THE VINE JUNE 21, 2010
There are all sorts of rumors swirling around right now about what might be in the energy bill the Senate is planning to take up next month. The most recent involves a carbon cap that would only apply to electric utilities while leaving the rest of the economy uncapped. Would this be an acceptable compromise? Here's Dave Roberts:
If you're going to single out one sector for cap-and-trade, electricity is the right choice. For one thing, it's the biggest emitter. For another, most of the lowest cost carbon reductions are expected to come from electricity. Here's how the EIA projects an economy-wide cap-and-trade system would affect various sectors:
As you can see, about half the total carbon reduction under an economy-wide cap-and-trade system is expected to come from the utility sector. By contrast, transportation is scarcely affected. The reason for this is simple: It takes an extremely high price on carbon to substantially raise the price of gasoline.
Focusing on electricity, at least in the initial stages, isn't a terrible idea, although it would be much better if the bill also had various non-cap measures that chipped away at emissions in other sectors as well. For instance, Jeff Merkley's proposal to reduce our oil consumption puts a heavy focus on the transportation sector—deploying electric vehicles, shifting freight from trucks to rail, boosting fuel-economy standards. Likewise, a provision that massively boosted the energy-efficiency of buildings would do a lot for the residential and commercial sectors.
So, in theory, Congress could design a piecemeal bill that gets close to achieving what a big cap-and-trade bill would achieve. But the details really matter. Michael Levi has a good post on some of the dangers of a utility-only cap. Like this:
Many energy intensive manufacturers use electricity from the grid. If utility-only cap-and-trade increases the price of that electricity, but manufacturers don’t face direct limits on their own emissions, they may shift to lower-cost but dirtier on-site sources of energy, raising their emissions above business-as-usual and undermining the broader emissions control effort. Utility-only would thus need, at a minimum, to be accompanied by some sort of “no harm” efficiency standards for energy intensive manufacturing.
There's also the political question. Right now, most utilities are in favor of an economywide cap-and-trade bill—partly because the program would raise a lot of revenue from other sectors that would be plowed into things that benefit utilities, like R&D money for sequestering carbon from coal plants. But would utilities be okay with a carbon cap that singled them out? As this Climatewire piece notes, a lot of utility execs are staying quiet for now.