by Jeffrey Winters, Associate Editor
Government reports bearing bad news are often released on Fridays. The hope is that the details get buried in the little-read Saturday newspaper. It's odd, then, that an assessment of a pending Congressional bill by the Environmental Protection Agency was released with little fanfare on a Friday this spring. The results of the assessment were anything but bad.
The subject of the analysis was the Climate Security Act, sponsored by Connecticut Sen. Joseph Lieberman and Virginia Sen. John Warner. The bill would place ever-decreasing caps on carbon emissions from petroleum, natural gas, and coal, and would establish a market-based system for trading emission allowances. One could also earn carbon allowances through sequestering carbon dioxide or through agricultural or forestry set-asides.
One objection to caps on carbon emissions (or to emissions taxes, which have roughly the same effect) is that by raising the cost of carbon-emitting activities—notably transportation and electrical generation—they produce an intolerable drag on the economy. This nation was built on a foundation of cheap energy, the argument goes, so any increase in the cost of fuel will undermine an economy already battered by foreign competition. Not only that, but by some calculations a carbon tax could increase gasoline prices by more than 50 cents a gallon.
 Well, that figure likely sounded more ominous in 2001 or 2005, when gas prices weren't reaching toward $4 a gallon. What's more, the whole argument seems to founder on the wide range of energy prices already apparent in the American market. The plot shows the average price of electricity in each of the 50 states compared with the state's per capita gross state product, an analogue to the gross domestic product that is computed by the Bureau of Economic Analysis. As can be seen, there is a factor of two or three difference in the price of electricity, due to a variety of reasons. What isn't apparent is any correlation between the retail price of electricity and any deleterious effect on a state's economy. Access to inexpensive power hasn't made Kentucky rich, and pricey electricity hasn't made New York poor.
To be sure, that isn't the whole story. While prices vary from state to state, there is also a broad trend for the average retail price of electricity to fall in comparison to the size of the economy. That's been an obvious plus, but it also means there is some resilience to price increases. Prices could rise substantially and still not be as high in real terms as they were in the early 1990s. What's more, as we've seen with the response to record high gasoline prices—that is, not much response at all—higher electricity costs might not affect our lifestyle. Californians use less electricity than other Americans, but they are not sitting in the dark.
Internationally, there's similarly little connection between a nation's fortune and its electricity prices. Data compiled by the Energy Information Administration show prices are generally lower in the United States than elsewhere, but average residential rates of 20 cents per kWh haven't slowed fast-growing Ireland. Countries where electricity is expensive usually consume less of it, but it doesn't have an obvious connection to their overall competitiveness.
Therein lies the good news of the EPA analysis of the Lieberman-Warner bill. Based on a model of how an emissions cap-and-trade system would work, the analysis found that by 2030, the price of one ton of carbon dioxide emissions would be slightly more than $60 in 2005 dollars.
That adds about $26 to a barrel of oil, $3.30 to every million Btu of natural gas, and $134 to the price of a short ton of coal. The analysis suggests that the average cost of electricity in 2030 would be 44 percent higher with the cap than without it. That sounds like a lot. It would push 8 cents per kWh electricity to 11.5 cents, for example. But as the plot on this page shows, that increase is far less than the range in prices that already exist in the U.S. It would be similar to West Virginia consumers beginning to pay Ohio rates.
And the effect of these higher energy prices would have a fairly small effect on the economy, the EPA study finds. The drag on the economy for the Lieberman-Warner bill is estimated to be between 0.06 and 0.16 percent per year, which is much smaller than the likely costs of dealing with the effects of climate change.
There is no cheaper way to generate electricity than to burn coal in a steam power plant and let the exhaust vent into the atmosphere. But if that option is to be taken away, as seems increasingly likely, it's good to know that other, more expensive options can take over without wrecking the economy. That news ought to merit a splashy headline, not a Friday afternoon burial. | 
