The social cost of carbon, applied to gas-fired power generation: an expensive week in Ontario

You could look at the Ontario time-of-use electricity rates, from the point of view of the rate-payers who pay them, as a de facto carbon tax. We pay higher rates during the day because special fossil fired generators must (it is alleged) fire up and meet the extra demand that we make on the system during those hours. During off-peak hours our demands on the system are lower. The zero-carbon nuclear fleet meets by far most of the demand in off peak hours, so prices are lower. The huge low-cost nuclear output keeps a lid on off-peak prices, which would be far higher if there were more wind in our system; wind output tends to be higher in the middle of the night.

The de facto Ontario electricity carbon tax applies only to energy consumption at the retail level. Producers of fossil-fired electricity certainly don’t pay any carbon tax; if they did, our power bills would be higher. As far as the producers of fossil-fired power are concerned, the rate that electricity customers currently pay them covers the high cost of their intermittent operation.

But what if fossil-fired generators did pay a carbon tax? What if they paid what the current U.S. administration considers to have been an informed estimate of the social cost of emitting a metric ton of carbon dioxide in 2015? That estimate is US$37 (in 2007 U.S. dollars); see the Technical Support Document of the informal working group that arrived at the estimate. That was roughly $35 in 2007 Canadian dollars. The US$37 figure is based on a discount rate of 3 percent. The discount rate (not to be confused with the Fed discount rate, which is the rate at which the U.S. central bank lends money to commercial banks) is one of the many, many parameters used in the three assessment models that, combined, were the basis of the US$37 estimate for 2015. So keep in mind that this is not exact science.

If such a social cost of carbon were in effect right now in Canada, what kind of price tag would have come with the output of gas fired generators over the past week?

Well, let’s see. Here is some data for natural gas-fired generators in Ontario during the week of August 25 to August 31:

Date kWh Tons CO2 Cost of CO2 CO2 $/kWh
Mon Aug 25 57,828,000 30,731 $1,075,585 $0.0186
Tue Aug 26 64,450,000 34,222 $1,197,770 $0.0186
Wed Aug 27 53,502,000 28,420 $994,700 $0.0186
Thu Aug 28 33,869,000 17,676 $618,660 $0.0183
Fri Aug 29 20,695,000 11,393 $398,755 $0.0193
Sat Aug 30 11,767,000 6,466 $226,310 $0.0192
Sun Aug 31 25,957,000 14,010 $490,350 $0.0189
Total for week 268,068,000 142,918 $5,002,130 $0.0187

So, just over $5 million worth of carbon was dumped into the air in one week. That is if you go by the U.S. administration’s estimate of US$37 per ton, which is $35 in 2007 Canadian dollars.

Looking at these numbers, a few things jump out:

  • If that were an average week, then the gas-fired fleet would dump roughly 7.4 million tons of CO2 per year (142,918 tons x 52 weeks).
  • 7.4 million tons of CO2 at CAN$35 per ton works out to an annual social cost of carbon of $260,110,760 from Ontario gas-fired power plants.
  • … which works out to over $2.6 billion over the next decade for the cost of carbon just from Ontario gas-fired power plants.
  • … and that was from a fleet that contributed just 8.97 percent of Ontario’s in-province generated electricity.

So, $5 million for one week, from the fleet that produced less than 10 percent of our electricity. Should we pay that now or later?

I think we should be fair with our electricity pricing, and start adding the cost of carbon into the price. We pay for waste up front with our nuclear fleet. Included in the 5.6 to 7 cent per kWh rate for nuclear power is the estimated cost of dealing with the used fuel bundles. That cost was estimated as $5.94 billion for the first 2.23 million fuel bundles. It was estimated that 2.23 million bundles would have been accumulated by 2012. It would therefore represent the total fuel bundles accumulated since the Ontario nuclear program started in earnest in the early 1970s—four decades ago.

Well, over four decades at current levels of output, the provincial gas-fired fleet will dump $10.4 billion worth of carbon into the air. That is based on one week of operation, a week that saw the gas fleet producing less than 10 percent of our electricity.

Versus zero dollars worth of carbon, from the nuclear fleet which produced 1.93 billion kWh in that week—64.74 percent of the total—for which we paid an average of about six cents per kWh.

Oh, and the cost of waste disposal was included in the six cents per kWh.

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6 years ago

I like the dollars-and-cents comparison of the cost of carbon, but in my experience the bulk of the people who are up in arms about carbon are driven by emotion and couldn’t care less about math (no matter how much their own experts like James Hansen try to straighten them out), and the people who can do math tend to disregard the science on carbon (many of them point to the innumerate, emotion-driven masses as their cause for doing so).

