ME. On June 2nd, EPA announced a regulatory
framework for states to reduce carbon emissions from power generation by 30%
between 2005 and 2030. The initiative is billed as implementation of the Clean
Air Act and to mitigate the effects of climate change. Depending on the
headlines, you might either conclude energy costs will rise and jobs will be
lost, or that the regulations will require additional investment and create
more jobs to grow the economy. Professor, which is right?
BF. There may be an element of truth in both responses. Rising
electricity prices adds to the cost of production in agriculture and all other
sectors. The new EPA regulations will contract the demand for coal mining and
coal-fired generation operations, but it will also expand the demand for
natural gas and other energy sources as several coal-fired power plants are
converted. Any time a regulatory policy is implemented, unplanned
investments are required that can increase the cost of production in the short
run. Some consumer and business demand may be priced out of the market at
the margin. On the other hand, new investments in conversion, cleaner
technologies, natural gas and alternative energy sources may create additional
jobs and income effects. So there are shiftors and shiftees, but the net
effects are hard to determine and may vary regionally.
ME. Scientists are in broad agreement that climate changes are occurring and
that man-made industrialization has had an impact on climate change.
However, there is still little understanding about whether man’s carbon
mitigation efforts will offset natural phenomena and result in more favorable
climate in the future. That has never stopped the computer modelers from making
assumptions and cranking out simulations. If policymakers around the
globe collectively shift to carbon reduction policies, new cleaner energy
technologies development can be a source of innovation and an economic engine
for future economic development—similar to what has been said about
agricultural innovation in the U.S. as a source of global economic development
in the past 50 years.
BF. You raise a good point. EPA Administrator Gina McCarthy said in
releasing the new regulations that over the past four decades EPA has cut air
pollution by 70% while the economy has tripled. However to gain a more
relevant perspective of the EPA policy impacts domestically, it is useful to
look at the cost of electricity in the various states. As you might
expect a coal state, Wyoming, has the lowest cost electricity at 6.38
cents/kilowatt-hour(kwh according to the U.S. Energy Information
Administration. Retail electricity is 6.17 cents /kwh in Kentucky, another coal
mining state. If you look at a national map, electricity prices are the
lowest in the coal states, most of the Northwestern portion of the lower 48,
and Oklahoma, Arkansas, and Louisiana.
ME. Iowa is also among the states with the lowest retail electricity
prices at 7.56 cents per kilowatt hour (kwh) in part because Iowa receives much
of its power from coal-fired power plants. Kansas is a little higher at
8.89 cents/kwh. But that is still significantly lower than 31 cents/kwh
in Hawaii or the 26 cents/kwh in Alaska. The other states with the
highest electricity prices are California at 13.05 cents/kwh, New York at 15.89
cents/kwh and other Northeastern states. Several states with large
populations are in the higher retail electricity group which makes for
interesting politics.
BF. States with the lowest retail electricity prices also generally have the
highest CO2 emissions from electricity according to the Energy Information
Administration. Kentucky, Wyoming, West Virginia, Indiana, North Dakota, Utah,
Missouri, New Mexico, Nebraska, and Colorado are the top ten states for CO2
emissions from electricity. Ohio ranks 11th, Kansas ranks 12th, and Iowa
ranks 13th in CO2 emissions from electricity power generation. In
accordance with the new EPA regulations, the coal mining states and Midwest
will have proportionally larger impacts to achieve than California and New
York. However since the regulations measure the CO2 reductions from 2005
to 2030, part of the goal for 30% reduction in CO2 emissions has already been
achieved. That might be called a running start.
ME. Do you know what is missing from this whole energy discussion? It is an
overriding policy carrot and stick that creates a broad energy coalition and
coherent big picture energy policy. In farm and food policy, it is the
potential reversion to the permanent farm bill legislation created in the 1930s
and 40s that provides an incentive for a farm bill coalition that encourages
the general farm organizations, commodity groups, agribusiness, finance,
environment and conservation interests, consumer and food interest, rural and
international development interests and a thousand other interests to work
together toward compromise before bring policy concepts forward to
Congress.
BF. Many would argue with you, since the permanent legislation came under the
most intense scrutiny and pressure for change in the most recent farm bill
debate. However, you are right that energy policy appears to be more
convoluted and multi-faceted in terms of issues, interests, agencies and
Congressional committees. Big Oil profit margins are such that big dollar
media campaigns shaped like public service education on our national energy
future can be afforded without much impact to the bottom line. Just throw
in a half dozen interesting facts with an advocacy position and poof the broad
public support for policies that developed renewable fuels and wind power may
be gone. Well if you could get the right decision-makers in one room and
lock them in until they came out with a compromise, what would it be?
ME. Here is one compromise package. Remove the ban on U.S. exports of
domestic oil to earn foreign exchange and sustain economies of our allies.
Keep the RFS in tact and on track so competitive renewable and advanced
biofuels and consumers have market access at the pump. Encourage a shift
from coal-power generation to use our expanded natural gas supplies and other
sources of energy that reduce CO2 emissions. Encourage new technologies using
municipal solid wastes, biomass, and clean coal gasification--not only to
generate power, but also for transportation fuels and other high value
products.
BF. Perhaps you should add wind and agriculture credits in cutting carbon
emissions if farmers are rewarded for agriculture’s potential contributions to
carbon sequestration. Add the Keystone pipeline to the list as the Canadian
crude will be pumped out of the ground, the only question is whether it travels
through Nebraska by pipeline or rail -- and by pipeline is safer. The
mark of compromise is that all groups get something they want, but none get all
they want.
* Edelman is a professor of economics
at Iowa State University and Flinchbaugh is an emeritus
professor of agricultural economics
at Kansas State University.