In The Blogs

Carbon Pricing

| Wed Jan. 21, 2009 11:01 AM PST

CARBON PRICING....Over at Gristmill, Sean Casten reports on the latest energy boondoggle in his home state:

Tenaska, an independent power company, has been seeking to build a coal plant in Illinois. The problem being of course, that new, coal-fired power plants are really, really, really, really lousy investments....So how did the Illinois legislature respond? "Clean Coal Portfolio Standards." Seriously.

Tenaska gets a long-term power contract on what would otherwise be a massive economic boondoggle. Illinois gets to increase power rates and rates of fossil extraction....And the whole thing is dressed up in an environmental cloak. Methinks the impeachment proceedings shouldn't limit themselves to the executive branch.

Now, I'm one of those odd people who thinks that looking at the plain arithmetic of something like this actually makes it easier to comprehend. Luckily, Sean provides it for the project in question (the Taylorville Energy Center), which is getting approval for a rate increase in return for plans to sequester about half of its CO2 emissions. It's a 525 MW facility that will cost $3.5 billion, so here's how the costs break down:

$6,666 per kW
Delivered power costs on the order of 20 cents/kWh
Total CO2 emissions of 800-1,000 lbs/MWh

So how does this work out compared to the U.S. average? Here's the answer:

300-500 lb/MWh reduction in CO2 emissions
Offset by a $0.11/kWh rate increase
Simple division shows that Illinois ratepayers will subsidize this plant to the tune of $400-700 per ton of CO2 reduction

This is the kind of thing to think about when people talk about carbon taxes or cap-and-trade programs. One of the problems with pricing carbon is whether we have the political will to price it high enough to really make a difference. For example, the European ETS program, a cap-and-trade system, currently prices carbon emissions at a meager $16 per ton of CO2. And that's after four years of operation.

But compare that to what the Illinois legislature just did: they put an effective price on carbon of more than $400 per ton of CO2. If they're willing to do that — if legislatures are willing to pay rates that high — then that's the market price of carbon. The only question is whether we're willing to charge that price openly, with the carbon charge going to the public, instead of being hidden inside a complex giveaway to a favored corporation. Count me on the side of the public on this one.

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Kevin Drum is a political blogger for Mother Jones. For more of his stories, click here.

Comments

Submitted by Adam Stein (not verified) on Wed Jan. 21, 2009 11:35 AM PST.

It's actually a bit worse than that, because carbon is denoted in metric tons, which are about 10% bigger than short tons. The true figure is something like $500 - $800/tonne.

Of course, this isn't actually the price required to reduce CO2. It's just the price of this particular clean coal boondoggle. We have many more cost-effective tools at our disposal.

Needless to say, your point stands.

Submitted by Tom Fuller (not verified) on Wed Jan. 21, 2009 11:43 AM PST.

It's the price of carbon if you adopt the 'greater fool' strategy, in this case the fool being the public that let this pass.

I'm all for carbon capture, and I think that technology should be subsidized by the DOE, not the Illinois taxpayer, as the technology is in infant stage and much will be learned. But the most realistic pricing of carbon I've seen came from Bjorn Lomborg, and came out at about $14 per ton (I think it was tonne, actually).

Submitted by bigTom (not verified) on Wed Jan. 21, 2009 11:47 AM PST.

Unless, we are treating the research and development of the sequestration technology as an external public good? But, in that case, the external benefit is national, or international, and should be borne by a much larger class of people.

I'm all for Illinois doing this, as not being a local I will benefit from this "research" externality without bearing any of the cost.

Submitted by neil wilson (not verified) on Wed Jan. 21, 2009 12:14 PM PST.

"But compare that to what the Illinois legislature just did: they put an effective price on carbon of more than $400 per ton of CO2. If they're willing to do that if legislatures are willing to pay rates that high then that's the market price of carbon. "

NO!!!
NO!!!!
NO!!!!

That is the price that a bunch of legislators are willing to pay because they don't understand what the F$^K they are talking about.

I just booked two seats on a flight from Houston to Orlando and Continental says I can pay $5.65, a little more than 1% of the cost of the tickets, to offset the CO2.

