With the climate policy discussion now settling into lines of cap & trade vs. carbon tax, and allocation vs. auction, it has implicitly moved beyond the top-down, command-and-control models favored by early plans (and in particular the multi-pollutant, "4P" bills). This market focus is a good thing, on balance. What isn't good is that it's only being applied to greenhouse gas pollution. Our existing air pollution laws create disincentives to GHG reduction. Modernization of these (non-carbon) pollution laws may be the single most important thing the federal government can do to lower GHG emissions. As we head out of the harbor, it's time to haul up the anchor. Relevant history The Clean Air Act, coupled with New Source Review, has dramatically lowered SOx, NOx, and particulate emissions. It has also substantially increased GHG emissions. The reasons why are three-fold: 1. The rules were set on a so-called "input basis." Come under a certain parts-per-million of exhaust and you are OK. Exceed it and you're in violation. This has the perverse effect of discouraging energy efficiency: if I lower absolute pollution (tons/yr) by 40% and cut fuel use by 50%, I have reduced the flow of fuel and combustion air by more than I've reduced pollution (e.g., the "millions" in the parts-per-million formulation). Thus my ppm actually increases and I can't get a permit anymore.
From Restructuring Today ($ub req'd), reporting on Markey's hearings on allocation vs. auction as a cap & trade methodology: Even conservative Harvard economist Gregory Mankiw believes a free allocation amounts to corporate welfare. Even conservative?
Iowa Interfaith Power & Light, the Iowa Farmers Union, and Plains Justice have just completed a survey (PDF) in advance of tomorrow's caucuses. Short version: Iowans think that we've squandered chances to do something meaningful about energy, and that it's time we started to do so before building new coal plants. The executive summary is below the fold, but it's worth having a look at the whole presentation.
What I want most for 2008 is serious action on climate change -- not just in terms of policy, but in terms of action. Mathematically, this mandates serious and constructive engagement from the electric sector, which has thus far been not only absent, but hostile to any serious discussion of GHG reduction. Given their relevance (42% of US GHG emissions) and tremendous inefficiency, they are a source of much of my personal quixotic quest. But ultimately, they must engage -- and so far, they have not even come close. So in case we have any utility executives in the Gristiverse, here is the speech I'd like to hear from one of you in 2008:
Something old, something new, something borrowed ... For years, utilities have blurred the line between their interests and those of their customers (which are, under the rules of cost-plus rate-making, precisely opposed). Typically, this argument is used to frame rate cases in the form of, "if we can't raise rates on customer X, we'll be forced to raise rates on customer Y. Let us tell you how tragic that would be from customer Y's perspective, to cloud the fact that we're asking to increase rates on customer X." I'm oversimplifying, but only just. Ameren is now applying this old idea to carbon policy, saying that the problem isn't what carbon policy will do to their shareholders (perish the thought!), but what it will do to their customers. Article from Restructuring Today ($ub req'd) below the fold:
Fox News is doing a special report on the FutureGen project and -- rather remarkably -- couldn't find anyone to argue that $6500/kW coal-fired power coupled to a hydrogen plant is a dumb idea. Then along came Grist, and this crazy blogger who thinks FutureGen is dopey. The interview was last Friday; they're running the coverage tonight, in advance of tomorrow's decision on whether Illinois or Texas will "win." (Nice plug for Grist here, eh? Apparently, nowhere else in the world can you find someone who won't sing the praises of this particular boondoggle.) Now to see whether I look as smart as I think I am after editing ... UPDATE: Watch the segment here.
The GAO has reported on subsidies to our electric sector, proving what Grist readers already (sadly) know, namely that subsidies to the dirty folks vastly exceed existing or proposed subsidies to cleaner generation. The most remarkable thing is that the biggest subsidies, like nuclear liability guarantees and lower debt costs through rate payer guarantees, aren't even included in the list (although, to the GAO's credit, it does acknowledge their existence). So who's packing the biggest, er, subsidy?
From E&E News ($ub req'd): Indiana has approved a $2 billion, 630 MW integrated gasificiation/combined cycle coal plant. Two billion divided by 630 MW = $3,174/kW. If we assume that coal equity investors expect to recover their investment over 20 years, with an 11 percent return, that works out to 5.7 cents/kWh just to pay off the capital for the power plant. Add in another 3 cents or so for transmission and distribution, and a couple cents for fuel and operating costs, and this plant will work out to over 10 cents in retail prices. This in a state where the current average retail electric rate is 6.79 cents/kWh. So why was it approved? Simple: "In the Midwest, coal is plentiful and low-cost, and finding ways to burn it cleanly is fundamental to meeting our customers' demand for power," Duke Energy Indiana President Jim Stanley said in a statement. The head spins. Excerpts of the story below the fold.
Much of the debate around the big issues of our day -- from energy to healthcare -- hinges on whether one is "pro-market" or "pro-government," with Cato and the Wall Street Journal op-ed page lining up on one side and any number of PIRGs on the other. Unfortunately, neither side appears to understand the pro-market position. Herewith, my attempt to add a bit more rigor to the debate. So what does a market look like? At the most basic level, a market is defined by its characteristics. There are various definitions out there, but they all come down to the same basic tests: No barriers to entry No barriers to exit Price transparency (e.g., prices reflect costs) No participants can independently affect price Meet these tests and Adam Smith's magic starts to work, whereby the self-interest of each participant leads to social benefit for all in the form of better products and services, at lower prices. Why? Because life in a perfect market sucks! If you're running a firm in a market as defined above, you don't sleep well at night. New entrants keep cropping up. If you can't stay competitive, you're going to lose your money. Tiny changes in raw material costs have big impacts on your profits, which you are completely powerless to change. This causes you to do two things: