FOR IMMEDIATE RELEASE
July 1, 2009
CONTACT:
Laura Henderson, 202.621.2951
Patrick Creighton, 202.621.2947

IER: New National Poll Reaffirms Mainstream America’s Opposition to Cap-and-Tax

Job-Killing Waxman-Markey Bill At Odds With Working-Class, Middle America

WASHINGTON – Thomas J. Pyle, president of the Institute for Energy Research (IER), issued the following statement on Rasmussen’s newly released poll that demonstrates a clear majority of Americans oppose higher energy taxes and are more interested in job creation than subsidizing politically popular, but otherwise expensive and uncompetitive forms of energy:

“These poll results send a clear message to Washington: cap-and-trade proponents are wildly out-of-touch with mainstream America. While some policymakers are focused on creating enough government mandates and taxes to make unreliable, intermittent, and more expensive energy sources our only options, working-class families are worried about climbing unemployment numbers and rising energy costs that may push them over the financial brink.

“To bring down costs and make energy more affordable, we cannot turn our backs on any form of energy. Cap-and-trade, however, allows government – not individuals – to pick winners and losers. This economically devastating energy tax will kill jobs. The American people understand this. And they understand that we must get the government out of the energy rationing business if we are to bring down energy costs and make America more competitive.”

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NOTE: Newspapers nationwide, top lawmakers, and financial experts have illustrated how the Waxman-Markey cap-and-trade bill is tantamount to a massive, job-killing national energy tax on every single American consumer.

KEY RASMUSSEN POLL FINDINGS

• 71% of mainstream Americans believe job creation is more important then taking steps to stop global warming
• 67% of mainstream Americans say they are not willing to pay higher taxes and utility costs to generate cleaner energy and fight global warming
• 56% of Americans say they are not willing to pay more in taxes and utility costs to generate cleaner energy and fight global warming

NEWSPAPER EDITORIALS

• The Wall Street Journal: “The whole point of cap and trade is to hike the price of electricity and gas. … These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. … Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history.”
• Las Vegas Journal Review: “Meantime, as the president cheerfully assured the public Monday that all we need to do is “screw it in,” he seemed oblivious to the number of American employers busily figuring out the costs of moving their operations overseas — where they would be free to produce all the CO2 they want, though without employing any American workers — should his absurd “carbon dioxide tax” become law.”
• The Detroit News: “This [cap-and-tax] bill will break the budget of U.S. households. Electricity costs could rise more than 100 percent in the Midwest. … Gasoline and diesel fuel prices could go up nearly an estimated $1 per gallon just from the effects of this bill. … Families will bear the price of this legislation.”
• Orange County Register: “Cap-and trade is a huge energy tax increase unlikely to have any effect on global climate. … The Waxman-Markey legislation is a huge energy tax in a thin disguise, designed to force Americans to switch to more expensive renewable energy sources.”
• San Francisco Examiner: “The bill will sock it to every American who drives a car, has a monthly utility bill or buys essentials like food and clothing. Experts estimate the annual costs will approach $3,000 for every family within a few years.”
• Investor’s Business Daily: “‘It is in fact a tax on energy everywhere it is consumed on everything it is used to make or provide. It is the largest tax increase in American history… Consumers would pay through the nose as electricity rates would necessarily skyrocket.”
• The San Diego Union Tribune: “At a time when the economy is in shambles, with 14.5 million people unemployed, the president is seeking quick approval of a bill that would take a wrecking ball to U.S. industry. … The public would throw a fit over a big new tax. Instead, the gigantic cost which the public inevitably would bear should be hidden via ‘cap and trade.’… If they get their way, here’s the grim likely result: a continuation of global warming and a crippled U.S. economy.”
• The North Andover Eagle Tribune: “Cap-and-trade bill is an economy-killer. … The folly of this scheme is plain. One cannot add a huge new cost (for the permits) without producing an increase in prices for products made here or the flight of manufacturers to countries where no cap-and-trade costs apply.”

REP. JOHN DINGELL (D-MI), Chairman Emeritus of the House Energy and Commerce Committee

• “Nobody, nobody in this country realizes that cap-and-trade is a tax and it’s a great big one.” Click HERE to view.

WARREN BUFFETT, Obama economic advisor

• “It’s a tax like anything else.” Click HERE to view.

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

FOR IMMEDIATE RELEASE
June 30, 2009
CONTACT:
Laura Henderson (202) 621-2951
Patrick Creighton (202) 621-2947

Bradley: Climate Bill a Public Policy Abomination

IER’s Robert Bradley to Testify at Houston Energy Summit

HOUSTON – Institute for Energy Research (IER) CEO Robert Bradley will deliver testimony and answer questions at tomorrow’s Texas Energy Summit, a conference Congressmen Barton, Culberson, Sessions, and Olsen will hold to discuss the disturbing effects a federal cap and trade scheme will have on Texas jobs and electricity prices.

Texas Energy Summit, Featuring Robert Bradley
Wednesday, July 1, 2009
10:30 a.m.
University of Houston, Clear Lake
Bayou Building, Garden Room
General Parking in Lot D

**MEMBERS OF THE MEDIA ARE WELCOME AND ENCOURAGED TO ATTEND**

*Dr. Bradley’s remarks, as prepared, can be viewed here.

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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FOR IMMEDIATE RELEASE
June 26, 2009
CONTACT:
Laura Henderson, 202.621.2951
Patrick Creighton, 202.870.0850

Landmark Carbon Tax Bill Narrowly Clears U.S. House

Job-Killing Cap-and-Trade Will Lead to Less Economic Output, Higher Costs Across the Board

WASHINGTON, DC – Institute for Energy Research (IER) president Thomas J. Pyle issued the following statement today subsequent to House passage of cap-and-trade legislation, a bill that seeks to ration Americans’ use of and access to energy by making it too expensive for them to afford it:

“As working-class families across the nation today were going through their daily routines – working, driving their kids to soccer practice, making weekend plans – an unprecedented piece of legislation that will fundamentally alter their way, quality, and station of life took a major step closer to becoming law today.

“The House-passed cap-and-trade scheme will increase the cost of energy for every single American. With families and small businesses already struggling through the current economic downturn, now is the worst time to tax and further restrict the affordable and reliable energy sources that fuel our economy. This job-killing cap-and-tax bill will not make America more economically competitive or more energy secure. It will, however, directly contribute to the climbing unemployment rolls.

“Misery loves company. And thanks to the mandates in this bill, states with the least reliable and most expensive electricity will soon be able to export their failures nationwide.”

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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1. What if the subsidies do not make a politically-favored energy source cost-effective?
2. What if the politically-favored energy source turns out to be less than advocates envision?
3. Can Congress kill a subsidy program after it has created a constituency that is receiving taxpayer dollars?
4. Won’t Members of Congress fight to keep subsidies to help their districts?

