” he said. EPA head Gina McCarthy claimed that the new changes would result in $90 billion in climate change health care savings. But again Obama’s and McCarthy’s rhetoric may not meet reality. Lung cancer rates are generally higher in coal power states.

But non-coal power states such as Maine and Vermont also have some of the highest lung cancer rates. Vermont already has achieved 100 percent renewables from nuclear power, hydropower and other non-fossil fuel sources.  Maine depends on a miniscule amount of coal power and already has over 60 percent renewable power from hydro and other renewables. States already with a high proportion of renewable energy such as Washington, Oregon, Maine and Vermont also have high asthma rates.

Nonetheless, McCarthy says: “The science is clear.  The risks are clear. And the high costs of climate change keep piling up.” But the science about health benefits is not clear even in those states that already have the highest proportion of renewable energy. Those states that already have high proportions of renewable energy indicate the future promised health improvements from Obama’s CO2 reductions are dubious, if not imaginary.

Climate change theory skeptic John Kehr points out in his book The Inconvenient Skeptic: The Comprehensive Guide to the Earth’s Climate, that Tropic Region around the equator has the warmest temperatures. Thus, if climate change causes global warming the U.S. could get as warm as the Tropic zone is today.

But according to Public Radio International lung cancer is mainly a disease of those latitudes north of the Tropics. The Tropic Zone has conspicuously lower lung cancer rates. If it was higher temperature alone that causes higher incidence of lung cancer then why isn’t it more prevalent already in the Tropic Zone? And asthma fatality rates are the highest in Mexico, Russia, China, South Africa, Uzbekistan, and Columbia and not in Eastern Europe, Papua New Guinea, and Chile, which have the highest smoking rates.

And Mexico, Columbia, New Guinea and Chile are all in the Tropic Zone while Russia, China, Uzbekistan and South Africa out outside the zone. So what is Obama’s energy rule really all about?

Watch Out Texas…

Cara Horowitz, Executive Director of the Center on Climate Change and the Environment at UCLA School of Law, notes:

Concerns about leakage have been one of the motivations all along for California hoping it wouldn’t have to go it all alone. Leakage is a real risk to California if it continues to be well out in front on the climate change question.

If the EPA rule becomes final, she adds, “California becomes less likely to lose business to Texas.”

Mary Nichols, Chair of the California Air Resources Board, states the intent of Obama’s new energy plan differently: “Requiring the use of renewable power and ‘energy efficiency’ is exportable.” What she means is exporting California’s high electrical energy prices to other western states that have the competitive advantage of cheap coal, hydro, nuclear, and natural gas power.

States that generate enough electric energy to meet their consumption such as Washington, Oregon, Arizona, Utah, and Texas would have to play by the rules of those western states that are not self-sustaining: California, Nevada and Colorado. By keeping the cost of electrical energy high like California in all western states there is less likelihood of leakage of cheap electricity, jobs, votes, and population shifts to other states. But this will likely just spur offshore leakage of industries to Mexico or Asia.

Trade protectionism and indirect government set high price ceilings on power rates can only backfire just as many of the Obama administration’s foreign policy, health care, immigration, and other policies are unfolding before our eyes. To paraphrase an Irish proverb: “It’s no use if your roof has solar panels if you merely pass through to other electric ratepayers the shock of stepping on a leaky hot wire of high electricity rates.”* People and industries will vote with their shoes about high green power rates. *

* original: “It’s no use carrying an umbrella if your shoes are leaking.”


  1. Ed Reid  

    “Leakage” from California to Texas should be the least of our worries. Leakage from the US to China, India, etc. is a far bigger issue, for both economic and environmental reasons.


  2. Robert Helbing  

    Sorry, Ed. As a California businessowner, I can’t agree. California is shedding an enormous number of jobs to places like Texas and North Dakota. In the last 25 years, Los Angeles has grown its population by 800,000 but seen its number of jobs DECLINE by 150,000. We acquire takers and lose makers. It’s unsustainable.


  3. Wayne Lusvardi  

    Reply to Ed Reid:
    Leakage to Texas is how the policy elites in California describe the problem in their own words. They aren’t concerned about losing jobs to Mexico or Taiwan because they can just blame corporate off shoring for that. But losing jobs to Texas has negative political capital as well as hemorrhaging middle class taxpayers.


  4. Ed Reid  

    R. Helbing & W. Lusvardi,

    I am neither a CA nor a TX business owner. I certainly understand the points each of you make. However, as a US citizen and taxpayer, I view a loss of jobs to foreign sources differently than a loss to a more tax-friendly US state. I do not live in either state, so an interstate job shift is of no direct concern. If CA wishes to slit its own throat, to the advantage of TX, I have “no skin in the game”. However, if the CA jobs go to China, India, Vietnam, etc., I now have “skin in the game”.


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