Household Energy Costs Laser Talk

Question: How will the carbon fee and dividend affect household energy costs?

Answer: For most families, these energy costs are in the form of gasoline, natural gas or heating oil, and electricity. The cost will go up depending on how much fossil carbon is in the fuel or how much was burned in its production.

We calculated the costs from EPA emissions tables [1], a Department of Energy natural gas study [2], and a carbon emissions database assembled by Argonne National Laboratory [3].

For a first-year carbon fee of $15 per metric ton of CO2,:

  • Gasoline will go up by 16¢ per gallon (an 8% increase)
  • Natural gas by 9¢ per therm (a 7.4% increase)
  • Heating oil by 19¢ per gallon (an 8.7% increase)
  • Electricity by 0.6¢ to 1.1¢ per kilowatt-hour, depending on whether it’s generated by coal or natural gas (an increase of 4%-11.3%) [4].

As reported in our Household Impacts study, which used actual household spending from 2008-2012 to model its results, even with these cost increases, 53% of households and 58% of individuals are made whole nation-wide.

Residential consumer price impact from a $15/metric ton carbon fee

Energy TypeGasolineNatural GasHeating OilElectricity (Coal)Electricity (Nat Gas)
Price benchmark$2.02/gallon$1.26/therm$2.13/gallon$0.127/kWh$0.127/kWh
Increase from carbon fee+$0.16/gallon+$0.09/therm+$0.19/gallon+$0.014/kWh+$0.005/kWh
Final price$2.18/gallon$1.35/therm$2.32/gallon$0.141/kWh$0.132/kWh
Percent increase8.0%7.4%8.7%11.3%4.0%
Table 1: This table shows results of calculations detailed in the advanced version of this laser talk. We assume the carbon fee is entirely passed on to consumers, based on recent “benchmark” prices obtained from the Energy Information Administration [5].

  1. “Emissions Factors for Greenhouse Gas Inventories.” U.S. Environmental Protection Agency. 4 April 2014.
  2. Bradbury, J., Z. Clement, and A. Down. “Greenhouse Gas Emissions and Fuel Use Within the Natural Gas Supply Chain: Sankey Diagram Methodology.” Jul 2015.
  3. Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET).
  4. Gasoline is regular 87 octane with 10% corn ethanol. For natural gas, 1 therm = 100,000 Btu. For electricity, 1 kWh = 1 kilowatt-hour. Power plant efficiency = 34.3% for coal, 61.5% for natural gas (NGCC).
  5. Energy prices are national average retail or residential: gasoline in January 2016, natural gas in October 2015, and electricity in November 2015. Note that prices will vary considerably from time to time and place to place.

Question: How will the carbon fee and dividend affect household energy costs?

Answer: American families buy three types of energy directly: vehicle fuel, home heating fuel, and electricity. Aside from a few diesel cars or pickups, most vehicles burn gasoline. About half of U.S. homes are heated by natural gas, about half by electricity, and a small percentage by heating oil or wood. Electricity is used for most everything else, which could also include vehicle power if the consumer owns an electric car.

In all of these cases, the fee is paid by the fuel producer based on how much fossil carbon is released as CO2 throughout the “life cycle” of the energy source.

  • For gasoline, it’s the CO2 released when it’s burned in the car plus some emissions that came earlier during extraction and refining.
  • For heating with natural gas or fuel oil, it’s CO2 emitted in the furnace, boiler, stove, or other gas-fired appliance.
  • For electricity, no CO2 is released at the point of use, but the fee imposed on coal or natural gas burned in the power station would be passed on to the ratepayer. Electricity from hydropower, nuclear, wind, or solar would incur no carbon fee except for some fossil fuels that may have been emitted during manufacture or construction of the power source.

We calculated the costs from EPA emissions tables [1], a Department of Energy natural gas study [2], and a carbon emissions database assembled by Argonne National Laboratory [3] , assuming the carbon fee is entirely passed on to the consumer. For a first-year carbon fee of $15 per metric ton of CO2, gasoline will go up by 16¢ per gallon, natural gas by 9¢ per therm, heating oil by 19¢ per gallon, and electricity by 0.5¢ to 1.4¢ per kilowatt-hour, depending on whether it’s generated by coal or natural gas [4].

The table below also shows an estimated percent increase to consumer energy costs, based on recent “benchmark” prices obtained from the Energy Information Administration [5].