Surprisingly, these questions came from the Washington Post. As Congress inches closer to a vote on the largest tax increase in American history since World War II, the Washington Post asked these pointed questions in yesterday’s editorial column, displaying a surprising level of understanding concerning the pitfalls of government intervention in the marketplace. The editors opined:

Uncertainties abound: What if the costs of clean coal don’t come down enough to make it economical relative to other measures? If clean coal turns out to be less than its advocates envision, can Congress ever work up the political will to kill the subsidy program? Subsidies are set to phase out after 10 years of paying for operating costs, but won’t powerful coal-state lawmakers fight to keep them going? And even if it does work, won’t members of Congress insist that big carbon repositories not be located in their districts?

But the Post seems to suffer from economic amnesia, as it has argued many times in the past that economic intervention in its pet sources of energy is a necessity. For example, during the debate of the 2007 House energy bill, the Post lamented the lack of a “renewable energy standard”—a mandate forcing Americans to use more renewables. The Post explained:

Also making the House energy package less than optimal is the lack of a renewable energy standard. If the United States is going to ease its dependence on fossil fuels, it must institute a national benchmark for utilities to use more wind, solar, biomass or geothermal energy.

And while there is reason to be concerned about subsidized carbon dioxide capture technology at coal-fired power plants, the verdict has already been issued with respect to renewable energy.

For over 30 years the Federal and State government have been subsidizing renewable energy because of the claims made by proponents of renewables that breakthroughs are just around the corner.

Consider the two headlines from the Wall Street Journal. Thirty years ago the Carter Administration believed that solar power would provide 20% of our energy needs in 2000. In 2008, solar produced less than 0.1 percent of our energy, even though it was heavily subsidized in the interim.

In 2006, the Rand Corporation made a similar claim to the Carter Administration’s claim from 1978—renewable fuels are supposed to be the future.

The Post’s position in 2007 was that subsidies and set-asides for inefficient, but politically-favored sources of energy is a perfectly acceptable intervention in the marketplace. So why the change of heart today for coal subsidies even though the exact same arguments can be made about the seemingly endless stream of taxpayer financed giveaways to the wind and solar industry? The answer is quite simple—the Post does not want coal to be part of the energy mix, even though it is an abundant, reliable and affordable energy source that provides the nation with nearly half of all of its electricity.

When coal is concerned, the Post recognizes how the incentives Members of Congress face lead to troubling results. The Post’s editors should remove their blinders to examine how their concerns about coal subsidies apply equally to the renewable subsidies the Post supports.

The Post should join the Institute for Energy Research and call for an end to all energy subsidies. That would at least make them intellectually consistent. But it appears there is no room for logic and consistency when you have an agenda to advance.

But the Post wants exactly what the proponents of cap-and-trade want and that is to increase the cost of the types of energy they don’t favor (which currently produce 85% of our energy) and force us to use the types of energy they do favor, such as wind and solar (which currently produce 1.3% of our electricity). All Americans will pay more for their energy as a result of their policies, but none of the editorial writers at the Post will be forced to choose between paying the utility bill and saving for their child’s college tuition, or between filling their gas tank and filling a prescription.

On June 19, the CBO announced that the cap-and trade program contained in Waxman-Markey would cost households an average of $175 in the year 2020 (measured in today’s dollars). On June 23, in an effort to reassert its green bona fides, the EPA came out with an even lower estimate of $80-$111 per household. But even a cursory examination of the methodologies involved in manufacturing those numbers reveals that even the higher CBO figure is far too optimistic, since it leads citizens to believe that energy prices will only go up modestly because of the new cap and trade program.

In fact, very little related to the consequences of Waxman-Markey can be characterized as “modest.” Households will pay far more than $175 per year due to cap and trade, notwithstanding CBO’s attempts to hide it. The EPA study is misleading in the same fashion, but here we focus on the CBO report which can be read by the layperson and states quite clearly how it comes up with its low cost estimate.

Rags to Riches: How the CBO Transforms a Stealth Tax Into a Phantom Tax Cut

There are several major flaws with the CBO approach, but perhaps the most outrageous example of sleight of hand is the CBO’s focus on after-tax income. Because Waxman-Markey will raise prices more than incomes, households will necessarily become poorer. This will push households into lower tax brackets—and thus have lower tax liabilities to the tune of roughly $8.7 billion. Normal people would consider this to be a downside of Waxman-Markey. CBO is not normal. It considers this $8.7 billion as an addition to total household income—money from heaven!—and goes about celebrating the effect of this policy without saying a thing about the cause.

After explaining that some government benefits are indexed to the Consumer Price Index, which means that federal spending will have to increase owing to Waxman-Markey’s energy price hikes, the CBO study points out the silver lining:

Because the federal income tax system is largely indexed to the consumer price index, an increase in consumer prices with no increase in nominal incomes would also reduce federal income taxes. That effect would increase households’ after-tax income but would also add to the federal deficit. In combination, the effect of price changes on the government’s indexed benefit payments and income tax receipts would convey an estimated $8.7 billion to households. (p. 7)

Beyond the absurdity of translating rising prices into a benefit for households—on the basis that poorer people pay less in taxes—the CBO’s treatment of income tax revenues is inconsistent with its treatment of carbon allowance auction receipts. The CBO study acknowledges that households will pay higher energy prices partly because businesses will “pass on” the cost of buying emission allowances. But CBO didn’t include this component as a net cost to households, because the government could spend the auction receipts and thus recycle some of the money back into households.

But if that’s how the CBO wants to do its accounting, then it can’t credit households with a fictitious $8.7 billion “tax cut.” As the quotation above points out, the falling income tax revenues will simply mean a larger budget deficit if the government doesn’t cut other spending. This extra borrowing by the federal government will push up interest rates and transfer $8.7 billion out of the private capital markets. Households will ultimately lose wealth (in the form of greater public debt) that exactly offsets their alleged gain from falling into lower tax brackets.

Impacts on the “Average” Household

The CBO study admits on page 1 that the greenhouse gas (GHG) emission schedule would raise prices for Americans:

This analysis examines the average cost per household that would result from implementing the GHG cap-and-trade program under H.R. 2454….Reducing emissions to the level required by the cap would be accomplished mainly by stemming demand for carbon-based energy by increasing its price…. Those higher prices, in turn, would reduce households’ purchasing power. (p.1)

However, the CBO’s reported annual cost estimate of $175 per household in the year 2020, does not refer to the tallying up of the price hikes acknowledged in the quotation above. The CBO reduces the “gross cost” by mixing in all of the financial benefits that will accrue to “households” from the cap and trade program:

At the same time, the distribution of emission allowances would improve households’ financial situation. The net financial impact of the program on households…would depend in large part on how many allowances were sold (versus given away), how the free allowances were allocated, and how any proceeds from selling allowances were used. That net impact would reflect both the added costs that households experienced because of higher prices and the share of the allowance value that they received in the form of benefit payments, rebates, tax decreases or credits, wages, and returns on their investments. (pp. 1-2)

The problem should be obvious: If the government spends auction revenues, or hands out “free” allowances that possess high market value, to fund alternative energy boondoggles, the CBO study will carefully chalk that money up as flowing back into the pockets of U.S. “households.”

The CBO’s logic makes sense from a certain point of view: A firm that makes solar panels is owned by shareholders who live in houses, right? So when that solar panel firm sees huge profits in the new scheme, the wealth showered on its owners will accrue to households. Even though all electricity consumers will be paying higher prices, the “average” hit will be mitigated to the extent that some of those consumers happen to be on the receiving end of the cap and trade gravy train.

The CBO’s reasoning may be appropriate in some applications, but it is grossly misleading in the current political context. Citizens may come away from the report believing that their annual expenses will rise only $175 because of Waxman-Markey.  The real figure is much higher.

The CBO’s Gross Cost

In contrast to the net cost of “$22 billion—or about $175 per household” (p.2), what does the CBO say about the gross cost, meaning the actual reduction in household purchasing power? In other words, how much of a hit will households take in the form of higher prices and lower wages, before the CBO adds back in all the pork spending and other goodies? They tell us on page 4:

According to CBO’s estimates, the gross cost of complying with the GHG cap-and-trade program delineated in H.R. 2454 would be about $110 billion in 2020…or about $890 per household…(p. 4)

We see that the number reported in the press—“$175 per household by 2020”—represents only 20 percent of the CBO’s projected increase in household costs. The other 80 percent of the gross price hikes is transferred away from unlucky consumers and into the pockets of politically-connected beneficiaries. Since this wealth is redistributed, it’s still in “households” (somewhere) and so the CBO doesn’t report the gross figure, which is five times higher than the number bouncing around the press. But that’s not the end of it. CBO didn’t score anything but the “cap and trade” part of the bill…not the renewable energy mandate, not the additional costs of complying with the bureaucratic nirvana of new standards for energy efficiency of lighting for home art and “personal spas,” etc. In some parts of the country, the “You Must Obey” renewable energy mandate could force significantly higher costs on consumers and businesses.

Winners and Losers

The CBO study acknowledges that its estimates are average figures, and that the impacts on particular sectors will be uneven:

The measure of costs described above reflects the costs that would occur once the economy had adjusted to the change in the relative prices of goods and services. It does not include the costs that some current investors and workers in sectors of the economy that produce energy and energy-intensive goods and services would incur as the economy moved away from the use of fossil fuels….Stock losses would tend to be widely dispersed among investors because shareholders typically diversify their portfolios. In contrast, the costs of unemployment would probably be concentrated among relatively few households and, by extension, their communities. (p.8)

In addition to the negative impact on workers in energy-intensive sectors, the Waxman-Markey bill would also hurt energy consumers to different degrees, depending on which region of the country they lived in. The Southern and Midwestern states are much more reliant on coal and other fossil fuels for their electricity production. Consumers in these regions will see their electricity rates jump higher than in other areas of the country.

Conclusion

Make no mistake: Waxman-Markey is a tax that, to work properly, must find a way to drive up energy prices. CBO bends over backwards to try to disguise this fact, but even they admit Waxman-Markey will increase energy prices.

The CBO’s gross cost estimate of $890 per household is also optimistic. Other studies put the figure at $1,500 per family in higher energy costs.  That makes the much lower figure of $175 per household extremely misleading.

Bent on disguising the true costs of Waxman-Markey, CBO performed a deeply flawed analysis. They treat lower household income as a good thing because households will be subject to lower tax rates, even though this will increase the budget deficit and help drive up interest rates making economic growth more difficult.

The CBO is also disingenuous in its treatment of free allowances. The financial benefit of the free allowances will go to a small subset of the population (and to overseas investors), but CBO merely averages the benefits across the U.S. population. This is deeply disingenuous and misleading. Households are in for much bigger price hikes than the CBO would lead them to believe.

Despite CBO’s heroic attempts to put a nice gloss on Waxman-Markey, cap and trade is what Rep. Dingell said it was—a tax, and a great big one.

This will not the be the last version of this bill. Agriculture Committee Chairman Collin Peterson previously opposed the bill and sought some concessions to benefit farmers. But on Tuesday evening, Rep. Peterson and Waxman reached a deal. It is not known what this deal will entail, but a new version of the bill will be announced before the scheduled vote on the House floor on Friday.

I have previously described Exxon Mobil as the anti-Enron. In an opinion-page editorial in yesterday’s Houston Chronicle, I contrasted the two companies in terms of both energy strategy and public policy.

More could be said than is in the editorial (reprinted below). Enron’s first fraud, engineered by Andrew Fastow, came with the purchase of Zond Corporation, which was renamed Enron Wind Corporation and is now part of GE Energy. (This complicated story about a “qualifying facility” under federal energy law is told in McLean and Elkind’s The Smartest Guys in the Room, pp. 166–67 and Kurt Eichenwald’s Conspiracy of Fools, pp. 142–44.)

Enron Energy Services, the energy outsourcing division of Enron that so excited environmentalists (including Joe Romm, now blogging at Climate Progress), was one of the company’s biggest frauds.

So Enron’s “green” strategy was at the core of its business problems and legal problems, a theme that I will detail in a forthcoming book.

Also, some of the points made below have been the subject of MasterResource posts, such as:

• The oil majors are moving away from renewables.
• Enron pushed for the Kyoto Protocol and cap-and-trade.
• Enron’s role in getting Texas to enact the nation’s most stringent renewable quota (mandate).

Here is “ExxonMobil on Right Path” (the link will be broken in time–that is the newspaper’s policy):

Listening to the dissident shareholders leading the proxy fight to recast Exxon Mobil Corp. as a political energy company, it’s tough not to be reminded of the meteoric rise and operatic fall of the Enron Corporation.

That is what comes to my mind when I read the shareholder resolutions asking ExxonMobil to buy into climate alarmism and splash into uneconomic but politically correct renewable energy investments. Renegade shareholders Sister Patricia Daly, Neva Rockefeller Goodwin, et al. dress their case in the language of maximizing longer-run profits, asserting that the future of ExxonMobil is not in its traditional, very successful activities. But they are wrong on both business and public-policy counts.

In my 16 years at Enron, I watched the company shift from its core natural gas operations to investments in solar power, wind power, and other “green” energy activities. Time and again, environmental groups lauded Enron for practicing “energy sustainability.” The politically correct company received a climate-protection award from the EPA and a corporate-conscience award from the Council on Economic Priorities.

I remember how an Enron lobbyist asserted that passage of the U.N.-sponsored Kyoto protocol in 1997 — with its unrealistic mandate that the developed world cut greenhouse-gas emissions — would be “good for Enron stock.” He predicted that Enron’s wind, solar, and emissions-trading investments would take off once Kyoto came into force. “We bet on the future,” he crowed, “while others have bet on the past.” Chairman Ken Lay, in fact, announced at a management conference that Enron’s vision was “to become the world’s leading renewable energy company.”

Meanwhile, ExxonMobil (founded by the legendary John D. Rockefeller, Sr.) plodded along with its consumer-driven hard-asset energy model. It made steady progress by avoiding the energy fads that so captivated Enron.

The tale of two companies has played out. None of Enron’s “green” initiatives was profitable, and the “new-economy” company imploded. The smartest guys in the room were not so smart after all. ExxonMobil has proven itself to be sustainable in both the boom and busts of the present business cycle.

There is a deeper lesson in all this that both dissident shareholders and company supporters should take to heart: Reject political rent-seeking.

A business can make money via the free-market means of voluntary consumer patronage or via the political means of special governmental favor. The first is the way of capitalism; the second, of political capitalism.

