Carbon legislation will drive up price of electricity

September 2009

It appears there will be a vote in the United States Senate before year-end on the American Clean Air and Security Act of 2009. This bill, which was narrowly passed in the House of Representatives in July, is commonly referred to as the “Cap and Trade” Bill. This term comes from the approach used in the bill to control and substantially reduce carbon dioxide emissions by the year 2030. The primary target for carbon dioxide emission reduction is coal-fired power plants. Most of the electricity consumed in North Dakota, and roughly half of the electricity consumed in the United States, is generated by coal-fired power plants.

The basic approach to the Cap and Trade scheme is to start out with the government issuing free allowances to industries that cause carbon dioxide emissions. The amount of free allowances issued from the government would be capped. Each year, the cap would reduce until all free allowances are eliminated. Industries having carbon dioxide emissions would need to either reduce their emissions to stay within the cap, or purchase replacement allowances through a market-driven trading system. These allowances in the market may come from other industries who have “earned” them by reducing their emissions below their cap, or more likely will come from a pool available from the government.

The inescapable problem for the electric industry is that affordable technology does not exist that would remove carbon dioxide from the generation process. The only option that is being researched is carbon capture and storage. Billions of tax dollars will be spent in an attempt to develop carbon capture and storage techniques in the coming years. However, even the most optimistic will acknowledge that at best this technology is many years in the future and will certainly add a huge cost, which will increase the price of electricity.

So, it seems there are two possible scenarios for the coal-fired electric generation utility if the Cap and Trade Bill becomes law. First, would be that the utilities would be forced to buy allowances or permits to continue to produce carbon dioxide. Experts believe the market-driven allowances will be very expensive. The second scenario will be that electric utilities adopt carbon capture and storage practices, which again will be very expensive. Both scenarios are sure to drive up the price of electricity, as well as many other forms of energy used by consumers daily. Compounding the issue is that virtually everything we buy has an embedded energy cost to produce the product and deliver it to the end user. Higher energy costs won’t impact us only at our meter or gas pump; they will impact most everything we buy or do.

The bill that was passed by the House of Representatives is of serious concern and either needs major modifications, or it ought to be defeated when it comes to the Senate. We can speculate that many congressmen voted for the bill for political reasons with confidence it will get amended or be defeated in the Senate. We were pleased that North Dakota Congressman Earl Pomeroy recognized the flaws in the bill and had the courage to vote against it despite pressure from his party.

Creating legislation with the intent to affect climate changes is about as big as an issue can get. It has the potential to do nothing with respect to its ultimate goal, but yet adversely affect an already weak economy. In that regard, it is important for us to pay attention to the issue and let our senators know if we want them to support or oppose the Clean Energy and Security Act of 2009.