CES would have to limit cost increases to 5% to pass Congress — study 

Americans would be willing to pay about 13 percent more on their annual electric bills to support a clean energy standard of 80 percent by 2035, although members of Congress would be unwilling to support any policy that carried larger than a 5 percent annual price increase, according to a study published this week.

Americans are generally willing to pay more for electricity if utilities were required to generate the bulk of their power from clean sources, but there is unlikely to be sufficient support in Congress for such a policy unless annual electric bills increase by less than 5 percent, according to a study published this week in the journal Nature Climate Change. By contrast, a proposed CES bill from Sen. Jeff Bingaman (D-N.M.) is estimated to raise electricity costs by an average of 18 percent in 2035, though the increases would be more modest when they first took effect

While almost no one – Bingaman included – expects his bill to become law this year, a CES that includes natural gas and nuclear as qualifying sources is seen as perhaps the most viable option for Congress to tackle climate change and energy policy after the death of cap-and-trade legislation two years ago.

“In some ways, this sets a challenge” for policymakers, said Matthew Kotchen, an associate professor of environmental economics and policy at Yale University and one of the paper’s authors. “If you can do it for this cost, it seems like there would be support.

Joseph Aldy, a Harvard University researcher and co-author of the paper, said the big wild card in economic analyses of proposals like Bingaman’s is difficulty projecting how technological innovation would affect the costs of different power sources. For example, several years ago, few experts projected the current low natural gas prices sparked by expanded use of hydraulic fracturing.

“I think it’s possible that one can design a policy that would have lower impacts on prices than what we see now,” Aldy said in an interview today. “The question is really trying to find the right sweet spot.”

The study examined voters’ willingness to pay for a CES that would require utilities to generate 80 percent of electricity by 2035 from “clean” sources, including renewables, natural gas and nuclear. It predicted what policy would be likely to garner sufficient support in Congress by assuming members of the House and Senate vote in line with the preference of their median constituent.

House passage of a CES would require costs to increase by less than $48 a year, while a bill could garner 60 Senate votes to overcome a filibuster if costs were below $59 a year, according to the study from researchers at Harvard and Yale. That amounts to a less than 5 percent increase in the average household electricity price, which was $1,250 a year in 2009, according to the paper.

The new study, “Willingness to Pay and Political Support for a US National Clean Energy Standard,” was written by Aldy, an assistant professor of public policy at Harvard’s Kennedy School of Government; Kotchen; and Anthony Leiserowitz, director of the Yale Project on Climate Change Communication.

The researchers found that the public at large would be willing to pay about $162 a year – or 13 percent – more for a CES, illustrating what they call the “stark contrast” between national opinion and the constraints on individual legislators.

The results add to the perception that Congress is unlikely to adopt such a policy this year. Bingaman, the chairman of the Energy and Natural Resources Committee, who is retiring at the end of this session, has introduced a CES bill that he says aims to launch a conversation about how to promote new energy sources and reduce greenhouse gas emissions. The bill will be subject to a hearing Thursday before Bingaman’s committee (E&E Daily, May 14).

Bingaman’s bill would increase electricity rates an average of 18 percent by 2035, although costs would increase more modestly in the early years of the program, according to separate analyses by the Energy Information Administration and the nonpartisan think tank Resources for the Future.

The willingness to pay study asked voters how much more per year they would be willing to pay over the life of the program. The researchers did not compare how an annual increase of 5 or 13 percent per year would compare to the findings of the EIA or RFF analyses that found low initial increases followed by sharper spikes in the later years of a CES program, Aldy said.

The willingness to pay study found that voters were about equally willing to support clean energy policies that included natural gas and nuclear and those that included only renewable energy. Kotchen said that finding may improve the chances of a CES like Bingaman’s in the future if natural gas prices stay low and bring down the overall cost projections of such a policy

The study also demonstrates that the dim chances of a CES this year are tied particularly closely to the partisan makeup of Congress. In the 111th Congress, when Democrats controlled the House and briefly enjoyed a 60-vote Senate majority, a CES that increased electricity bills $162 a year would have passed both chambers, according to the study. That finding suggests the issue could gain more prominence depending on the outcome of this year’s election, Kotchen said.