Clean Energy Standard: Cap-and-Trade Only Less Efficient

As noted previously on GlobalWarming.Org, Obama’s “Clean Energy Standard” would effectively impose the Waxman-Markey cap-and-trade bill’s emission reduction target on the electric power sector.

Under Obama’s proposal, “By 2035, 80% of America’s electricity will come from clean energy sources” (i.e. from wind, solar, hydro, nuclear, “clean coal,” and natural gas). Similarly, an estimated 81% of U.S. electricity would come from such sources in 2030 in the Energy Information Administration’s “Basic Case” analysis of the Waxman-Markey bill.

There is one difference though. Emission reductions accomplished via Soviet-style production quota (mandates) such as a clean energy standard would likely be more costly than emission reductions accomplished via market-like mechanisms such as cap-and-trade. National Journal reporter Amy Harder spotted this issue last Friday:

“One of the things that happens implicitly when you set a standard is that you have in fact put a price on carbon, but it’s the clumsiest way to do it,” said Kevin Book, managing director at ClearView Energy Partners, an energy consulting company. “You’re not looking for an efficient, market-based solution. You’re looking for just enough to meet the standards solution.”

Get the picture? The public rejected cap-and-trade, punishing at the polls several Members of Congress who voted for Waxman-Markey. Instead of abandoning a policy designed to make our electric rates “necessarily skyrocket,” Obama offers a more costly version of the same agenda.

Cap-and-trade is dead because the public finally caught on that it is a stealth energy tax, a big reason being that it makes coal — the most economic electricity fuel in many markets — uncompetitive. Coal generated 44.5% of all U.S. electricity and almost 64% of U.S. baseload power in 2009, according to the U.S. Energy Information Administration (EIA).

Obama’s clean energy standard too would make coal generation uneconomic. “Clean” essentially means “anything but coal.” Instead of pricing the carbon emissions from coal, as a cap-and-trade program does, Obama’s new policy would simply prohibit “conventional coal” from competing with other energy sources in 80% of the nation’s electricity market. Existing coal plants could continue to operate within the 20% segment that is deemed “unclean” — unless, of course, EPA’s war on coal (see here, here, and here) succeeds in forcing those plants into premature retirement.

Yes, I know, coal with carbon capture and storage (CCS) qualifies as “clean,” but CCS is unlikely to be commercially viable any time soon. “Currently available CCS technologies are expensive and very energy-intensive due to the large quantity of energy required to capture, compress, transport, and store CO2 into geologic formations,” says the Department of Energy (DOE)/National Energy Technology Laboratory (NETL) December 2010 report, Carbon Capture and Storage RD & D Roadmap (p. 24). The report estimates some of the “significant costs and energy penalties associated with the application of those technologies in their current state of development”:

DOE/NETL analyses indicate that for a nominal 550-MWe net output power plant, the addition of CO2 capture technology increases the capital cost of a new IGCC facility by $400 million and results in an energy penalty of 20 percent. For post- and oxy-combustion capture, the increases in capital costs are $900 million and $700 million respectively, and the energy penalty would be 30 and 25 percent. For an NGCC plant, the capital cost would increase by $340 million and an energy penalty of 15 percent would result from the inclusion of CO2 capture. The costs associated with CO2 capture in terms of increases in the levelized cost of energy (LCOE) or cost per tonne of CO2 avoided are shown in Figure 2-6. The LCOE ranges from $116/MWh to $151/MWh, depending upon the type of facility and whether the application is for a new plant or a retrofit of an existing plant. This compares to an LCOE of $85/MWh for a new supercritical PC plant and a $27/MWh LCOE for the existing fleet of power plants. In terms of costs per tonne of CO2 avoided, values range from $60/tonne to $114/tonne.

So with current CCS technologies, the cost per metric ton of CO2 avoided is $60 to $114 per metric ton. For perspective, in EIA’s Basic Case analysis of Waxman-Markey (p. xii), carbon emission allowances sell for substantially less — $32 per metric ton in 2020 and $65 per metric ton in 2030.

Unless CCS gets a whole lot cheaper soon, Obama’s clean energy standard will effectively ban the construction of new coal-fired power plants. That is a long-standing goal of the Sierra Club and other eco-litigation groups. However, it is emphatically not what either major party campaigned for in last year’s congressional races.

On the day after Election Day, Obama told the Washington press corps: “Cap and trade was just one way of skinning the cat; it was not the only way.  It was a means, not an end.  And I’m going to be looking for other means to address this problem.” Obama’s proposed clean energy standard would skin the cat known as the American ratepayer every bit as much — and perhaps more — than cap-and-trade.