Accounting for Cost of Carbon
Posted on January 23, 2024 by Charlotte Shuff
Tags, Energy, General Interest
As our utilities continue to use fossil fuels, the carbon emissions of our electricity systems have an impact on Oregon communities and our environment. Contributing to the threat of wildfires is something our utilities need to be held accountable for.
Recognizing Fossil Fuel Impacts Today
Oregon’s second-largest electric utility, Pacific Power, continues to assume that carbon emissions have no impact on their system today. Recognizing that carbon will likely have an impact sometime in the future is not enough. These planning assumptions slow the transition to clean energy.
CUB is urging regulators and electric utilities to consider the costs that carbon emissions are currently having on Oregon communities in resource planning. By considering the current economic impacts of carbon emissions, utilities would have a stronger incentive to move to renewable energy now.
This also will help protect customers from ballooning costs and encourage a better-planned transition to clean energy.
Planning to Meet Climate Regulation: 100% Clean Electricity
As we move toward 100% clean electricity by 2040, utilities have the big task of creating realistic, affordable plans for how to get there. These plans require extensive modeling of energy resources, future customer needs, and new infrastructure needs. Clean Energy Plans, the official plan for meeting 100% clean requirements, have been filed as of this year.
Read more: Creating the Path To 100% Clean Electricity
Pacific Power has two big climate requirements to meet in the near future. The first comes from the 2016 Coal to Clean Act. By 2030, Oregon customers cannot be served by electricity made from coal. The second comes from the 2021 100% Clean Electricity Act. By 2040, Pacific Power has to be fully emissions-free in the electricity it provides to Oregon customers. CUB supported both of these bills.
Shortfalls in Modeling for Meeting Climate Regulation
The social cost of carbon reflects the real-world costs of climate change. Our utilities are not only creating carbon and its impacts but are having to spend money to protect against climate change.
Our utilities are spending 10s of millions of dollars to mitigate the threat of wildfires caused by climate change. They are being forced to absorb millions of dollars on increased insurance costs because insurance companies recognize the current risk of climate change.
We need our utilities to recognize these very real costs are related to their emissions of carbon pollution and incorporate these costs into their planning processes.
Pacific Power’s current analysis focuses on many aspects of meeting climate regulation. As it works to reduce emissions, it also is considering how much it will cost to get there. One of the main shortfalls that CUB sees is that Pacific Power assumes that producing emissions will get more expensive over time, with a hypothetical future carbon tax.
But emissions will have no cost until that hypothetical carbon tax is imposed sometime in the future. This non-existent tax would be a $ per ton of carbon, making producing carbon more expensive and unappealing in the hypothetical future.
However, it is looking extremely unlikely that we will see a national carbon tax. As Pacific Power updates its resource plans every two years, carbon costs will always show up as something that will come in the future. But never as a current cost.
This means that Pacific Power’s forecast of future carbon emissions is unreliable because it is influenced by its assumed carbon tax. When it updates its plan, this carbon tax will disappear and emissions will be greater than its current faulty projections.
And that can have intense real-world implications for Oregon customers.
While there is no tax on carbon that applies to Pacific Power’s emissions, there are now direct costs related to the impact of carbon emissions. These are the costs of carbon that utilities must be considering now.
Carbon is Adding Real Costs Right Now
Here in Oregon, we have experienced the damage caused by carbon emissions. Hotter, dryer summers have led to environmental conditions that no longer reflect historical conditions. Our forests no longer exist in the same climate conditions that existed when PacifiCorp’s system was developed.
These costs truly represent the social cost of carbon coming home to roost. But now that we can identify actual, real costs associated with carbon emissions, that should inform the way we account for carbon in planning, setting rates, and managing resources.
Wildfires caused by climate change have led to significant costs for Pacific Power. Costs have come from protecting the electric grid against wildfires. Costs have come with court rulings on damages from Pacific Power’s inability to protect its communities from wildfires related to the electric system. And costs have gone up from higher insurance due to wildfires.
Pacific Power is spending hundreds of millions of dollars to harden its system to prevent wildfires. This is critical for communities in Oregon that are at risk of wildfires. But the utility must also address the root cause of wildfires: climate change caused by carbon emissions by reducing emissions from its fleet of coal and gas plants.
Planning for the Real Cost of Carbon Helps Customers
Considering Carbon Costs Now
Including real-world costs associated with carbon emissions in planning is good for customers. It is also consistent with the principle of “polluter pays” for the economic impacts of that pollution.
Calculating the company’s real cost of carbon is simple in concept. For example, PacifiCorp could forecast the annual cost of carbon from wildfires (prevention and insurance), and divide that by its carbon emissions.
We know that carbon emissions are having a very real impact on Oregon communities. We know that we have to account for the costs associated with wildfires. We should recognize that there are real costs being incurred and allocated to customers because of carbon emissions. We should not disassociate these costs from their cause.
Instead, we must recognize and allocate these costs to their cause (carbon emissions) in planning. By reforming utility planning, we can incentivize clean energy investments over fossil fuel investments and get to the root cause of our wildfire problem.
Incentivizing Going Clean Now, Not Later
By incentivizing clean energy now, customers also may save significantly on future costs. If Pacific Power continues with its current modeling, fossil fuels may always seem like the better financial option. This could put Oregon in a situation where the utility continues to push off investments in renewables until they are absolutely required to by regulation. In that scenario, the cost of meeting climate regulations could be enormous and all at once.
Instead, CUB is advocating for a steady and well-managed transition. It is much more manageable for customers to add small costs over a decade rather than one very large one a decade from now. This one large change in bills would also come alongside the rising cost of dealing with climate change - a double hit to our wallets.
By adding the real cost of carbon to planning now, utilities will be forced to deal with the transition to renewables now. We cannot wait until the last minute and risk breaking customers’ budgets.
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08/22/24 | 0 Comments | Accounting for Cost of Carbon