NCPA - National Center for Policy Analysis


May 14, 2009

Federal regulations on greenhouse gas emissions could boost the monthly electricity bill for the average Texas consumer by $27, maybe even twice that amount, according to a study by the state's grid operator.

The Electric Reliability Council of Texas (ERCOT) -- a nonprofit corporation whose members are largely electricity companies -- evaluated how much electricity prices in Texas would rise if Congress imposes costly regulations on carbon dioxide emissions. The study considers various prices for carbon and other factors such as the impact on natural gas prices and whether more wind power could reduce costs.

  • Congress is considering a bill that would cap the amount of carbon dioxide that power plants and other facilities may emit.
  • The government would issue tradable allowances, so that companies could buy allowances rather than cut their emissions.
  • Texas Republicans have complained that climate change legislation would kill the state's economy.

The study considers the impact of some reduction in electricity demand but doesn't evaluate efficiency initiatives or how much people might dial down their demand if bills start to rise by $27 a month:

  • The reference case shows that carbon allowances must cost between $40 and $60 a ton in order to induce power plant operators to cut their emissions, rather than simply purchase more allowances.
  • Under that case, Texas electricity costs rise by $10 billion a year, boosting the average household monthly bill by $27.
  • That case holds true only if natural gas costs $7 per million British thermal units and if wind farm developers build only the projects they've already announced.
  • If natural gas prices rise to $10 per Btu -- a possibility if carbon regulations boost demand for the lower-emitting fuel -- the annual increase in the cost of electricity would double.
  • On the other hand, high electricity rates might cause people to use less; if Texans cut their power consumption by 10 percent, then the regulations would cost the average consumer only about $17 per month.

Regardless of what mechanism is implemented to produce the desired reduction in CO2 emissions, it will result in an additional cost on the dispatch of electric generation, according to ERCOT.

Source: Elizabeth Souder, "What Can CO2 Cost You?" Dallas Morning News, May 13, 2009.

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