A PJM Interconnection study concludes that the leading legislative proposals – the Lieberman/McCain Bill (S.B.280), the Bingaman/Specter Bill (S.B.1766) and the Lieberman/Warner Bill (S.B.2191) – of the 110th Congress to reduce carbon dioxide (CO2) emissions from fossil-fuel generation plants could increase wholesale electricity prices from $7.50/MWh to $45/MWh in 2013.
The study, ‘Potential Effects of Proposed Climate Change Policies on PJM's Energy Market,’ also noted that, at those prices, the annual market-wide cost of power increase would range from $5.9 billion to $36 billion.
The study's calculations are based on projected carbon prices within ranges identified by the U.S. Environmental Protection Agency and the Energy Information Administration from $10 per ton to $60 per ton and on typical residential use of 750 kWh per month.
The study used market models to simulate in 2013 the impact of climate change legislation whereby cap-and-trade or carbon tax policies place a cost on emitting CO2. The year 2013 is examined as the year when major legislative proposals would be effective, and also because it represents PJM's five-year planning horizon, where there is a greater likelihood of predicting accurately the planned new generation and transmission system upgrades that will be commercially operational.
PJM's study is one of the few analyses that have examined the near-term impacts of climate change policy on a regional basis as opposed to more macro-economic national analyses. The findings assume no offsets for making homes, businesses and industry more energy efficient or efforts to reduce electricity demand.
According to the study, however, reducing electricity consumption by 2% to 10% could lower prices between $3/MWh and $13/MWh, or between $3 billion and $17 billion per year. The same reductions in consumption would lower CO2 emissions between 12 million and 60 million tons in 2013.
Wind represents about 40% of all new generation projects proposed in the PJM region. Analyzing the impact of the addition of 15,000 MW of wind by 2013 – about one-third of wind generation in the interconnection queue – revealed that CO2 emissions would be reduced by nearly 35 million tons, and wholesale market prices would collectively decline by $3.55 billion to $4.74 billion, without calculating the effect of CO2 prices.
SOURCE: PJM Interconnection