The Good and Bad News about Carbon Reduction in Electricity Generation for Low-Wealth Ratepayers

In the not-so-distant future, most of us are going to be driving electric cars. That is the good news when it comes to climate change. The bad news: electricity generation, heating, and transportation are currently the largest source of greenhouse gasses in the United States.

The U.S. Environmental Protection Agency (EPA) has therefore proposed new regulations to significantly reduce carbon pollution. And North Carolina, where we live, has required that the generation of electricity be carbon neutral by 2050. Other states have imposed similar requirements.

This is more good news/bad news. In the future, both cars and power plants will generate less carbon emissions. At the same time, the cost of electricity can increase for everyone as utilities find ways to comply with the federal and state mandates to reduce carbon emissions. All ratepayers may be affected, but the cost burden will fall most heavily on low-wealth people, who disproportionately are Black and Latinx, and rural communities, many of whom already struggle to pay their utility bills.

There are ways to meet the state’s carbon reduction goals and protect ratepayers from catastrophic increases in the cost of electricity, but the regulatory system is set up in a way that makes it more difficult to get to this result.

Cost Increases

The cost of electricity is regulated state by state, which means that all 50 states need to adopt a plan to achieve carbon neutrality and minimize the cost of doing so as much as possible. In each state, utility companies have a legal right to recover the costs of power generation and make a reasonable profit.

The cost of complying with the new carbon reduction mandates will therefore be passed on to consumers. Moreover, because of the way this reimbursement works, a utility company has a strong incentive to make more money by adopting more expensive ways of complying.

Regulatory Hurdles

In North Carolina, for example, Duke Energy, the state’s main power provider, has proposed to meet the state’s carbon reduction goals by phasing out coal generation and using natural gas instead. An independent study found that it would be less expensive for Duke Energy to use renewable energy sources, but that would also reduce its profit.

The state could also reduce energy costs by helping more people generate their own electricity by installing solar arrays on their rooftops or properties. As electricity costs go up, more customers will be interested in rooftop solar to reduce energy costs, but the state has limited this option by capping the number of homes and businesses that can use it.

The state has also severely limited the use of community solar projects, wherein consumers buy electricity from nearby community- or business-owned solar projects. Both solutions reduce the cost of electricity because the generation is powered by the sun or wind and the projects are close by, reducing transportation costs.

Consumer Awareness

But, as each state grapples with the costs of carbon reduction, utilities have the upper hand in blocking rooftop and community solar projects. Customers are largely unaware of the looming price increases, are not organized to oppose them, and do not match the significant political donations by utilities to state lawmakers. Customers can vote, however.

Hopefully, as the Center for Progressive Reform and other nonprofit organizations make customers aware of what is happening, voters will demand smart solutions to carbon reductions — ones that protect the environment and reduce costs.