Before I continue my comments on cap and trade and the externality costs of dirty power, I want to quickly address some points raised by a college friend of mine who now works in the nuclear industry. Scott Friend comments:

[You are] just hitting the two extremes of the spectrum: dirty coal, and clean solar, and it makes me wonder what your take is on how this legislation effects our other options.

I'll address two things separately. First: he is correct that I am just hitting the two extremes. That was done for simplicity of the analysis. What really happens is that the electricity being replaced by solar is not necessarily coal. Every local grid has its own mix of coal, hydro, natural gas, nuclear, and renewables. Depending on that mix, the electricity you consume has a different carbon impact. For example, if you live in Texas, then this website will tell you the emissions of the electricity you consume county by county.

Because of this and other factors, the externality cost that emerges from California's experiment will not be exactly applicable everywhere in the country. What California's program will do is provide a methodology by which the cost of carbon may be determined for areas around the US, and thus for various electricity generating technologies.

The "other options" Scott referred two fall into two categories: classical renewables (wind, solar, hydro) and nuclear. Classical renewables are not without their own environmental impacts: hydro alters the environment of native species, wind turbines can chop up a flock of birds faster than Capt. Sullenberger, and solar requires vast stretches of unoccupied land.

And nuclear can melt an entire city's face off. Now, lets be clear: there hasn't been a major nuclear accident in decades. In their own perverse way, the events of Chernobyl and Three Mile Island were good for society. While those in the immediate area around those plants felt the consequences of those failures, they were object lessons in what not to do for the nuclear industry. There's a reason that there's been no release of radiation from a US plant since TMI. After you burn yourself a couple of times on a hot pot, you figure out how to use a potholder.

Unlike solar, nuclear plants does not need to be incentivized. If regulations were no obstacle, I'm sure nuclear plants would spring up around the country. In fact, its the opposite that is true: the customers need to be incentivized to allow nuclear power plants to be built in their area.

We already have the answer on how to do this. The feed-in tariff concept can go both ways: utilities could offer nuclear power plants permits in exchange for reduced energy costs. What if nuclear power cost 20% less? 40%? How low would a nuclear plant be willing to go? Let the market decide how much people think the risk of having your face melted is worth compared to the reduced cost of electricity.

The point is that carbon is not the only externality. The perceived safety of the power source is also a societal effect that could be, but currently is not, priced into power.