Climate policy wars: Electricity utilities in coal powered states

The Obama Administration may have to recycle a lot of revenue back to the electricity utilities in states that produce much of their power using coal fired plants.

Saul Loeb/AFP Photo/File
The smoke stacks at American Electric Power's Mountaineer coal power plant in New Haven, W. Va. in October 2009. West Virginia is one of 30 states that produces at least 40 percent of its power from coal.

Will the U.S Senate agree to place electric utilities in a carbon cap & trade system? I hope so but the Obama Administration may have to recycle a lot of revenue back to the utilities to nudge certain Senators to sign on. Take a look at Table One of the 2nd paper from the top posted here . The following 30 states produce at least 40% of their power using coal fired power plants (and I'm not even looking at natural gas). These states include; AL, AR, AZ, CO, DE, GA, IA, IL, IN, KS , KY, MI, MN, MO, MT, NC , NE, NM, NV, OH, OK, PA, SC, SD, TN, UT, VA, WI, WV, and WY.

Note that the most liberal states; CA, NY, MA , OR are not on this list. The Senators from the conservative, coal states will need a side payment to make this deal work and giving "free permits" to these polluters would achieve this. So, in terms of geography --- this amended deal featuring cap & trade and revenue recycling to the polluters is a tax on liberal states (i.e Matt in California) to transfer to the coal states (the economists at Wash Univ in St. Louis). Are the Green coastal states happy with this? Or should the polluter pay?

Under electric utility cap & trade, how much will energy prices rise in the coal states? This NBER paper offers some prospective answers.

Why does any of this matter? The electric utility sector is a major producer of GHG emissions and success with regulating this sector using the free market approach (i.e pollution permits) would build up national confidence that this "wacky" approach can be used for the entire economy. Step by step baby ---- how will the new 36 year old Senator from West Virginia vote on this? What Obama pork will he bring back home to his coal miners to placate them? The demand for coal is unlikely to rise in the face of vigorous cap & trade.

The reason I write this blog post today is because the popular media is celebrating Eric Pooley's new book that offers an "insider's take" on the negotiations over Climate Policy. I've written two papers on this subject. The first is listed above and Matt Kotchen and I will soon release a new working paper on this subject.

The starting point in my forthcoming Climatopolis book is that these well meaning efforts will not cap U.S GHG emissions nor will they help to cap ever rising global GHG emissions. I 100% support the effort to engage in cap & trade and carbon mitigation incentives but basic free rider logic convinces me that serious global mitigation efforts will not be forthcoming. This is why I have focused my attention on the medium term and long term issue of adaptation to climate change.

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