How state power regulators are making utilities account for the costs of climate change

The electricity powering your computer or smartphone that makes it possible for you to read this article could come from one of several sources. It’s probably generated by burning natural gas or coal or from operating a nuclear reactor, unless it’s derived from hydropower or wind or solar energy. Who gets to choose?

In many states, it’s up to the utilities, the companies that bill you for electricity. Costs often weigh heavily in their decisions. But deciding which costs to consider is a very subjective process.

If your utility accounts for the toll taken by climate change, like Xcel Energy in Colorado does, your state electricity regulator probably makes the company do that. This approach is one behind-the-scenes way that a growing number of states are addressing global warming.

As scholars who study the intersection between policies that deal with climate change and energy, we have studied the rules that govern electric utilities across the nation. Our new report sheds light on where state regulators have the ability to make rules that mandate action on climate change.

States, electricity and climate change

Every additional ton of the greenhouse gas emissions from burning fossil fuels to generate electricity contributes to climate change. This carbon pollution has many negative consequences, both to the physical world and also to global social and economic systems.

But utilities don’t always tally the costs of these consequences. Because dealing with climate change is astronomically expensive, we believe that this should change.

Utilities still largely rely on coal, natural gas and nuclear energy to keep the lights on. These companies rely on older technologies in part because those facilities are already built and, to a degree, because of how much it costs to start up and shut down power plants. What’s more, fossil fuels have generally been cheaper than other energy sources until somewhat recently.

But when state regulators require utilities to factor in the effects from burning fossil fuels, a big investment to get a large-scale wind or solar operation up and running becomes a better bargain. And since making electricity from cleaner energy sources has been steadily getting cheaper, factoring in climate costs could help speed up the process of phasing out climate-altering fossil fuels.

Different ways to do it

Some utilities are voluntarily including a line item in their balance sheets that estimates what their impact on the climate will be in monetary terms. Others are going this route due to the growing number of state electricity regulators that make it mandatory. We have determined that 10 states now account for climate costs in some way by regulating power companies.

Other states are starting to make bold proposals to reduce their emissions too.

A number of newly elected governors are making climate change a centerpiece of state policy in places where it had been an afterthought.

Some of these proposals focus on limiting carbon pollution to a certain level, others on increasing the generation of wind, solar and hydroelectric power, and others on making buildings and appliances more energy-efficient. All of these policies can be effective in reducing greenhouse gas emissions. But there are plenty of states in which a command-and-control policy where a regulator basically makes industries do a certain thing – like banning climate-warming chemicals used in refrigerators and air conditioners – might be unpopular.