Cap and Trade Rules
Carbon Cap And Trade - A Looming Battle Among States

By John Laumer
May 20, 2008

The script for Battle of Carbon Titans, a futuristic reality show, was approved
for production, with shooting set to start this summer. Fortune Magazine has
some good set coverage and quotes from the utility actors. It's no longer just
about California taking the lead. A national battle is forming; and we're all
embedded at the front lines. Here are a few script excerpts, followed by analysis.

A climate-change bill that has widespread support as it heads to the Senate
floor will create an estimated $150 billion of new assets in the first year it
takes effect. Between now and 2050, regulating greenhouse gases could easily
generate $3 trillion worth in value in the United States.

Should that value go to utility companies, electricity customers who will face
rising rates, government investments in new technology or tax cuts? Or should
it be returned to all Americans?

Fortune magazine put forth the 'WAG' that the carbon permits could be worth as
much as US$150 billion in the first year, which - even if +/- 50% precision - is
stunning, and offers one more reason for making the energy lobby subordinate to
the broader public interest. Strategy choices are several and no political party
has locked in on one particular way to go.

Coal-burning utilities say they should be given the permits for free -
otherwise, they argue, their customers will be whacked with much higher bills.
Others, including candidates Obama and Clinton, say all the permits should be
auctioned - why reward the polluters, they ask? Still others want auctions so
that proceeds can be used for a variety of causes, ranging from investments in
renewable-energy research to middle-class tax cuts to paying down the federal debt.

In earlier posts we described the potential polarizing effect of Cap and Trade
on US politics. Intensity of the battle will be a function of the Cap and Trade
target (per the bills modeled in the WRI graphic, above), as well as the
dispensation mechanism chosen.

Here's a quote which epitomizes the political nature of the fight to come.
Taxation without representation - here we go.

"A 100 percent auction is a carbon tax," Rogers [CEO of Duke Energy] said
recently at a discussion organized by CERES, a coalition of investors and
environmental groups. "It will fall disproportionately on people who are in
the 25 states where 50 percent of the electricity comes from the use of coal.
Their rates will go up 40, 60 and 80 percent. There will be huge rate shock."
The backlash could derail efforts to curb global warming.

The coal-power reliance for all US states averages around 50%. Some will be much
higher, some much lower, than the average. Utah, for example, currently relies
on coal for 93% of its electricity, while the State of Washington gets a very
high percent of its power from renewable (mainly hydroelectric) sources.
Is there a way to identify where the battle lines may be drawn over Cap & Trade impacts? Yes.

Let's start with the assumption that those US states which get significantly
more than 50% of their electricity from coal, and/or states which export, or
plan to export, large amounts of coal-fired electricity to neighboring states,
are at highest risk of becoming economic "losers." Pennsylvania currently
satisfies both of these criteria, for example. But wait...there's more.
For a table that lets you see a variety of state energy consumption rankings for
2005 look at this web page table from US EIA. Updated statistics will be
available here, this fall, just in time for elections.

For a first overlay, let's assume that those states with high potential to add
renewable power capacity can lower their risk of becoming "losers:" by
supporting more wind farms (as do Texas and Pennsylvania for example); or, by
better managing hydroelectric power resources (Washington and New York for
example); or, by supporting thermal-solar and Solar photo-voltaic systems
(Nevada and Arizona for example).

Addendum: if carbon capture and sequestration were a proven, cost-effective
technology that enabled states to bypass the cap, we would surely suggest that
as a next layer. But its' not.

Put the two layers together, and what jumps out are several states that are
likely to attract economic development and jobs into a "green power" future.
What also stands out are several states that are likely to lose jobs and
experience slower economic growth if renewable or nuclear-energy capacities are
not cost effective to add in sufficient quantity. States in this latter case
will fight like mad for carbon permit handouts.

Then there are the in-between states.

And there are oddities, such as Alaska, which has the highest per capita energy
consumption of any state, and access to vast reserves of geothermal energy.
As mentioned in the Fortune article, a potential road map to climate peace among
states is called Cap And Dividend

. Author and activist Peter Barnes has put forward a simple plan called
cap-and-dividend. He would auction all of the permits and then return all of
the proceeds to the American public, in the form of per capita grants. Among
other things, he says, this would keep the government out of the picture and
build broad political support for a climate-change bill.

Is Cap and Dividend a good choice if we want the free market, shaped by
government policy incentives and disincentives, to drive renewable energy into a
dominant position in the nations' future economy, letting the chips, and people,
fall where they may?

See also: Table Of The Day: Top US States For Net Summer Renewable Energy
Capacity AND Government Study Claims Twenty Percent Of US Power From Wind By 2030

Via:Fortune, A $3 trillion climate change battle - Regulating greenhouse gases
will generate a lot of money. Who should get it? Image credit::World Resources
Institute (WRI), Comparison of Legislative Climate Change Targets in the 110th Congress.


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