December 26, 2010

Electricity Rates May Go Up Soon Due to New EPA Regulations

Last week, the U.S. Environmental Protection Agency (EPA) issued its plan for establishing new greenhouse gas (GHG) pollution standards. EPA Administrator Lisa Jackson said: “We are following through on our commitment to proceed in a measured and careful way to reduce GHG pollution that threatens the health and welfare of Americans, and contributes to climate change.”

Here is a little history. Last summer, the US House of Representatives narrowly passed the 1,000+ page American Clean Energy and Security Act of 2009, called the Cap-and-Trade bill. This bill particularly mandates a 17% cut in greenhouse gas emissions by 2020, puts a price on carbon dioxide emissions, requires that at least 20% of electricity comes from renewable sources, and mandates increased energy efficiency.

Basically, the government tried to "cap" the amount of carbon dioxide (CO2) and other so-called "greenhouse gases" that can be emitted nationally. Companies that emit such gases would be issued emission permits and would have to pay for these allowances every year. This of course would cause energy prices to rise, since the utilities and other companies would have to pay for emission permits and at the same time spend large amounts of money to change their technology. Does anyone have any doubts these extra costs will be passed on to the consumers? Luckily for us, the consumers, the Cap-and-Trade bill stalled in Senate. So now, having failed to impose their plan via Congress, the administration is moving unilaterally to develop new standards over the next year.
Note that CO2 is not declared a pollutant or health threat in itself, because it is not. Rather, its increase is said to have an insulating effect in the atmosphere and cause global warming. Most climate scientists support such a notion, although there are those who are skeptical about it. For example, Professor of Meteorology at the Massachusetts Institute of Technology Richard S. Lindzen asserts in his article titled "Global Warming: The Origin and Nature of the Alleged Scientific Consensus", “there is no substantive basis for predictions of sizable global warming due to observed increases in minor greenhouse gases such as carbon dioxide, methane, and chlorofluorocarbons”.

Of course, fossil fuels are finite. So, regardless of the scientific dispute on global warming, eventually we will have to switch entirely to renewable energy sources. However, the electricity production from renewable sources costs significantly more than that of coal and natural gas. For example, utility-scale solar electricity costs about four times more than coal-based electricity (see cost comparison of energy sources). To become cost-competitive, photovoltaic technology should become four times more efficient, which is theoretically impossible (see solar cell efficiency limits), or drop in price four-fold, which is unrealistic. Given this fact, the transition to alternative energy should be gradual and should not rapidly hit the economy and the consumers. Especially now, when the country is broke with a multi-trillion dollar debt, it’s not the right time to burden it with politically motivated regulations.