Green Energy Reporter

Stanford University’s Graduate School of Business has issued a report that says that cap-and-trade will not “devastate the  economy,” as some have predicted, and will in fact be cheaper to implement than has been alleged.

Report co-authors, Business School Professor Stefan Reichelstein and graduate student Ozge Islegen say:

After several dire scenarios reported in the popular press, we became interested in measuring and quantifying exactly what that cost would be.

One of those dire scenarios was outlined in Mckinsey & Co‘s much quoted 2007 “Reducing Greenhouse Gas Emissions: How Much at What Cost?” study, which predicted that the price of CO2 emission permits would have to reach $50 per ton before power plants would convert to carbon capture and storage (CCS) technologies.

But the Stanford University study estimates the tipping point price when utilities will be motivated to invest in in CCS technology is significantly lower –between $25 to $30.

The report concedes that the price of electricity under a cap-and-trade regime could go up by 23 percent, but that’s still significantly less than other projections. “We were actually quite surprised that the impact on electricity prices was that small,” said Reichelstein and Islegen.

And what about Exxon Mobil‘s CEO Rex W. Tillerson‘s recent warning that cap-and-trade would fuel price volatility and would have a negative impact on the economy and the environment? Again, not so says Stanford, which concedes that cap – and -trade will lead to some price increase but that these would be cushioned over a long period of time.

The report notes:

Because of the way the energy industry is regulated in the United States, it could take many years before the full brunt of a cap-and-trade system would be felt. In most U.S. states, energy firms are reimbursed for their costs plus an agreed-upon return on their investment. Given that the basis for their costs is largely historical, consumer prices will go up much more slowly than in unregulated markets.

In the PR war that’s brewing between supporters of cap-and-trade and those against it, the Stanford report is likely already inspiring some key talking points by cap-and-trade backers.