Tuesday, September 29, 2009

Once Upon a Time...

Long ago in a distance land, I, Ryan, was an Analyst in the energy sector. I've been busy with mundane work in my new life (you know, simple things like printing) so there hasn't been much to report recently on project "Saving the World, One Seamstress At A Time" (I wonder if IPA would let me make that the official name?). On the other hand, there's been a lot of action in the energy sector of the US, so I thought I'd reminisce.

Exelon, PNM, and PG&E all quit the US Chamber of Commerce over its "obstructionist tactics" in opposing cap and trade legislation. Both Krugman and Freedman respond.

I know nothing at all about the Chamber of Commerce, but I did sit next to people who model the costs of cap and trade legislation for 2 years (and that makes me an expert, right?). The bottom line: the entire debate over the cost of climate change legislation boils down to what "societal discount rate" and technological growth rate you use. Simple, right?

In non-economist-speak, this translates to how much you care whether the price of electricity increases in the future and whether you think new technology will be able to keep prices low. Even simpler: It's all a bunch of "best-guess" rubbish that hinges on things we really have no idea about.

So if the cap and trade models are uninformative, does the fact that major energy utilities are on board with cap and trade mean that the price of energy won't rise? Probably not. Many utilities are on board, but many utilities also stand to benefit from higher prices. Exelon has ton of clean nuclear that it will be able to sell to people in Pittsburgh relying on coal. PG&E is Californian, so they're just odd (and also big on energy efficiency and renewables). PNM I know little about, except that they were stung by the high oil/gas prices in 2007-20008. Perhaps cap and trade would help them diversify away from commodity-driven generation (or maybe they're just odd as well?).

Who's a public politician to trust if you can't rely on the models and utilities are all playing their own games? Well... that's part of why I left the industry. It can be hard to find reliable data on energy policy issues. (I was very lucky to be working with a group with a strong belief in sticking to the facts as we saw them).

The truth is often somewhere in the middle. Cap and trade (if effective) will result in people losing their jobs, and it will suck for a lot of families to pay higher electricity prices. This much is certain. But I still think higher energy prices are desperately needed; climate change could result in many people losing their lives and many others struggling through persistent drought, displacement from natural disasters, etc, and I care about that a lot more.

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