The Heritage Foundation recently published a faulty report on the economic effects of the EPA's forthcoming carbon pollution regulations, and its findings have been repeated uncritically in conservative media despite the foundation's fossil fuel funding and the report's “deeply problematic” analysis.

The Heritage Foundation released their new report, titled “EPA's Climate Regulations Will Harm American Manufacturing,” just as House Republicans have been ramping up their latest effort to overturn the U.S. Environmental Protection Agency's (EPA) carbon pollution regulations. On March 6, the House passed a bill that would heavily weaken the Clean Air Act and would “seriously cripple the Obama Administration's ongoing drive to curb dangerous carbon pollution,” according to Dan Lashof of the NRDC (the bill is not expected to pass the Senate). This is part of the GOP's effort to curb what they call President Obama's “war on coal,” a slogan the Heritage Foundation repeats in their report.

Many of the criticisms of the EPA's carbon pollution rules are misleading, but perhaps none are more so than those from the Heritage Foundation, an organization whose studies have previously been criticized by even the conservative American Enterprise Institute and libertarian Cato Institute. This time the organization released a report on the EPA with findings even more dire than its prematurely released data: that carbon regulations will reduce income, kill nearly 600,000 jobs including 336,000 manufacturing jobs in 2023 alone, cut a family of four's income by $1,200 a year, and cost the U.S. economy a total of $2.23 trillion. Their claims were repeated uncritically in the Daily Caller, FoxNews.com, and Politico's Morning Energy. But the entire report is “radically problematic” and has a “tenuous connection with reality,” according to policy expert Michael Livermore in a phone call with Media Matters -- and here's why:

It Doesn't Include Any Benefits

The benefits of clean air standards have been shown time and time again to significantly outweigh the costs. In fact, the Clean Air Act has already saved $22 trillion in healthcare costs, according to a cost-benefit analysis from the EPA.

And health experts agree. According to a press release from the American Lung Association (ALA), the carbon regulations would help prevent “more than 16,000 premature deaths by 2030,” due to lower levels of the particulate-forming pollution that comes from burning coal:

"Roughly half of the population in the United States currently lives in areas with unhealthy levels of air pollution that is linked to serious illnesses, including asthma attacks, lung cancer, heart attacks, strokes and even death. Children are particularly susceptible to the health effects of air pollution because their lungs are still developing. Carbon pollution that fuels climate change will make it harder to achieve healthy air for all.

"Researchers have estimated that safeguards enacted now to reduce greenhouse gases - including carbon pollution from all sources in the U.S. - would prevent more than 16,000 premature deaths by 2030. The lives would be saved as a result of reductions in the ozone, and particulate-forming pollution that is also reduced as carbon is reduced. Cleaning up carbon pollution from power plants is essential to saving those lives.

It seems the Heritage Foundation does not believe there will be any benefits to clean air, as they do not include any benefits in their analysis of the carbon pollution regulations.

It “Radically” Overstates The Costs And Job Losses 

Michael Livermore, Senior Advisor at New York University's Institute for Policy Integrity, explained in a phone call that “even as a cost prediction, [the report is] very inaccurate because it doesn't paint a complete picture about how the economy is going to respond.” He expanded (edited lightly for clarity):

One reason it overstates the cost is because it doesn't account for productivity gains that are associated with clean air benefits [...] They're only looking at ways in which productivity might be reduced because of energy prices but they're not looking at ways in which productivity can be increased because people are healthier and live longer.

In addition to that, they're not accounting for -- as far as I can tell -- the various ways that in a dynamic economy, labor markets and technology will adapt to the agency's greenhouse gas regulations.

[...]

They assume that any transitions that occur within the energy sector will propagate out to other sectors of the economy and basically act like a shock that's going to reduce employment everywhere. And again, that's not really accurate, that's not how labor markets work, they're holding things constant like macroeconomic policy and the business cycle, all of which are other compounds that are going to affect the employment rate. So their model has a very tenuous connection to reality in terms of anything that's going to happen that they're predicting, with any degree of accuracy in terms of employment.

And in fact, other models which are more empirically grounded find that when you impose regulatory requirements on firms they're just as likely to hire more workers as they are to lay workers off -- and these are in the most highly regulated industries -- because you have to hire workers to comply with environmental statutes. So for example, yes, it might be the case that some coal miners might need to be laid off and need to transition to other forms of employment, but there's also going to be work building new gas fired power plants and energy efficiency retrofits. 

