According to a new report from the Congressional Budget Office (CBO), a federal carbon tax could have a dampening effect on the U.S. economy by increasing the cost of production for goods and services. The report was released yesterday.
Read the Full Report Here
Specifically, the report states, “By raising the cost of using fossil fuels, a carbon tax would tend to increase the cost of producing goods and services—especially things, such as electricity or transportation, that involve relatively large amounts of CO2 emissions. Those cost increases would provide an incentive for companies to manufacture their products in ways that resulted in fewer CO2 emissions. Higher production costs would also lead to higher prices for emission-intensive goods and services, which would encourage households to use less of them and more of other goods and services.”
In short, the CBO finds that a federal carbon tax isn’t just a tax on major emitters of carbon; it is a tax on consumers. How much of a tax? The report is not certain. However, a 2011 report by the CBO found that a similar cap-and-trade program with an initial price of $20 per ton on carbon would have raised $1.2 trillion over its first decade.
The CBO report goes on to report, “The higher prices it caused would diminish the purchasing power of people’s earnings, effectively reducing their real (inflation-adjusted) wages. Lower real wages would have the net effect of reducing the amount that people worked, thus decreasing the overall supply of labor. Investment would also decline, further reducing the economy’s total output.”
In weighing these high costs against reductions in carbon output, it is important to recognize that the share of global carbon output contributed by the United States continues to fall. Once the world’s largest emitter of carbon at about a quarter of all emissions, the United States today represents 18% of output, while China produces 26%. Due to the growth of China, India, and other fast-developing nations, this “market share” will continue to fall. In fact, the carbon output of the United States has grown only by 10% in the past two decades, while China has increased carbon output by 240% and India has increased 157%.
“Trying to address a global issue with a federal carbon tax offers the worst of all outcomes,” explains PACE Executive Director Lance Brown. “You saddle the American economy and its consumers with higher costs, while not making an appreciable dent in global carbon output. Policymakers shouldn’t walk away from this idea. They should run.”
As part of a National Governor Association’s Policy Academy on Industrial Energy Efficiency and Combined Heat and Power, Alabama Governor Robert Bentley has organized a summit on June 11th to continue discussion on the topic. The meeting is free of charge, although pre-registration is strongly encouraged.
Register for the Summit Here
The Summit will be held from 9:30 AM to 3:30 AM at the Alabama State Capitol Auditorium. The keynote address will be delivered by Governor Bentley, with discussions to follow on topics such as pursuing energy efficiency, opportunities for Combined Heat and Power technologies, and the relationship between utilities and industrial energy efficiency. As part of the program, PACE will moderate a panel discussing possibilities for expanding the use of Combined Heat and Power in Alabama.
In large part, the Summit on June 11th is an extension of work conducted by the NGA Policy Academy Core Team, a group appointed by Governor Bentley representing voices from across the energy industry. The group included PACE, as well as a number of PACE’s institutional partners, such as Manufacture Alabama, the Alabama Rural Electric Association, the Business Council of Alabama, and the National Federation of Independent Business.
“Efficient use of electricity by our state’s industrial sector is in everyone’s best interest, and Governor Bentley should be commended for convening this exciting opportunity for discussion,” said PACE Executive Director Lance Brown. “We join with the Governor in encouraging you to attend this important Summit.”
Transmission is the component of the electricity system that often gets overlooked, but it shouldn’t be. In fact, understanding the cost of delivering the power our nation’s utilities produce – and who pays those costs – is becoming more important than ever. The U.S. will spend $14 billion this year alone to upgrade its aging transmission infrastructure.
Consider the case of Iowa, where the Federal Energy Regulatory Commission (FERC) is considering whether customers of Interstate Power & Light Co. in Iowa and Minnesota should be forced to pay a substantial portion of the costs for new transmission to connect wind farms to the grid. The cost is substantial, saddling half a million customers with $170.5 million over a nine-year period.
