Question of the day: How much should we care about the regional incidence of climate policy?
Posted by Rich Sweeney on March 11, 2009
I’m super busy today, helping Dallas prepare to testify before Ways and Means tomorrow. So rather than rush a post I want to ask yall a question.
Two days ago I wrote that consumers in some states will experience larger price increases than others after we cap carbon. While carbon consumption doesn’t vary much across states compared to the variation in carbon from production, there is variation nonetheless, and states where per capita consumption is relatively small will experience a smaller energy price increase than states with larger per capita consumption. However, much of the difference in carbon consumption is the result of previous state level initiatives, which consumers have already paid for. The extreme example is California, which has been consistently investing in energy efficiency and renewable energy for decades. Californian’s paid comparatively higher prices for these investments in the past, but as a result they’re energy bills will be relatively less effected by a cap on carbon emissions. Recently many other states have followed suit, most notably through state RPS and regional carbon policies.
If we just look at current carbon consumption patterns and calculate the implied energy increases expected from pricing carbon, California looks like its not bearing its fair share of the burden. But hasn’t California earned its easy pass by preparing for this day of reckoning over the past two decades?
I’m not saying that the discrepency in burden is 100% justified, as different regions have different energy resources available (and the west has a lot). But there’s clearly been a lot of moral hazard involved as well. Anyone who built a coal plant in the past ten years should have factored in considerable regulatory risk. To the extent that that they didn’t, should more prudent investors be penalized?