[...]

So those two countervailing effects, for the most part, most serious economists will argue that our best estimate of the net effect is zero. That any of the employment effects are going to wash out. Because we don't know if there's going to be negative employment effects, but if there are, they're usually going to be associated with countervailing employment effects that are positive. And there's macroeconomic policy like interest rates, like government spending, like taxation, like trade, all of which are going to affect the employment rate far, far more than anything that's going to happen at the regulatory level.

Its Findings Run Contrary To Three Other Independent Studies 

In January 2014, Resources for the Future (RFF), a nonprofit that conducts independent research on environment and energy issues, published a report on the costs of carbon regulations under the EPA's Clean Air Act. They found, contrary to the Heritage Foundation, that the carbon standards will result in “very small changes in average electricity prices” as a likely outcome, and predicted “positive and large” net benefits in every scenario.

The Clean Air Task Force -- a public health and environment advocacy group comprised of engineers, scientists, and specialists -- similarly found in a February 2014 study conducted by The NorthBridge Group that a “highly cost-effective approach” to carbon regulations under the Clean Air Act is feasible: 

Simply by setting performance standards that result in displacing electricity generated by high emission rate coal-fired power plants with generation from existing currently underutilized, efficient natural-gas power plants, the U.S. can realize significant, near- term reductions in carbon pollution at a minimal cost.

[...]

The analysis predicts that the CATF proposal will: 

• Decrease by 2020 of 27%, or 636 million metric tons of CO2, from 2005 levels; 
• Avoid 2,000 premature deaths and 15,000 asthma attacks annually as a result of the annual reductions of over 400,000 tons in sulfur dioxide (SO2) emissions and nitrogen oxides (NOx) emissions in 2020; 
• Result in monetized health and climate benefits of $34 billion, which is over three times the cost of compliance;
• increase in average nationwide retail electric rates by only 2% in 2020 which, based on Energy Information Administration forecasts, should result in no net increase in monthly electric bills.

Finally, the Natural Resources Defense Council crafted a proposal to support the EPA's goal of reducing carbon emissions, resulting in net benefits that outweigh the costs “as much as 15 times.” 

It Has No Transparency

In the “Methodology” section, the Heritage Foundation writes that their analysis uses the self-named “Heritage Foundation Energy Model (HEM),” which they allege is “a derivative of the federal government's National Energy Model System,” or NEMS. The organization claims HEM is “identical to NEMS with the exception of the Commercial Demand Module.” But they are sure to include a disclaimer:

The methodologies, assumptions, conclusions, and opinions in this Backgrounder are entirely the work of statisticians and economists at The Heritage Foundation's Center for Data Analysis (CDA) and have not been endorsed by, and do not necessarily reflect the views of, the developers of NEMS.

The entirety of the Foundation's report is based on the use of their self-derived model. Livermore said that because of the unclear modifications, he would “treat this as the Heritage Foundation energy model” rather than any acclaimed model. He added, “Because we don't know the changes, it's their own credibility that it's based on, not the U.S. government. We have to evaluate how much we trust it based on how much we trust the Heritage Foundation to provide a neutral analysis.”

It Has A Financial Incentive To Mislead

The Heritage Foundation has opposed efforts to limit greenhouse gas emissions, which could threaten the profit margins of oil industry executives. Their funding sources are revealing -- Heritage received funding from ExxonMobil until at least 2012 and has received over $4.5 million from Koch Foundations as of 2011.  In fact, one of the two co-authors of their study, Nicolas Loris, used to work at the Charles G. Koch Charitable Foundation.

Heritage casts doubt on the scientific consensus on manmade global warming. They run an online database of policy “experts” featuring climate contrarians such as Cato Institute's Patrick Michaels, Heartland Institute's Joseph Bast, CEI's Myron Ebell and Chris Horner, and JunkScience.com's Steve Milloy (who was recently hired by a coal company to mislead on climate change). A senior analyst from the organization once accused U.N. scientists of conspiring to “manufacture a global warming crisis.”

Heritage also repeatedly cites uncertainty in climate models as a reason to not act, yet the organization seems awfully confident about basing climate policy on its uncertain economic models.