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Blog: Encouraging cost: Effective investments in a carbon-constrained world

Jim Kennerly, graduate student in public affairs and energy and earth resources, explains why he believes radical change in the electric power industry is long overdue.

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Blog post from The Baines Report: Policy in Perspective blog, from the Lyndon B. Johnson School of Public Affairs.

With overloaded infrastructure and mounting atmospheric concentrations of CO2, radical change in the electric power industry is long overdue. However, in what will likely soon become a carbon-constrained world, investments in the most cost-effective carbon reduction technologies available will be of the utmost importance.

The major institutional participants in the Pecan Street Project have wisely judged that the future of power generation will involve fewer large coal, nuclear and natural gas power plants and more small-scale “distributed” sources, like solar and wind power. A fully capable smart electric grid that helps customers learn about their energy use and helps utilities make a profit on energy efficiency investments could revolutionize the traditional utility business model.

However, our federal, state and local policymakers have a moral and fiscal duty to encourage utilities to abate the largest amount of carbon at the lowest possible price. For example, the Environmental Protection Agency (EPA) and Congressional Budget Office have projected that the House-passed Waxman-Markey bill would set a price for a carbon permit between $16-$30 per ton in the year 2020. No matter what the final bill says, most utilities will choose to invest in carbon-reducing technologies that cost less than or equal to the permit price. However, this cost category will not include solar panels. According to Pecan Street Project calculations, the cost per abated ton of solar PV technologies is generally well over $100.

To be clear, solar can still be a wise long-term investment for homeowners, given generous federal tax credits, a robust federal renewable electricity standard and streamlined state and local tax-based financing mechanisms. It would also be foolish for policymakers to continue to erect regulatory barriers like rules that do not provide fair compensation to owners of solar panels who sell power back into the grid. Policies like these will continue to squelch the development of distributed generation sources like wind and solar power.

Nevertheless, it is clear that utilities must (and likely will) pick the low-hanging fruit of energy efficiency, combined heat and power systems and renewable biomass well before paying high premiums for intermittent solar and wind power. Only a very tight cap on carbon emissions will likely make solar PV and other technologies, such as compressed air energy storage for wind power, economically viable for utilities to build and own. Unfortunately, such a cap is far from politically feasible at this time.

There is no question that Austin and the world must make lower-priced distributed generation and renewable energy a top priority. The coming physical and economic scarcity of fossil fuels requires nothing less. Nevertheless, we must give the highest priority to investments in technologies and strategies that are most likely to halt the deadly warming that threatens our future at the lowest possible price.