None of the wind or solar projects Enron pushed were economically competitive with its natural gas business. And the energy-efficiency contracts peddled by Enron Energy Services turned out to be a mirage.

ExxonMobil is doing just fine, thank you, without a forced change in business direction. BP and Shell, in fact, have moved toward their rival’s business model by de-emphasizing their renewable-energy investments because of the field’s subpar profits (as determined by consumers). All the major oil companies are now focused on their core natural gas and oil activities, including offshore drilling and heavy oil production. Nobody, including BP, has gone Beyond Petroleum.

And this is good news for consumers. The International Monetary Fund and the International Energy Agency have concluded that the world needs trillions of dollars of oil and gas investment. The Energy Information Administration of the Department of Energy sees hydrocarbons as continuing their dominant role in the United States and the world for decades.

Successful companies stick to their core strengths and avoid profit centers that depend on special government favor. That was John D. Rockefeller’s philosophy a century ago, and ExxonMobil shareholders deserve to be the heirs to his genius, not to the flawed business model of Ken Lay and Enron.

Bradley, a former Enron employee, is founder and CEO of the Institute for Energy Research and author of “Capitalism at Work: Business, Government, and Energy.”

• In 2008, solar represented 0.09 percent of all energy consumed in the U.S. [1] and 0.02 percent of all electricity generated in the U.S.[2]

• In 2008, solar generating capacity in the U.S. totaled 514 megawatts and generated 843 million kilowatt hours.[3] Solar turbines generated only a percentage of their theoretical maximum output due to their intermittency (the sun does not always shine).
• In 2006, photovoltaic cell and module shipments totaled 337 megawatts, and were estimated at 430 megawatts in 2007. These include communications, transportation, health, and grid-interactive and remote electric generation applications. [4]
• Due to incentives in the stimulus and to state mandates highlighted below, the Energy Information Administration projects solar thermal and photovoltaic generating capacity in the electric power sector to increase to 0.60 gigawatts by 2010, 1.02 gigawatts by 2020, and 1.24 gigawatts by 2030. End-use photovoltaic capacity is expected to grow to 1.86 gigawatts in 2010, 10.78 gigawatts in 2020, and 12.3 gigawatts in 2030. Together, generation from solar is projected to increase to 4.12 billion kilowatt hours by 2010, 20.11 billion kilowatt hours by 2020, and 23.22 billion kilowatt hours by 2030. This level of projected solar generation in 2030 represents 0.46 percent of total U.S. electricity generation.[5]
• Because solar power is available only when the sun shines and varies with the seasons of the year, statements about how solar units can produce enough electricity to serve a large number of homes are misleading. Since a solar unit cannot supply power continuously, dispatchable generators (usually fossil-fuel) are required to provide back-up power to the system.

Transmission Facts

• Total spending on new transmission by all investor-owned utilities in 2006 [current dollars] was $6.9 billion.[6] This figure underestimates total transmission spending since it excludes Government-owned utilities and cooperatives.
• According to a November 2008 study by Brattle Group, total investment in transmission and distribution through 2030 is expected to total $880 billion, where $298 billion would be for transmission and $582 billion would be for distribution. The figure includes integration of 214 gigawatts of new generating capacity of which 39 gigawatts is for renewable technologies required under existing state renewable portfolio standards, continued installation of a “smart grid”, accommodation for new end-use technologies such as plug-in hybrid electric vehicles, and bringing new efficiencies and service options to end use customers. The authors caution that the figure could be an underestimate since it is derived from shareholder-owned electric utility expenditure data that excludes investments made by electric cooperatives and Government-owned utilities. [7]
• There is no standard definition of a “smart grid”. It generally refers to technologies that: 1) provide customers with information and tools that allow them to be responsive to system conditions, 2) ensure more efficient use of the electric grid, and 3) enhance system reliability. The latest federal stimulus law provides $11 billion for smart grid technology, including $4.5 billion for smart-technology matching grants. [8] The $11 billion is a small percentage of what’s needed to get to the $880 billion mark, and that amount does not support a 20 percent renewable scenario by 2030.
• In Europe, it is estimated that 1.2 trillion Euros ($1.55 trillion) would be needed to build a super grid that captures offshore wind, hydropower, and solar panel arrays. [9] It would require a new network of cables and interconnectors to bring offshore generated electricity to land and modernization of the onshore grid to deal with sudden changes in supply and demand and clear bottlenecks.

Solar Subsidies

• The Energy Information Administration estimates that total Federal subsidies for electric production for fiscal year 2007 from solar power are $24.34 per megawatt hour, compared to 44 cents for traditional coal, 25 cents for natural gas and petroleum liquids, 67 cents for hydroelectric power, and $1.59 for nuclear. Solar subsidies for non-electric production in fiscal 2007 totaled $2.82 per million Btu, second only to ethanol/biofuels at $5.72 per million Btu. (Figures are in 2007 dollars.) [10]

• According to the General Accounting Office, in fiscal year 2007, solar received 9.2 percent of all federal research subsidies to power generation but produced only 0.016 percent of U.S. electricity. Per kilowatt-hour, this was 1255 times higher than the amount allocated to coal, most of which was spent to develop cleaner technologies. Coal produced 51.4 percent of all U.S. electricity in fiscal year 2007.[11]

Policies Affecting Solar

• While no federal renewable portfolio standard (RPS) exists, 28 states and the District of Columbia have a renewable portfolio standard mandating a certain percentage of a utility’s power plant capacity or generation to come from renewable sources by a certain date.[12] However, most States are out of compliance with their own program due to issues with their RPS formulation, reporting mechanisms, monitoring, and exaction of penalties for non-compliance.[13] (Texas is the major exception.)
• Tax incentives directed toward solar generation originated with the Energy Tax Act of 1978 (Public Law 95-618), which established a business energy tax credit of 10 percent of investment in solar technologies. The business tax credit was extended periodically until passage of the Energy Policy Act of 1992. As part of the Energy Policy Act of 1992, it became a permanent 10 percent tax credit. Section 1335 of the Energy Policy Act of 2005 (EPACT2005)(Public Law 109-58) established a 30-percent personal tax credit, not to exceed $2,000 for the purchase of solar electric and solar water heating property. The Emergency Economic Stabilization Act of 2008 extended it to 2016 and lifted the $2,000 cap. The 2008 law allowed electric utilities to qualify. [14]
• The New Technology Credit , also known as the Production Tax Credit (PTC), was first introduced as part of the Energy Policy Act of 1992 (EPACT1992) (Public Law 102-486). The credit was defined as a 1.5-cents-per-kilowatthour (kWh) payment (adjusted annually for inflation), payable for 10 years, to private investors as well as to investor-owned electric utilities for electricity from wind power and closed-loop (dedicated crops) biomass facilities. The American Jobs Creation Act of 2004 (AJCA) (Public Law 108-357) expanded the PTC to include solar energy. However, the recipient of the credit had to choose one of the two credits (i.e. either the PTC or the ITC). The Energy Policy Act of 2005 (EPACT2005) (Public Law 109-58) made solar facilities placed into service after December 31, 2005, ineligible for the PTC. While solar was eligible for the PTC for a brief period, its impact on solar development was largely inconsequential. [15]

What Does Solar Cost?

