Mother Jones publishes this article, which analyzes the cost/benefit of a new “Clean Coal” project in Illinois. The project is based on a state requirement for “clean” energy, and costs $0.20 per kWh compared to $0.11 per kWh on average. The article does the math and figures out that the carbon reduction (about 300-500 lb/MWh) costs the purchasers of electricity about $400-700 per ton of CO2. This is compared to, as stated in the article, about $16 per ton of CO2 for carbon permits traded in Europe, a reasonable estimate of the cost of reducing CO2 emissions. It’s even more expensive than the original “safety valve” provision (40 Euros, or about $52) for companies that were not able to obtain permits (in 2006).
It’s this kind of regulation that make me wish we were trying to regulate carbon emissions through some sort of market-based system, such as a carbon tax (my preferred option) or cap and trade (another acceptable option). By requiring a specific technology, the legislation reduces carbon emissions far less than otherwise for the money, or alternatively, costs consumers more for the same amount of carbon emission (it’s the same thing). If the European carbon markets are efficient, we could have reduced carbon by 25 times more had we just done cap and trade or carbon taxes, and we would have had government revenue to reimburse ratepayers to boot. The way Illinois did it, the state gets no revenue, carbon gets reduced less, and ratepayers end up paying more than they would have for wind, solar, probably even nuclear.
It’s not even clear the operators of the “clean coal” power station get a windfall profit, because they have to spend more money building the plants, resulting in waste.
At $400 per ton of CO2, it’s worth it to sell permits, then use the money to purchase oil that’s been pulled out of the ground and re-bury it. Think about it. A barrel of oil releases 0.5 tons of CO2 when burned, and costs you under $50 to purchase. So you sell a permit (a “carbon offset”) for $400, then you go buy two barrels of oil from a supplier and put them back in the ground. Your profit is $300, and you’ve got two barrels of oil stored for use when carbon permits are cheaper.
Does this simple math mean that the price of one ton of CO2 offsets is not likely to go above half that of a barrel of oil?
Hat tip to Carbon Tax Center’s feed.