How current GHG policy distorts capital allocation

As we think about how to price GHG emissions, it’s often (and accurately) cited that having a meaningful conversation about GHG pricing first requires that we remove all the existing subsidies so that we can stop irrationally allocating capital. Clearly, we can’t provide insurance liability waivers to nuclear and ratepayer guarantees to regulated utilities and then conclude that Monty Burns’ access to capital represents the action of unfettered markets.

Let’s ask the obvious question: how much do various technologies cost us, per ton of CO2 reduced, on an all-else equal basis? If we are already rationally allocating capital between our alternatives, then the differential addition of an actual price on CO2 ought to only help the good technologies proceed a bit further over the line. As you might imagine, we aren’t, and the environmental community deserves some of the blame.

Economics of GHG reduction, part bazillion

Two troubling things I heard last week:

1. The on-going question about what our next president will sacrifice in the name of the economy. If the financial crisis has taught us nothing else, it is that federal coffers are not infinite, and something will inevitably give.
2. At a panel on GHG policy in Washington, congressional staffers for Sen. Byron Dorgan (D-N.D.) and Rep. Jay Inslee (D-Wash.) conceded that the RGGI auction — and specifically, the $40 million raised for the northeastern states — will create some need for the feds to “give,” once the feds pass auctions of their own.

These are closely related and direct results of an environmental policy that continues to remain hostile to economic responsibility.

Do we want an economy that’s a bit more Belgian or Belgian Congo?

A simple syllogism to expose the flaws in our GHG debate:

1. Fossil fuels cost money.
2. When burned, fossil fuels emit CO2.
3. Therefore, burning less fossil fuel saves money and CO2.

The logic is impeccable (even if not quite as entertaining as Lewis Carroll’s syllogisms). And yet our entire GHG debate continues to be framed as those who would damn the economy against those who would damn the environment. The debate is false, and it’s time to get beyond it.

That said, there are two ways this logic potentially breaks down, with significant ramifications for long-term employment and economic growth.

Wis. utilities want customers to cover all fuel volatility

Wisconsin’s five regulated electric utilities have asked to have fuel increases in gas and coal costs automatically passed along to their customers rather than wait until they can file a formal rate case.

Their regulator said no.

Kansas conversations on utilities and efficiency

A workshop in Topeka, Kansas has been trying to figure out how to incentivize Kansas utilities to embrace conservation. The local regulated utility summarizes the problem:

“We are totally committed to energy efficiency,” said Chris Giles of Kansas City Power and Light, “as long as we can have the same level of return we would earn and prohibit the loss of profit margins.”

Step one in the 12-step process is, after all, admitting that you have a problem, so I take this admission as a necessary (if not a sufficient) step in the right direction.