Economic drivers of electric power production will dominate Colorado’s transition from coal to renewable energy sources. Let’s not miss an important economic opportunity that will be provided by the EPA’s Clean Power Plan.
In September, the D.C. Circuit Court of Appeals heard oral arguments in West Virginia v. EPA, the legal challenge by 28 states and state agencies, including Colorado, to the Environmental Protection Agency’s Clean Power Plan. Regardless of the outcome, it is likely that the U.S. Supreme Court will have the final say when it convenes in 2017.
What’s important to know is that the EPA was told by the U.S. Supreme Court in a 2007 ruling that it must regulate carbon dioxide. One of the main sources of CO² emissions are power plants that use coal. What is also important to know is that the EPA’s Clean Power Plan is designed to create a national carbon trading market that will potentially generate massive revenues for states.
Emission trading markets are now robust and effective at reducing the emissions that scientists agree are contributing to the harmful effects of climate change. In the U.S., emissions trading markets are currently being used in California and the nine northeast U.S. states, making the Clean Power Plan a logical and sensible way forward. The Clean Power Plan allows much flexibility for how states comply with their state-level CO² emission reduction targets, based on a state’s mix of energy sources.
Following the Clean Power Plan, and its cap-and-trade model rule, CO² emissions in Colorado will be reduced by 32 percent from 2005 levels by 2032. To accomplish this, the Clean Power Plan rule has defined the number of allowances (the allowed CO² emissions) that Colorado will be given to meet its target between 2022 and 2032. These allowances have an economic value that may provide significant revenues needed to pay for the transition from coal to renewables in Colorado’s coal dependent communities.
Within the existing CO² emissions trading markets in California and the Northeast, the price for these allowances has ranged from about $4 to $12 for several years. Using this price range and the number of allowances found in the Clean Power Plan (Colorado will receive 326,903,858 allowances), the revenue that could be generated within the state of Colorado between 2022 and 2032 would range between $1.31 billion to $3.92 billion.
These revenues will go into state coffers and can be used for any purpose defined by the state Legislature, including helping coal-dependent communities in Colorado make the painful transition.
The demand for coal for the production of electricity in the U.S. hit a 45-year low in 2015, while in Colorado, the production of coal hit a 20-year low and is likely not to recover. This is because of current global market forces and other factors, including:
Energy Policy Act of 2005 (that promoted the production of natural gas and renewable energy such as solar and wind);Low-cost imports of solar panels from China;Twenty-eight European Union countries adopting cap-and-trade programs; California and nine Northeast states operating under their own cap-and-trade programs; andSteep reductions in demand for coal from China.Coal will continue to have a role in the U.S. energy mix, but the economic signals are clear, so it’s critical that our lawmakers not ignore them. If they do, it will be at the peril of the constituents they represent, and a lost opportunity.
Allowance revenues might also be used to address the shortfall in state funding for education or to invest in renewable energy or energy-efficiency technologies. What is still unclear is if the 1992 Taxpayer’s Bill of Rights will prevent Colorado from spending allowance revenues as determined by the state Legislature. If it does, then these revenues shall be distributed back to the taxpayers, creating an unprecedented windfall in additional income that will drive our economy forward.
We should all want the Clean Power Plan to survive.
Steven Ruddell is president and principal of CarbonVerde, LLC, a bio-carbon project and policy advisory firm with headquarters in Durango. Reach him at steve@carbonverde.com.