If elected officials are stupid it doesn't mean that businesses will also be stupid.

Submitted by Paul Siegel (not verified) on Wed Jan. 21, 2009 12:14 PM PST.

Neither cap and trade nor carbon taxes will do the job.

Instead of making carbon fuels more expensive we may achieve the same results by making non-carbon fuels cheaper. We may use subsidies and tax cuts to do this.

Submitted by dr2chase (not verified) on Wed Jan. 21, 2009 12:19 PM PST.

$400 per ton = $4 per 20 lbs = $4 per gallon -- just to put this in perspective, that's what the corresponding gas tax would be.

And one ton of CO2 is about what I avoided emitting last year by using my bike where appropriate -- where do I sign up for my subsidy?

Submitted by brendan (not verified) on Wed Jan. 21, 2009 12:26 PM PST.

"If elected officials are stupid it doesn't mean that businesses will also be stupid."

neither is stupid in this instance. this is a plain corrupt deal. i don't mean to toss invective in from outside, but surely we know that the last two govs there were not operating in a vacuum. this deal plainly reveals itself as rotten after the least bit of analysis.
so, now that this is clear to us, if it is allowed to go through who is to blame?
surely Mr. Obama's example should teach us that you CAN fight city hall, (or the state house). no?

Submitted by Maynard Handley (not verified) on Wed Jan. 21, 2009 12:30 PM PST.

How long till this particular piece of corruption becomes item 1 in the right's list of reasons why we should do nothing about carbon?

This sort of thing is PRECISELY why I'm on the side of a carbon tax (or, second best, auctioned-off cap-and-trade) rather than the subsidies and tax cuts of Paul Siegel two posts up. It is just too easy for subsidies to flow into totally destructive directions --- witness the never-ending ethanol crap.

Look guys, being a new democrat isn't about insisting on policies that seem like a good idea but have clearly failed in the past; it's about sanity, common sense, and keeping your eye on the GOAL (reduced carbon emissions), not obsessing about a particular scheme for getting there.

Submitted by dr2chase (not verified) on Wed Jan. 21, 2009 12:35 PM PST.

Paul S - the advantage of a carbon tax is that it is easy to add a tax to the fuel, and offset that with tax decreases elsewhere. You are morely likely to get small-scale behavioral change.

Just for example (see previous remark), I managed to avoid generating about a ton of CO2 last year. What tax cut is going to reward me for riding a bike? How do I "prove" to the satisfaction of the subsidy agency that I actually avoided CO2 generation? There's way too much room for sloppy self-serving accounting there.

And lest you think this is not worth wondering about because I'm only talking (really) about $16 for a ton of CO2, consider getting a subsidy from a health insurance company. If you show up at your doctor with sedentary middle-aged blood chemistry, your doctor will write you a prescription for various drugs that will cost you in the ballpark of $200 in co-pays for a year, and cost the insurance company more than that. The insurance company will pay for that without batting an eye -- hundreds of dollars. If, instead, you decide to ride your bike 50 miles/week, every week -- which works better than the drugs -- do you think you get a subsidy from the insurance company? Do you get to use your health care spending account to buy winter biking gear? And why not? (Could my doctor write me a prescription for snow tires? Hmmmmm.)

On the other hand, how would I prove it to the insurance company? I have an odometer, sure, but I can load whatever data I want to into it, and the damn thing resets to zero if I take out the battery or fumble the programming buttons.

Submitted by Rachel Q (not verified) on Wed Jan. 21, 2009 1:18 PM PST.

Mining and processing the coal is going to be clean how, exactly?

Submitted by alex (not verified) on Wed Jan. 21, 2009 1:19 PM PST.

dr2chase: the advantage of a carbon tax is that it is easy to add a tax to the fuel, and offset that with tax decreases elsewhere

Agreed. In fact the simplest way to offset a carbon tax is to simply take all the revenues and return them, in the form of a check, of an equal amount for every person in the US. If it works for oil money on the People's Republic of Alaska, why not for a carbon tax?

Submitted by annoymous (not verified) on Wed Jan. 21, 2009 1:32 PM PST.

