The most basic story in environmental economics, the one that even most introductory economics classes get, is that if the benefits of pollution control are greater than the costs, the polluters should be faced with government policy that gives them incentive to internalize their negative externality. That is, polluters should adopt measures that reduces the pollution to an efficient* level, increases prices of the polluting product and reduce consumption of the polluting product (it a totally clean production technology is not available). So what's up with this?
Thanks to the high prices of oil and natural gas, the electricity industry is turning back to coal, America's oldest and most abundant fossil fuel, to drive a new generation of power plants. The upshot is that even as politicians take the threat of global warming more seriously, the problem may get much worse.
Actually, if electric utilities have incentives to burn more coal then politicians aren't really taking the threat of global warming more seriously.
Utilities are proposing to build 154 coal-fired power plants in the next 25 years, according to "Coal's Resurgence in Electric Power Generation," a recent Department of Energy report.
Most of those new plants would use conventional coal-burning technology, which would increase carbon dioxide emissions from U.S. coal plants by about 50 percent by 2030, according to the Energy Information Administration, the analytic division of the Energy Department. A traditional coal plant produces three to four times more carbon dioxide -- a potent "greenhouse gas" that traps the sun's heat and helps raise the Earth's temperature -- than comes from a modern plant that uses natural gas as its fuel.
Operators of 88 of the new coal plants would continue to use a 50-year-old technology that burns pulverized coal to create steam. The exhaust going up the stack contains 12 percent to 18 percent carbon dioxide.
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Most of the rest of proposed coal-fired plants plan to adopt more-efficient, advanced technologies -- such as turning coal into a gas before burning it -- that produce less carbon dioxide and other pollutants, said Erik Shuster, an analyst at the National Energy Technology Laboratory in Morgantown, W.Va.
Duke Energy is planning to build a coal plant in Indiana that would turn the coal into a gas. The company has received about $100 million in state and local tax incentives to build a coal gasification plant and is seeking federal tax incentives as well.
Only one power company, Minneapolis-based Xcel Energy, is planning to use new technology to capture part of the carbon and store it before it enters the atmosphere.
Capturing carbon could reduce carbon dioxide emissions by 80 percent to 90 percent, according to a 2005 report from the Intergovernmental Panel on Climate Change. The United Nations created the panel in 1988 to study the effect of human activities on the world's climate.
But carbon capture is expensive. It would raise the cost of coal power from 4 to 5 cents per kilowatt hour to 6 to 10 cents, the panel estimated.
"It's always cheaper to emit carbon dioxide to the atmosphere than to capture and store it," said Howard Herzog, an energy researcher at MIT in Cambridge. "With no carbon policy in place to control CO2 emissions, there is no incentive to consider carbon capture and storage technology."
Incentive-based policies include (1) a tax on carbon or (2) capping CO2 emissions nationally, issuing a set number of permits and allowing them to be traded. A number of other, less cost-effective, policies exist (e.g., mandating CO2 capture). When one or more of these things happen (and subsidies don't count), then we'll know that politicians are taking the threat of global warming more seriously.
*Note: Goodstein** has me saying efficient pollution level instead of optimal pollution level. I think he's right. Efficiency is clear, the net benefits of pollution control are maximized. Optimal makes it sound like everyone is happy about it (i.e., no costs).
**Note: What's up with the Noah's Ark cover art?
