The Economic Tradeoffs of Carbon Control: How Much it Will Cost and Who Will Be Affected

December 3, 2009
Review by Molly Castelazo

Policymakers, business leaders, and a number of prominent academics gathered yesterday at a conference presented by the Arizona Investment Council (AIC) and Arizona Businesses Advancing Sustainability (AzBAS) to answer the question: How much will carbon control cost and who will be affected?

Key highlights from the conference include:

• Sustainability, said AzBAS Chairman Ed Fox, is about more than green energy.  It is fundamentally a sound business strategy.
• Science matters.  Not only does it strike at the heart of public acceptance of cap-and-trade regulations, but any sort of action plan for greenhouse gas (GHG) emissions reduction should be firmly rooted in climate science.  Specifically, the science should dictate the timing and the level of carbon caps.
• Public buy-in to any carbon control plan is absolutely crucial.  Achieving that buy-in will require transparent cost-benefit analyses demonstrating how much carbon control will cost and how much benefit it will yield.  There is no free lunch.  The question, as Eller College of Management Dean Paul Portney sees it: what are we buying for ourselves and our kids and grandkids?
• When researchers at the L. William Seidman Institute at the W. P. Carey School of Business analyzed the impacts of the Western Climate Initiative (a regional cap-and-trade system designed to limit the emission of greenhouse gases) on Arizona, they found net negative impacts on the Arizona economy over the 2012-2020 study period.
• According to Western Business Roundtable President and CEO Jim Sims, we need to change the discussion about climate policy, to move away from punishing carbon emitters to incentivizing emissions reductions – by creating incentives for the development of carbon control technologies.
• Sulfur dioxide emissions reduction regulations worked because companies had a legitimate choice to either spend money to install emissions-reducing equipment or to purchase emissions credits.  “That economic choice was the oil that greased the SO2 cap-and-trade mechanism,” according to Sims.  The problem with carbon cap and trade is that there is no economical “off-the-shelf” technology that businesses can choose instead of purchasing credits.  Technology first, then regulation.

How will businesses cope with carbon constraints?

The conference ended with discussion from a panel of four CEOs.  They made clear that businesses want certainty.  Federal-level regulations increase the certainty and ease-of-compliance associated with those regulations.  Furthermore, the CEOs expressed a general concern that carbon control policies in the U.S., if they’re not put in place by other global economies as well, could depress American competitiveness (as production costs rise here and not elsewhere).

The CEOs also spoke about what their organizations have done and plan to do to reduce the negative impacts their operations have on the environment.  Here is some of what they had to say:

Dave Crawford, President & COO, Sundt Construction
• Sundt emphasizes investments in Leadership in Energy and Environmental Design (LEED) education.
• The company is promoting utilization of alternate project delivery methods.
• Sundt adheres to higher-tier emissions controls for on-road and off-road vehicles, despite the significant added cost.

Kevin Knight, Chairman and CEO, Knight Transportation
• Knight is one out of just 25 trucking companies to qualify for the prestigious EPA SmartWay Environmental Excellence Award.
• The company’s current truck engines emit cleaner air than they take in; the 2010 diesel engine will be as clean as natural gas.
• Reducing carbon emissions will be Knight’s next line of focus – in the absence of a carbon sequestration breakthrough, they’ll look to improving fuel efficiency.

David Modeer, General Manager, Central Arizona Project
• Moving enough water to supply much of the needs of Maricopa, Pima and Pinal counties 3,000 feet up in elevation makes CAP the largest energy user in the state.
• CAP uses electricity from the Navajo Generating Station to run its pumps; the plant is a “high-efficiency operation” but cap-and-trade legislation would “push the limits” of its viability.

Don Robinson, President and COO, Arizona Public Service Company
• APS generates 70% of its power from fossil fuels – half of that is coal-generated.  In other words, climate policy has a significant effect on the utility.
• Taking cost estimates from the Waxman-Markey carbon control bill ($20-75 per ton in 2012), APS’ estimates its customers would see 2-8% increases on their utility bills.
• APS forecasts that its customers’ power needs will increase by 50% by 2025; the utility plans to meet those needs without enlarging its carbon footprint although this may prove difficult without nuclear generation.  It plans to do that, in part, by increasing its use of renewable energies (the company is involved in building a 280-megawatt concentrated solar plant in Gila Bend).  To build additional nuclear capacity, APS must  first improve its financial health.
• Whether by regulation or the development of more-costly power generating alternatives, costs for APS and its customers will rise.

For more information:

• All of the PowerPoint presentations from the conference speakers are available. Click here to access them.

• An Assessment of the Economic Impacts on the State of Arizona of the Imposition of a GHG Emission Allowance Trading Program, prepared for the AIC by the L. William Seidman Research Institute at the W. P. Carey School of Business.

• The online magazine http://knowledge.wpcarey.asu.edu/will be publishing an article about the conference in the coming weeks.  We’ll link to that article as soon as it is available.

• We wish to thank our co-host: Arizona Businesses Advancing Sustainability, our Premier Sponsors: Arizona Public Service, Salt River Project, and Henkel Corp, and our major sponsors: Central Arizona Project, Roshka DeWulf & Patten, Sundt Corp, & Tucson Electric Power for their support and contribution to making this a successful conference.