Obama, Key Senators Make Their Pitch for Climate and Energy Bill

[OKIsItJustMe]

http://www.nytimes.com/gwire/2010/03/10/10greenwire-obama-key-senators-make-their-pitch-for-climate-1362.html

March 10, 2010

Obama, Key Senators Make Their Pitch for Climate and Energy Bill

By DARREN SAMUELSOHN of Greenwire

Closed-door talks extended to both ends of Pennsylvania Avenue yesterday as President Obama, key senators and industry officials searched for an elusive agreement on comprehensive energy and climate change legislation.

At the White House, Obama implored 14 Democrats and Republicans to reach consensus before the end of this year on a bill that puts a first-ever price on carbon emissions, rather than settle for the energy-only approach favored by some moderates.

Back on Capitol Hill, the three senators at the center of the legislative effort presented their broad ideas to some of the country's largest trade associations, including the U.S. Chamber of Commerce, American Petroleum Institute and the American Farm Bureau.

The rush of activity underscored the last-ditch push to produce a draft Senate bill before the spring recess that begins March 26.

...

[Statistical]

1. There MUST be a price for carbon. Period.

The sad reality is that coal is insanely cheap.

New Coal vs Old Coal

The good:
Rising cost of new plant and compliance may make building new coal plants prohibitive. Most utilities are looking at long term trend and "new coal" doesn't make sense. New plants are expensive. Price of coal will likely rise over lifetime of any new plant (40+ years). Eventually there will be caps on carbon so that "costs" has to be considered given the length of time any new plant will operate. The current situation has basically brought an end to "new coal" in this country. There may be stragglers here and there but essentially coal plants will be capped at current levels. The current market conditions and future legislative "risk" make building new coal plants unattractive.

The bad:
While "new coal" is prohibitively expensive the marginal cost of keeping an existing coal plant "old coal" is insanely cheap. It is a strange dichotomy but very real. Marginal cost is the ongoing cost to generate one more kWh of energy. Existing coal plants are already sunk costs. Either they are paid for or they need to be paid for regardless of when they shut down. The marginal cost for coal is simply fuel + labor + maintenance + operations. For coal this is incredibly cheap. Wind, nuclear, solar, even natural gas will not dislodge "old coal". Coal plants are only running at 70% of capacity so amount of additional coal that can be burned with no new plants is staggering

The Ugly:
Wind and solar will displace existing forms of power but what power? Utilities will always look to cut costs and with coal having low marginal rate it will be "kept" whenever possible. Someone already posted where increased wind use resulted in less natural gas not less coal.

Carbon Tax:
Carbon tax alters that marginal cost. It reduces the differential between natural gas and coal. If fossil fuels are going to be burned lets at least burn the cleanest one. Higher marginal cost for coal means the oldest and least efficient plants (which already have higher marginal cost) will be shutdown sooner.

Without a carbon tax any energy legislation is just window dressing on the problem.