Biden Plan Would Force Energy Prices Up, And That’s The Point

American
Energy Alliance

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[Editor’s Note: Joe Biden can’t make up his mind on much of anything but he clearly wants to raise energy prices one way or another on us all.]

According to Democratic Party presidential nominee Joseph Biden’s carbon plan, “he will demand that Congress enacts legislation in the first year of his presidency that: 1) establishes an enforcement mechanism that includes milestone targets no later than the end of his first term in 2025, 2) makes a historic investment in clean energy and climate research and innovation, 3) incentivizes the rapid deployment of clean energy innovations across the economy, especially in communities most impacted by climate change.”

The mechanism Biden refers to would most likely be a carbon tax, which Biden has said he would support, or a cap and trade program, which is implicitly a carbon tax. The latter was previously known as the “cap and tax” program when it was dismissed by Congress during the Obama Administration. In either case, a Biden tax on greenhouse gas emissions would significantly increase household costs such as cooling and heating, transportation, and even groceries as the United States gets 80 percent of its energy from fossil fuels—coal, oil, and natural gas. It would also raise the cost of manufacturing in the United States.

Biden

Canada’s Carbon Tax

Our Northern neighbor has some experience with a carbon tax as well as other mechanisms for reducing carbon dioxide emissions. In 2019, Canada implemented a carbon tax under the Greenhouse Gas Pollution Pricing Act supported by Prime Minister Justin Trudeau. The carbon tax started at $20 per metric ton in 2019, and is scheduled to increase at $10 per metric ton per year until reaching $50 per metric ton in 2022. The carbon tax will stay at that level unless the legislation is revisited and revised.

A $20 per metric ton carbon tax equates to a 16.6 cent per gallon surcharge on gasoline. In 2022, the $50 per ton carbon tax would increase Canadian gasoline prices by about 42 cents per gallon or about 8 percent. The price of coal in 2022 would more than double with a carbon tax surcharge of about $100 per metric ton. Natural gas prices would increase by about 10 cents per cubic meter in 2022 compared to current prices of around 13 cents per cubic meter—about a 75 percent increase.

Canada expects the carbon tax to increase the demand for carbon-free electricity. In 2019, however, Canada generated 58 percent of its electricity from hydroelectric power, 15 percent from nuclear, and 7 percent from renewable energy. Only 18 percent of its electricity came from fossil fuels—coal, oil, and natural gas. The majority of Canada’s carbon dioxide emissions are not from the generating sector, but from the industrial sector, which is subjected to an Output-Based Allocations system (similar to cap and trade).

Those carbon taxes, which at $50 per metric ton seem rather large, are insufficient for the country to meet its emission-reduction targets under the Paris climate accord. Canada’s parliamentary budget officer says the country’s carbon tax would have to increase over the coming years to meet emission-reduction targets. Canada’s budget officer, Yves Giroux, estimates the tax will have to increase to $117 per metric ton by 2030 if it is applied to all industries. And, if the government caps the tax at $50 per metric ton for large industrial emitters, households and other sectors of the economy would have to cover the difference, requiring a tax of $289 per metric ton in 2030.

Those are hefty tax increases.

Biden’s Commitment to the Paris Accord

If elected Biden will implement something similar, as his plans return the United States to the Paris Accord agreed to by the Obama Administration. The mechanism will be another tax imposed on American families, and just as Canada is finding, the carbon tax will have to increase to enormous numbers for the Obama-Biden Paris accord commitments to be met, which will hurt U.S. families and bog-down the economy that is trying to recover from the coronavirus pandemic.

And, while the United States will have to buckle under to suffer severe cost increases in anything made from or consuming fossil fuels, China will continue emitting more carbon dioxide emissions as it builds 250 gigawatts of new coal-fired power plants, adding to the over 1,000 gigawatts of coal-fired capacity it already has. China is building coal-fired plants to get its economy rolling from the downturn caused by the coronavirus pandemic. Those coal plants could easily last half of a century.

A carbon tax would not be a one-time deal. It will continue and increase until the United States will no longer consume the fossil fuels currently supplying 80 percent of our energy. Yet that enormous change in the U.S. energy sector will result in only a miniscule change in temperature. According to Bjorn Lomborg, U.S. climate policies, in the most optimistic circumstances, fully achieved and adhered to throughout the century, will reduce global temperatures by just 0.031°C (0.057°F) by 2100. This is unnoticeable.

Further, if all countries comply with their Paris accord commitments, he estimates the total temperature reduction to be 0.048°C (0.086°F) by 2100. It will be a lot of pain for very little gain, as the energy necessary for modern life becomes more and more expensive for those who have it and less available to those in the world who are striving to use energy to lift themselves from poverty.

Conclusion

Biden has plans for a lot of tax increases, some of which are documented on his website, but others are not as obvious when he uses words such as a “mechanism” that requires legislation. Do not be fooled by the language, which disguises the means by which he seeks to fundamentally transform the entire United States energy system. There is a reason why he needs Congress to pass it. He cannot implement a tax by himself.