Residential consumer price impact from a $15/metric ton carbon fee

Energy TypeGasolineNatural GasHeating OilElectricity (Coal)Electricity (Nat Gas)
Price benchmark$2.02/gallon$1.26/therm$2.13/gallon$0.127/kWh$0.127/kWh
Increase from carbon fee+$0.16/gallon+$0.09/therm+$0.19/gallon+$0.014/kWh+$0.005/kWh
Final price$2.18/gallon$1.35/therm$2.32/gallon$0.141/kWh$0.132/kWh
Percent increase8.0%7.4%8.7%11.3%4.0%

These cost increases will grow proportionately as the fee goes up, but competitive pressure will also make producers and utilities want to cut their carbon fee by adopting technologies that reduce fossil fuel use. These include renewable energy and efficiency improvements that reduce greenhouse gas emissions. For this reason, annual consumer cost increases are expected to shrink as companies invest in climate-friendly innovations.

  1. “Emissions Factors for Greenhouse Gas Inventories.” U.S. Environmental Protection Agency. 4 April 2014.
  2. Bradbury, J., Z. Clement, and A. Down. “Greenhouse Gas Emissions and Fuel Use Within the Natural Gas Supply Chain: Sankey Diagram Methodology.” Jul 2015.
  3. Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET).
  4. Gasoline is regular 87 octane with 10% corn ethanol. For natural gas, 1 therm = 100,000 Btu. For electricity, 1 kWh = 1 kilowatt-hour. Power plant efficiency = 34.3% for coal, 61.5% for natural gas (NGCC).
  5. Energy prices are national average retail or residential: gasoline in January 2016, natural gas in October 2015, and electricity in November 2015. Note that prices will vary considerably from time to time and place to place.

Question: How will the carbon fee and dividend affect household energy costs?

Answer: Ignoring for the moment the impact on manufactured products or commodities like food and clothing, American households buy three types of energy directly: vehicle fuel, home heating fuel, and electricity. Aside from a few diesel cars or pickups, most vehicles burn gasoline. About half of U.S. homes are heated by natural gas, about half by electricity, and a small percentage by fuel oil or wood. Electricity is used for most everything else, which could also include vehicle power if the consumer owns an electric car.

In all of these cases, the fee is paid by the fuel producer based on how much fossil carbon is released as CO2 throughout the “life cycle” of the energy source – during combustion of the fuel as well as upstream CO2 emissions released during extraction or refining [1]. The impact will be expressed in terms familiar to the consumer through their energy bills or price at the pump (gallons, therms [2], or kilowatt-hours).

1 Btu = 1055 joule = 0.293 kWh = 0.00001 therm

  • Most fuel properties are drawn from GREET , which is an energy analysis software package distributed by Argonne National Laboratory [3]
  • Energy prices are from the Energy Information Administration (branch of Dept of Energy)
  • Carbon fee = $15/metric ton = $13.61/short ton

Gasoline
Gasoline is one of the products of petroleum refining, along with fuel oil, diesel fuel, jet fuel, chemical feedstocks such as ethylene, and byproducts like asphalt. Gasoline is not a pure chemical so it varies in composition and energy content by location and by season, but for these purposes the differences are negligible.

Virtually all gasoline sold in the U.S. (except aviation fuel) contains 10% ethanol (E10), mainly as an octane enhancer since lead and other octane boosters have been phased out. Besides the cost of the gasoline sold by the refinery, gasoline pump prices include distribution, storage, marketing, taxes, and profit margin. The portion of the pump price that is attributable to oil and refinery costs (and therefore impacted by a carbon fee) is about 70%, with the remainder split up among storage tank fees, distribution, marketing, taxes, and profit margin [4].

Conventional E10 gasoline (per GREET) weighs 6.25 lb per gallon, contains 116,090 Btu/gal, and emits 24.22 lb CO2 per gallon when burned (5.44 upstream, 18.78 in combustion).

Natural Gas
Natural gas is used for home heating and cooking, and also for utility power generation. Natural gas is primarily methane (CH4) but also may contain up to 10% of higher hydrocarbons and some inert gases like CO2 and nitrogen. The compositions vary from place to place, but for this analysis, natural gas will be considered as 100% methane. Higher hydrocarbons like ethane and propane will slightly raise carbon content while CO2 and nitrogen will slightly lower it, so the carbon footprint would not generally deviate more than 2-3% from that of pure methane [5].

Pipeline gas is measured by your gas meter in CCF (hundred cubic ft) but is generally priced in therms via a conversion factor shown on the gas bill. It also contains delivery and service charges, taxes, and profit margins, as well as some small fees to support energy efficiency programs, environmental cleanup, etc.

Natural gas, as 100% CH4, weighs 4.23 lb/CCF, contains 1.03 therm/CCF, and emits 13.40 lb CO2 per CCF when burned (1.80 upstream, 11.60 in combustion).

Heating oil
Home heating oil, used mostly in the Northeastern U.S., is a distillate oil generally referred to as “No. 2 oil.” It is similar to diesel fuel in its chemical properties, but it lacks certain additives necessary for motor fuel use. Distillate oils, like gasoline and diesel fuel, are produced in refineries from crude oil.

