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Commission Watch

The AGs' Global Warming Suits:
Fortnightly Magazine - October 2004

evaluate the prudence of this lawsuit, we can ask a series of three questions.

  • Would a three percent annual reduction in CO2 emissions by each of these utilities measurably reduce the impacts of global climate change?
  • How economically viable are the emissions reduction options cited in the suit? Are there lower-cost approaches that could achieve the same greenhouse gas reductions?
  • How would the benefits and costs of alternative policies be distributed in comparison to the lawsuit's remedy? That is an important policy question analogous to the "just-and-reasonable" aspects of utility rate-making efforts, since economically efficient policies are sometimes rejected because they impose disproportionate costs on certain groups in a way that society perceives to be unfair.
  • Tallying the Benefits

    Would the emissions reductions contemplated in the lawsuit have a measurable impact on global climate change? Probably not. Together these utilities account for about 2 percent of current global CO2 emissions. A 3-percent reduction in their emissions each year would reduce worldwide CO2 emissions by less than one-tenth of 1 percent.2 Since CO2 emissions in developing countries such as China are increasing far more rapidly than in the United States and other developed nations, it is unlikely that these five utilities' contribution to total emissions reductions would ever increase. Moreover, even implementing the entire Kyoto Protocol would have an inconsequential impact on global climate, leading to a temperature increase in 2100 that might only be 0.15° C less than under "business-as-usual, or less than a 10 percent reduction in the total projected temperature change."

    Even if one ordered the utilities to eliminate their CO2 emissions entirely, which would be neither practical, feasible, nor economically viable, the effect on global climate--and the benefits derived by the plaintiffs from that reduction-would be imperceptible. The only likely benefits to the plaintiffs would be additional reductions in "upwind" emissions of the pollutants covered under the Clean Air Act that have adversely affected air quality in the eastern United States.

    Thus, the answer to the first question of the prudence determination is that the benefits of the lawsuit are likely to be negligible, at least from the standpoint of global climate change and CO2 emissions reductions. This in itself would suggest the lawsuit would not pass a prudence review.

    Tallying the Costs

    Consider the second and third questions. Here, the answers are clear: Market-based solutions would be more efficient and equitable at reducing emissions levels.

    But suppose there were no market-based solutions in place and that only command-and-control regulations are available to reduce CO2 emissions. How "practical, feasible, and economically viable" are the options cited in the lawsuit for reducing CO2 emissions? Would they really do so without significantly increasing the cost of electricity to those five utilities' customers? The main targets for CO2 emissions reductions would be the utilities' coal plants. Shutting down some or all of those coal plants, many of which are older, fully depreciated plants that provide low-cost electricity, would require replacing their output with some combination of new generation technologies and energy efficiency investments.

    Replacing fully depreciated coal plants with new generating units,