• The Energy Information Administration assumes the total overnight capital cost of solar thermal technology to be $5,021 per kilowatt (in 2007 dollars).[16]
• The Energy information Administration calculates the levelized cost of generating technologies, which is the present value of the total cost of building and operating a generating plant over its financial life, converted to equal annual payments and amortized over expected annual generation. In 2016, the levelized cost of solar thermal is 26.37 cents per kilowatt hour (in 2007 dollars) and for solar photovoltaic, it is 50 percent higher, 39.57 cents per kilowatt hour. The costs for solar technologies are higher than that of natural gas combined cycle, whose costs are 7.99 to 8.39 cents per kilowatt hour. Pulverized coal and coal-fired integrated gasification combined cycle have levelized costs at 9.46 and 10.35 cents per kilowatt hour, respectively. EIA includes a 3-percentage point increase in the cost of capital when evaluating investments in greenhouse gas intensive technologies, such as these coal projects, which is equivalent to a $15 per ton carbon dioxide emission fee, and a 2 percentage point reduction in the cost-of-capital for eligible renewable technologies under the loan guarantee program of the Stimulus Act. [17]
• According to Houston-based Standard Renewable Energy, an installed residential solar system for a 2,100-square-foot-home would cost about $25,500. [18]

Land Mass

• For comparison purposes, the land mass and output of California’s Diablo Canyon Power Plant is compared to the land mass required to produce a similar quantity of electricity using solar power. The 2,200 megawatt nuclear facility requires 3 square kilometers, while a solar power station would require 687.5 square kilometers with a power density of 3 watts per square meter.[19]
• Examples of solar plants are the 14-megawatt Nellis solar facility in Nevada with some 70,000 panels and the 11-megawatt solar facility in Serpa, Portugal, with 52,000 panels. [20]

Texas

• Texas law requires that 5,880 megawatts of new renewable generation be built in the state by 2015, which will meet about 5 percent of the state’s projected electricity demand. The legislation also sets a cumulative target of installing 10,000 megawatts of renewable generation capacity by 2025. The measure also includes a requirement that the state must meet 500 megawatts of the 2025 target with non-wind renewable generation.[21]
• According to Houston-based Standard Renewable Energy, an installed residential solar system for a 2,100-square-foot-home would cost about $25,500. The existing federal incentives (the 30-percent ITC) would subsidize that cost by $7,650. In Austin, residents get an additional subsidy of $13,500, and in Dallas, they get approximately another $7,900. [22]
• The Texas legislature recently passed a measure to let homeowners finance their solar installations with help from the local government, and pay back the cost via extra property taxes over 20 years. [23]
• The staff of the Electric Reliability Council of Texas (ERCOT) with input from stakeholders estimated the costs and benefits of various generating technologies. The cost of solar photovoltaic was estimated at $314 per megawatt hour (about 8 times more than a coal-fired plant) and the cost of solar thermal was estimated at $169 per megawatt hours (over 4 times the cost of a coal-fired plant). These costs are approximate generation cost averages with many variable factors including capital costs, life expectancy, operation and maintenance, capacity factor and fuel costs. They exclude ancillary services costs and transmission impacts. [24]

California

• The California Energy Commission has estimated that its requirement of 33 percent renewables in 2020 will entail $5.7 billion in new 500 and 230 kV transmission lines alone, in addition to lower-voltage lines, substations, and reactive power supplies. The figure does not include lines associated with new or upgraded conventional generation.[25]
• In 2006, solar capacity in California was 402 megawatts, 0.6 percent of the state total capacity of 63,213 megawatts.[26]
• In 2007, California’s solar capacity produced 0.26 percent of the state’s electricity.[27]
• In 2008, California had the most installed photovoltaic panels that are tied to the power grid, and increased its share by 179 megawatts.[28]

International

• The U.S. ranks fourth in the world for cumulative installed solar electric power. Germany is first, Spain is second, and Japan is third. [29] In Germany, a feed-in tariff of 27 cents per kilowatt hour has produced an explosion in the use of solar photovoltaics. Under a feed-in tariff, electric utilities are obligated to purchase renewable electricity at a higher rate than retail, in order for the renewable technology to overcome price disadvantages. In Japan, the government has set a target for 30 percent of all households to have solar panels installed by 2030. [30] See the bullet below on Spain.
• The International Energy Agency is projecting solar capacity to reach 208 gigawatts by 2030, 2.7 percent of the total capacity projected for that year, generating one percent of the world’s electricity. In 2006, it generated 0.02 percent of the world’s electricity and represented 0.2 percent of the world’s capacity. [31]
• Britain has a European target of meeting 15 percent of its electricity demand in 2020 with renewable sources. Some government insiders feel the task is hopeless. The government’s own clean-energy advisers have warned that Britain could spend £100bn over the next decade and still not hit the target. The credit crunch slowed the already slow rate of renewable deployment to a crawl. Almost half the power generated in Britain comes from coal and a bit more than a third from natural gas. Nuclear power stations contribute 17 percent and wind provides 0.6 percent. [32] In 2007, solar PV provided 0.3 percent of the UK’s renewable generation capacity and 0.1 percent of its renewable electricity. [33]
• Spain has legislation that requires 20 percent of its electricity production to be from renewable energy by 2010. Spain’s National Energy Commission estimates that 2,945 megawatts of solar capacity were installed by year-end 2008, with 2,253 megawatts installed in 2008, making Spain the second-largest country for installed solar capacity. Solar energy generated less than 1 percent of Spain’s total electricity production in 2008 at a price per kilowatt hour that was over 7 times higher than the average price. To attract investors and make renewable energy profitable against other forms of energy, Spain found that renewable energy must be subsidized. Spain provides both regulated rates and direct incentives to attract investment and meet its policy goals. However, a Spanish university researcher found that the “green jobs” agenda that the Spanish Government has instituted, and to which the U.S. government now promotes, has, in fact, resulted in job loss elsewhere in the country’s economy. For each “green” megawatt installed, 5.28 jobs on average were lost in the Spanish economy, and for each megawatt of solar energy installed, 12.7 jobs were lost. Although solar energy may appear to employ many workers in the plant’s construction, in reality it consumes a great amount of capital that would have created many more jobs in other parts of the economy. [34] Recently, the Spanish Government decided to slash subsidies to solar power. The government will subsidize just 500 megawatts of solar projects this year, down sharply from 2,400 megawatts last year. [35]

[2] Energy Information Administration, Monthly Energy Review, Table 7.2a, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf

[3] Capacity found at Energy Information Administration, Electric Power Annual, http://www.eia.doe.gov/cneaf/electricity/epa/epaxlfile2_2.pdf for 2007 and preliminary 2008 data provided in an email from R. Schnapp, EIA, to M. Hutzler, IER, April 29, 2009; generation at Energy Information Administration, Monthly Energy Review, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf.

[4] Energy Information Administration, Annual Energy review 2007, Table 10.8, http://www.eia.doe.gov/emeu/aer/contents.html, and Energy Information Administration, Annual Energy Outlook 2009, Table A16, http://www.eia.doe.gov/oiaf/aeo/index.html .

