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A utilities-only cap-and-trade

The big movement on the climate-change bill today is that various power players -- including, most importantly, Rahm Emanuel -- are talking up a "utilities-only cap-and-trade bill." To put this in the simplest terms, it would mean that we price carbon in utilities but not cars. As it happens, this isn't as big a deal as you might think. As this graph from Harvard's Robert Stavins shows that cap-and-trade would, in the first 20 years, primarily affect utilities anyway:

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That's because most of our carbon emissions come from generating electricity. The argument over SUVs might dominate the debate, but it doesn't dominate our emissions, as this graph from the U.S. Energy Information Administration shows:

energyemissions.jpeg

As David Roberts says, "cap-and-trade was always mostly about the utility sector, so if it becomes explicitly about the utility sector, it's not a total loss, if a few conditions are met." Here are the conditions:

To amount to a credible bill, a utility-only cap-and-trade system would need to be accompanied by three things:

* Measures to reduce oil use, along the lines of those Sen. Jeff Merkley (D-Ore.) proposed last week.

* Measures to increase energy efficiency, along the lines of those, um, Sen. Jeff Merkley proposed last week.

* Measures to accelerate research, development and deployment of renewable energy, in particular: a) a renewable energy standard much stronger than those now on the table, and b) substantial investment in energy R&D.

You also want the bill to be scalable: A utilities-only cap-and-trade program should be designed such that it can eventually become an economy-wide cap-and-trade program.

By Ezra Klein  |  June 21, 2010; 3:08 PM ET
Categories:  Climate Change  
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Comments

Seems to me that the major concern was the price of electricity going up. Wouldn't a util. C+P have that effect?

Posted by: DDAWD | June 21, 2010 3:14 PM | Report abuse

I still think a tax and dividend approach would be better politics and policy. The cap and trade system's success is entirely related to whether offsets are allowed. A straight carbon tax with rebate that encourages consumers to lower their personal energy use is the way to go.

Posted by: mschol17 | June 21, 2010 3:19 PM | Report abuse

This might be great- back to HCR again: "Something *is* better than nothing." The irony is that the Gulf disaster is quite unrelated to electricity generation, as is tar sands (another disaster waiting).

The problem is that as utility prices go up, industry will look to create their own onsite electrical generating capacity to offset their utility prices. Regulated not as utilities, would they escape this new legislation? Or, at the residential level, what if I decide to buy a handy dandy Honda gasoline powered generator for my home b/c my electricity bill's gotten too expensive?

Finally, what will this seeming assault on utilities do to their current conservation programs? Any chance it will diminish their efforts to seek non-carbon alternatives?

Posted by: Lonepine | June 21, 2010 3:30 PM | Report abuse

Utilities have mostly said they'd back the bill. They are looking to make large investments in aging infrastructure very soon, and more than anything they want regulatory certainty so they can work out the long-term economics of a coal vs. gas plant, or both of those vs. investment in renewables. Any price on carbon would make the lower-carbon source more attractive for long-term investment than it is now.

Posted by: wrybread1 | June 21, 2010 3:40 PM | Report abuse

"The problem is that as utility prices go up, industry will look to create their own onsite electrical generating capacity to offset their utility prices."

They'd have to rise a lot to compensate for the expense and maintenance of electricity generation, and for the expense of fuel (natural gas or diesel), given that they'd probably lose significantly more kilowatts-per-gallon than the local utility.

They could eventually simulate the distribution and load-balancing of the local utility. If you've ever tried to keep generators gassed up 24/7 for the house, you realize you end up spending more for electricity doing it that way. Not sure about high-end natural gas generators, but I expect it's still more expensive than just paying for the electricity directly. That gap, plus the cost of equipment and maintenance, plus 10%, is probably the level at which prices could rise before people started actively seeking to generate their own power. Thus, that would be the point at which they'd have to worry about regulating individual or company-based power generation.

Posted by: Kevin_Willis | June 21, 2010 3:53 PM | Report abuse

Really ?

How come page 7 of
http://www.eia.doe.gov/oiaf/1605/flash/pdf/flash.pdf

says "Transportation Remains the Largest Emitter Among End-Use Sectors"

Which chart is wrong?

Posted by: AndrewDover | June 21, 2010 4:05 PM | Report abuse

"The big movement on the climate-change bill today is that various power players -- including, most importantly, Rahm Emanuel -- are talking up a 'utilities-only cap-and-trade bill'."

