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Carbon tax would accelerate shift to renewables, away from coal: studies

Houston — A carbon tax would accelerate the shift toward renewables and away from coal-fired generation, but the impact on electricity and natural gas prices would be relatively small, even with the highest modeled carbon tax of $73/ton, studies released Tuesday show.

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However, power market observers offered mixed reviews of the four studies issued by the Columbia Center on Global Energy Policy's Carbon Tax Research Initiative. The Columbia University effort included work by the Rhodium Group, the Urban-Brookings Tax Policy Center and Rice University's Baker Institute for Public Policy.

The studies modeled the following scenarios:

  • Current policy.
  • A $14/short ton tax on carbon dioxide, rising about 3% a year.
  • A $50/st CO2 tax, rising about 2% a year.
  • A $73/st CO2 tax, rising about 1.5% a year.

All of the taxes would be collected at the source, such as well-head, mine or importation.

"The effects of a carbon tax on prices are largest for energy produced by coal, followed by oil, then natural gas, due to the difference in carbon intensity of each fuel," the study states.

BIGGEST EMISSIONS CUTS IN POWER SECTOR

Therefore, the biggest decrease in emissions would be in the power sector. For example, in the $50/st scenario, coal's share of the national electricity supply would fall from roughly 33% in 2015 to 3% in 2030, while natural gas' share would climb from about 33% to about 36%, and renewables' share would triple from about 13% to about 39%, according to the study. Gavin Dillingham, clean energy policy program director at the Houston Advanced Research Center, said the work constitutes "a fine report, but it does not provide any ground-breaking findings."

"It is pretty conservative analysis that reflects that we have seen through [the US Energy Information Administration] and other similar reports," Dillingham said in an email Tuesday. "My primary concern is that it is difficult to see their renewable energy and battery storage pricing assumptions. I was not able to track it down."

Joshua Rhodes, a research associate at the University of Texas Energy Institute, said, "It makes sense that a carbon tax would be the final straw that broke coal's back," but he was "a bit surprised" by the relatively little decline in emissions expected in the transportation sector.

"They say that electric power changes over faster because there are alternatives like natural gas and renewables, but I would think that a higher sustained floor for gasoline prices might entice more people to buy [electric vehicles]," Rhodes said in an email Tuesday.

Dillingham said the studies' conclusion that transportation emissions would only fall by 3% "appears to be unrealistic if we are to believe some of the latest reports on EV transition."

The four studies were entitled:

  • "The Energy, Economic and Emissions Impacts of a Federal US Carbon Tax," by Columbia University's own researchers, which summarizes the research.
  • "Energy and Environmental Implications of a Carbon Tax in the United States," by Rhodium Group, which focuses on the energy use and emissions effects.
  • "Distributional Implications of a Carbon Tax," by the Urban-Brookings Tax Policy Center, which focuses on the income distribution -- i.e., progressive, regressive or neutral -- effects.
  • "The Effects of Carbon Tax Policies on the US Economy and the Welfare of Households," by the Baker Institute for Public Policy at Rice University, which focuses on the macroeconomic effects.

The studies indicate that the average retail price of electricity would rise from the current level of less than 11 cents/kWh to a range of 11.4 cents/kWh to 13.5 cents/kWh, depending on the carbon tax level, while the retail delivered price for natural gas would rise from about $7.60/MMBtu to a range of $8.90/MMBtu to $13/MMBtu.

ENERGY SPENDING EFFECTS RELATIVELY SMALL

"Total annual per capita energy expenditures increase by as much as 6 percent, 21 percent, and 34 percent in the $14/ton, $50/ton, and $73/ton scenarios, but, in all scenarios, they remain below the per capita expenditure levels at the height of the global commodity boom in 2008," the Columbia study states.

The Rhodium Group study notes that the Donald Trump administration "has broadly dismissed the threat of climate change and is actively rolling back" greenhouse gas rules, but some have argued that a carbon tax could be passed to help replace revenues lost in the 2017 tax cut and to fund infrastructure spending.

Rhodes said, "It feels like it could be a major part of a grand bargain piece of legislation, but I have my doubts for the short term."

Nevertheless, Rhodes expressed confidence that "some sort of climate legislation" would be passed within the next decade.

Dillingham said he thinks the Columbia package of studies "is not going to move the needle as far as I can tell" in support of a carbon tax.

"There are some strong public and private sector leaders pushing for a carbon tax but with an administration that does not believe that there is a climate problem, movement on this front is likely to be limited," Dillingham said. "We will probably need to wait until the next administration to see any opportunities with this type of policy to be entertained, much less passed."

--Mark Watson, markham.watson@spglobal.com

--Edited by Matt Eversman, matthew.eversman@spglobal.com