Environment Texas Blog

ERCOT has issued a new analysis claiming that federal climate legislation will significantly increase the cost of electricity. Read the Dallas Morning News article here.

This is a very, very narrow analysis. As the Frontier Group's Tony Dutzik points out, "this is like the legend of the three blind guys feeling different parts of an elephant, where one thinks it's a tree, another a rope and another a pillar. ERCOT's piece of the elephant is the transmission and distribution system, and that's the only piece they are looking at".

The ERCOT analysis ONLY estimates the impact on prices of shifting from higher carbon to lower-carbon resources that already exist (or are planned to exist) on the Texas grid. This is neither the cheapest nor the best way to achieve the carbon dioxide emission reductions the nation will have to achieve. While Chairmen Waxman and Markey included requirements on utilities to boost their use of energy efficiency and renewable energy in their draft bill (the "American Clean Energy and Security Act" or ACES), it appears the study did not model the full impacts of those provisions.

The ERCOT analysis does not include (except for a few rough side cases):

• Any reduction in energy use due to reinvestment of cap-and-trade revenue in energy efficiency

• Any reduction in energy use due to complementary energy efficiency policies in the Waxman-Markey bill (e.g., the EERS).

According a December 2008 report by the PUC, a modest increase in efficiency programs would save consumers almost $12 billion.

• Any additional renewables called for by the Waxman-Markey bill or other policy instruments. In a side case, ERCOT estimated the savings gained from the completion of the CREZ transmission zones, which will lead to the development of 18,000 megawatts of wind power, but didn’t estimate the benefits of going beyond the 18,000 mw. The draft ACES bill requires 25% renewables by 2025, but the CREZ wind projects would only get Texas to about 11% wind.

• Any shift in the mix of installed resources on the Texas grid (closure of dirty plants, opening of clean plants) driven by the program and the long-term expectation of carbon prices

• Any return of cap-and-trade revenues to consumers, either directly through a rebate or indirectly through the local distribution companies.

The analysis assumes a very high carbon price of $40-60 per ton, even though carbon is selling for less than $20 a ton in Europe and even less in the northeastern U.S. EPA's analysis assumes a price of approx $17 to be phased in gradually over the next 15 years.

The analysis also shows that adding more wind power to the system and cutting electricity use (which could be achieved through cost-effective investments in energy efficiency) reduces the impact of the program on consumers' electric bills, which is exactly what advocates have been saying all along. That is why policies to encourage renewable energy resources and energy efficiency improvements are important complements to a carbon cap-and-trade program and must be part of an overarching approach to global warming. In addition, this analysis underscores the importance of returning some revenues to consumers, rather than allowing them to find their way into the pockets of polluting special interests.

According to an analysis by the Union of Concerned Scientists, a suite of strong energy, climate, and transportation policies similar to what’s in ACES would save the average U.S. household $900 annually on its energy bills.