Transcript OPSI Climate Change Panel

Cap and Trade:
A Colossal Failure of Common Sense
OPSI Climate Change Panel
Commissioner Robert F. Powelson
Pennsylvania PUC
October 1, 2009
Annapolis, MD
Coal: “Part of America’s Energy Future”

According to President Obama, the U.S. is “the Saudi Arabia
of coal.”
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Vice President Joe Biden: “This is not rocket science. Coal is
a part of our energy future. We have enormous reserves. …
We can provide clean coal technology, not only exporting that
technology, [but also selling it].”
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Interview with the Canadian Broadcasting Corporation
Campaign rally in St. Clairsville, WV
Obama / Biden Campaign Promise (9/23/08): Creation of a
Clean Coal Jobs Task Force
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Clean Coal Jobs Task Force
But…..
?
President Obama: “If somebody wants to build a coal-powered
plant, they can. It’s just that it will bankrupt them.”
Obama & Biden: “Saudi Arabia of coal?” Or anti-coal?
Biden Contradicts Himself on Coal
Economic Impact of H.R. 2454: U.S.

According to recent estimates by the Congressional Budget
Office (June 2009), climate change legislation would cost the
average American household $175 annually by 2020.

This estimate is significantly higher than that previously released by
the EPA ($98-$140 annually).

The CBO released a report in mid-September estimating that the
climate change bill would reduce the U.S. GDP by as much as
3.5% by 2050.
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National job loss estimates:
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1.9 million jobs lost by 2020
3.2 million jobs by 2050*
* “Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R. 2454),” Charles River
Associates, May 2009.
Economic Impact of H.R. 2454: PJM
“Impact of Climate Change Legislation on Electricity Prices in PJM”
(1/23/09)

In January 2009, PJM undertook a comprehensive study of H.R. 2454
and analyzed its impact on wholesale power prices within the RTO. PJM
found that 75-80% of the price established for CO2 would flow through to
wholesale electricity prices.
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Note: In 2008, coal was on the margin 70.8% o f the time in PJM.
Another telling story comes from ERCOT: In a similar study conducted by
the RTO, CO2 prices are estimated to be between $40-$60 per short ton this would result in an annual increase in wholesale power costs of
approximately $10 billion, which would increase customers’ monthly bills
by over $300 annually by 2013. Higher gas prices would increase
wholesale power costs to approximately $20 billion.
Economic Impact of H.R. 2454: PJM (cont’d.)
PJM Study: The numbers tell the story!
CO2 Price
MWh $
Increase
Increase in
Expenditures
Emissions
Reduction
Increase for
Consumers
$10 / short ton
$7.50
$5.9 billion
6 million tons
$72.00
$20 / short ton
$15
$12 billion
14 billion tons
$134.28
$40 / short ton
$30
$23 billion
66 million tons
$267.36
$60 / short ton
$45
$36 billion
25 million tons *
$409.92
* Emissions reductions are only 25 million tons because gas prices also rise to nearly $10/mmBtu.
Economic Impact of H.R. 2454: PJM (cont’d.)
Load-weighted
average LMP
increases by
approximately
75-80% of the
CO2 price in both
the base gas and
high gas cases,
regardless of the
price of natural
gas.
Economic Impact of H.R. 2454: Pennsylvania
Background:
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Pennsylvania = 4th largest coal-producing state
Roughly 7% of the nation’s coal supply is in PA
58% of all electricity used in PA comes from coal
In short, Pennsylvania and other coal-reliant states will be
disproportionately affected by climate legislation.
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Electricity costs could increase by as much as 40% by 2030
Job loss impacts range anywhere from 71,000 to 98,000 jobs
GSP is forecasted to drop by roughly 7%
At a 20% emissions reduction goal, a new carbon scheme system would
impose a tax of $92.66 per metric ton of CO2 in 2020. This would cost
ratepayers $6.45 billion in 2020 and would increase to $55.34 billion in
2050.
Economic Impact of H.R. 2454: Pennsylvania (cont’d.)
The Economic Impacts of Proposed Cap-and-Trade Legislation on the
State of Pennsylvania (Beacon Hill Institute, Suffolk University - June 2009)
2020
2050
$ / Metric Ton of CO2
$92.66
$714
Total Cost to Consumers
$6.45 billion
$55.34 billion
Total Employment
-47,549
-480,852
Tax Revenues
- $971.09 million
-$8.326 billion
2008 Retail Price
2020 Increase
2050 Increase
Gas ($ / gallon)
$2.74
$0.29
$1.94
Natural Gas Price
$16.24
$1.75
$10.66
Electricity Retail Price:
Natural Gas (¢ / kWh)
$12.06
$1.11
$7.64
Electricity Retail Price:
Coal (¢ / kWh)
$12.06
$2.48
$16.93
Based on data from CBO and the Energy Information Agency, the estimated cost of CO2 will be
$15/short ton in 2012, resulting in an approximate cost to Pennsylvanians of $636.7 million.
Is there a middle-ground compromise or some
type of common-sense approach to this issue?
YES!
To quote President Obama: “The development of renewable energy
sources can actively contribute to job creation, predominantly among
small and medium sized enterprises which are so central to a
Community’s economic fabric, and indeed themselves form the majority
in the various renewable sectors. Deployment can be a key feature in
the regional development with the aim of achieving greater social and
economic cohesion within the community.”
Necessary Considerations

Alternative Energy: Congressional leaders should debate the merits of
adopting a national RPS which exempts those states that already have
them on the books. Such a system should also include sources like waste
coal.
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Pennsylvania passed the AEPS Act in 2004, which calls for an 18% target for
renewables by 2020.
PJM studies show the inclusion of renewables, such as wind, can have positive
effects such as mitigating increases in LMP, wholesale power costs, customer
power bills, and CO2 emissions.

The addition of 15,000 MW of wind, for example, can reduce customer bills by
$42-$48 annually and reduce CO2 emissions by 34-37 million short tons.
Clean Energy Deployment Administration (“Green Bank”): Congress
should support the formation of CEDA to fund viable renewable projects.
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Initial capitalization: $7.5 billion in “green bonds” issued by the Treasury
Independent corporation chartered for 20 years, charged with:

Providing access to affordable financing for widespread development of clean
energy, energy efficiency, and advanced energy infrastructure technologies
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Issuing direct loans, letters of credit, and loan guarantees for such projects
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Recommending near-, medium-, and long-term goals for the deployment of
such technologies.
Necessary Considerations (cont’d.)
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Coal: One of our nation’s cheapest, most efficient energy sources
should be considered vital to America’s future. Additionally,
increased investment should be made in new nuclear, natural gas ,
and CCS demonstrations.
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A legal, regulatory, long-term vision must be created for carbon capture
& sequestration technology so that we beat other nations to the punch.
Energy Efficiency/Demand Response: These techniques should
be made part of the overall energy mix.
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PJM studies estimate that a 2% reduction in demand could reduce
wholesale power costs by $3-$4 billion, reduce customer bills by $12$36 annually, and contribute to the reduction of 14 million short tons of
CO2.
If this massive carbon policy idea is an economic failure, there must be
off-ramps to address things like sizable increases in electric rates,
unemployment, and stagnant GDP growth.
THANK YOU