The Electric Reliability Council of Texas has issued a study of the potential impact on electricity prices in Texas if a cap-and-trade system were imposed through federal legislation. The study assumes that a price for carbon (cost per ton of carbon dioxide emitted) from electric utilities would have to be between $40 to $60 in order to incentivize reductions in C02 emissions. At that price, the impact to consumers was estimated to be about $27 per month if no change in electrical usage occurs. (The equivalent of about 10 stops at Starbucks.) The system-wide effect was estimated to be about $10 billion dollars. ( A substantial sum of money, but perhaps small in comparison to the 2008 Texas "gross state product" of $1.245 trillion). The question is to what extent energy efficiency steps could reduce this cost impact by reducing the amount of electricity used. If one invested in compact florescent bulbs, there could be a net break even or savings over time to the average consumer. For industry, adapting to higher electricity costs is not as simple. Some industries may be able to find inexpensive means of reducing electrical usage, others may find that it is very difficult. Thus, the impact will vary across industries.
The other question to keep in mind is that Congress may impose price caps or "safety valves" to keep the price of carbon from reaching $40 to $60, so this level of impact may never occur, at least over the next five to ten years.
The conclusions of the study were as follows:
In the reference case, with $7/MMBtu natural gas prices, expected load levels and the existing and committed level of wind and other generation, the carbon allowance costs must rise to between $40 and $60 per ton in order to reduce carbon emissions from electric generation in ERCOT to 2005 levels by 2013. This level of allowance costs would result in an annual increase in wholesale power costs of approximately $10 billion and would increase a typical consumer’s monthly bill by $27;
At higher natural gas prices, brought about by increased demand for natural gas due to carbon dioxide emission limitations or other reasons, allowances would rise to a higher cost (well over $60/ton in the case of $10/MMBtu natural gas prices) in order to achieve the desired reductions. At this higher gas price, the annual increase in wholesale power costs to meet the 2005 level of emissions through reductions by generators in the ERCOT region would be in the range of $20 billion;
Increases in wholesale power costs due to carbon emissions limits may result in lower energy demand. These reductions in system energy use have the potential to allow the emission reduction targets to be met at a lower allowance cost. Total CO2 emissions are reduced below 2005 levels at a carbon allowance price between $40 and $60 per ton for expected load levels at $7/MMBtu natural gas, but fall below 2005 levels between $25 and $40 per ton if total energy use was reduced by 10%. This level of allowance costs would result in an annual increase in wholesale power costs of approximately $7 billion, a savings of $3 billion over the cost of meeting the 2005 levels of CO2 emissions in the reference case. At this allowance cost, a typical consumer’s monthly bill would increase by $17, a monthly savings of $10 over the reference case;
The additional wind generation envisioned by the CREZ plan (up to a total of 18,456 MW) reduces carbon emissions by 17.6 million tons above the reduction due to existing and committed wind generation even with no carbon emissions limits imposed by climate-change legislation;
The additional CREZ wind generation allows the targeted emissions reductions to be met at a lower allowance cost. At $7/MMBtu gas, the 2005 carbon emissions levels are met at an increase in annual wholesale power costs of approximately $7 billion, which is a $3 billion savings compared to the reference case. At this allowance cost, the increase in a typical consumer’s monthly bill would be $22;
The combination of additional CREZ wind and lower energy usage results in smaller increases due to CO2 emissions limits in both wholesale power costs and the typical consumer’s monthly bill at a $7/MMBtu gas price, as compared to the reference case;
The combination of additional CREZ wind generation and 2% lower energy usage does not offset the impact of an increase of natural gas prices from $7/MMBtu to $10/MMBtu on the level of allowance costs at which emissions reductions targets would be met.