Or Michigan, where electricity rate payers were asked to cough up 20% of the costs – over $3 billion – to build transmission lines for wind farms outside of the state, even though state laws disallows renewable power generated outside of Michigan from counting toward the state’s Renewable Portfolio Standard. What benefit did those customers get for their investment? The warm and fuzzy feeling that someone, somewhere was drying their laundry with wind power?
The confusion stems, in part, from FERC’s Order 1000, that allows regulators to spread the cost of building new transmission fairly liberally, even to customers that don’t really see the benefit. This is termed “cost socialization” and appears to FERC’s preference, at least for now, for paying the nearly $150 billion it could cost to connect onshore and offshore wind turbines to the grid. Turns out that while the wind itself is free, it is frighteningly expensive to get it into your light bulb.
The Wall Street Journal calls cost socialization “like arguing that Oklahomans should pay to fix potholes in Manhattan.” That’s a good analogy, but here’s a real-life example. Customers of Entergy in places like Mississippi and Louisiana will soon be part of a regional transmission organization that stretches across the Midwest in 15 states and even into Canada. But will power customers as far south as New Orleans have no choice but to pay the cost of building transmission lines for wind farms in Minnesota that satisfy Renewable Portfolio Standards in Illinois, Iowa, and Missouri? It certainly seems so.
In other words, through Order 1000’s system of cost socialization, you could soon be asked to pay the cost of renewable energy mandates whether you like it or not. It’s time for our energy policy makers in Washington, DC, to work with FERC to make sure that doesn’t happen.
In an editorial in yesterday’s edition of The Montgomery Advertiser, the following editorial appeared from Generation America Regional Director of Advocacy Conwell Hooper. View the piece online here.
A recent editorial by Jesse Salinas, State Director of AARP, raises a number of important questions about the current state of utility rates in Alabama. Salinas argues that customers in our state are overpaying for power and gas due to what he considers lax oversight on the part of the Public Service Commission, but there is more to the story than Mr. Salinas tells.
The organization I represent, Generation America, is focused on making sure that seniors have access to affordable and reliable gas and power. While paying utility bills is one of the least pleasant activities anyone can do, it is a matter of record that the rates paid by power customers in Alabama have remained below the national average for decades. In fact, our state’s low electricity rates, in particular, are among the key reasons why new industry continues to choose Alabama for manufacturing investments.
The real howler, though, is when Salinas claims that gas and power prices are high because utilities in Alabama are guaranteed a profit of as much as 14.5%. That’s simply not true. Salinas should know better than anyone that increases to power rates in Alabama in recent history are due to costs from new environmental rules that his organization, AARP, supported. Any increases certainly shouldn’t be blamed on figures like the one Salinas describes, since the actual rate of return calculated into customers’ bills is less than 8%. Truth be told, the author simply cherry-picks a single number from among dozens, without giving an accurate picture.
Mr. Salinas’s mischaracterization appears even more blatant when you consider that power customers in Alabama today pay more for electricity because of costly new environmental mandates that AARP supported. In recent years, mandates supported by AARP and other liberal groups in Washington, DC, have cost energy consumers across the nation tens of billions of dollars. Mr. Salinas, of course, doesn’t acknowledge that.
He also doesn’t mention that AARP recently supported federal “Cap-and-Trade” legislation that would have saddled power customers in Alabama with hundreds of millions in new costs. AARP, growing more liberal in recent years, has proved it is not the solution to lower energy costs; rather, the organization has become a key part of the problem.
Recently, a report by Forbes revealed how the AARP will make nearly $3 billion through its support of Obamacare and that program’s cuts to Medicare. By backing Obamacare, against the wishes of millions of its members, AARP guaranteed itself a windfall of $1 billion in insurance profits. I wonder if Mr. Salinas will complain in this newspaper in future years about the consequences of socializing our system of medicine. He certainly can’t have it both ways, supporting policies that raise costs and then demanding they be lower. Hopefully, our state’s leaders will see not only the facts behind our system of utility regulation, but the puzzling hypocrisy of AARP, once so revered, on a topic of such importance. Our seniors certainly deserve to know the entire truth.
