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The Minnesota Public Utilities Commission has authorized a measure that would add a fee of between $4 and $34 per ton of carbon dioxide to electricity generated from coal-fired power stations in North Dakota that is exported to Minnesota. By adding this fee to coal power, it is hoped that it will spur the further development of renewable energy sources.

Coal Creek Station, Underwood, ND. (Actually owned by a Minnesota electric utility) Source: Great River Energy

Needless to say, those in power in North Dakota are not happy about the idea. Attorney General Wayne Stenehjem of the ND state Industrial Commission said, “It is very likely that we will be suing the state of Minnesota.” It is possible that ND will cite the constitutional protections regarding restrictions on commerce between states.

The idea of a border tax adjustment for greenhouse gas emissions  is not new (in fact I wrote a paper about the topic a while back). The idea is that countries that are taking measures to mitigate the causes of climate change (such as making costly investments in their energy infrastructure) would have higher domestic manufacturing costs compared with other countries who are not taking mitigating measures, and hence can rely on cheap, polluting energy for their manufacturing needs.

Lets use a hypothetical example. Lets say that the US has strong climate legislation that mandates the use of cleaner energy in steel manufacturing, and China does not. Presumably, US steel would be more expensive than Chinese steel (not based on labor or any other costs – only energy and manufacturing). Under a border tax adjustment (BTA), the US would still allow Chinese manufactured steel to be imported, but would slap an added tax on this to ‘adjust’ for the disparity on climate action.

This is not a purely theoretical realm. The Clean Energy Jobs & American Power Act (also known as the Kerry-Boxer climate change bill that is making its way through congress) specifically makes provisions for a BTA:

“Section 765. International Trade.  States the sense of the Senate that there will be trade provisions, including a border measure that is consistent with international obligations of the United States and designed to work in conjunction with provisions that allocate allowances to energy-intensive and trade-exposed industries.” (CEJAPA section summary)

Getting back to the upper Midwest. The fact that Minnesota has pursued something like a BTA against North Dakota sets a unique precedent in energy policy. What is strange is that both states have excellent wind energy resources. However, Minnesota has been building lots of wind farms, while North Dakota is not. Here are some interesting stats:

Almost all of North Dakota’s energy comes from coal, whereas Minnesota has a more diverse energy mix:

Source: Energy Information Administration

Here are the top 10 states for wind energy resources compared to where they rank in installed capacity:

Source: American Wind Energy Association

Minnesota ranks 4th for installed wind energy capacity, while North Dakota ranks 13th (despite having the best resource potential in the country).

It will be interesting to see how this all plays out. If the fee is implemented, how will it affect the development of wind energy in North Dakota and Minnesota? If the fee is deemed constitutionally valid, what kind of precedent does it set for energy development around the country?

Sources:

Bismark Tribune, “N.D. likely to sue Minnesota over carbon tax”
Scientific American, “First Carbon Tariff Will Tax CO2 at the Border”
American Wind Energy Association
Energy Information Administration