Delaware Carbon Tax to Increase Electric Rates

  The first regional carbon auction using new rules confirmed electric rates will eventually increase by about $60 a year for an average residential customer as predicted by CRI. Electric cost could rise hundreds of thousands a year for large industrial customers compared to non-carbon tax states leading to even more job losses in Delaware. Speculators snapped up over half the available permits freezing out power plants that will have to pay even higher prices in a secondary trading market.

            Permits to release carbon dioxide (CO2) must be purchased in quarterly auctions by electric power plants.  Unhappy with the state tax revenue being generated, Delaware, along with eight other states, reduced the number of available permits by 45% hoping a shortage of permits would lead to higher prices. The March 5, 2014, auction saw prices more than double from where they were before the announcement of the change a year ago. All the available permits sold as opposed to 53% in earlier auctions resulting in revenue increasing 3.5 times to $4.5 million. The cost of the permits is passed on in electric bills.

 

            One of the rule changes added price caps to the auction that started at $4/ton in 2014 and increased to $10/ton by 2017. To keep prices going above the cap extra permits would be held in reserve to increase supply. The entire annual reserve was used up in the first auction as demand was three times higher than the number of permits available. Making matters worse, speculators purchased 55% of the available permits. These permits will be sold to power generators in a secondary market at even higher prices resulting in even higher electric rates as the cost is passed on. We expect speculators will add over 40% to the cost of the program. Prior to the rule change there were no speculators in the market.

 

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