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'Social cost' of carbon dioxide emissions from Minnesota power plants increased

Minnesota utility regulators last week significantly increased the "social cost" of carbon dioxide emissions from power plants, but not as much as requested by two state agencies and environmental and renewable energy groups.

Since the 1990s, Minnesota has been one of just a handful of states to try to quantify the economic impact of the greenhouse gases behind climate change. The Minnesota Public Utilities Commission on Thursday voted 3-2 to raise that cost from the current level of 44 cents to $4.53 per short ton to a range of $9.05 to $43.06 per short ton by 2020.

"That's a dramatic and I think appropriate increase in the value for CO2," said Dan Lipschultz, the PUC commissioner who proposed the new cost range. "As far as I know, we are the only state in the country to adopt CO2 values comprehensively for (utilities') resource planning."

Consumers don't see a carbon fee on their bills. However, Lipschultz said the decision would "in all likelihood" indirectly impact ratepayers.

Carbon emissions are what's known in economics as a negative externality: a cost that's not paid for by a producer, but instead is borne by a nonrelated third party, usually the public. In 1993, the Minnesota legislature required the PUC to consider the costs of air pollutants in decisions on power plants, which could impact a project's total costs, which are at least partly borne by ratepayers.

Commissioners Nancy Lange and John Tuma joined Lipschultz in voting for the $9.05 to $43.06 per ton range. The two commissioners who voted against the measure, Matthew Schuerger and Katie Sieben, both wanted a higher carbon cost range of $12.30 to $63.56 per ton — a value proposed by the Minnesota Pollution Control Agency (MPCA) and the Minnesota Department of Commerce.

The Minnesota Center for Environmental Advocacy, the Sierra Club and Fresh Energy — a renewable energy group — all supported the higher value, too. Still, Leigh Currie, energy program director at the environmental advocacy center, called the increase "a dramatic and significant improvement," noting the current Minnesota carbon cost was set 20 years ago.

The new carbon cost adopted by the PUC is closest to Minneapolis-based Xcel Energy's proposal — a range of $12.26 to $41.84 per ton by 2020.

A lower range of $7.88 to $18.99 per ton was proposed by three other Minnesota utilities: Duluth-based Minnesota Power, Maple Grove-based Great River Energy and Fergus Falls-based Otter Tail Power.

These days, no utilities in Minnesota plan to build new coal-fired power plants, the largest emitters of carbon dioxide for the electricity industry. So in practice, the social cost of carbon most likely will affect plans for new natural-gas plants. Burning natural gas emits about half of the greenhouse gases as coal, but wind and solar power emit none.

Environmental and renewable energy groups asked the PUC to update the carbon cost a few years ago. Much of the debate boils down to an evaluation of the federal social cost of carbon, which was devised in 2010 by scientists and economists from such federal bodies as the Environmental Protection Agency and the departments of energy, agriculture and commerce.

Twelve federal agencies combined three mathematical models to account for the effect of carbon dioxide emissions on climate change and the potential economic costs of climate change, including higher temperatures and higher sea levels. The cost developed by the 12 agencies has been used in setting national environmental and energy regulations — though President Donald Trump earlier this year directed agencies to disregard it.

Carbon cost proposals from the MPCA and the commerce department stem directly from the federal social cost of carbon. But Minnesota utilities, while acknowledging some merits in the federal cost of carbon's methodology, have argued that it's statistically unsound and riven with uncertainties.