Lately, there’s been a lot of talk about the American Clean Energy and Security Act. The cornerstone of the bill is its implementation of a so-called “cap and trade” system to limit carbon emissions. Cap and trade calls for limiting environmentally-damaging pollution from factories, refineries, and power plants. The manner in which cap and trade limits such pollution is by imposing a government-mandated limit on heat-trapping pollutants. This limit decreases over time, thereby lowering the overall amount of emissions. Then, the system allows for the sale and trade of permits that allow the creation of such pollutants. Ideally, the cap and trade system would discourage the creation carbon emissions by putting a price on creating them. President Obama has expressed an intention of reducing U.S. emissions by 83% by 2050.
On 26 June 2009, the House of Representatives narrowly passed the American Clean Energy and Security Act thereby setting off a flurry of questions and debate. However, we are interested in the cap and trade system as it relates to the industrial power generation industry, a point of focus that has been unusually underrepresented in the national media. Rather, it seems like cap and trade is going to affect the power generation industry foremost among U.S. industries. While the United States Chamber of Commerce and the National Association of Manufacturers oppose the bill for fairly obvious reasons, its effect on U.S. energy producers is more ambivalent.
Under the wording of the House bill, in order to ease the transition into the cap and trade system, of the total $91.4 billion worth of carbon permits that would be provided by the government, many will be provided as free to regulated industries. This freebie period is expected to last until the end of the transition period, which is expected to occur between 2025 and 2030. The manner in which these allowances will be distributed is interesting. Whereas oil producers will receive 2.25% of their necessary permits in the form of allowances, the power generation industry is slated to receive approximately 85% of its permits as allowances. Ostensibly, this manner of distribution is to meant to avoid steep rate increases for power consumers. However, some power generation organizations feel that this amount is still not enough. It is clear, however, that this provision in the cap and trade system will save power companies from absolute ruin; they will have to make radical adjustments, though.
It is expected by many that the cap and trade system will force the energy industry to become more efficient. Whereas the expected cost increase for electricity is expected to be about 7% nationally, those who receive electricity from coal-dependent states can expect substantially greater increases. Against this notion, proponents of the cap and trade system say that the plan will return much of the money spent on permits to consumers in the form of lower taxes.
There are recent stories that suggest the impending cap and trade system is exercising its effect in another way on the power generation industry. On 29 July 2009, New Jersey regulators approved more than $515 million to spend on doubling the state’s solar power-generated energy. Included in the plan is for Petra Solar, Inc. to produce more than 200,000 smart solar systems for installation across the state, which is expected to create more than 100 green jobs. The federal government recently awarded Portland General Electric $3 million to augment the power generation capabilities of its Bigelow Canyon Wind Farm, which has been overtaxed during the summer
months. The American Wind Energy Association recently released a market report citing Texas as the new leading wind power-generating state with a total of 8,000 megawatts capacity. It added 454 megawatts of that power during the second quarter of 2009. What these and other, similar stories seem to indicate is that power generation companies are looking to be proactive in the face of a cap and trade system. Rather than lobbying against change, they are rushing to meet it head-on with new alternate energy projects, many of which create new green jobs that can help combat the 9.5% unemployment rate that besieges our country. The power generating industry can look at this uncertain period in its history as a clarifying moment, an grand opportunity to update and rebuild a decaying, inefficient power grid to usher the country into the 21st century.
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