In a recent report entitled Tracking Clean Energy Progress 2013, the Energy Information Administration (IEA) states that worldwide efforts toward renewable sources of power have not budged the needle on the carbon intensity of the world’s energy supply. In fact, IEA calculates that the Earth’s carbon intensity has fallen by less than 1% since 1990, despite major investments in clean energy technology.
This is a problem, IEA reasons, because the world’s energy demand is set to grow by 25% within the next decade. Without significant reductions in carbon intensity, the report goes on to state, the world cannot limit increases in global temperatures to less than 2º Celsius, the primary goal of energy and environmental planners worldwide.
So what is limiting the reductions IEA believes are critical? First, despite reductions in coal-fired generation capacity brought on by new regulations and government fiat in Europe and the U.S., developing nations continue to utilize coal for the affordable and reliable power they need. In fact, coal-fired generation actually grew globally by 6% between 2010 and 2012. Nations such as China and India continue to add coal-fired power facilities, a significant percentage of which lack the environmental controls we are accustomed to in the U.S.
Second, nations around the world have stalled on plans to build more nuclear power. As PACE has noted, the U.S.has dragged its feet on crafting a sensible policy on nuclear power. Moreover, organizations such as the Sierra Club – which has opposed nuclear power since 1974 – continues to publicly stonewall the construction of new nuclear plants. According to IEA, construction of seven new nuclear plants began in 2012, but meeting climate targets will require “far more significant construction rates.”
The problem certainly doesn’t appear to be the growth of renewable power. IEA points out that solar photovoltaic capacity worldwide grew by 42% from 2011 levels, while wind power capacity climbed by 19%. Investments in such technology are high, with more than $500 billion spent on renewable power plants in 2011 and 2012 combined. The report is optimistic about the transportation system, noting that sales of hybrid vehicles have passed the one million mark and that fuel economy is improving.
IEA’s solution? In addition to predictable answers such as higher prices on carbon, more energy efficiency, and smarter grids, they also call for more nuclear power and enhanced focus on carbon capture and sequestration (CCS). In total, the IEA report calls for the expenditure of an additional $5 trillion between now and 2020 to achieve the “clean-energy transition.” The report also estimates that carbon prices in Europe need to increase seven-fold to 50 euros per ton of CO2. In other words, IEA reasons, developed nations need to spend lots of money and place big taxes on carbon.
Maybe most curious, though, is why environmental groups in the U.S. consistently oppose policies that IEA deems as critical to stabilizing global energy and reining in global temperature increases, namely nuclear power and CCS technology. Groups such as the Sierra Club and Greenpeace advocate against new nuclear construction, while IEA says a lot more nuclear power is necessary. In the case of CCS, the Sierra Club has argued against a state-of-the-art power plant in Kemper County, Mississippi, that will capture at least 65% of all the CO2 it produces. IEA calls the technology “essential,” while environmental groups do not support such projects.
There is a reason that the public remains largely confused about the direction of energy policy in the U.S., especially as it relates to what impact, if any, that direction might have on climate. It’s not their fault. When the findings of a widely recognized institution such as IEA differ from on-the-ground activism from major green groups, what else should we expect?
As part of a panel of Energy & Environment experts for the National Journal, PACE weighs in this week on why the president’s budget misses the mark on energy and environment issues. You can read and share the piece online here.
Unsurprisingly, President Obama’s 2014 budget continues a trend of increasing funds for regulatory agencies and unreliable energy sources while decreasing support for fossil fuel programs. What the President and his administration fail to recognize is natural resources like coal are abundant, affordable and efficient. In contrast, energy sources such as wind and solar are simply not as practical in certain parts of the country – the Southeast, for example – and can come at an onerous expense to consumers.
Beyond the budget, though, the energy industry must also take the administration’s leadership into account as the Department of Energy and the Environmental Protection Agency welcome Ernest Moniz and Gina McCarthy, respectively. In his first term, President Obama demonized America’s domestic fossil fuel sources while trumpeting alternative sources. Will these significant leadership changes signal a different trajectory for the administration’s treatment of energy resources over the next four years? The long-term affordability and reliability of our nation’s energy certainly would benefit from a fresh approach.
