Updated: Beware of This Cap and Trade Study

Watch out for simplistic reporting on a new study on the impact of climate change legislation on the Midwest.

So far, reports on the study are highlighting claims that cap-and-trade, an idea that would monetize the cost of emitting carbon, would cause huge increases in electricity rates. The Milwaukee Journal-Sentinel claimed rates in Wisconsin “could rise as much as 63 percent from 2012 to 2030.”

Here’s how Platts, an energy industry publication, summarized it.

Midwestern states could see their electricity rates increase by $33 billion in 2030 to pay for greenhouse gas reductions, according to a report from a utility released Wednesday.

What everyone has failed to report is that the study was prepared by Bruce Edelston, a utility company veteran and John McCain supporter who spent the last seven years advising the Washington lobbyists of Southern Company, which owns the three highest carbon emitting power plants in North America. Edelston’s background doesn’t necessarily discredit his findings but it should make reporters cautious about his conclusions, but his method raises some questions about its reliability.

Edelston’s general finding is indisputable. Consumers will pay higher rates under the kind of cap-and-trade schemes proposed by President Obama and Senator McCain (R-Ariz).

What is misleading is that the utility rate figures are based on Edelston’s extrapolation of the effects of a cap- and-trade bill proposed last year by Sen. Barbara Boxer (D-Calif.) in which none of the revenues from the auctioning of emission permits is returned to consumers, as is the case under Obama’s plan.

Obama’s plan, as outlined in his budget here (PDF p. 21), calls for returning most of the auction revenues to consumers via a tax credit. The leading cap and trade proposal on Capitol Hill, a draft bill from Rep. Henry Waxman (D-Calif.), leaves open the possibility of allocating emission permits to utilities for free. In other words, the Obama and Waxman plans would not result in such dramatic results for consumers.

I’ll be reporting in more detail on Edelston’s report in the future. It needs careful analysis, not careless or manipulative reporting.

Editor’s note: The original version of this post incorrectly stated the coal industry group, American Coalition for Clean Coal Electricity authored the cap-and-trade study cited. The group is not affiliated with the study or its findings. We regret the error.