Emissions Calculation Example

Emissions Reduction Example

A recent article in the NYT, “California Panel Considers Money From Climate Rules” by Jesse McKinley, describes different tactics for California’s implementation of a cap and trade system:

Offering an early glimpse of how California might manage a central element of its ambitious greenhouse-gas law, a state committee has recommended that residents receive cash or tax breaks resulting from auctions of emission allowances to industries and other polluters.

Under the proposal, described by the committee as a “household friendly” approach, Californians would receive 75 percent of the proceeds from emissions auctions, either in tax decreases or checks sent directly to residents…

In cap-and-trade systems, individual polluters are given allowances to pollute to a certain level, with the total number of permissible emissions slowly reduced year by year.

In some cases, the allowances have been offered to polluters without charge to soften the economic impact or to win the confidence of businesses, which will bear higher costs to reduce emissions and which can sell unused allowances. The cap-and-trade legislation passed by the United States House last summer had some free allowances, as does much of the legislation being considered in the Senate…

A couple of different proposals have been floating around for allocating rights-to-pollute, including:

• Give all permits to polluters;
• Give some permits to polluters and auction the remaining permits to polluters;
• Auction all permits to polluters and have government keep the proceeds; or
• Auction all permits to polluters, but return some of the proceeds to the public.

In order to get a better idea of how cap and trade works and who ends up getting what under the various proposals, I came up with a simple example.

Emissions Calculation Example

Suppose there are three different utilities, each of which supplies electricity to 1,000,000 people, or roughly 400,000 households (HH) (see column [C] in Figure 1). Suppose Utility 1 uses coal to generate its electricity, Utility 2 uses half coal and half natural gas to generate its electricity, and Utility 3 uses half natural gas and half nuclear and/or renewable resources to generate electricity (see columns [A] and [B] in Figure 1).

The average HH uses roughly 9,000 kWh per year in electricity (see column [D] in Figure 1). This means each of the utilities generates 3.6 million MWh per year for its residential customers (column [E] in Figure 1 = column [C] x column [D]).

According to the EPA, combustion of coal generates, and combustion of natural gas generates 0.17060 metric tons (MT) of CO2 per kWh of natural gas (see column [F] in Figure 1). Generation of electricity from nuclear sources emits no CO2, and I assume generation of electricity from renewable resources emits insignificant (i.e., no) amounts of CO2.

(1 metric ton = 1,000 kg = 2,205 pounds; 1 US ton = 2,000 pounds; so 1 metric ton = 1.10 US tons)

So now we have the total emissions per year for each of the utilities associated with supplying residential customers with electricity (HH = households, M = million, MT = metric tons):