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5 thoughts on “Biden Plan Would Force Energy Prices Up, And That’s The Point

    • You seem to imagine you’re scoring some big point with LCOE, but you’re ignoring all of this:

      https://www.energyforgrowth.org/memo/lcoe-and-its-limitations/

      You’re also ignoring there are widely differing LCOE calcs and the big problem, which is dispatchability to correct for intermittency. Simply put, when the sun doesn’t shine and the wind doesn’t blow, then you need coal, natural gas or nuclear at a moments and you must pay the full fixed costs (and more expensive variable costs) as if it were operating at full capacity. You can pretend those costs don’t exist, of course, but doing so only forces the ultimate costs still higher because you’ve uneconomic system. That’s precisely what’s happened in Germany and other locales who have adopted the shallow reasoning of LCOE without looking at the big picture. Your solution has and will yield exploding electricity prices for everyone.

      So, if you wish to keep citing your LCOE, I’ll just keep citing the facts.

      • Tom,
        I read Your link regarding LCOE and the very definition is not correct. Start by the fact that they incorporate Heat Factor. If You are a engineer – like me – You understand the utter irrelevance in that.

        A LCOE calculation consider both CAPEX and OPEX, thus it includes all costs for an entire project durintg it’s lifespan, from everything to financial costs to restoration of site. As with any calculations of costs there is always uncertainty in both CAPEX as well as OPEX, but that is standard operating procedure. You can minimize financial risk by contractual means, but at a cost and vice versa. Valuing risk is always in the eye of the beholder if YOu ask me. So I do not agree that LCOE neither oversimplifies costs nor oversimplifies project context. Quite the oposite.

        The next item You have to explain “Difficult to accurately represent distributed systems. These systems power smaller loads, for instance a building”. When we speak of LCOE it is the cost of generation of energy / electricity.If You look on a standard windfarm of 50 to 200 MW (or below) it has absolutely nothing to do with “These systems power smaller loads, for instance a building”. You have to elaborate on that. Perhaps I miss somthing and the link in the references give a 404.

        “Is mostly useful for comparing similar systems”. No. It is quite the oposite.

        “Ignores flexibility vs inflexibility”. This is probably one of the most misinterpreted aspects that I often encounter regarding generation. In – just about all – electricity markets there is a vast difference in pricing between produced energy and Ancillery Services (AS), such as frequency regulation. The former is traded by different means, ranging from forward contracts, bilateral PPA’s, day ahead markets as well as intraday markets. The latter is alltogether a different beast. Although different areas have different naming principles, i.e frequency regulation is always a capacity market (effect) with the key parameters besides effect is ramp-up, ramp down and duration (so ultimately by integrating over the timefram it is energy though). Thus different AS are called upon depending upon timespan. Just consider the difference between the day-ahead markets and the intraday. Furthermore, with the emergence of FFR frequency other actors than power producers can participate (although in may countries strategic reservas always involves reduced load though.)

        Then there is other AS than just frequency regulation but thats another matter.
        It is nonetheless correct that in a market with strong limits capacity (both boundary as well as internal) an increased % of intermetency will change the pricing structure of AS. That is not something new – quite the contrary.

        “Misses context”. The link gave “The site could not be reached”, but from the explination it looks like a matter of interest rates. That is correct per se, but making strategies based on different interest rates is just a normal part of the investment decission.

        “Masks regional variability when used as average LCOE across different countries.” I agree. But LCOE is nonetheless always calculated for each generation project. Thus the span in models such as Lazard.

        “Ignores externalities” Regulatory changes can always occur in any region, which is why investors like a predictable political climate (my opinion and experience). LCOE is furthermore only holds relevance during the investment decission.

        “Does not account for risks”. See above regarding risks.

        “LACE”. Well… Just consider this rhetoric question: If the LCOE of a specific project is lower than the marginal cost of existing generation, what would the consequences be ?
        The part regarding overcapacity is dealt with in the pricing mechanisms, be that generation in an area, boundary pricing or different forms of algorithms such as CRP.

        “Avoiding misleading uses, such as direct comparisons between highly variable sources and dispatchable or low-variability sources”. See the discussion about AS above.

        Regarding Your discussion of dispatchability and intermetency I hope I clearified how that is dealty with in a grid.
        Don’t get me wrong here – frequency regulation IS key to a stable grid, just as well as many other quality aspects in a grid (voltage control / reactive power, filtering overtones etc). Each of theese topics would however be a post of its own, and has to be considered in the scope of how grid evolves. Just look at what todays HVDC tech can do besides just transfer capacity with minimum losses.

        In the country where I live the increased amounts of wind has contributed to lower costs for the end customer.
        https://www.dn.se/ekonomi/medvind-for-vindkraften-pressar-priserna-i-var/

        But comparing costs between countries requires a bit more analysis then just Germany vs Sweden.

        One thing I do agree on is that the big picture always has to be looked on.
        And if You build Wind Turbines where there is poor wind conditions (speed, turbulence etc), or SolarPV facing away from the sun (or in constant shadow) prices will be high. Since the LCOE will increase for thoose projects given the low production.

  1. I’m always amazed, when I hear our US politicians and green energy advocates, say we have a moral obligation to reduce US emissions of GHG, when all the experts say that the US could disappear from the globe and it would not make any difference at all in the worlds GHG emissions.

    Sure, let’s reduce emissions, but let’s not be stupid about it. They say listen to the scientists, but those experts are telling us we can’t even have a minuscule effect upon emissions, no matter what we do.

    • What’s even more astounding is that the people who warn that the world will end in ten years (or whenever) if we don’t drastically reduce CO2 are also, very often, against nuclear power.

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