Mar 4, 2009


I was out in DC yesterday to do some research on utilities.  A couple of things seemed pretty clear.  Although it's all ultimately gossip and expectations.  Nothing is in stone until things get signed.

Cap & Trade on carbon is coming.  It's not a question of "if" but "when".  There are some architectural questions around how it will be implemented but some type of climate/energy bill is due by Memorial Day if the gossip is believable.  That does not mean it will be implemented immediately.  The 'start' date could be 2012 or later.  The main design question now is how much of the allowances will be given to carbon emitters (free and non-revenue generating for the government) and how much will be auctioned (not free and revenue generating for the government).  I've heard between 20% to 50% will be given away.

One issue with cap & trade on carbon is the ability to oursource your carbon emissions.  Rather than build something in the US where the carbon is effectively taxed, let China do it for example and you'll be able to make the product cheaper.  This defeats the purpose of cap & trade entirely.  There are two ways to overcome this.  First you could 'tax' products coming into the US that created carbon emissions.  This probably won't fly because of WTO issues.  The second way to do it is to provide some type of credit to heavy users of electricity (think steel factories).  The member of Congress I talked with who is writing the bill seems to think this is the likely way to get borderline Congress members on board with signing up for the bill.

Before any of that the EPA will make an endangerment finding on carbon effectively declaring carbon is a pollutant.  That would mean it is covered under the Clean Air Act and would require the government to draw up regulations on emitters.  Rather than take it on their shoulders, they'll let Congress hash out a way to deal with it (e.g., cap & trade).  But the EPA will move forward on tailpipe emissions and effectively allow The Terminator to move forward in California with regulating tailpipe emissions in cars & trucks.  Something the EPA (under Bush) blocked.

A Renewable Portfolio Standard (RPS) is also coming.  Or rather a Renewable Electricity Standard (RES) as it has now morphed into.  In other words some percentage of electrical generation must come from renewable sources.  I've always had an issue with RPS because it doesn't know quite what it wants to be.  Do we want to lessen our depenence on foreign energy sources or lessen our dependence on carbon emissions.  You get two different answers in terms of what 'counts' in an RPS standard depending on which question you are trying to answer.  Coal and natural gas, as I've pointed out before, is the best way to improve our energy dependence but they are both big time carbon emission sources.  And for some reason big hydroelectric is not included in RPS.  I've never understood that.

Transmission siting is probably also in the bill.  Transmission projects take forever and a day to build.  The bill would try to streamline the process by giving FERC more authority over centralizing the process.  Transmission is important in an energy bill because where the sun shines and where the wind blows is typically not where power gets used.  You can install a lot of solar and wind generators but if the energy can't get to where it is needed then what good is it?

The RES probably gets passed this year.  Cap & Trade I'm guessing 2010.  Implementation later.

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