Most weeks I get a "micro weekly review" email from the WSJ. It contains 3 or so articles from the WSJ, a summary and some discussion questions. Sometimes the topic is environmental. Here is one such piece that is especially interesting.
TITLE: As Emission Restrictions Loom, Texas Utility Bets Big on Coal
REPORTER: Rebecca Smith
DATE: Jul 21, 2006
PAGE: A1
LINK: http://online.wsj.com/article/SB115344549183413209.html
TOPICS: Economic Incentives, Efficiency, Electricity Markets, Environmental Regulation
SUMMARY: "Top executives at many utility companies have reluctantly accepted that coal-fired power plants contribute to global warming, and they have begun planning for a more restrictive future. Then there is C. John Wilder, chief executive of TXU Corp. The Dallas-based utility company is racing to build 11 big power plants in Texas that will burn pulverized coal. That process releases substantial amounts of carbon dioxide, the most worrisome of several heat-trapping gases widely blamed for global warming. TXU contends Texas needs a lot more power, and it wants to be the company to provide it. Critics of its $11 billion construction program see another motivation: The federal government may slap limits on carbon-dioxide emissions. If it does, plants completed sooner may have a distinct advantage. That's because the government may dole out 'allowances' to release carbon dioxide, and plants up and running when regulations go into effect may qualify for more of them than those built at a later date." The article reports that TXU intends to forgo the option of building more-expensive coal-powered plants that emit less carbon dioxide. TXU possibly is building these higher-emitting plants to take advantage of the anticipated "cap and trade" regulatory system. "A 1990 federal program to reduce emissions of sulfur dioxide, a contributor to acid rain, employed a 'cap and trade' system. Existing polluters were given 'allowances' : essentially, rights to pollute : which they could use themselves or sell to others."
QUESTIONS:
1.) What are possible clauses in federal environmental regulations that could reduce the type of race by TXU to build plants that emit more carbon dioxide?
2.) Suppose society believes that coal-powered plants emit too much carbon dioxide. Would federal regulations aimed a reducing the amount of carbon dioxide emissions improve economic efficiency? Use the marginal social cost of carbon dioxide emissions and the costs of constructing low-emissions and high-emissions plants to characterize whether power companies should construct low or high-emissions plants.
3.) The article states that under the 1990 federal program to reduce emissions of sulfur dioxide that existing polluters were given 'allowances' : essentially, rights to pollute : which they could use themselves or sell to others. Is there a better system mechanism to initially allocate the allowances? Why would existing polluters sell their rights? Who would buy them? Does this type of market for allowances improve economic efficiency?
Reviewed By: James Dearden, Lehigh University