[5] Energy Information Administration, Annual Energy Outlook 2009, Tables A8 and A16, SR-OIAF/2009-3, April 2009, http://www.eia.doe.gov/oiaf/aeo/index.html .

[6] Edison Electric Institute, Actual and Planned Transmission Investment by Shareholder-Owned Utilities, 2000-2009. http://www.eei.org/common/images/industry_issues/Energy_Data_Alert/bar_Transmission_Investment.jpg

[7] The Brattle Group, “Transforming America’s Power Industry: The Investment Challenge 2010-2030, November 2008, www.thebrattlegroup.org/_documents/UploadLibrary/Upload726.pdf

[8] Greenwire, Electricity: “Will Americans learn to love the ‘smart grid’?”, www.eenews.net/Greenwire/2009/02/27/archive/1?terms=smart+grid+cost .

[9] ClimateWire, “Renewable Energy: Pricey ‘supergrid’ seen as key to offshore wind power in Europe”, 2/9/09, www.eenews.net/climatewire/2009/02/09/1

[10] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf, Tables ES5 and ES6.

[11] General Accounting Office, Federal Electricity Subsidies, Oct. 2007, page 21, http://www.gao.gov/new.items/d08102.pdf

[12] Annual Energy Outlook 2009, Legislation and Regulations, Table 3, http://www.eia.doe.gov/oiaf/aeo/pdf/leg_reg.pdf.

[13] “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Robert J. Michaels, April 2008 Electricity Journal.

[14] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html, and American Solar Energy Society, http://www.ases.org/index.php?option=com_content&view=article&id=286&Itemid=58.

[15] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html .

[16] Energy Information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html.

[17] Email from C. Namovicz, Energy Information Administration, to M. Hutzler, Institute for Energy Research, April 29, 2009.

[18] Houston Chronicle, “Solar power, Looking for ray of sunshine”, May 27, 2009, http://www.chron.com/CDA/archives/archive.mpl?id=2009_4744238 .

[19] Seth Myers, Energy Tribune with input from the Energy Information Administration and the Pacific Gas and Electric Co.

[20] Energy Information Administration, International Energy Outlook 2009, May 2009, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf

[21] http://www.pewclimate.org/node/1303

[22] Houston Chronicle, “Solar power, Looking for ray of sunshine”, May 27, 2009, http://www.chron.com/CDA/archives/archive.mpl?id=2009_4744238 .

[23] Greenwire, Solar Power, June 1, 2009, http://www.eenews.net/Greenwire/2009/06/01/archive/10?terms=solar .

[24] Issues Associated with Renewable Energy in Texas, Informal White Paper for the Texas Legislature, Mar. 28, 2005, http://www.ercot.com/news/presentations/2006/RenewablesTransmissi.pdf

[25] California Energy Commission, Intermittency Analysis Project: Summary of Final Results, CEC 500-2007-081 (2007) at 26. http://www.energy.ca.gov/2007publications/CEC-500-2007-081/CEC-500-2007-081.PDF.

[26] http://www.eia.doe.gov/cneaf/solar.renewables/page/state_profiles/california.html

[27] Energy Information Administration, http://www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html

[28] Reuters, U.S. installed solar capacity up 17 percent in 2008, March 20, 2009, http://www.reuters.com/article/rbssUtilitiesMultiline/idUSN2050533620090320 .

[29] Solar Energy Industries Association, http://www.seia.org/cs/about_solar_energy/industry_data .

[30] Energy Information Administration, International Energy Outlook 2009, May 2009, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf .

[31] International Energy Agency, World Energy Outlook, November 2008.

[32] The Guardian, March 21, 2009, http://www.guardian.co.uk/environment/2009/mar/21/renewable-energy , and “Windmills flap helplessly as coal remains king”, February 18, 2009, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5755210.ece

[33] House of Lords, The Economics of Renewable Energy, HL Paper 195-I, November 25, 2008, http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeconaf/195/195i.pdf.

[34] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf .

[35] Wall Street Journal, “Darker Times for Solar-Power Industry”, May 11, 2009, http://online.wsj.com/article/SB124199500034504717.html .

FOR IMMEDIATE RELEASE
June 4 , 2009
CONTACT:
Laura Henderson
202.621.2951
Patrick Creighton
202.621.2947

Renewable Electricity Mandate: Pay More For Less

WASHINGTON—In advance of a Senate Energy Committee hearing on the renewable electricity mandate (REM), the Institute for Energy Research (IER) released the following fact sheet:

A National REM Would Increase the Cost of Electricity:

• Wind and solar electricity are significantly more expensive than efficient and reliable traditional electricity sources.
• Energy Information Administration (EIA) projections state that these sources will also be significantly more expensive than coal in 2016.

REMs are already Hurting Americans, Making it Harder for Small Businesses to Compete:

• 34 states already have renewable electricity standards
• Residential electricity rates are 38 percent higher and industrial rates are 50 percent higher in states with binding renewable mandates

The Electricity Sources Mandated are Not Efficient or Dependable:

• Wind generated 1.3 percent, geothermal 0.4 percent, biomass 1.3 percent, and solar less than 0.03 percent of the electricity Americans used last year.
• Energy Secretary Stephen Chu told the New York Times that solar technology would have to get five times better to be competitive in today’s market.

Americans will Pay for a National REM Twice: First as Taxpayers, then as Consumers:

• The Spanish government attempted to mandate and subsidize renewable electricity.
• Spain spent $753,778 of taxpayer dollars to create each green job.
• Spain gave $1,319,783 in subsidies to create wind industry jobs.

NOTE: A recent poll found that 58 percent of Americans said they were not willing to pay a penny more than they currently pay for electricity to combat climate change; 78 percent said that a $50 increase would cause financial ‘hardship.’

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

Coal-fired electricity generation is far cleaner today than ever before. The popular misconception that our air quality is getting worse is wrong, as shown by EPA’s air quality data. Modern coal plants, and those retrofitted with modern technologies to reduce pollution, are a success story and are currently providing about 50% of our electricity. Undoubtedly, pollution emissions from coal-fired power plants will continue to fall as technology improves.

Executive Summary

America’s improving air quality is an untold success story. Even before Congress passed the Clean Air Act Amendments of 1970, air quality had been improving for decades.[i] And since 1970, the six so-called criteria pollutants have declined significantly, even though the generation of electricity from coal-fired plants has increased by over 180 percent. [ii] (The “criteria pollutants” are carbon monoxide, lead, sulfur dioxide [SO₂], nitrogen oxides [NO_x], ground-level ozone, and particulate matter [PM]. They are called “criteria” pollutants because the EPA sets the criteria for permissible levels. [iii]) Total SO₂ emissions from coal-fired plants were reduced by about 40 percent between 1970 and 2006, and NO_x emissions were reduced by almost 50 percent between 1980 and 2006. On an output basis, the percent reduction is even greater, with SO₂ emissions (in pounds per megawatt-hour) almost 80 percent lower, and NO_x emissions 70 percent lower.

