The Cost of Coal : Climate Change and the End of Coal as a Source of 'Cheap' Electricity

The prospect of climate change regulation has already had an important impact on investment in coal-fired power plants. Under state utility regulation, regulators must balance investor-owned utilities' interest in earning profits with customers' interest in receiving low-cost power. The potential increases in the cost of coal-based electricity could upset the long-held view that coal provides "cheap" power. Moreover, if regulators approve investment in coal-fired power plants now and later climate change regulation makes these plants too expensive to operate, regulators will have to allocate the costs of the failed plants to either the utilities, ratepayers, or both. As regulators learned during the boom-and-bust of the nuclear industry, cost allocation for failed investments presents tricky legal and political issues that usually leave all parties unsatisfied. Based on these dynamics, this paper argues that the uncertainty of climate change regulation will stifle investment in new coal-fired power plants and perhaps open the electricity sector up to more sustainable sources of power