Sold! I'll take it. I prefer the carbon fee. Barring that, I prefer an across-the-board cap and trade program. Barring that, I'll take a utilities-only c&t bill. Let's get it done. Now!

Posted by: slag | June 21, 2010 4:08 PM | Report abuse

Andrew- Utilities aren't "end users", so they're not represented on that chart

Posted by: Quant | June 21, 2010 4:09 PM | Report abuse

I see the situation. Both industrial and commercial sectors use electricity, so the combination of electric uses add up to more than transportation.

Anyhow, "most is electric" is not a very good argument for pricing carbon emissions in one sector differently than in another. The question is how to reduce the emissions most efficiently, and the pricing mechanism is the method chosen. It may well be that there is more discretionary use in transportation than there is in electricity. Or it may be that electricity production can shift to nuclear power more easier than cars can shift to electric propulsion. Price the carbon the same seems to be the fair thing.

But why do I feel that if the U.S. government happened to own American Electric Power rather then General Motors, we might be looking at a gas tax? (Volt is insignificant to GM so far)

Posted by: AndrewDover | June 21, 2010 4:34 PM | Report abuse

The way I read these graphs, more carbon comes from utilities than anything else, but it's not "most" of our emissions -- and transportation isn't far behind. It's just that the reaction to the price of $35/ton is very different in the two sectors.

My layperson's impression is that what's behind the huge difference between utilities & transportation in that blue elasticity chart is that there are good options for alternative electricity generation, and relatively few decision-makers -- so a relatively small change in the price of carbon will push generators to invest in alternatives. But the transportation sector is way behind in coming up with anything that really radically changes emissions.

Posted by: mattandeliz | June 21, 2010 4:43 PM | Report abuse

Wind solar and nuclear are alternative ways to generate electricity. They only have an impact on transportation to the extent that cars and trucks can be converted to electricity.

Posted by: tl_houston | June 21, 2010 5:03 PM | Report abuse

If that would help wean us off reliance on coal for more than 40% of our electricity, that would be a great step forward. Yes, it will drive electricity prices up - if the utilities continue to use coal. Switch to a lower-emitting fuel source, such as natural gas (with half the emissions), or clean renewable sources (solar, wind, geothermal, hydro), and C&T has far less impact on electricity prices.

Posted by: blondie3 | June 21, 2010 5:09 PM | Report abuse

If that would help wean us off reliance on coal for more than 40% of our electricity, that would be a great step forward. Yes, it will drive electricity prices up - if the utilities continue to use coal. Switch to a lower-emitting fuel source, such as natural gas (with half the emissions), or clean renewable sources (solar, wind, geothermal, hydro), and C&T has far less impact on electricity prices.

Posted by: blondie3 | June 21, 2010 5:14 PM | Report abuse

nice graph Ezra.

So if this is in fact true then can we admit that the "old policy" to include everything was just a tax grab? Whatever happened to the old democratic credo each according to his responsibility . . .

Posted by: visionbrkr | June 21, 2010 5:32 PM | Report abuse

Place a Price ($30~$50/ton) on large scale Carbon Pollution. The market will create Energy Solutions to meet and beat that Price.

Posted by: liveride | June 21, 2010 5:41 PM | Report abuse

So raising the price people pay at the pump doesn't fly but it will be fine and dandy when their electric bill jumps?

What's the policy rationale for splitting this up?

Posted by: justin84 | June 21, 2010 6:33 PM | Report abuse

Wait, just so I'm on the same page: is utilities everything in that chart except transportation (ie, utilities = residential+commercial+industrial+electric power) or is it just electric power?

Because if it's just electric power, then this would effectively reduce the effect on emissions reductions by over 60%...

Posted by: reader44 | June 21, 2010 6:56 PM | Report abuse

As the author chose not to, would someone please explain what cap and trade is.

This, for those of us unknowing, outside-the-beltway ignorants who know this must be very important as it's used so much by insiders. Thank you.

Posted by: llrllr | June 21, 2010 7:12 PM | Report abuse

Adoption of a feed-in tariff cross-subsidy would generate significant installations of distributed (on-site) solar generation at a very low cost. The FIT would also give solar a shot at reaching market scale, which will drive prices down. Though we'd still need the grid, our dependence on it would be dramatically lessened.

