Projected
Results
Many mainstream energy producers will suffer from this new legislation.
For instance, it will be very tough for coal plants to reduce emissions
at the outset of the program. The technology to capture and store
carbon dioxide is probably 10 to 20 years from being commercially
available. So utilities running coal plants will be buying offsets and
allowances from other utilities with a surplus.
Utilities with no carbon emissions, such as wind, hydroelectric, and
nuclear will be less affected. In fact these utilities could profit by
selling any surplus emission credits.
By making specific types of energy more or less expensive this new
legislation may determine which utilities become the dominant suppliers
of the near future. |
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| Personal
Reflection |
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The U.S.
Environmental Protection Agency (EPA) was created in 1970 following
high profile environmental
incidents like the June 22, 1969 fire on the Cuyahoga
river. That event led to the Clean Water Act and other landmark
legislation. I grew up in a suburb of Youngstown, Ohio in an area
known as the Steel Valley. We had our own industrial toxic-dump called
the Mahoning river. Today we can see clearly across the once
haze covered valley and fish can be caught in the Mahoning River.
We have beautiful baseball fields where steel mills once employed
25,000 of my friends, relatives and neighbors.We all want clean air and
water and the U.S. has led the world in so many efforts. It's sad
to think, however, that the only way to reduce the emissions of
carbon (still a debatable worthy goal) is to reduce the level of
economic activity and job growth. We will continue to sacrifice in the
name of enviromental stewardism while countries like India and China
will glady consume the cheap and plentiful natural resources we
shun. It's also ironic when you realize the same fossil
fuels consumed in the U.S. would emit much fewer pollutants and
greenhouse gases than they will in less developed or conscientious
nations.
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Your Energy Manager
Topic: Cap and Trade
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Welcome, 
Independent Energy Consultants, Inc. is committed to helping
it's clients make
well-informed and cost-effective decisions regarding
their energy supply and consumption. We are sending you this newsletter
to help you understand how decisions that are made, or not made, affect
your company's bottom line.
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The
Proposal
Congress has proposed legislation (HR 2454) with the intent to
create clean energy jobs, achieve energy independence, reduce global
warming pollution and transition to a clean energy economy. This bill
is known as "Cap and Trade". To accomplish this HR 2454 will enact
the first national limits on the amount of greenhouse gases emitted by
power plants, refineries and factories. Basically this bill puts a
price on pollution. The Cap and Trade bill will raise the cost for
companies to continue to use fuels that contribute to global warming.
This bill hopes to present companies with an incentive to reduce their
pollutants and encourage them to seek cleaner alternatives.
However a transition of this magnitude will cause many changes in the
energy market, and whether they are for the better or worse remains to
be seen.
The primary goal of the Cap and
Trade bill is to limit carbon dioxide emissions, a greenhouse gas which is
thought to cause global warming. Whether or not global warming
(or even cooling as seen in the past year) is occuring is not going to
be discussed here. We will only remind our readers that CO2 is
needed for plant life and accounts for only 0.038% of our
atmosphere. Man's activity contributes only 3% of the CO2 in
our atmosphere and pales in comparison to the CO2 emitted from a major
volcano erruption.
The 1,427 page watershed bill sponsored by Representatives
Waxman/Markey passed the House on June 26, 2009 with less than 24 hours
debate. It is now in the Senate where it will hopefully undergo
more scrutiny. |
 Implementation
Setting limits on emissions is the first step or the "Cap" part of the
bill. Over time this cap will be lowered to allow less and less
emissions. Companies and facilities will be given permits for their
share of carbon emissions, an annual pollution allowance. At first,
most permits would be given without charge, to help ease into the new
plan. However there will be a limited supply of these permits, and they
will eventually gain value.
Companies whose emissions exceed their allowance have three options.
- The first option is to find ways to
reduce their emissions.
- The second option is to buy
more credits from a company with leftover credits. This kind of
interaction makes up the "Trade" portion of the bill.
- A third option is for companies to
invest in pollution reductions made elsewhere, such as farms that
capture methane or plant trees, known as offsets. Companies will
naturally pick the cheapest option.
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The
Costs
The
pros and cons of such a bill are still difficult to measure, and there
are strong feelings on either side. Some say this is exactly the
stimulus the green energy market needs, and that this legislation will
greatly reduce air pollution. Others argue that the proposed actions
are misguided. Opponents claim they interfere with free markets
and force our domestic oil, natural gas and coal industries to
subsidize their own destruction.
The Congressional Budget Offices has admitted that it will be very
difficult to estimate the costs of this massive undertaking. We
do know that major environmental groups have already spent more than
$10 million on ads supporting the legislation. We also know that a
great deal of tax dollars will be used to set up the "Cap and Trade"
market and then to provide ongoing regulation. In his election
campaign, President Obama freely admitted that cap and trade was a high
priority and it would necessarily cause electric rates to sky-rocket.
The well-respected Heritage Group had this to say. "The
allowances created by Waxman-Markey to restrain CO2 emissions do not
create economic value, which is another way of saying that the
allowances do not improve the material well-being of Americans.
Instead, they are a form of taxation and will be one of the largest
taxes collected by the federal government. This tax created by
Waxman-Markey will collect $5.7 trillion over the period 2012 to 2035 -
at a cost of thousands of dollars per year per family."
Heritage's analysis predicts these energy cost increases by the year
2035: gasoline 58%, natural gas 55%, heating oil 56% and electricity
90%.
Source: Heritage Center for Data Analysis -August 2009
The bill, by dictating the places from which energy can be purchased,
would provide yet another blow to the struggling economies of
midwestern states. It does this by mandating winners and losers
by providing direct subsidies to select sources of fuel. Notice
from this map how the home states of Waxman
(California) and Markey (Massachuesetts) are in the handful of states
that would benefit from this legislation.
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