Consequences of a carbon tax on household electricity use and cost, carbon emissions, and economics of household solar and wind

- Internalizing a CO2 social cost of $37.2/Mg infers a $0.0195/kWh electricity tax.
- $0.0195/kWh tax is insufficient to incentivize grid-tied microgeneration systems.
- Carbon tax consequence on emissions depends on how the tax proceeds are used.
- Minimal expected benefits from subsidizing household microgeneration systems

The study was conducted to determine the consequences of a carbon tax, equal to an estimated social cost of carbon of $37.2/Mg, on household electricity cost, and to determine if a carbon tax would be sufficient to incentivize households to install either a grid-tied solar or wind system. U.S. Department of Energy hourly residential profiles for five locations, 20 years of hourly weather data, prevailing electricity pricing rate schedules, and purchase prices and solar panel and wind turbine power output response functions, were used to address the objectives. Two commercially available household solar panels (4 kW, 12 kW), two wind turbines (6 kW, 12 kW), and two price rate structures (traditional meter, smart meter) were considered. Averaged across the five households, the carbon tax is expected to reduce annual consumption by 4.4% (552 kWh/year) for traditional meter households and by 4.9% (611 kWh/year) for households charged smart meter rates. The carbon tax increases electricity cost by 19% ($202/year). For a household cost of $202/year the carbon tax is expected to reduce social costs by $11. Annual carbon tax collections of $234/household are expected. Adding the carbon tax was found to be insufficient to incentivize households to install either a solar panel or wind turbine system. Installation of a 4 kW solar system would increase the annual cost by $1546 (247%) and decrease CO2 emissions by 38% (2526 kg) valued at $94/household. The consequence of a carbon tax would depend largely on how the proceeds of the tax are used.