North Dakota, Minnesota, and carbon taxes

North Dakota has announced its intention to sue Minnesota over a proposed electrical generation carbon tax.

This should prove an interesting case for the courts.

Now, why would North Dakota be angry about Minnesota introducing an electrical generation carbon tax?  Because it exports electricity to Minnesota, which is its only sizable neighbor.  It also uses coal almost exclusively for its power generation.  Cheap, dirty coal.  Now, for those who are proponents of coal, as a nationally produced resource, I agree that it contributes to energy security from that angle.  However, the environmental costs of coal mining and coal-burning are well-known and documented.  In the US, a recent example in 2008 was the sludge that broke free of a dam in Tennessee.  The costs so far are approaching $1,000 million.

In some research I did a number of years back, preliminary carbon cost adder estimates to impact a state using primarily coal-fired power were in the $250+ per ton of emissions.  That is around 20 times what carbon is trading for in European markets, and about 2.5 times greater than most estimates I’ve even heard bandied about for a “high” carbon tax.  Needless to say, I do not think North Dakota faces a serious threat.  Now, Americans for Prosperity claims that it is “a significant carbon dioxide tax” while the reported amount from Scientific American is $3 – $34, hardly a “significant” level.  (In California, which pays MUCH higher rates for electricity, $50 per ton is about what it takes to shift the market away from fossil-fired power plants).  Additionally, retail sales have grown in Minnesota year over year (data reported as recent as 2007 – excel file), which would place an increase in demand, somewhat, if not entirely counteracting the effects of a carbon tax.

What strikes me as truly funny about the entire situation, is that North Dakota is considered “the Saudi Arabia of wind.” California has been discussing building the transmission necessary to get wind from Wyoming to California, yet North Dakota can’t get their energy across a single state line?  That thought aside, there is already transmission running from North Dakota to Minnesota… you’d just need to tie in the wind generation and ramp down the coal-fired plants a bit.

In all, I find North Dakota’s reluctance odd.  They have a neighbor willing to buy energy, have bountiful wind resources, yet they do not want to sell clean energy (apparently since they are against the tax that would also disadvantage generators of fossil-fuels regardless of location) to a state that wants to purchase it.  If that is not a perfect case of starting to internalize an externality (Wikipedia definition) and then letting the free-market resolve the situation, I don’t know what is.

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