Both Moniz and McCarthy have spoken on the importance of taking a balanced approach to domestic energy sources, as opposed to pushing alternative energy at all costs. During her confirmation hearing, McCarthy stated, ” Coal has been and will continue to be a significant source of energy in the United States, and I take my job seriously when developing those standards to provide flexibility in the rules.” She has also been quoted as saying, “We’re going to have to be sensitive of the impact of every rule. We don’t want to have unintended consequences on small businesses.”
For his part, Moniz once stated, “The president is an all-of-the above person and I am an all-of-the above person.” Unfortunately, despite Moniz’s description to the contrary, the actions of the Administration over the past four years have reflected anything but an “all-of-the above” approach when it comes to fossil fuels. Burdensome regulations are forcing plants across the country to shutter their doors, putting hard-working Americans in the unemployment line. Businesses of all sizes are suffering under an uncertain regulatory future. Families are struggling to make ends meet, all while being left to wonder what plan, if any, the current administration has for ensuring long-term energy independence at an affordable price.
If leadership within the EPA, DOE, and the Administration are serious about limiting the unintended consequences of their rules, they should more thoroughly weigh the impact of their rule-making. They should take all steps necessary to gauge whether these rules endanger the affordability and reliability of American energy. And they should commit unequivocally that our nation’s energy policy serves the competitiveness of our economy and the creation of American jobs, rather than the radical agendas supported by a few special interests.
As the Senate Environment & Public Works Committee prepares to hold a nomination hearing for potential new EPA Administrator Gina McCarthy, it is timely to look at the agency’s recent record. After all, McCarthy has helped shape EPA policy for the past four years as the Assistant Administrator for the Office of Air and Radiation.
In the past four years, EPA has either issued or proposed:
- Sixty-eight rules, constituting nearly 3,000 pages, of Greenhouse Gas (GHG) regulations, which the agency expects to cost between $300 billion and $400 billion annually.
- Greenhouse Gas New Source Performance Standards that effectively shut the door on new coal-fired power plants. In combination with other EPA anti-coal measures, the new standards will shut down an estimated 226 coal-fired power units nationwide, costing up to 250,000 jobs and taking critical baseload power off the grid in 30 states.
- Utility MACT and Boiler MACT rules that will cost industry tens of billions of dollars and endanger economic growth. These rules further endanger baseload capacity by targeting coal-fired power, and place undue burdens on manufacturers of all sizes by requiring costly boiler upgrades.
- New Ozone National Ambient Air Quality Standards (NAAQS) that will cost as much as $90 billion annually depending on the threshold chosen by EPA.
- Cooling Water Intake Structure rules, estimated by the EPA to cost as much as $4.6 billion annually.
- New rules to govern Coal Ash treatment and storage, estimated by EPA to cost as much as $1.4 billion annually for the next 50 years.
Numerous other proposals and regulatory efforts by EPA have been struck down by the court as overreaching. Given her role in creating such a record at EPA, at the expense of job growth and the pocketbooks of power consumers, our nation’s lawmakers should use the nomination process to determine whether Ms. McCarthy plans to continue down the treacherous path EPA has chosen.
Lawmakers in states across the nation are thinking twice about policies that drive up the cost of power. In fact, according to a recent report, fourteen states with renewable energy mandates are currently considering legislation that repeal of significantly roll back provisions that require utilities to build or purchase more renewable power. An additional eight states considered such measures last year.
In North Carolina, for example, where renewable power sources and energy efficiency must meet a 12.5% standard by 2021, lawmakers are considering whether such a mandate makes sense anymore. Some critics have argued that North Carolina’s mandate could cost the state’s consumers hundreds of millions of dollars and close to 4,000 jobs. At least one of the state’s lawmakers agrees, offering the Affordable and Reliable Energy Act.
“What this bill does is try to soft land this business. To be competitive, you need to move off the taxpayer rolls,” says the bill’s sponsor, Representative Mike Hager, speaking of renewable power providers. “I see this as an entitlement program that is beginning to get its roots into our state. I see it as a regressive type tax.”
