Carbon Cap And Trade - A Looming Battle Among States

The script for Battle of Carbon Titans, a futuristic reality show, was approved for production, with shooting set to start this summer. Fortune Magazine has some good set coverage and quotes from the utility actors. It's no longer just about California taking the lead. A national battle is forming; and we're all embedded at the front lines. Here are a few script excerpts, followed by analysis.

A climate-change bill that has widespread support as it heads to the Senate floor will create an estimated $150 billion of new assets in the first year it takes effect. Between now and 2050, regulating greenhouse gases could easily generate $3 trillion worth in value in the United States.

Should that value go to utility companies, electricity customers who will face rising rates, government investments in new technology or tax cuts? Or should it be returned to all Americans?

Fortune magazine put forth the 'WAG' that the carbon permits could be worth as much as US$150 billion in the first year, which - even if +/- 50% precision - is stunning, and offers one more reason for making the energy lobby subordinate to the broader public interest. Strategy choices are several and no political party has locked in on one particular way to go.
Coal-burning utilities say they should be given the permits for free - otherwise, they argue, their customers will be whacked with much higher bills. Others, including candidates Obama and Clinton, say all the permits should be auctioned - why reward the polluters, they ask? Still others want auctions so that proceeds can be used for a variety of causes, ranging from investments in renewable-energy research to middle-class tax cuts to paying down the federal debt.
In earlier posts we described the potential polarizing effect of Cap and Trade on US politics. Intensity of the battle will be a function of the Cap and Trade target (per the bills modeled in the WRI graphic, above), as well as the dispensation mechanism chosen.

Here's a quote which epitomizes the political nature of the fight to come. Taxation without representation - here we go.

"A 100 percent auction is a carbon tax," Rogers [CEO of Duke Energy] said recently at a discussion organized by CERES, a coalition of investors and environmental groups. "It will fall disproportionately on people who are in the 25 states where 50 percent of the electricity comes from the use of coal. Their rates will go up 40, 60 and 80 percent. There will be huge rate shock." The backlash could derail efforts to curb global warming.
The coal-power reliance for all US states averages around 50%. Some will be much higher, some much lower, than the average. Utah, for example, currently relies on coal for 93% of its electricity, while the State of Washington gets a very high percent of its power from renewable (mainly hydroelectric) sources.

Is there a way to identify where the battle lines may be drawn over Cap & Trade impacts? Yes.

Let's start with the assumption that those US states which get significantly more than 50% of their electricity from coal, and/or states which export, or plan to export, large amounts of coal-fired electricity to neighboring states, are at highest risk of becoming economic "losers." Pennsylvania currently satisfies both of these criteria, for example. But wait...there's more.

For a table that lets you see a variety of state energy consumption rankings for 2005 look at this web page table from US EIA. Updated statistics will be available here, this fall, just in time for elections.

For a first overlay, let's assume that those states with high potential to add renewable power capacity can lower their risk of becoming "losers:" by supporting more wind farms (as do Texas and Pennsylvania for example); or, by better managing hydroelectric power resources (Washington and New York for example); or, by supporting thermal-solar and Solar photo-voltaic systems (Nevada and Arizona for example).

Addendum: if carbon capture and sequestration were a proven, cost-effective technology that enabled states to bypass the cap, we would surely suggest that as a next layer. But its' not.

Put the two layers together, and what jumps out are several states that are likely to attract economic development and jobs into a "green power" future. What also stands out are several states that are likely to lose jobs and experience slower economic growth if renewable or nuclear-energy capacities are not cost effective to add in sufficient quantity. States in this latter case will fight like mad for carbon permit handouts.

Then there are the in-between states.

And there are oddities, such as Alaska, which has the highest per capita energy consumption of any state, and access to vast reserves of geothermal energy.

As mentioned in the Fortune article, a potential road map to climate peace among states is called Cap And Dividend

. Author and activist Peter Barnes has put forward a simple plan called cap-and-dividend. He would auction all of the permits and then return all of the proceeds to the American public, in the form of per capita grants. Among other things, he says, this would keep the government out of the picture and build broad political support for a climate-change bill.
Is Cap and Dividend a good choice if we want the free market, shaped by government policy incentives and disincentives, to drive renewable energy into a dominant position in the nations' future economy, letting the chips, and people, fall where they may?

See also: Table Of The Day: Top US States For Net Summer Renewable Energy Capacity AND Government Study Claims Twenty Percent Of US Power From Wind By 2030

Via:Fortune, A $3 trillion climate change battle - Regulating greenhouse gases will generate a lot of money. Who should get it? Image credit::World Resources Institute (WRI), Comparison of Legislative Climate Change Targets in the 110th Congress.

Tags: Carbon Emissions | Congress