In October of last year, the administration of Kansas Gov. Kathleen Sebelius (D) denied permits for two new coal-fired plants in her state because the greenhouse gases such coal plants would emit constitute a threat to the environment and public health. Last Friday, she also vetoed a legislative attempt to reverse the decision. Opponents of the veto claimed “the decision is costing the state jobs and economic investment” and warned of “higher electric bills for Western Kansas,” where the plants were proposed.
But a landmark report released yesterday by an esteemed financial research firm finds that, in fact, Sebelius has been acting in her state’s best economic interests.
Innovest Strategic Value Advisors finds that Sunflower Electric Power Corporation, the company whose proposal was denied, failed to account for the effects of the likely regulation of carbon dioxide on the cost of coal-fired electricity when it sought to build two 700 MW coal plants in Holcomb, Kansas:
Innovest examined the economics of the transaction and determined that under the most plausible regulatory scenarios the decision to build new coal generating capacity will put Sunflower Electric’s ratepayers – who in this particular case are the actual owners – at significant risk. The report concludes that Sunflower’s management has not adequately addressed the competitive and financial risks associated with climate change in deciding to pursue the expansion of its Holcomb Station power plant.
Sunflower was remiss in not considering that federal legislation that places a price on carbon emissions is extremely likely, considering the bipartisan support and strong international pressure for such action.
The report compares the economics of coal plants versus natural gas plants, which have a considerably smaller carbon footprint, and concludes:
In general, this analysis demonstrate that gas is the more financially sound choice for the construction of baseload generating capacity in all scenarios except 100% free allocation [to power companies] of carbon allowances.
The report also notes that western Kansas has “among the nation’s most abundant wind resources” and that the cost of wind power has plummeted 80% in the last 20 years.
The Center for American Progress plan for a low-carbon economy explains how a carbon-cap system with full auctioning of permits and broad investment in renewable energy and energy efficiency is the right choice.
(HT: David Sassoon at SolveClimate)