All Price Pain for No Climate Gain?

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By Britt Weygandt, Executive Director, Western Business Roundtable

Reaction to The Wci Cap-And-Trade Plan

Clearly, a lot of work went into developing the WCI regional cap-and-trade plan. It is complex and our members are studying it now. Im certain we will have a range of opinions on its strength and weaknesses across the Roundtable.

But several conclusions can already be drawn.

1) By levying an effective tax on carbon, a regional cap-and-trade program would dramatically increase costs to consumers in the West of virtually everything we buy, from energy to food to housing to clothing. It remains to be seen whether consumers will agree to these higher costs. Given current consumer anger over gasoline prices, I think that proposals like this will get a pretty cool reception at the household level. The refusal of the Utah Public Service Commission recently to allow requested cost increases by Rocky Mountain Power — increases that were at least party driven by the prospect of new climate regulations and mandates — is perhaps a bellweather of things to come on the consumer side of this equation.

2) The consumer impacts of this proposal also need to be viewed in the context of the larger economy. Given the uncertainties of current financial, investment and insurance markets, it is unclear whether the economy, at large, can withstand the huge front-end transaction costs implied by this plan.

3) A regional cap-and-trade program, in and of itself, will have virtually no measurable impact on near-term or long-term climate. In the absence of a national program, and without mandated emissions from other nations, this program would essentially be all price pain with virtually no climate gain. That will be a hard sell to consumers.

4) A regional approach also is highly inefficient from a regulatory perspective. Not only would unilateral action tie our regions hands economically behind our backs, but the inefficiencies and regulatory confusion arising from a plethora of regional plans would be extreme.

5) It is difficult to argue that this plan will not shift costs from ratepayers in states like California, Oregon and Washington, that dont rely as much on coal for low-cost electricity, to those states that do rely more on coal. For example, California relies on coal-fired power for less than 30 percent of its overall electricity needs. Utah relies on coal for about 90 percent of its electricity. Thus, Utah consumers will be forced to bear a disproportionately higher burden under this regulatory approach than will California consumers. One could argue this is a way for states like California to shift the costs of climate change “solutions” from its consumers to others. Regardless, states that now enjoy relatively low-cost electricity from abundant coal supplies — Utah, Wyoming, Colorado, Montana and New Mexico — stand to be the relative losers in a regional plan like this. If this plan gets painted as a proposal to “Californicate” the rest of the West, I think it will have a very difficult time being sold to voters and consumers.

6) There is a tremendous amount of hype these days put out by politicians about how many “green collar” jobs are going to be created by the many government mandates that are being sought under the climate change banner. These jobs are very likely to be back-loaded, meaning they may materialize after our economy pays very high transaction costs for de-carbonization. Politically, I think most citizens will look at the economic carnage that will almost certainly be wrought by climate change regulation and will quickly lose sight of any new jobs created in the renewable and energy efficiency sectors.

7) This plan seems to ignore the immediate need we have in the West for new baseload power plants and transmission lines. Experts are projecting that the Western region faces heightened risk of blackouts and brownouts starting next summer because of deficiencies in the system. This is very real threat that threatens peoples liveliehood and lives in the immediate future. This plan would seem to make meeting that challenge even harder.