No matter which guy becomes president, he'll want you to pay more for electricity.
Democrat Barack Obama and Republican John McCain both endorse a national “cap and trade” program to sharply reduce emissions of carbon dioxide over the next 40 years. Their goal is to try to arrest global warming by reducing the amount of greenhouse gases the United States produces. By making renewable energy more competitive with the price of electricity from fossil fuels, cap and trade also should reduce U.S. reliance on foreign energy sources.
Limiting those carbon emissions - then ratcheting down the limit yearly - will compel electric utilities to spend more money for power they generate. “No matter who wins, electricity is going to be more expensive,” said Melissa McHenry, a spokeswoman for American Electric Power.
At least early on, a national cap-and-trade plan would hit Indiana disproportionately hard, because 95 percent of its electricity is generated by coal-burning power plants. Analysts at the Purdue Climate Change Research Center estimate the cost of power would increase 40 percent to 50 percent by 2025 under a cap-and-trade plan proposed in the Senate this year.
But many advocates of cap-and-trade argue that in the long term, a forcible shift toward greener energy could be good for Indiana. If the federal government provides the right combination of support for renewable energy, research and development, electrical-grid modernization, and clean-coal technology, the state could emerge cleaner and more prosperous.
“There's a hurdle here, but depending on what happens with the cost of allowances, Indiana could find itself in a very strong position,” said Kenneth Richards. Richards is an associate professor at Indiana University's School of Public and Environmental Affairs and associate director of the Lugar Center for Renewable Energy at IU.
The hurdle, he said, is the great unknown now: How much will allowances cost? If the cost isn't so high that coal becomes an untenable fuel, Indiana could create a sweet spot in a changing energy economy.
“Indiana has inexpensive coal and the right geological formations” in which to bury carbon dioxide captured after coal is burned in next-generation power plants, he said.
Garth Brazelton, who frequently writes about environmental economics in his blog, Reviving Economics at econrevival.blogspot.com, and who teaches macroeconomics at IUPUI, says a cap-and-trade plan is the most politically feasible way to raise the cost of carbon-heavy energy. Although it amounts to an energy tax, it's less apparent than a direct “carbon tax,” which advocates say is a faster, more direct route to conserving energy and shifting toward renewable or cleaner energy.
“Cleaner coal is probably the obvious transition,” Brazelton said. “And we're surrounded by cornfields, so there's going to be an obvious push for biofuels.”
Despite the high costs that utilities would face under cap-and-trade, they aren't necessarily opposed to such a program. Richards notes that Duke Energy has been a national and state leader in its forays into renewable energy and clean coal technology. Right now, Duke is seeking to begin a carbon-sequestration pilot project at a clean-coal plant in southern Indiana.
“We support the U.S. going forward with climate-change legislation,” said McHenry of AEP. Indiana Michigan Power, which provides electricity to most homes and businesses in Fort Wayne, is a subsidiary of AEP. She said the crucial point for the utility is whether allowances are auctioned or distributed among large-scale carbon emitters free. If they're auctioned off, utilities will have to pass along the cost of buying allowances along with the cost of reducing emissions. She likened that to a double tax on utility customers.
While McCain and Obama campaign and Congress stalls in a tussle over an energy bill, AEP is already beginning its adaptation to a cap-and-trade system that appears inevitable. McHenry said the company is running a pilot carbon capture-and-sequestration program at a coal-fired plant in West Virginia. The goal is to develop a technology that can be enlarged and refitted to existing plants to reduce their carbon output.
At the same time, Indiana Michigan Power is taking its first steps into wind power as part of its power portfolio. It has contracted to buy 100 megawatts of power from a wind farm now under construction in Benton County, in western Indiana, she said. Indiana Michigan also is conducting a long-term assessment of wind-power potential in Jay, Randolph and Wayne counties.
“Whether or not we come out of this with a positive will depend on the state's capacity to prepare,” said Richards, of the Lugar Center for Renewable Energy. To prepare, the state, with help from the federal government when necessary, must:
♦Reshape regulatory agencies to make room for emerging energy technologies.
♦Upgrade its electrical grid.
♦Invest in a fast-paced campaign to develop cheaper, lighter batteries.
♦Help electric utilities train new workers and replace aging facilities.
“This is one way it could turn Indiana into a much greener state,” Richards said.
McCain, Obama on caps
Both Barack Obama and John McCain favor using a national system of caps on the amount of carbon dioxide businesses are allowed to emit.
Reduction goals:
♦McCain - Sixty percent below 1990 levels by 2050.
♦Obama - Eighty percent below 1990 levels by 2050.
Allowance costs:
♦McCain - At least at first, McCain would give away allowances. The extra costs that would motivate businesses to cut their emissions would come through construction, maintenance, operation and research and development.
♦Obama - Would auction off allowances, anticipating proceeds of about $15 billion a year. The cost of allowances, in addition to the cost of cutting emissions, would motivate companies to reduce pollution and innovate. Part of the money obtained from auctions would be used to fund government investment in new energy technology and research and development. Part of the auction proceeds would be used for wildlife habitat restoration and to help fish and wildlife adapt to global warming. The remainder would be used for energy rebates and other financial help to cushion the impact of higher energy costs.
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