Customer Impacts From Waxman’s Cap & Trade? Let’s Not Exaggerate
In Wednesday’s New York Times, Felicia Barringer reports on pocketbook concerns related to the Waxman-Markey carbon cap and trade proposal as expressed by parishioners at St. Louis’ Greater Mount Carmel Baptist Church. The article contains the following statement, attributed to a representative from the local electric utility:
“Jaime Haro, Ameren UE’s director of asset management and trading, said his company paid $30 to produce a megawatt of electricity. The coal burned emits roughly a ton of carbon dioxide. If federal legislation effectively prices emissions at $30 a ton — estimates have varied from $20 to $115 — “my costs could double,” Mr. Haro said.”
A doubling of costs? If the utility does nothing but sit back and burn coal and pay for it with credits, then maybe the cost of coal power would double. But behaving that way would hardly make good business sense, if there were less expensive ways to cut carbon emissions. Reducing demand through cost-effective energy efficiency programs is one strategy that comes to mind. Rather than leading to an additional $30 per megawatt cost, efficiency gains could reduce costs below current levels. But the statement from Ameren UE and the article in which it appears could leave one with the impression that with $30 per ton carbon credits, customers’ bills would double. This is hardly the case. Here are the numbers:
Ameren UE Winter Residential Rates: $7.25 customer charge, plus 6.12 cents per kilowatt hour
Ameren UE Summer Residential Rates: $7.25 customer charge, plus 8.63 cents per kilowatt hour
What would the rate impact of purchasing a carbon credit be, using the company’s own numbers ($30/ton carbon, 1 ton per megawatt)? Assume a customer using 500 kilowatt hours per month. As I see it, the bills would look like this:
Winter bill without Cap and Trade: $37.85
Winter bill with Cap and Trade: $50.35
Increase: 30%
Summer bill without Cap and Trade: $50.35
Summer bill with Cap and Trade: $62.40
Increase: 24%
So the bills would not be anywhere close to doubled. They would be less than a third higher in the winter, and a quarter higher in the summer.
The New York Times talks about a customer with much higher current bills: $160 per month in winter, and $250 in summer. That customer is using a lot more than 500 kilowatt hours per month. Yet no matter how much electricity a customer usually consumes in a given month, the customer’s bill increase with a $30 carbon credit could not exceed 40% in the winter, and 28% in the summer.
These numbers are certainly not insignificant, but let’s try to keep the debate honest. Next time, the reporter might like to bring along a calculator.
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About Steven
Steve established and directed the Energy Law Program at Berkeley Law. He is currently a Lecturer at the Goldman School of Public Policy.…
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I get slightly different numbers. Per Haro, the cost of electrical production is 3 cents a kilowatt hour ($30/1000 kwh). Similarly, a carbon cost of $30 a ton would raise costs by 3 cents a kilowatt hour or $15 for 500 kwh. Winter rates would climb to 9.12 cents, summer rates to 11.63 cents. Plugging in, I end up with slightly higher numbers, $52.85 and $65.40, for your typical 500 kwh user.
The assumption of 500 kwh might be low. Missouri is a relatively wasteful state (but definately not the worst). Per capita usage is 14,050 khw annually, 1170 kwh per month.
If Haro’s numbers are right, each $10/ton of cap and trade will raise electrical rates by a penny a kilowatt-hour for an older coal plant, less than that for high-efficiency coal plants, and even less for natural gas.
I think my numbers are smaller than yours because I am taking into account that, according to the article, 80% of the power delivered by Ameren is coal fired. For this reason, it is inaccurate to assume an additional 3 cents for every kilowatt hour consumed. As a result, I used a blended figure of 2.4 cents. You are right that consumption in Missouri may exceed 500 kilowatt hours. Certainly, the one customer whose bills are discussed in the article does use more. As I have reflected in my updated post, no matter how much a customer uses, the winter rate increase won’t exceed 40%, and the summer increase will be below 28%. Big numbers, but a lot smaller than 100%.
If cap and trade was simply a way to pay the “real cost of energy production”, it would be fine. It isn’t. It is yet another massive wealth transfer scheme. Especially in California. Tiered rate schedules transfer the cost to a small minority of customers. It is fundamentally unfair.
My family will be $200 a month closer to being driven from the State we love.
If Al Gore lived here, his 20,000 Kwh a month would be 4x the cost he currently pays and a 40% increase in rates would mean his PG&E electric bill would go from $6000 a month to $8400 a month. But he doesn’t live here. So he will pay $1600 a month for power generated by burning coal.
Under the example that started this conversation, if Al Gore lived in California, his bill would not go up by 40%. That is because California is far less dependent on coal than is Missouri, and is far more dedicated to reducing demand through cost-effective energy efficiency efforts. Missouri has those options as well, and that is the real point. It should not be necessary for customers in Missouri or anywhere else to face such dramatic bill increases, because the Missouri utilities should always be looking for the least cost way to reduce carbon emissions. Efficiency is by far the cheapest option, and over the course of time, a well-run energy efficiency program should result in rates that are lower than they would be otherwise. Finally, your concern about the impact of higher bills underscores the importance of auctioning the carbon credits, rather than giving them away. The resulting revenues can be returned to the utility customers to offsite any higher costs that they do face.