Low Pollution at the Lowest Cost

As we consider America’s actions to counter climate change, one fact stands out: Our largest solutions to power plant pollution are going broke. Clean alternatives to fossil fueled electric generators are under pressure from low natural gas prices. Power prices are so low that four nuclear plants have recently announced that they will close. Other new technologies can’t make a profit either.

These low power prices do not take into account the costs of pollution. The National Academies report The Hidden Cost of Energy estimates that the costs of pollution from power plants (without considering costs related to climate change) should add just under 20% to the price of power. Economists favor that solution since it would allow markets to operate efficiently.

We can’t bring ourselves to do that in the United States. Instead, we adopt strategies such as renewable portfolio standards (RPS) to reduce pollution.

The trouble is that “low pollution” and “renewable” are not synonyms. America generates 32% of its power from low polluting generators, only 6% of which is from sources that qualify under an RPS.

The remaining clean 24% of our electric generation is in trouble. We are closing nuclear plants that generate as much electricity as all the wind plants in Texas; in fact, as much as all the wind installed in the USA in the past three years. Even new hydroelectric projects can’t make money in this market. And development of advanced pollution capture technology for fossil fuel plants and other innovative generators is largely moribund since investors see no reward.

Fortunately, there is a practical solution. We can broaden the RPS concept to be a low pollution portfolio standard, sometimes called a capacity portfolio standard. Such a standard would allow all low-pollution sources to qualify.

New York’s Governor Cuomo is considering a similar step. New York, Pennsylvania, and many other states should act now to support all low pollution sources of electricity by requiring that a large fraction of electricity come from such sources by a date certain.

For years, models of the electric power system have shown that the price of power is greatly increased whenever policy choices are artificially restricted. The President’s “all of the above” strategy acknowledges this. But restricting ourselves to only certain types of low pollution generators through an RPS does not.

Economists call the cost of such restrictions a shadow price. And the effects are large: if the portfolio of pollution reduction options is restricted, the wholesale electricity price will be much higher than if a full portfolio is used. How much higher? Models by the Electric Power Research Institute show that limiting the portfolio can result in prices doubling over the next generation compared to the same pollution reduction with all clean sources allowed.

If we restrict ourselves to the few sources of low polluting power that are allowed under renewable portfolio standards, there is a real danger that we will quickly price ourselves out of clean energy.

We are now making a modest pollution reduction through RPSs, including reducing greenhouse gases a little. But that will likely not be the least expensive way of making the big reductions we need.

If we were to rely only on ever-increasing RPS targets, we would run into two main problems. First, some areas of the country simply don’t have bountiful renewable resources. But those same regions would be fertile ground for other technologies.

Second, a truly large-scale power system based on only wind and solar would be much more expensive than one based on a full portfolio of low polluting generators. Money saved on fuel would not be nearly enough to offset the additional cost of transmission lines, storage, and the additional turbines and solar plants that are necessary to compensate for the fact that the wind doesn’t blow nor the sun shine as often as other plants are able to run.

A combination of renewable and other low-pollution generators will achieve a given target for reducing conventional and greenhouse gas pollution at significantly lower cost than renewables alone.

By putting all clean power sources on the same footing, we can gain the benefits of reducing pollution at the lowest cost. A low pollution capacity standard would save middle-class jobs. Forbes reports that the average worker at the Fitzpatrick nuclear plant in New York earns a bit over $100,000 annually. At the Kemper carbon dioxide capture plant in Mississippi, over 6,000 workers were employed in construction, and the plant will generate more than $40 million annually in local tax revenues.

Wind and solar power are big business now, and good for them! But we can’t forget that innovating to zero pollution requires that all entrants be given a chance.

With a shift from renewable portfolio standards to low pollution capacity standards, we can correct the failure of the market to price pollution at the lowest cost. Pennsylvania, New York, and other states (such as Illinois) have nuclear plants closing due to bargain-basement power prices that don’t account for costs of conventional or greenhouse gas pollution. Those states should lead the way in adopting broader standards that encourage all low pollution generators.

Jay Apt is a Professor at Carnegie Mellon University’s Tepper School of Business and in the CMU Department of Engineering and Public Policy. He is the Co-Director of the Carnegie Mellon Electricity Industry Center and Director of the RenewElec (renewable electricity) project. He has authored more than 100 papers in peer-reviewed scientific journals as well as two books and several book chapters. He has published op-ed pieces in the Wall Street Journal, the New York Times and the Washington Post.  Professor Apt received an A.B. in physics from Harvard College in 1971 and a Ph.D. in physics from the Massachusetts Institute of Technology in 1976. He is a Fellow of the American Association for the Advancement of Science. He received the NASA Distinguished Service Medal in 1997 and the Metcalf Lifetime Achievement Award for significant contributions to engineering in 2002.

Contact information: [email protected]; 412-268-3003

2 thoughts on “Low Pollution at the Lowest Cost

  1. Very important argument. I strongly recommend that an article based on this idea, perhaps beefed up with a few numbers to make the economic significance of the proposed change in policy even clearer, should be submitted to the Wall Street Journal as an op-ed piece.

  2. Aside from a brief allusion to nuclear power at the end (with no acknowledgement of its high cost of creation and waste disposal), the author does not indicate what he means by low pollution sources. So this “pie-in-the-sky” article is no advancement over the many others that claim that we can continue our present style of life with no additional costs. THERE ARE NO FREE LUNCHES!

Leave a Reply

Your email address will not be published. Required fields are marked *