Figure 1 below shows the increases in Gross Domestic Product, vehicle miles traveled, energy consumption, and population since 1980, and it compares them to the decline in the aggregate emissions of criteria pollutants. Today, we produce more energy, drive further, and live more comfortably than we did in the past, all the while enjoying a cleaner environment.

Figure 1: EPA’s Comparison of Air Quality, Emissions, and Societal Trend

Source: http://www.epa.gov/airtrends/images/comparison.jpg

One factor in improving air quality has been the pollution-control technologies used by coal-fired power plants. Today’s coal-fired electricity generating plants produce more power, with less emission of criteria pollutants, than ever before. According to the National Energy Technology Laboratory (NETL), a new pulverized coal plant (operating at lower, “subcritical” temperatures and pressures) reduces the emission of NO_x by 86 percent, SO₂ by 98 percent, and particulate matter (PM) by 99.8 percent, as compared with a similar plant having no pollution controls [xv]. Undoubtedly, air quality will continue to improve in the future because of improved technology.

Today, coal-fired electricity generation produces nearly half of the electricity generation in America and provides many jobs. For example, Prairie State Energy Campus, a 1,600-megawatt coal plant under construction in southern Illinois, provides 1,200 people with jobs in around-the-clock construction. Between its power plant, coal mine, and other assets, the campus will inject some $2.8 billion into the Illinois economy, creating 2,300 to 2,500 temporary construction jobs and 500 permanent positions, while emitting 80 percent less in pollutants than most existing power plants.[iv] When completed, the power plant will deliver electricity to 2.4 million homes in at least nine states.

Background

• Even before Congress passed the Clean Air Act Amendments of 1970, creating the Environmental Protection Agency, air quality was improving. Prior to 1970, business saw certain types of pollution as waste, and worked to reduce them through technological improvements in order to increase efficiency. Furthermore, state and local policymakers worked to reduce pollution.[v]
• The Clean Air Act, last modified in 1990, requires the Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards to control pollutants considered harmful to public health or the environment: these are the so-called criteria pollutants.
• Two of these pollutants, SO₂ and NO_x are the principal pollutants that cause acid precipitation (colloquially known as acid rain). SO₂ and NO_x emissions react with water vapor and other chemicals in the air to form acids that fall back to earth. Prior to controlling for these emissions, power plants produced most (about two-thirds) of the SO₂ emissions in the United States. The majority (about 50 percent) of NO_x emissions came from cars, buses, trucks, and other forms of transportation, with power plants contributing about 25 percent. The remainder came from other sources, such as industrial and commercial boilers.[vi]
• The 1990 changes to the Clean Air Act introduced a permanent cap on the total amount of SO₂ emissions that may be emitted by electric power plants nationwide, thereby reducing the level of these emissions in the atmosphere. The approach used was a cap-and-trade program with a steadily declining cap through 2010.
• In order to comply with the Clean Air Act Amendments of 1990, electric utilities could either switch to low sulfur coal, add equipment (e.g., scrubbers) to existing coal-fired power plants in order to remove SO₂ emissions, purchase permits from other utilities that exceeded the reductions needed to comply with the cap, or use any other means of reducing emissions below the cap, such as operating high-sulfur units at a lower capacity utilization.
• EPA devised a two-phased strategy to cut NO_x emissions from coal-fired power plants. The first phase, finalized in a rulemaking in 1995, aimed to reduce NO_x emissions by over 400,000 tons per year between 1996 and 1999. The second phase began in 2000, and it aimed to reduce NO_x emissions by over 2 million tons per year. The second phase reduction goal was exceeded, owing in part to additional state-initiated NO_x reductions in the Northeast.[vii]
• In 1998, EPA issued a rule that required 21 states and the District of Columbia to further reduce NO_x emissions through the use of newer, cleaner control strategies. The rule gave each affected state a NO_x emission target and let the state determine how to reduce its emissions. The goal was to reduce total emissions of NO_x by 1 million tons in the affected states by 2007. Most states were required to begin reductions in 2004.[viii]
• EPA issues air pollution control standards under the Clean Air Act Extension of 1970. These standards are called New Source Performance Standards (NSPS). EPA’s NSPS require all power plants for which construction commenced after February 28, 2005, to not exceed 1.0 lb/megawatt hour (0.11 lb/million Btu) of NO_x, 1.4 lb/megawatt hour (0.15 lb/million Btu) of SO₂, and 0.14 lb/megawatt hour (0.015 lb/million Btu) of particulate matter (PM). [ix] However, as can be seen below, most new plants are built to more stringent criteria.

Coal Industry Emissions Reduction

• Of the 328,720 megawatts of coal-fired capacity reporting their control technologies to the Energy Information Administration in 2005, 48 percent (158,493 megawatts) have cooling towers, 31 percent (101,338 megawatts) have flue gas desulfurization equipment (scrubbers), and 100 percent have particulate collectors.[x]
• The following graph compares the SO₂ and NO_x emissions from coal-fired power plants divided by the fuel consumed by these plants from 1970 to 2006. Between 1970 and 2006, SO₂ emissions in lbs per million Btu were reduced by almost 80 percent and NO_x emissions in lbs per million Btu were reduced by over 70 percent. Between 1970 and 2006, total SO₂ emissions were reduced by about 40 percent. Between 1980 and 2006, NO_x emissions were reduced by almost 50 percent.



• A study by the National Energy Technology Laboratory (NETL) compared the emission rates from pulverized coal plants and integrated gasification combined cycle plants based on the environmental regulations that would apply to plants built in 2010 using technology designs from several vendors, including General Electric Energy (GEE), ConocoPhillips (CoP), and Shell. These rates are provided in Table 1 for three criteria pollutants: sulfur dioxide, nitrogen oxides, and particulate matter (PM).[xi] The rates range from .0105 to .0848 lbs/million Btu for SO₂, .055 to .07 lbs/million Btu for NO_x, and .0071 to .013 lbs/million Btu for PM, depending on technology type. These emission rates are 43 to 93 percent lower than the current NSPS for SO₂, 36 to 50 percent lower than the current NSPS for NO_x, and 13 to 53 percent lower than the current NSPS for PM. Integrated gasification units have lower criteria pollutants than pulverized coal plants.

• According to NETL, for a new pulverized coal plant (subcritical) built in 2008, pollution controls reduce NO_x emissions 86 percent, SO₂ emissions by 98 percent, and PM by 99.8 percent when compared with a similar plant with no pollution controls. The target emission level for NO_x is 0.070 lb/MMBtu, for SO₂ is 0.085 lb/MMBtu, and for PM is 0.013 lb/MMBtu. Without control technologies, a subcritical coal plant would emit 0.5 lb/MMBtu of NO_x, 4.35 lb/MM Btu of SO₂, and 6.5 lb/MM Btu of PM.[xii] The figure below graphically depicts the criteria pollutants from a new controlled plant vs. a new uncontrolled plant.