Do some reading on Germany's adoption of a feed-in tariff and the rapid escalation of solar adoption in that country and you'll be convinced it is a great way to go.

In addition to C & T...

Posted by: truly1 | June 21, 2010 7:19 PM | Report abuse

For llrllr:

Cap and Trade is the alternative to a tax. Tax something bad, and hopefully the supply will diminish. But if you only license the supply you can tolerate, and allow trade in the licenses, you achieve the desired amount of the bad thing, with the clearing price of the licenses being unknown.

Posted by: AndrewDover | June 21, 2010 7:30 PM | Report abuse

I'm with mschol17.

Posted by: SallyVCrockett | June 21, 2010 8:34 PM | Report abuse

"So raising the price people pay at the pump doesn't fly but it will be fine and dandy when their electric bill jumps?"
The trick is to structure the tax such that only domestically produced gasoline is affected, so it can be replaced with imports at no net cost to the consumer. Come on, when has ANY measure purported to prevent offshore drilling or reduce carbon emissions had any acknowledged cost to the end user?

Posted by: tl_houston | June 21, 2010 9:27 PM | Report abuse

The trick is to lie and manipulate us into believing the ridiculous "man-made global warming" fairy tales and force us to swallow the criminal cap and trade SCAM one one or another, one step at a time if they can't do it all at once.

May God defend us from Obama and his comrades, bent on destroying our economy and our country through one scam after another.

Posted by: AntonioSosa | June 22, 2010 12:37 AM | Report abuse

One potentially very important benefit is that it can be a big proof, or demonstration, of concept.

Like with the health care bill, we can say after some years, see, we didn't become communist, the economy didn't self destruct, there were no death panels, and look at all of the good it did, so now let's expand and improve it with this bill, and then that bill, just like what happened with social security for our seniors and the New Deal.

Posted by: RichardHSerlin | June 22, 2010 4:41 AM | Report abuse

Yes, the price of utilities will go up somewhat. But, the average US gasoline tax is about 45 cents, and you don't hear more than a pretty small minority saying we should end the gas tax. But if there were no gas tax and a 45 cent one was proposed a lot of people would scream.

People get used to the tax and society responds with more efficiency to counter it. And then it seems reasonable and prudent. The same would happen with utility bills.

Posted by: RichardHSerlin | June 22, 2010 5:01 AM | Report abuse

"If that would help wean us off reliance on coal for more than 40% of our electricity, that would be a great step forward. Yes, it will drive electricity prices up - if the utilities continue to use coal. Switch to a lower-emitting fuel source, such as natural gas (with half the emissions), or clean renewable sources (solar, wind, geothermal, hydro), and C&T has far less impact on electricity prices."

Electricity prices will shoot up either way; those renewable options cost orders of magnitude more money to deliver energy, and the prices of those 'cleaner burning' FFs will shoot up if all the coal burners switch to them (they're already more expensive anyway).

But really, that's the good news. No energy policy will function without increased prices.

The problem is that, aside from creating the perverse and significantly problematic incentive structures described by Lonepine, the major effects of the legislation would be a massive increase in our dependence on Middle Eastern oil, and a big kick in the junk to the American middle and lower class, who will bear the brunt of the increased costs. If you feel that America currently has too much energy independence and that our middle class and poor have too much disposable income/are doing too well, this is great policy. It will be very popular with all the people who firmly agree with you on those points.

I really, really, don't get why mschol17's tax-and-rebate policy hasn't been suggested/discussed anywhere, because that's clearly the only road that goes anywhere.

Posted by: eggnogfool | June 22, 2010 9:52 AM | Report abuse

With the aging power grid and these big companies’s worrying more about their bottom line then their customer I am looking in to a natural gas or propane backup generator for when the unstable grid goes down I don’t lose the food in my fridge or heat in my house. I found a great deal online at www.generatorsforless.com for a backup generator.

Posted by: Norwall | June 22, 2010 11:15 AM | Report abuse

"Measures to reduce oil use"

The only oil being burned in power plants is waste oil.

What utilities care about is predictability.
An investment in any kind of generating plant is a 40-60 year investment.

A cap, cap and trade, moratorium on new coal fired facilities. Doesn't matter to them as long as their existing capacity is grandfathered in for it's useful life.

Posted by: SoldiersDad | June 22, 2010 12:25 PM | Report abuse

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