Coal faces more uncertainty than any other base-load generating source. Two new factors, hitherto irrelevant to the U.S. industry, will shape future generation investment—imports of liquefied...
Wind Integration and the Cost of Carbon
Renewables are greenest when displacing coal, not gas.
the cost of carbon reduction per ton can be quantified. As above, wind resources might reduce emissions by displacing either gas or coal. Although it has received somewhat less overt attention by policy makers, replacing coal units with gas-fired combined cycles also reduces carbon. The cost for carbon reduction by offshore wind displacing gas is also included for comparison ( see Figure 6 ).
Substituting gas for coal is the lowest cost alternative at current gas prices. By contrast, substituting wind for gas bears the highest cost. Of course, large scale substitution of gas for most of the coal generation in the U.S. isn’t feasible because it would place enormous pressure on gas prices. However, it might be considered on an incremental basis. In an ideal world, a carbon price would guide the market toward the optimal generation mix. Current state policies on the three coasts result in the more costly outcome, substituting wind for gas.
Regional Carbon Strategies
Even though Congress hasn’t introduced carbon pricing, federal regulators and policy makers can still pursue cost effectiveness in carbon reduction. They could support state policies in transmission filings and provide rate incentives to encourage projects with the greatest relative impact. Instead of providing across-the-board subsidies regardless of location, as is with current investment and production tax credits, scarce funds could be allocated to projects with the greatest carbon reduction per dollar.
States can also take more effective action. Because action only by low-carbon-emitting states has limited results, the cooperation of coal generating states is essential. States must accept the challenge of developing regional and inter-regional carbon reduction programs, integrating coal-dependent states together with the most progressive states that today appear willing to pay any price for carbon reduction.