I’d like to see other figures:  the estimated cost of e.g. electrorefining those 2.23 million fuel bundles and converting them into driver and blanket elements for something like an S-PRISM, or otherwise enriching the leftovers sufficiently to reach 1.8% to feed to Transatomic Power’s MSR.  I’ll bet the latter could be done by electrorefining and discarding part of the uranium.

[…] failed energy policy have been documented by others such as  Professor Ross McKitrick, Scott Luft, Steve Aplin and many others including representatives from the same professions as are on the […]

Peter Lang
5 years ago

I think we should be fair with our electricity pricing, and start adding the cost of carbon into the price.

I disagree with pricing carbon or any other government intervention to raise the cost of energy. It’s the wrong approach, IMO. The correct approach is for government to progressively remove the many unwarranted distortions that previous governments have imposed on energy markets – especially nuclear power. The answer is appropriate deregulation, not more regulation and more government interventions.

Carbon pricing will not reduce global GHG emissions unless it is a uniform world price and is maintained as uniform world price for a century or more. Clearly this is highly unlikely to be achieved.

Carbon pricing that covers less than about 80% of all global GHG emissions would cost too much for the participants, so it would not be politically sustainable. But the best that even the most advanced countries can achieve (EU) is 45% participation rate. So consider what is the probability the whole world can achieve 80% participation rate and maintain it until the job is completed. It’s realistically unachievable.

If individual countries or regions raise cost of energy in their country they hand a competitive advantage to other countries. Emissions intensive industries move to countries with lower energy costs taking many industries with them. The emissions go with the industries. So global GHG emissions are not reduced. The country that has imposed higher price industries damages its economy and get’s no benefit from reduced climate damages.

The correct route is to remove the impediments that are preventing the world from having low-cost low-emissions energy. That requires appropriate deregulation (for example of nuclear industry). Deregulation could be justified on the basis of risk of comparative energy technologies – e.g. on the basis of fatalities per TWh.

Peter Lang
5 years ago
Reply to  Peter Lang

I meant to include these two links to provide more explanation as to why carbon pricing is bad policy. See especially the first chart in Part 1 and the chart in Part 2.

Part I: “Why carbon pricing will not succeed”
http://catallaxyfiles.com/2014/10/26/cross-post-peter-lang-why-carbon-pricing-will-not-succeed-part-i/

Part II: “Why The World Will Not Agree to Pricing Carbon”
http://catallaxyfiles.com/2014/10/27/cross-post-peter-lang-why-the-world-will-not-agree-to-pricing-carbon-ii/

Peter Lang
5 years ago

Steve,

But I still find the concept of SCC interesting and useful — if only to point out the putative costs of the preferred renewables/gas route. It’s another way of underlining the size of the CO2 emissions inherent in that route.

I agree it can be useful. However, there are many issues. The value of SCC is highly contested. It depends on summing projected climate damages and abatement costs for 300 years. It doesn’t stand up over shorter periods. And climate doesn’t change as the models assume. It changes abruptly. Always has and always will. There are many risks to weigh – reduced risk of abrupt cooling versus risk of abrupt warming. There is much more to it than this. And it mus all be balanced against the consequences of reduced economic growth and the consequences for human well-being.

But by far the most important aspect to consider, IMO, is that only around 1% of the global population would support it – i.e perhaps 70 million mostly inner city elites in rich countries. The rest of the world has higher priorities. Climate change simply doesn’t rate as a priority for them. This is the reality. Bjorn Lomborg has been explaining this well for a decade or more.

I believe we’ve been advocating for really bad policies for 2 decades. There is an alternative. It is achievable. The USA is by far the most influential country on nuclear matters. It could influence the leaders of the other major nuclear powers to encourage their representatives to the IAEA to re assess the radiation limits and ask that they be justified on the basis of evidence. They need to replace ALARA with AHARS. The costs and benefits for the whole world should be properly assessed, including the fatalities avoided per TWh. The next President of the USA could lead the way.

Once IAEA moves the limits, incrementally, the costs of nuclear should start to come down. The main reason is that it gives all of us and the media the catalyst to reexamine nuclear. It gives the rationalists a new opportunity to explain the case and puts the antis on the back foot.

It will also reduce the costs of accidents (less people need to be evacuated when they do occur. less over reaction. Less need to shut plants down early. Lower insurance premiums and lower investor risk premium.

This is where our efforts should be. Certainly not in advocating or giving any support to economically irrational policies like carbon pricing and mandating renewable energy targets.

I believe all those who have been supporting the economically irrational policies for the past 50 odd years, and carbon pricing for the past 20 odd years, have been blocking progress. The rational policy analysis had not been done.

You have posted some excellent posts. I am simply presenting my comments as something to consider.