Last month, Canada rolled out its federal carbon tax to four provinces, creating a new tax on all goods based on their total carbon footprint. While polluting less is a worthy goal for us all, the plan will only take money from taxpayers to fill government coffers. Instead of imitating Canada’s broad, ineffective tax, the United States should focus on promoting more responsible, lower emitting modes of power generation.
As we transition to a lower-emitting generation future, we must be made aware of the economic choices available while not sacrificing the reliability of our nation’s electric grid. Government-mandated subsidies (i.e., green bonds, tax subsidies or out-of-market contracts and mandates) and broad carbon taxes do not accomplish the goal of economically rational decision-making, which is made possible through transparent and open markets.
We believe it is time to make power generators who emit carbon, like us, pay to do so. That solution won’t come from political grandstanding — it will come from putting a price on carbon, making higher emitting choices less profitable and encouraging lower-emitting sources through market mechanisms.
There is a lot of talk at the national and state levels about a “Green New Deal,” nuclear subsidies, renewable targets, carbon taxes and policy-driven procurements of specific power generation technology, both in the U.S. and in Canada. While the objective of less pollution is laudable, the costs to taxpayers of decarbonizing the power sector rise dramatically more than necessary under such approaches and intentionally lack transparency to allow programs to move forward while true costs are shifted around.
The nation’s power system has undergone an unparalleled transformation over the last three decades, driven by the introduction of competitive markets for power generation. This has led to a dramatic decrease in cost and emissions while improving reliability. With no political edict, we have seen the largest transformation and modernization of our power system in history. Coal-fired generation, which once accounted for 57% of our nation’s electric generation in 1988, has been reduced to 28% in 2018. That generation was largely replaced with highly efficient natural gas, which increased its share from 9% to 35% over that same time period, producing approximately 50% less greenhouse gas than coal for the same electricity production. Renewable power generation saw record growth to 10% of national electric generation, and energy efficiency programs helped reduce our growing demand.
This transformation has led to more than a decade of emissions reductions. The Energy Information Administration reports total carbon emissions declined from more than 6 billion tons in 2007 to 5.1 billion in 2017. For the first time in our history, emissions from transportation exceeded those from power generation. This shift occurred because of a well-regulated energy market and the power of competition, not government choosing the type of technology or solution.
The million-dollar question is: How do we use competition to increase innovation, private investment and reliability while lowering costs and emissions?
An innovative new carbon pricing plan such as the one proposed for New York does just that. If enacted, the plan will require carbon-emitting power generation to pay for those emissions. This will push higher emitting resources out of the market while incentivizing low- and non-carbon emitting resources like solar and wind power.
Canada’s plan, on the other hand, raises prices across all sectors, despite the fact that consumers are six times more responsive to changes in electricity prices than to changes in gas prices. The tax will make taxpayers pay 20 cents per gallon every time they fill up and will have little effect on consumer behavior — not exactly a winning combination.
Putting a price on carbon emissions in the power sector is a targeted approach that harnesses the power of market competition to drive efficiency, promote next-generation technologies and reward low-emitting resources. The money paid by fossil generators could then be directed to support energy efficiency programs or low-income customers.
We simply can’t rely on policy directives that pick winners and losers or broad taxes that target consumers. Taxes, subsidies and mandates will destroy innovation, put the risk of investment back on the ratepayer and forever condemn us to addressing tomorrow’s challenges with today’s technologies.
In the face of rising emissions, making carbon emitters pay the price should create the framework for a much needed evolution in wholesale energy markets. Carbon will have a price tag, but a clean energy future is invaluable.
Tom Rumsey is senior vice president of external and regulatory affairs for Competitive Power Ventures.
