Ecominds-a Mailing List: A quick look at Cap and Trade costs by the Economist magazine blog

[Ralph Wyman (rwmuusja]

[Agenda and reminder about tomorrow evening's EcoMinds meeting (First Univ,
7 pm - potluck @ 6) will be posted soon.  For now, here's a quick overview
of one analysis of the retail costs of proposed Cap and Trade costs. -R]


"Cap-and-trade is pretty cheap"

Posted by: Economist.com
Categories: Climate change
11/3/09

LAST week James Inhofe, a Republican senator from Oklahoma, told a
subcommittee that the Kerry-Boxer cap and trade bill would "destroy jobs,
weaken our national security, and raise electricity prices for consumers."
Now PointCarbon, a carbon-market research firm, has released a study on the
effects the cap-and-trade bill would have on major carbon-emitting
businesses. It estimates carbon permits under the bill will average $15 per
tonne from 2012-19. And what does that mean for Mr and Ms Commuter?

A $15 price  of carbon translates to a 13 cents per gallon increase at the
pump (5 percent of current gas prices), an amount negligible compared to
price changes induced by the volatility on oil markets.

Hm. That doesn't sound very job-destroying. Perhaps the job-destroying parts
are buried elsewhere in the bill. How about electricity prices? The report
estimates electricity will increase less than $5/MWh in the hydropower-rich
Pacific Northwest, $8-13/MWh in most of the country, and a maximum of
$17/MWh in a few sparsely populated states (Kansas, Wyoming, New
Mexico). Annual household energy use runs from about 5 MWh in New York City
to about 16 MWh in Dallas. So we're talking somewhere in a range from less
than a hundred to a few hundred dollars a year, without factoring in the
redistribution of the permit revenues, which will mean many households come
out ahead.

Okay, that's the consumer side. But what about businesses? Perhaps the
job-destroying will come through lowered profits? Well, oil companies will
be able to recoup essentially all of the cost of permits by passing them on
to consumers, though revenues will presumably shrink as consumers cut back
on gas, which is the whole point. Power generators, too, will essentially
pay for permits by raising electricity prices. But because this drives up
prices across the board, generators who don't have to buy permits because
they don't emit much carbon will see their profits rise.

A company with a low-carbon fleet (nuclear, renewable or even natural gas)
in a market where prices are set at the margin by electricity from
coal-fired generation will potentially recover more than its actual costs
because it will benefit from the larger price increase without having to pay
for as many allowances.

And, yes, there's a chart:
http://media.economist.com/images/jpg/full%20chart%20energy.jpg

That blue dot at lower left? That's Exelon increasing its revenues by $1.7
billion and hence its operating profit by 36%.

I suppose it'll be easy enough for Mr Inhofe and other opponents of doing
anything about global warming to gin up studies showing how these minor
increases in energy prices will mean the end of the American economy and ya
di da. (The figure they're going with is 2.5m jobs destroyed, which seems
like overplaying your hand. If 13 extra cents per gallon could destroy 2.5m
jobs, there'd be nobody left working in America.) More plausibly, the
problem with these kinds of costs is that it's very hard for customers to
pick their energy provider. With most kinds of goods, firms that could
produce at lower cost (by having low carbon emissions) would be able to
offer their electricity at a lower price and beat the competition.

But electricity doesn't work that way in most markets. That creates
political resistance because people feel they are held hostage by their
energy company and have to vote to subsidise its poor environmental
decisionmaking or pay the price themselves. For instance, Mr Inhofe's
Oklahoma will see its electricity prices rise a relatively high $10-13/MWh.
The politics of the issue might be different if it were easier to get
electricity from one place to another and more people really could choose
their providers. Another reason to improve the national electric grid!

http://www.economist.com/blogs/democracyinamerica/2009/11/capandtrade_is_pre
tty_cheap.cfm