Utility-only’ cap and trade no silver bullet

23 June, 2010

Advocates of pricing carbon in the US economy are shifting their efforts to a ‘utility-only’ cap and trade system – but some experts warn that the proposal causes as many problems as it solves, and even its advocates concede its chances are slim.

On Sunday, Senator Joe Lieberman (I-Conn) – co-author alongside John Kerry (D-Mass) of the American Power Act, which would introduce an economy-wide carbon cap-and-trade programme – told CNN that he was open to a scaled back system, beginning with utilities.

His comments follow an address by President Barack Obama last week where he called for comprehensive energy and climate legislation, but neglected to call for carbon caps. However, Obama has become more engaged with the issue, and his chief of staff and Congressional fixer, Rahm Emanuel, told ABC News on Sunday that the president wanted to see legislation that deals with “environmental degradation caused by carbon pollution”.

Obama was due to meet with key Senators from both sides of the aisle today to discuss energy and climate legislation, which Senate Majority Leader Harry Reid (D-Nevada) has said he hopes to bring to the floor this summer. That meeting was cancelled, with the president instead holding a crisis meeting with his Afghanistan commander, Stanley McChrystal.

At this point, it is unclear which approach Obama and the Democratic leadership in the Senate are likely to pursue. However, Eileen Claussen, president of the Pew Center on Global Climate Change, described utility-only cap-and-trade as “the best chance we have got” to put a federal cap on US carbon emissions.

As to whether such a proposal would garner the 60 votes needed to pass the Senate, she told Carbon Finance that “it’s still very challenging, but the chances are better than with economy-wide cap and trade.”

She added that while, “today, I can’t get to 60”, she said it is impossible to accurately gauge support for a hypothetical bill.

Kyle Danish, a Washington, DC-based partner at law firm Van Ness Feldman, said that a utility-only approach “has some obvious appeal, because it’s simpler and because the power sector has dealt with cap and trade for over a decade”, to control sulphur dioxide and nitrogen oxide pollution.

Also, most analyses show the power sector delivering the lion’s share of early emissions reductions, even under wider trading programmes.

“But simpler by no means equals simple,” he added.

Such a proposal would undermine the complex deals and compromises that underpin the Kerry-Lieberman proposal, many of which rely on the generous distribution of carbon allowances. “If it’s a utility-only programme, there are far fewer allowances to distribute,” he said.

Claussen – who has written an op-ed piece with Jim Rogers, the CEO of power utility Duke Energy advocating a utilities-first approach – acknowledged some of these drawbacks.

“It does mean that there will be a lot less money available for a lot of the other things that people care about,” she said, such as international climate financing, adaptation finance for US states and technology assistance.

Dan Reidinger, a spokesman for the Edison Electric Institute, which represents investor-owned utilities, said that the organisation “has been focusing on economy-wide, comprehensive climate legislation, [so] we have not fully discussed a utility-only approach at this point.

“However, we believe that any utility-only legislation would have to incorporate major consumer protections to attract 60 votes in the Senate,” he added.