No. 2 oil weighs 6.8-7.3 lb per gallon, contains 137,080 Btu/gal, and emits 27.79 lb CO2 per gallon when burned (5.20 upstream, 22.59 in combustion).

Electricity
Electric power is different from the foregoing fuels because it is an energy carrier, not a fuel. It can be generated in many different ways, but in today’s power grid it is mainly from coal, natural gas, nuclear energy, and hydropower. Renewables like wind and solar are growing but still very small nationwide.

For CO2 footprint, the CO2 emissions per kilowatt-hour [6] varies by the mix of fuel sources used by the local utility. This analysis considers two fuels: coal and natural gas, and uses the CO2 emissions based on GREET.

That introduces another complexity: there are many different types of coal which vary in their CO2 footprint. For this analysis, combustion CO2 emissions represent the most widely used type of coal (Powder River Basin low-sulfur subbituminous) but uses the CO2 emissions factor from GREET for the upstream mining and processing emissions. The method also applies a power generation efficiency factor to convert coal emissions to an electricity CO2 footprint (34.3% efficiency for a typical coal station).

For power generation with natural gas, currently installed natural gas power stations are around 45% efficient, but it seemed more informative to consider the latest state-of-the-art natural gas plants since those are the ones being built to replace aging coal plants (61.5% efficiency for a utility-scale combined cycle plant).

On that basis, coal-fired power emits 1.626 lb CO2 per kWh (0.040 upstream, 1.587 from fuel combustion). Gas-fired power emits 0.819 lb CO2 per kWh (0.096 upstream, 0.722 from fuel combustion).

Summary Table
Based on those data, and considering a first-year carbon fee of $15 per metric ton of CO2, the table below shows the estimated costs of the carbon fee, assuming those costs are entirely passed on to the consumer [7].

We calculated the costs from EPA emissions tables [8], a Department of Energy natural gas study [9], and the GREET carbon emissions database from Argonne National Laboratory [3]. For a first-year carbon fee of $15 per metric ton of CO2, gasoline will go up by 16¢ per gallon, natural gas by 9¢ per therm, heating oil by 19¢ per gallon, and electricity by 0.6¢ to 1.1¢ per kilowatt-hour, depending on whether it’s generated by coal or natural gas [7]. The table also shows an estimated percent increase to the energy costs paid by consumers, based on “benchmark” prices obtained from the Energy Information Administration (EIA) [10].

Residential consumer price impact from a $15/metric ton carbon fee

Energy TypeGasolineNatural GasHeating OilElectricity (Coal)Electricity (Nat Gas)
Price benchmark$2.02/gallon$1.26/therm$2.13/gallon$0.127/kWh$0.127/kWh
Increase from carbon fee+$0.16/gallon+$0.09/therm+$0.19/gallon+$0.014/kWh+$0.005/kWh
Final price$2.18/gallon$1.35/therm$2.32/gallon$0.141/kWh$0.132/kWh
Percent increase8.0%7.4%8.7%11.3%4.0%

These cost increases will grow proportionately as the fee goes up, but competitive pressure will also make producers and utilities want to cut their carbon fee by adopting technologies that reduce fossil fuel use. These include renewable energy and efficiency improvements that reduce greenhouse gas emissions. For this reason, annual consumer cost increases are expected to shrink as companies invest in climate-friendly innovations.

  1. For this analysis, only CO2 is considered as a fee-impacted greenhouse gas. Upstream emissions are included because it is assumed that fuel sources used in processing or refining (e.g., diesel fuel or coal) would also have been impacted by the carbon fee.
  2. 1 therm = 100,000 Btu = 105.5 megajoules.
  3. Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET).
  4. California Energy Commission Energy Almanac (http://energyalmanac.ca.gov/gasoline/margins/index.php).
  5. Natural Gas Spec Sheet (https://www.naesb.org/pdf2/wgq_bps100605w2.pdf).
  6. Note that kilowatt-hours (kWh) are units of energy that are actually interchangeable with Btu, therms, or joules. Kilowatts (kW) are units of power. Power is defined as the rate of energy delivery.
  7. Gasoline is regular 87 octane with 10% corn ethanol (E10). For natural gas, 1 therm = 100,000 Btu. For electricity, 1 kWh = 1 kilowatt-hour.
  8. “Emissions Factors for Greenhouse Gas Inventories.” U.S. Environmental Protection Agency. 4 April 2014.
  9. Bradbury, J., Z. Clement, and A. Down. “Greenhouse Gas Emissions and Fuel Use Within the Natural Gas Supply Chain: Sankey Diagram Methodology.” Jul 2015.
  10. Energy prices are national average retail or residential: gasoline in January 2016, natural gas in October 2015, and electricity in November 2015. Note that prices will vary considerably from time to time and place to place.