@ March 25, 2010

Click here for part 1, and here for part 2.

The California utility commission has created a program where the renewable energy producer who offers the lowest sales price for renewable energy will be guaranteed that price throughout the life of the contract. This price will still be higher than the going rate for electricity on the open market. What does the difference between the renewable energy price and the regular energy price tell us, and how can it be applied to a cap and trade system?

Let's take the concept of the California program and move it to an electricity market I know a little more about, Houston. Clearly, the point of the program is to incentivize the generation of renewable electricity. But the same goal could be achieved by taxing electricity that generates carbon. If we assume that the price of electricity is 10 cents/kWh, and the renewable feed-in tariff will be 2 cents/kWh, then we could achieve the same goal of promoting renewable power by levying a tax on non-renewable power. As long as the tax was higher than 2 cents, it would be cheaper to purchase the renewable energy.

Every area has its own mix of power sources: coal, oil, natural gas, nuclear, hydro, and renewable. The particular mix of power sources will dictate how much carbon is in the baseline available electricity. In Harris County, an average 1000 kWh of electricity produces 990 lbs of CO2. Or, to flip it: 1 ton of CO2 is generated by 2,018 kWh of electricity.

The program with my assumed prices (we don't actually know what the premium for renewables will be yet) is that the carbon-free power costs 2 cents more per kWh, then we have learned that the externality cost of a ton of CO2 is approximately $40.

Now here's the problem with a feed-in tariff: it affects producer behavior but not consumer. The utility commission will raise the money to pay the feed-in tariff by charging all of its customers a fee. It is, essentially, a small carbon tax.

Why not bypass the whole feed-in tariff concept and begin taxing carbon directly? A true carbon tax can incentivize not just renewable energy, but all kinds of steps to reduce carbon emissions. Carbon can be reduced through use of renewable energy, but also cleaner fossil fuels and carbon capture. Carbon reduction programs should be technology neutral.

Feed-in tariffs require regulatory agencies to pick winners and losers in technology. Cap and trade (which is really just another word for carbon tax) would allow innovation in any number of technologies, and let the market decide which one was best.


I'm not sure if I'm following this, but are you equating renewable energy and carbon reduction?

Jesse, how does it feel to be a tax-and-more-tax Democrat? If you tax companies for CO2, shouldn't you tax individuals based on their respiration? How many tons does Usain Bolt produce in a year? We could also tax farmers based on the amount of livestock, and offset it based on the crops they grow.

@Greg: Yes. If you replace 20% of coal with solar, or you reduce the amount of carbon emitted by coal by 20%, then you've achieved the same thing.

@Jim: what?

...except that when you burn coal, it's gone and you can't get it back. Or have we given up on sustainability?

In terms of how you're writing these posts, I think you're missing the externality cost of losing the opportunity to burn that coal in the future.

All that being said, I am in favor of taxing carbon emissions by people who waste energy by exerting themselves physically.

I think its much harder to price sustainability into the cost of electricity. But, honestly, if clean coal were a real thing and not a marketing ploy invented by the coal industry, then sustainability would be a low priority. I believe the scientific term for how much coal there is in the US is a fuckload. Possibly 1.2 fuckloads.

Hm, I am ok with this but still not fully confident, hence i am going to research a little bit more.

Leave a comment

Blog directory

Powered by Movable Type 4.1