Cost Factors in Emission Reductions

• According to the EIA, the costs of adding flue gas desulfurization (FGD) equipment to remove sulfur dioxide are, in 2006 dollars, $301/KW for a 300 MW plant, $230/KW for a 500 MW plant, and $190/KW for a 700 MW plant. The costs for selective catalytic reduction (SCR) equipment to remove nitrogen dioxides are $124/KW for a 300 MW plant, $108/KW for a 500 MW plant, and $98/KW for a 700 MW plant. The costs per megawatt of capacity decline with plant size.  FGD units are assumed to remove 95 percent of the SO₂ and SCR units are assumed to remove 90 percent of the NO_x.[xiii]
• The NETL study provides estimates of both the capital cost and the levelized cost of these technologies, which are given in Table 2 in 2007 dollars.[xiv] The levelized cost is the present value of the total cost of building and operating the plant over its economic life, converted to equal annual payments. The plant costs range from $1,549 to $1,977 per kilowatt for a 550 megawatt plant, with integrated gasification combined cycle technology having the higher costs. The 20-year levelized plant cost was computed using fuel prices from the Energy Information Administration’s Annual Energy Outlook 2007. The levelized plant costs range from 6.33 to 8.05 cents per kWh.

Source:  National Energy Technology Laboratory, Cost and Performance Baseline for Fossil Energy Plants, DOE/NETL-2007/1281,
http://www.netl.doe.gov/energy-analyses/pubs/Bituminous%20Baseline_Final%20Report.pdf

• NETL estimates that for a pulverized subcritical coal plant, the equipment to control NO_x, SO₂, and PM comprises $324/kW of the $1,549/kW plant cost (21 percent). At the request of IER, NETL estimated the cost of a subcritical pulverized coal plant without controls for criteria pollutants. The levelized cost of the new controlled plant is 6.4 cents per kWh and that of the new uncontrolled plant is 5.2 cents per kWh, 19 percent lower. A controlled plant has slightly lower output, less than 1 percent lower, and its capital costs are about 25 percent higher due to the cost of the control technologies.[xv]

Coal-fired electricity generation is far cleaner today than ever before. The popular misconception that our air quality is getting worse is wrong, as shown by EPA’s data.[xvi] Modern coal plants, and those retrofitted with modern technologies to reduce pollution, are a success story and are currently providing about 50% of our electricity. Undoubtedly, pollution emissions from coal-fired power plants will continue to fall as technology improves.

Cap-and-Trade: “Acid Rain” versus Greenhouse Gases

The results of using a cap-and-trade system to fight “acid rain” have led some to argue that it is a model for efforts to reduce carbon dioxide emissions. But the analogy fails. Stark differences exist between the “acid rain” emission-reduction program and the challenge of reducing carbon dioxide, a natural byproduct of combustion, emitted by natural and man-made sources.

Carbon dioxide is emitted in the U.S. by hundreds of millions of sources, including every personal automobile, the appliances many of us use to cook our food and heat our homes, and the businesses upon which we depend for our livelihoods, to name a few. The “acid rain” emission reduction program was initially limited to 110 site-specific utility plants, and then later expanded to 445 plants.[xvii] In addition, carbon dioxide is a world-wide byproduct of combustion, whereas all criteria pollutants are local or regional. In other words, what the United States did for SO₂ and NO_x directly affected air quality here, while national action to limit carbon dioxide emissions will have little bearing on aggregate global emissions.

Furthermore, at the time of the SO₂ and NO_x reduction program, alternative low sulfur coal sources existed and utilities had available affordable and proven technologies to utilities to reduce their emissions. When Congress passed the Clean Air Act Amendments of 1990, therefore, coal-fired utilities could responsibly reduce emissions from their plants using various options that limited cost impacts to the consumer.

In addition, attempts to extrapolate the “acid rain” success story to the challenge of reducing carbon dioxide emissions fail to recognize the history of similar programs in other parts of the world. For example, the “Emissions Trading Scheme” of the European Union has been ineffective at reducing carbon dioxide emissions at the same time it has increased prices and harmed businesses and consumers.[xviii] Further, the EU program has enriched some companies and industries at the expense of consumers.

A recent study by Laurie Williams and Allen Zabel, career employees of the Environmental Protection Agency, makes these points about what the authors call the “Acid Rain Myth.”[xix] As the authors explain, that those who champion the use of cap-and-trade to address global warming ignore the crucial distinctions between the issues we faced in 1990 with acid rain and the issues we face today with global warming.

The following highlights Williams and Zabel’s study demonstrate that the experience of the acid rain program cannot and should not be compared to cap and trade for greenhouse gas emissions:

• “Most importantly, the success of the Acid Rain program did not depend on replacing the vast majority of our existing energy infrastructure with new infrastructure in a relatively short time. Nor did it depend on spurring major innovation. Rather, the Acid Rain program was successful as a mechanism to guide existing facilities to undertake a fuel switch to a readily available substitute, the low sulfur coal in Wyoming’s Powder River Basin.”
• “The goal of the Acid Rain program was to reduce sulfur dioxide emissions, while keeping the cost of energy from coal low. To be effective, climate change legislation must do the opposite; it must gradually increase the relative price of energy from coal and other fossil fuels to create the appropriate incentives for both conservation and the scale-up of clean energy.”
• “Further, the Acid Rain program did not allow any outside offsets and so provides no basis for the widespread assumption that an offset program will help with climate change. In addition, the success of the program was aided by the low, competitive price of low-sulfur coal.”
• “According to Professor Don Munton, author of ‘Dispelling the Myths of the Acid Rain Story’ the impact of the program has been overstated: The potential for a massive switch to low sulfur coal was no secret. Such coal was cheap and available, and it became cheaper and more available throughout the 1980s. Indeed, low-sulfur coal became very competitive with high-sulfur supplied well before the Clean Air Act became law.”

In short, the mechanisms available to reduce pollutants allowed for more generation of energy with less pollution. But this success cannot be extrapolated to the regulation and reduction of carbon dioxide, a much more challenging undertaking. None of the conditions existing at the time of the apparent success of the SO₂ and NO_x reduction program apply to carbon dioxide, and, in any case, unilateral action by the United States will have little impact upon global carbon dioxide concentrations. Indeed, the challenges presented by the control and regulation of carbon dioxide have no parallels in the history of emission regulation.

[xi] National Energy Technology Laboratory, Cost and Performance Baseline for Fossil Energy Plants, DOE/NETL-2007/1281,

http://www.netl.doe.gov/energy-analyses/pubs/Bituminous%20Baseline_Final%20Report.pdf

[xii] Ibid.

[xiii] Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, Table 44, http://www.eia.doe.gov/oiaf/aeo/assumption/electricity.html

[xiv]Ibid.

[xv] Email from J. Kukielka ,NETL to M. Hutzler, IER, January 9, 2009.

[xvi] Environmental Protection Agency, Air Trends, http://www.epa.gov/airtrends/.

[xvii] Kenneth P. Green et. al, Climate Change: Caps vs. Taxes, American Enterprise Institute, (June 2007) http://www.aei.org/publications/filter.all,pubID.26286/pub_detail.asp

[xviii] See European Union, Emissions trading: 2007 verified emissions from EU ETS businesses, May 23, 2008, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/787&format=HTML&aged=0&language=EN&guiLanguage=en

[xix] Keeping Our Eyes on the Wrong Ball, 2/21/09, http://www.carbonfees.org/home/Cap-and-TradeVsCarbonFees.pdf