To recap, if prices do impact costs, then a carbon tax provides an investment incentive. If they don’t, then we need some carrots to go with the stick of a tax.
Hot off the presses comes this bit of news from Greenwire ($ub req’d):
Duke Energy Ohio is asking federal regulators to approve the transfer of its Ohio power plants to companies owned by North Carolina-based Duke Energy Corp. whose rates are set in a competitive market instead of by state regulators.
Why, you ask?
First, because the Lieberman-Warner boondoggle …
… initially gives fossil-fuel power plants 19 percent of free allocations for greenhouse-gas emissions to help cushion the expense of curbing those emissions when a carbon cap is set. As the nation’s third-largest carbon emitter, Duke stands to gain allocations worth hundreds of millions of dollars under that scenario.
And when you get hundreds of millions of dollars of gifts, you’d sure like to be able to convert it to cash. But here’s the catch:
State regulators in traditionally regulated markets would not allow utilities that get free emission allocations to pass on pollution-reduction costs to customers. But utilities in competitive wholesale markets could conceivably take the free allocations and still pass on to their customers the full cost of cutting emissions — a problem demonstrated in the European Union’s cap-and-trade system. In Germany, for example, electricity prices jumped 25 percent while utilities earned extraordinary profits during the first trading period.
In fairness, this is not precisely the debate between Gar and myself, since this is not a story about whether carbon pricing will be passed through to prices, but rather whether carbon
gifts allocations will be passed through in higher rates. But at core, it raises the same fundamental issues as to the degree to which regulated energy providers will be allowed to transfer costs (or gifts) through to their rate payers.
One last point: in fairness to Duke, spokesman Tom Williams says:
The filing and the timing of any consideration of climate legislation are totally unrelated.
Watch this space.