Breakthrough: "Neither Reasonable nor Prudent" -- Cutting Carbon Carries High Risk for Companies

There's a Catch-22 at work preventing industry-level energy innovation. In most businesses, there is an advantage to being first -- to come out with the smallest microchip or the thinnest TV-screen. Not so with coal plants. The New York Times reported today that when it comes to cutting carbon emissions, most companies would rather let someone else be the trailblazer:

"No one wants to go into the new world," said Armond Cohen, executive director of the Clean Air Task Force, a nonprofit group that favors stringent controls on power plant emissions. "We have very few takers because of the price premium."
By price premium, Mr. Cohen meant not only the costs of going first, with the high probability of mistakes that others can learn from, but the costs of the new technology itself. The problem is, the premium is of unknown size, which makes everyone in the industry especially wary.

The point was illustrated by a recent decision by the Virginia State Corporation Commission, which regulates utilities, to turn down an application by the Appalachian Power Company to build a plant that would have captured 90 percent of its carbon and deposited it nearly two miles underground, at a well that it dug in 2003. The applicant's parent was American Electric Power, one of the nation's largest coal users, and perhaps the most technically able. But the company is a regulated utility and spends money only when it can be reimbursed.

The Virginia commission said that it was "neither reasonable nor prudent" for the company to build the plant, and the risks for ratepayers were too great, because costs were uncertain, perhaps double that of a standard coal plant. And in a Catch-22 that plagues the whole effort, the commission said A.E.P. should not build a commercial-scale plant because no one had demonstrated the technology on a commercial scale.

Thus an approach that makes collective sense -- trying out technologies that could be helpful over the long term -- is unattractive to individual participants.

The article went on to note that if a cap-and-trade system (like the now-defunct Lieberman Warner) were in place, companies might have more of an incentive to cut emissions if innovation could help generate pollution credits that they could sell to other polluters. But as we're argued before, cap and trade legislation is likely to contain barriers that make meaningful emissions reductions all but impossible. Cost containment measures, a low auction price, and the availability of cheap offsets, are all part of the reason that cap and trade has failed to reduce emissions in Europe under Kyoto.

The alternative? We've said it before, and we'll say it again: invest, invest, invest. Direct government investment to drive down the price of clean energy would address the reluctant coal industry here in the U.S., and the effects would spread all the way to China. That's something our country should be proud to be first in.

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