Meanwhile, in Washington state, a hotbed of environmentalism and the second state nationwide to adopt a renewable energy standard, critics are calling attention to the high cost of the measure. A study by the Washington Policy Center finds that the current law will cost power consumers in the state $1.22 billion by 2020, or about $170 per year per residential customer. Other consequences of Washington’s renewable power standard are as many as 11,885 jobs lost and more than a billion dollars in disposable income lost.
The U.S. is not alone, of course. While Germany is considered by many to be among the world’s leader in renewable power, the nation is scaling back subsidies for renewables in the wake of a backlash from voters and industry. According to a recent report by the Wall Street Journal, German consumers today pay a surcharge of about 7¢ per kilowatt-hour for renewable power, making up 14% of the nation’s total electric bill. Chancellor Angela Merkel, facing election in September, hopes that hitting the pause button on costly renewable power surcharges will placate voters who have seen their power bills skyrocket in the past decade.
Spain is taking a similar path, cutting subsidies to renewable power in an effort to soften the blow to ratepayers. The move will cut the cost to the Spanish electrical system by as much as €800 per year. Renewable power generators are, of course, not happy with the move, but Spanish consumers should be.
“I believe we’re reaching a point where the bill for aggressive environmental measures is starting to come due, in the form of higher power rates and restricted economic growth,” explains PACE Executive Director Lance Brown. “Someone has to pay the cost of renewable mandates, and those people vote.”
In recent days, PACE has launched a new partnership with Generation America to give seniors a real voice on energy issues. Join this fight by visiting www.PowerPetition.org and plugging into the effort.
Check out this video that describes the efforts and allows conservative seniors to weigh in on current events in energy.
In recent weeks, the Tennessee Valley Authority (TVA) has announced its intention to add more nuclear capacity to its system, one of the nation’s largest. The utility currently has plans to complete Bellefonte Nuclear Plant in north Alabama, a project that PACE supports. In January, PACE paid a site visit to Bellefonte to learn more about the plant’s progress and estimated completion date.
TVA also made public in February that it intends to pursue the construction of a new, innovative reactor design in Oak Ridge, TN, as soon as 2022. Those plans must meet the approval of regulators and the TVA Board of Directors. For now, TVA says it is working to ensure that the cost of future nuclear construction is closely managed.
“I am a believer in nuclear power, but frankly our history is pretty spotty,” said TVA CEO Bill Johnson. “If you look back at the 1970s and ’80s, the estimates on those plants and the actual completion costs varied greatly.”
While a plan for more nuclear power in the TVA system has its critics, notably those who cite the high initial construction costs, the concept has earned the praise of Tennessee’s U.S. Senators Lamar Alexander and Bob Corker. The senators agree, as does PACE, that balancing the TVA portfolio with reliable baseload power is an important investment for the utility’s customers. In the long term, the best designed utility systems are those that choose from multiple options with enough robustness to accommodate changes in fuel costs, economic growth, and consumer demand.
“You have to understand that the same folks who are arguing against more nuclear power in the TVA system also want to close the utility’s coal-fired units,” explains PACE Executive Director Lance Brown. “At the end of the day, providing power to nine million people and countless industries with natural gas and renewables alone is not sound policy. It portends a great deal of danger to customers in terms of price.”
For example, the Southern Alliance for Clean Energy opposes new nuclear reactors in the Southeast, but has also called for the retirement of as many as 121 coal-fired units in Georgia, Alabama, Tennessee, and Florida. With natural gas serving as the only baseload power resource not opposed by the organization, their vision would tether the price of electricity in large part to the price of natural gas, which historically has been relatively volatile.
Speaking of the Bellefonte nuclear plant, TVA’s Johnson says, “I worry about any major project that requires a lot of capital, a lot of time and a lot of people because they are just hard to do well. There are few things we could do for our customers that will matter more than to do these things well.”
In the interest of TVA’s customers and the future of nuclear power across the region, PACE is certainly pulling for the utility to make wise decisions about Bellefonte and other nuclear power projects. Doing so would be an important signal that diversity will be a cornerstone of our region’s energy future.
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