Climate Policy in Washington: The Republican Proposals

January 10, 2014

As part of the Climate Legislative Executive Workgroup (CLEW), Republican members offered their ideas for effectively cutting carbon emissions in Washington state. On the whole, the Republican proposals yield more environmental benefit per dollar spent, but do not yield significant emissions reductions.

The key shortcoming of these policies is that they focus only on electricity. Washington state's electricity is already extremely decarbonized. As a result, focusing on electricity (as many of the Democrats' proposals do as well), is not going to make meaningful reductions.

Another reason the Republican approach yields fewer reductions than the proposals from the Democrats is that with a cap-and-trade system, the Democrats can set the cap wherever they like. If he wanted to, the Governor could cap emissions for 2050 at 20 percent of current levels.

As we have noted, this would be extremely expensive, create enormous uncertainty and businesses would flee the state as the aluminum companies did in 2001 when electricity rates skyrocketed in Washington. This wouldn't be good for the economy or the environment because it would simply move emissions off of Washington's ledger and onto someone else's. The environment wouldn't be any better off even if politicians could claim an accounting victory.

This process demonstrates the problem with politically chosen approaches. Politicians can only focus on big buckets of emissions reductions. Carbon emissions, however, are widely distributed and there are few big buckets. Those that do exist are very expensive. The very nature of political approaches to reducing carbon emissions, and addressing environmental problems generally, limits us to a narrow range of solutions that are frequently expensive and inadequate.

The most effective solutions are those that recognize the distributed nature of environmental impact. Energy policy is the ultimate example of that reality.

My complete spreadsheet analyzing the strategies is available upon request. E-mail me at tmyers [at] washingtonpolicy [dot] org.

It should be kept in mind that “cost” numbers can be compared to a number of alternatives:

  • $11.34: The current cost of a ton of carbon reduction under California's cap-and-trade system.
  • $21.20: The "optimal" cost to reduce a ton of carbon using Yale economist William Nordhaus's climate modeling. Nordhaus has been doing climate modeling longer than any other economist and is the man columnist Paul Krugman calls his "mentor."
  • $30: British Columbia's carbon tax price per ton.

Here is a closer look at the environmental effectiveness of the Republican proposals.

Republican Climate Proposal

Incentivize hydroelectric power generation

The Republicans propose modifying I-937 to allow incremental improvements in hydro power to count as carbon free. This makes sense and is consistent with Seattle City Light's approach to carbon reduction. Seattle claims its electricity is "carbon neutral" by counting the hydro and nuclear power it purchases as carbon free. There is no reason the state shouldn't either.

Using numbers from the Energy Information Administration, new hydro costs about $295.30 to reduce one ton of carbon. That is consistent with my discussions with Washington state utilities that are adding small hydro to their portfolio. In some cases, the cost is about half that amount, but the EIA numbers are a reasonable estimate.

To be clear, this doesn't mean new dams but improvements to existing hydro. The availability of reductions through this approach are limited.

Cost to Reduce One Ton of CO2: Less than $295.30

 

Encourage Conservation Under I-937

Another proposed modification to I-937 would change the way conservation is counted. Instead of accounting on an annual basis, they could "bank" conservation in years when they overshot the targets and use that excess in years when conservation is more difficult.

This would also help account for another quirk in the way conservation is counted. When a utility buys a compact fluorescent light bulb for a resident, it only counts the first year of energy savings. If that CFL lasts more than a year, those savings are not considered. This is more significant when utilities provide rebates for long-term investments like energy efficient refrigerators. As a result, utilities are forced to spend on programs with immediate returns rather than longer term projects that will pay off over time.

The approach being proposed would not reduce the conservation targets, it would simply allow utilities to avoid excess costs. Since utilities are currently exceeding the targets, this rule might increase carbon emissions because it would reduce the pressure to exceed targets since utilities could use previous excess to cover a shortfall. During the 2010-11 biennium, utilities exceeded the targets by 31 percent. If the utilities had met their targets exactly, this would have increased annual CO2 emissions from Washington state by 0.18 percent in 2010.

This would also reduce utility expenditures on conservation, and costs to ratepayers, by about $60 million a year. It could offer additional savings by allowing utilities to pursue longer term conservation policies that yield greater conservation for lower cost.

Assuming the average lifespan of conservation techniques is three years, the cost to reduce one ton of carbon with conservation is about $73.04. This is cheaper than other approaches but still more than any of the baseline comparisons. Rather than reducing emissions, this approach reduces money spent on a relatively ineffective approach.

The same amount of carbon reduction has a value of $5.7 million based on the “optimal” price above. Washington is overpaying for the CO2 reduction by about $54 million. If, however, all of those savings are pocketed by consumers, this will actually cause emissions to increase.

Savings per ton of carbon emitted: At least $73 depending on how savings are used

 

Allow REC Banking

Initiative 937 requires utilities to purchase Renewable Energy Credits (RECs) representing energy from qualifying renewable sources. How those RECs are counted, however, discourages early purchase of those RECs because it does not allow utilities to bank excess credits from one year to use in the future.

Additionally, REC banking would allow utilities to buy those credits when the cost was low, bank them and then purchase fewer when costs are high. The same targets would be achieved, but the average cost of a REC would be lower. During the past five years, REC prices for compliance with a renewable portfolio standard like I-937 have ranged from $22 to $2. Banking would allow the markets to smooth, preventing these wide swings in price and demand.

Allowing the banking of RECs would encourage utilities to purchase renewable energy today, increasing investment in renewable energy now, for use in the future. This shifts carbon emissions from the future to the present, increasing total emissions achieved.

The promise of lower prices for the same amount of, or greater, emissions reductions make this policy an obvious step.

Cost to Reduce One Ton of CO2: Negative

 

Replace Fossil Fuel With Nuclear Generation

The Republican proposal is simply to "study the feasibility" of using nuclear power. Governor Inslee has also expressed support for modular nuclear power although he did not include that in his list of CLEW proposals.

Using numbers from the Energy Information Administration for "Advanced Nuclear," the cost to reduce a ton of carbon is $428.19. This is based on current nuclear design.

Modular nuclear is still being designed and no solid estimates are available. Terrapower, the Bellevue-based modular nuclear effort funded by Bill Gates and other Microsoft innovators, says their approach would cost "much less than any current form of nuclear energy and less than all proposed forms of reprocessing-based nuclear energy." This would make the EIA's estimate on the high end of costs.

Nuclear has other benefits, including the ability to turn it on and off, unlike wind and solar.

Until we have a firm estimate on the cost per kWh of modular nuclear, this proposal is one that is not likely to be environmentally effective in the near term.

Cost to Reduce One Ton of CO2: $428.19 or less

 

Research

Generally, we support funding for basic research, so pursuing new knowledge makes sense within reasonable budget limits. Expecting this kind of research to produce near-term breakthroughs for the environment, however, is not realistic. Given that enormous uncertainty and the fact that this is not really a carbon-reduction strategy, it is impossible to assign a cost.

Cost to Reduce One Ton of CO2: Unknown

 

It should be noted of both the Republican and Democratic proposals that these are preliminary ideas. In the case of the Republican proposals, the CLEW study did not provide any analysis on the viability of these strategies. That is one reason Republicans have called for additional study.

The purpose of this analysis is to indicate what approaches have promise and which will waste huge amounts of money on efforts that yield little environmental benefit.

Ultimately, the only way to address distributed environmental impact is to use an approach that puts a price on resource use and impact. Political, one-size-fits-all approaches will never match the price or effectiveness of ones that harness the creativity and information of people across Washington.