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Putting a Price on Carbon

How EPA can establish a U.S. GHG Program for the Electricity Sector.

Fortnightly Magazine - February 2014
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provides a common set of metrics across REC markets. EPA action might support robust GHG reductions accounting based on RPS, RES, and similar state programs. Providing a set of GHG-reduction metrics could provide a common basis to integrate these separate markets into something more recognizable to energy sector players as a unified renewable energy market across the 30-plus-seven states. Use of federal authority to facilitate commerce among the states reflects a key principle behind the U.S. Constitution. A federal system of government rather than a loose confederation of states best facilitates commerce among the states for the mutual benefit of all. 18 EPA action allowing credit for existing market-based programs and from existing RPS policies could potentially support integration of regional or even a national REC market.

Are the States Ready?

For those of us at utility commissions, we need to consider whether the state energy-utility-environmental structures in place are adequate for these tasks. The fundamental approaches and tools used by public utility commissions today were designed at the start of the 20th century – 100 years ago – and were intended to meet an entirely different set of challenges, primarily the regulation of economic monopolies created by economies of scale in the electrical, telephone, natural gas, and railroad industries. 

A mismatch is apparent between PUC tools and the challenge of global warming. Most commissions have little jurisdiction or expertise on greenhouse gas economics and cost-effectiveness of different abatement approaches utilities or the generation sector might adopt. Fortunately, staff members who have studied energy, utility economics, and environmental issues in recent years bring this expertise into commissions and the energy sector.

The federal-centric debate of what EPA might do – what the federal government should do and shouldn’t do – risks masking self-examination of the state structures between utility commissions, energy offices, environmental agencies, utilities, and energy markets. Perhaps our state structures also need a makeover to meet these challenges and best serve the ratepayers, utilities, and citizens for whom we work.

Endnotes:

1.  The new Australian government has announced it intends to repeal Australia’s program and China is introducing seven carbon market pilots in two provinces and five cities beginning in 2013.

2.  U.S. Department of Commerce, Bureau of Economic Analysis.

3.  See British Columbia, Ministry of Finance , (Since different fuels generate different amounts of GHG when burned, $30 per ton of CO 2 equivalent must be translated into tax rates for each specific type of fuel. For example, effective July 1, 2012 the rate for gasoline is 6.67 cents per litre. The tax rate for diesel is slightly higher at 7.67 cents per liter due to the higher carbon content, while the tax on propane is lower on a per liter basis.)

4.  See OECD Effective Carbon Prices , OECD Publishing, Paris (Nov., 2013); OECD, “Climate and Carbon Aligning Prices and Policies,” OECD Environment Policy Paper (Oct. 2013), at pp. 30-31 drawing research from the U.S, U.K, Spain, South Africa, New Zealand, Korea, Japan, Germany, France Estonia, Denmark, China, Chile, Brazil, and Australia.

5.  Id.

6.  See Bloomberg.com, “Carbon

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