Midwesterners are operating under the misimpression that the allocation formula in the House bill is unfair to them. It doesn’t, although a new, flawed EPA “analysis” (“here“) suggests otherwise.
Certainly the formula is a tad ambiguous and that will no doubt be fixed in the Senate. The figure above shows the results of analysis by MJ Bradley (click to enlarge, methodology here).
I would note that the Bradley analysis does not appear to include the energy efficiency provisions in the bill, which are projected by independent analysts and EPA to deliver major savings (see “Waxman-Markey could save $3,900 per household and create 650,000 jobs by 2030“). So even the small increase in bills that you see in 2012 would in reality be lower if the House bill became law. But I digress.
The analysis is tricky for two reasons that the EPA appears to get wrong:
- First, the House bill forbids a utility from getting more allowances than are required to offset their increased costs, but doesn’t quite spell out how to account for that. The obvious thing to do is what MJ Bradley does: “Excess allowances are withheld from states that receive more allowances than their delivered electricity related emissions. These withheld allowances are redistributed to the remaining states on the basis of their emissions.”
The EPA offers a long explanation for why the prohibition against excess distributions would be tricky to implement in practice — and then it seems like they just ignore the provision entirely. So, as you can see, they claim California would get more allowances than it needs to cover its emissions. But preventing that outcome is precisely why that provision was put in the House bill in the first place.
- Second, states import power — sometimes power that is more carbon-intense than the importing state as a whole. An analysis must take into account. It does not seem that EPA’s calculations of emissions of a state like California included its imported coal-fired electricity.
So I just think EPA got this is doubly wrong in a way that happens to fit the misperception of the Midwesterners. I have also spoken to other independent utility modelers who say their results do not match EPA’s.
Bottom Line: The allocation formula appears to be pretty fair, if a tad ambiguous. EPA needs to spell out exactly how they did their analysis, and explain if they made one or both of these two major analytical errors. The Senate needs to be clearer on how the prohibition-against-excess-distributions provision works.
For more background, here are some excerpts from Tuesday Climate Wire (subs. req’d) story: