Dive Brief:
- Michigan power plants will pay an additional $2.2 billion annually in compliance costs under both a carbon tax and a cap-and-trade strategy, according to a new report focused on the costs to meet new emissions restrictions under the Clean Power Plan.
- Anderson Economic Group LLC estimated Michigan personal income would be over 12% lower under the cap-and-trade scenario, and more than 10% lower under the carbon tax scenario.
- However, the firm also concluded that resulting increases in power prices and lower demand would reduce emissions from the electric power sector to about 48 million short tons in 2030, compared with 62 million short tons under a baseline scenario.
Dive Insight:
There is "no such thing as a free lunch," said David Bailey, an adjunct scholar at the Niskanen Center, which commissioned Anderson Economic's study. Clean Power Plan compliance will require Michigan to reduce CO2 emissions by 22.5% by 2030, an aggressive target the firm believes will bring significant cost to the state's consumers and reduce income levels by at least 10%.
"Regulatory costs associated with achieving this reduction are around $2.2 Billion per year in 2030," the firm said. "If the target is achieved by using the EPA’s favored cap and trade mechanism, the allowance price (cost) in 2030 will be $53 per ton of CO2. ... If the target is achieved using a carbon tax, the tax rate would be $46 per ton in 2030."
“Other states facing the challenging targets under CPP will wish to explore the benefits of a carbon tax," Bailey said. "Those benefits will be maximized by fully returning revenues to consumers.”
Electricity prices would be 18% higher under the carbon tax and 20% higher under EPA’s cap and trade approach, according to the analysis. Either approach would "significantly reduce personal income in Michigan," according to the Niskanen Center. "The reduction is significantly less under the carbon tax scenario (10% vs 12%) even without the positive impact of additional state tax reductions."
However, the analysis has critics. Environmental Law and Policy Center Executive Director Howard Learner told Crain's Detroit Business that the report has several flaws.
"A carbon tax and a cap-and-trade policy haven't been seriously considered in the state Legislature," Learner said. "If they do, Clean Power Plan compliance can happen through other policy mechanisms."