Everyone should just open up their ears to take in all of the information before jumping to conclusions. We have to make this world a better place and decrease our dependency on foreign oil and other items. Get the facts first, people.

Submitted by quiltpox (not verified) on Wed Jan. 21, 2009 1:33 PM PST.

yet another way to make poor people even poorer. yea.

Submitted by Clean Coal technology (not verified) on Wed Jan. 21, 2009 11:40 PM PST.

The idea of a coal shortage is virtually unthinkable. We have roughly 275 billion tons of recoverable coal, enough for us to burn for the next two and a half centuries if we needed it.

Submitted by Mr.Independent (not verified) on Thu Jan. 22, 2009 5:08 AM PST.

Why is England and Germany using their coal to produce gasoline and not the States? Hitler fueled a World War on coal based gasoline and the synthesis process has been known for years-It does use energy but most nuclear reactors would have little problem furnishing the enegy and the process has little waste. It can produce everything from lubricating oil to deisel fuel and aviation gasoline but Exxon-Mobile does not want it used in the U.S. and they have sat on the patent since the 1930's!

Submitted by Davis X. Machina (not verified) on Thu Jan. 22, 2009 5:33 AM PST.

Why is England and Germany using their coal to produce gasoline and not the States?

Because they're not.

The only large-scale use of coal to produce gasoline and other liquid fuels was in South Africa, and that was only because apartheid-era embargoes made it competitive.

CTL summary here, from February Guardian.

Submitted by JeandeBegles (not verified) on Thu Jan. 22, 2009 8:02 AM PST.

Interesting article and very interesting comments.
The IPCC has clearly stated that we must halve the today earth CO2 emissions, that means to divide by 4 times for countries like France, and by 6 or 7 times for USA (because of your coal addiction to produce electricity).
A carbon tax is the mandatory political decision to take if we really want to drive such a huge move.
The price signal must be clear; something like 6$ per gallon of gasoline; this target could be met with a 10 years ramp up.
Such level of carbon tax (6$ per gallon) is close to the low limit of the Illinois bid (400$ per CO2 tonne).
(please keep me informed why my comment this morning has been deleted; it was about unit, I think it is an interesting topic to improve our knowledge and opinions)

Submitted by Maynard Handley (not verified) on Fri Jan. 23, 2009 10:15 AM PST.

"The idea of a coal shortage is virtually unthinkable. We have roughly 275 billion tons of recoverable coal, enough for us to burn for the next two and a half centuries if we needed it."

Actually this is not even close to true. Ignoring the issues of pollution, whenever you hear these numbers of how much coal there is, they always seem to be predicated on the ridiculous assumption that usage over the next "two and a half centuries" will be the same as it is currently. This hardly seems likely if we are going to be using that coal to make gasoline, to fill in for heating oil, to make plastic, and all the ways in which we now use oil. Add in the rest of the world which does not have its own coal and would probably want to buy the US's. Add in growth in projected demand. It all results in about fifty years worth of supply was the number I seem to recall (though the last talk I listened to on this was about two years ago and my memory may be slightly off). Of course these numbers have some leeway in them. The extent to which tar sands and other non-traditional oils are tapped first obviously shifts the numbers, as does the extent to to which natural gas is drawn down first --- my understanding is that, as opposed to oil and coal, there are probably quite a few large as yet undiscovered gas fields; and of course who can predict whether the increasing ramp-up in wealth of the poor world (esp India and China) will continue on its current trajectory or become badly derailed (civil war in China? nuclear war between Pakistan and India?)

Interestingly, fifty years is probably STILL too short a span of time for the chickens to really have come home to roost regarding greenhouse gases, so it's not clear how much of the coal burned will have its CO2 sequestered in some realistic and useful fashion. Not doing so will, of course, build up one heck of a debt to pay for the future.
After the coal we can then look into todays current sexy contender in the field of "dirty" fuels, methane hydrates. God knows how they will play in future giving so many uncertainties.

Submitted by Tripp (not verified) on Fri Jan. 23, 2009 2:08 PM PST.

Maynard,

Yup.

Methane hydrates - yuck. Yuckity yuck.

People are still in the denial stage and that kinda sucks.

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