Is the electric sector capable of rapid, large scale reform? Many policies implicitly assume the answer to that question is No, especially when it comes to greenhouse gas (GHG) emission control.

The result is a policy conversation that hinges on the assumption that it is hard to change. How much must we spend to accelerate new technology? How many decades should we allow for a phase-in of new regulations?

As it turns out, the industry can change—and indeed, has changed—at a much faster pace than you might think. Contrary to conventional wisdom, it turns out to be quick and fairly painless to replace meaningful fractions of our power fleet in very short time frames.

Two interesting observations:

1. 50% of U.S. power generation (in MWh) comes from coal, while only 20% comes from natural gas.
2. 32% of total U.S. power generation capacity (in MW) is coal-fired, while 42% is gas-fired.

When it runs, the natural gas fleet emits just 50% of the CO2 of the coal fleet, which raises a rather interesting question: what would we have to do to make it run harder? And how big a difference would that make in our national CO2 footprint?

First I said that we shouldn’t confuse wealth transfers with economic pain. Then I said that a $20/ton carbon price works out to a 1.4 cent/kWh rate increase. Astute readers may have noticed a disconnect. (Isn’t 1.4 cents/kWh economic pain?) Which brings me to the third and final part of this little series.

Carbon prices v. use of carbon proceeds

Yesterday, I explained why we shouldn’t confuse wealth transfers with taxes. Today, I fulfill my promise to follow up with math. (Contain your excitement!) On the theory that you should (a) stick with what you know and (b) avoid speculating on shoddy data, I’m limiting this math to the electric sector, but the conclusions are generalizable.

How much does carbon pricing cost us on our electric bills?

The surprising answer? Not much.

It’s an article of faith that cap-and-trade will raise our energy costs, but it’s not necessarily true.

The ubiquity of this faith makes clear that the Smart People who write, talk, and vote about CO2 policy don’t really understand the issues. A quick discussion, and then some math to clarify.

There are two core problems with the theory that carbon pricing schemes will raise energy costs:

• We habitually confuse sector-specific wealth transfers with economy-wide pain; the two are not necessarily the same.
• Rather than admit our failure to imagine how the world would adapt to carbon pricing, we tend to assume stasis, thereby overstating the costs of compliance.

Discussion on both points follows.