Climate change – heat waves, water shortages, and reduced flexibility – poses huge risks for electric utility infrastructure.
Carbon in the West
Prices between $50 and $80 a ton will trigger major market responses.
coal to natural gas, but it’s quite expensive due to the comparatively high price of natural gas, so the primary effect is to increase customer prices.
This is less true over time. In later years the response is both more pronounced for emissions and more limited for power prices, as the generating stock begins to turn over and new investments are made in non-emitting generation. Emissions reductions by 2030 accelerate significantly in the $50-$60 CO 2 price range, when nuclear generation starts to penetrate the market (see Figure 1) . Only when wholesale power prices reach the $100 range can nuclear technology expect to cover its investment and carrying costs (see Figure 2) . The response of power price to CO 2 price also is more moderated in later years, as low-busbar cost, non-emitting technologies enter the generation mix and temper power prices.
In general, the level of CO 2 price needed to flatten emissions growth in the reference case future is in the $50 range (see Figure 3) .
Wild-Card Case: $80/Ton
The EPRI study also investigated an alternative, more pessimistic case. The wild-card case represents an alternative future, one in which both events and policy responses to them work against future greenhouse gas control. The wild- card future requires a higher CO 2 price than the reference case to stabilize emissions over time (closer to the $70-$80 range). Due to higher capital costs overall, as well as a nuclear penetration constraints, capital stock turnover is much more sluggish in the pre-2030 time frame, and emissions still are growing at the $50 CO 2 price level.
Existing generation—coal and natural gas—necessarily is used more heavily and emissions stubbornly resist reduction. Even at a $100 CO 2 price, emissions reductions in the wild-card case remain minimal. In fact, it takes a CO 2 price in the range of $125-$150 to effect significant reductions under a wild-card future. Power prices are impacted as well. The wild-card future leads to a persistent $20 premium in wholesale power prices, regardless of the size of the CO 2 price assumed.
On the other hand, the prospect of new technologies on the horizon can have a significant impact. While still in the laboratory today, coal with carbon capture and sequestration (CCS) has great potential, over the next 10 to 15 years, to realize its promise and to impact power markets significantly, even more so if other trends ( i.e., the wild-card case) begin to unfold unfavorably.
EPRI’s analysis of Western power markets postulates several alternative futures, and examines the implications of each on suppliers and consumers. This analysis is aggregate, high-level and suggestive, and certainly glosses over many details and intricacies in an attempt to focus squarely on the larger picture. Discrepancies in detail notwithstanding, several inescapable conclusions can be drawn from this analysis.
First, given high enough CO 2 price signals and sufficient time, climate- change policy could wring emissions growth out of the power sector in Western states. In the reference-case future, a price of about $50 a ton will flatten emissions growth,