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A Changing U.S. Climate

GREENHOUSE-GAS EMISSIONS
Fortnightly Magazine - February 2005

and investment in new energy technologies and served as testing grounds for future policy. However, Bushinsky noted that the emergence of diverse state regulations may prove burdensome to utility companies operating in numerous states. He also added that the absence of federal regulation combined with the long capital-planning cycles faced by utilities create uncertainty for those making investment decisions. Bushinsky concluded that federal GHG regulations would benefit not only the environment but the utility industry as well.

The current patchwork of state regulation could create "leakage," the tendency of companies to move power generation to states with more lenient emissions requirements. State policy-makers also are challenged by the regional nature of energy markets as they set out to design effective policy. California, for example, imports over 22 percent of its power. Reducing California's contribution to climate change will require policies that reach beyond state lines. Regional efforts, such as RGGI, demonstrate attempts to address these issues.

Industry Responses

Though state GHG regulations are still emerging, some of America's largest utilities already are making voluntary efforts to cut emissions (). What's more, these companies come from a variety of quarters in terms of their fuel generating mix (). Speaking at the SEI roundtable, industry representatives identified state regulation and pending litigation as just two of the many motivations utilities have to reduce GHG emissions. Brent Dorsey, director of Corporate Environmental Programs at Entergy, said Entergy hopes state efforts like RGGI will serve as templates for a more universal approach. He added that Entergy believes an effective GHG federal policy would establish a reasonable cap on GHG emissions, equitably distribute emission allowances, create tradable credits that allow market forces to determine the most efficient fuel mix, and provide offset mechanisms that will allow for industry growth in a sustainable manner. Michael Bradley of the Clean Energy Group (CEG), a coalition of eight electric generating and distribution companies, said momentum is building for federal regulation of GHG emissions. Bradley stressed that state and regional efforts should be stepping stones towards federal action. He noted CEG's support for the Clean Air Planning Act (CAPA), a comprehensive four-pollutant plan sponsored by Sens. Tom Carper, D-Del., Lincoln Chafee, R-R.I., and Judd Gregg, R-N.H., which among other things would seek to stabilize carbon emissions at 2001 levels by 2013.

Desire to decrease the cost of future regulation has been an important incentive for companies to act voluntarily. By reducing emissions early and more gradually, these companies will be able to adjust to future regulations at lower cost. Insurers and investors, who are increasingly focusing attention on the risk that future regulation poses to utility companies, view early action favorably.

In addition, setting emissions targets encourages companies to "get in on the ground level," gaining knowledge of energy markets and technologies that are likely to become more prominent in the future. Even if a utility itself is not regulated, it may soon be able to sell its emissions reductions to companies regulated elsewhere through emissions trading markets. For instance, AEP, a large Midwestern coal user, is a founding member of