This fall Congress will face a major economic and environmental decision that will affect the daily lives of all Americans: what to do about climate change. While some Americans may question whether global warming is threatening our future and needs to be contained many of our federal legislators seem to agree it must be controlled. But how to do that is the multi-billion dollar question.
Congress thinks it has an answer; create a cap-and-trade market. Under this approach, the government first sets a cap on the number of tons of carbon dioxide that companies (such as utilities) can emit into the air. The government then auctions or gives away "emission allowances" with each allowance being the right to emit a ton of carbon dioxide. Experts have estimated that these auctions could amount to more than $100 billion annually. Companies then could trade the allowances. This "carbon market" would be open to anyone, including big Wall Street players.
As a not-for-profit public power utility owned by the Price community, we have a huge stake in this debate and have been following it closely. Since our community's mandate is to provide reliable electric service at the lowest reasonable cost while protecting the environment, the cost of climate change legislation is immensely important to us. We can't absorb any new cap-and-trade costs by trimming our profit margin or reducing dividends to shareholders. And in tough economic times like these, when affordable electricity is more important than ever, we don't want to be faced with passing on additional costs or sacrificing service.
In September, the U.S. Senate will begin debate on the American Clean Energy and Security Act, H.R. 2454, a cap-and-trade bill that passed the U.S. House of Representatives by a narrow margin on June 26. One thing is certain. if Congress is going to try to address climate change by creating a new multi-billion dollar market where a huge number of participants will wheel and deal for full advantage, they need to get it right.
The House bill has shortcomings that if not fixed by the Senate could result in unnecessary costs that will harm consumers, the economy, and the reliability of our electric system without providing any environmental benefit. The most important thing the Senate could do is place a ceiling on the price of carbon allowances traded in the market to make sure that a cap-and-trade market does not result in runaway prices that would harm consumers and the economy. Some have proposed a ceiling and a floor on the price - termed a "cost collar" - in order to keep the allowance prices high enough to motivate changes in behavior without harming our economy. Since H.R. 2454 also contains mandatory reduction targets, emission reductions are going to occur. But carbon allowance prices need to be capped in order to avoid the volatility we have seen in other trading markets and thus limit the risk to electricity customers.
In addition, to further protect consumers from unnecessary price increases, the Senate needs to make sure that local distribution utilities receive enough allowances to cover their emissions at the start of the program.
Any cap-and-trade legislation needs to allocate (rather than auction) emission allowances at no cost to public power and other local distribution utilities so they can pass along the value of the allowances directly to their customers. Regardless of whether allowances are auctioned or allocated, the annual emissions cap will ensure that greenhouse gas emissions are reduced. Auctioning allowances would simply increase their price.
To make sure that unregulated generators do not receive windfall profits at the expense of consumers, it is vital that allowances be allocated only to local distribution utilities that directly serve retail customers. These entities are regulated by state and local governments that will require the value of allowances be passed on to customers. Unregulated "merchant" generators face no such restrictions and most likely would pass that value on to their shareholders. The House climate change bill wouldallocate up to ten percent of the emission allowances for the electricity industry to merchant generators.
If legislation is considered to reduce greenhouse gas, public power utilities like Price City believes that any bill enacted should, for the sake of the nation's consumers be fair, balanced and affordable. The current legislation does not balance environmental goals with the impacts to the consumers and the economy. We urge electric consumers to contact Senator Hatch (202-224-5251) and Senator Bennett (202-224-5444) and express their support for legislation that has a ceiling on the price of carbon allowances, allocates these allowances directly to local distribution utilities, and produces the desired environmental benefits in the most efficient and cost-effective manner possible.