Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

A Changing U.S. Climate

GREENHOUSE-GAS EMISSIONS
Fortnightly Magazine - February 2005

the Chicago Climate Exchange, a pilot project that coordinates multi-sector trading of GHG emissions. In addition, utilities that actively engage in state efforts to address climate change, such as RGGI, play an influential role in policies that may someday serve as blueprints for federal regulation.

Many of these benefits, however, depend heavily on the likelihood of mandatory carbon limits and the timing of that legislation. In response to shareholder pressure, TXU, the country's fifth largest emitter of CO 2, recently released a report detailing its decision not to undertake voluntary GHG emissions reduction measures. While it acknowledged many of the benefits described above, the company found that costs of voluntary measures were not warranted due to the high degree of uncertainty surrounding GHG legislation.

A company statement on the decision reads: "Whether an investment now would be justified depends importantly on timing-the time it would take to implement control options as well as the likely timing of any mandatory program."

TXU found that until carbon constraints were on the more immediate horizon and the specifics of those constraints could be more accurately predicted, investment in emissions reductions is too risky. TXU also fears that early reductions will result in lower emissions allocations under a future cap-and-trade program-, no credit for early action. In addition, the company warned that the cost of voluntary reductions would not be recoverable in the market, and would instead be borne by shareholders in the form of reduced company profits. 6 Regulatory uncertainty also has been cited by Duke Energy to explain its choice not to undertake voluntary emissions reductions. 7

The limitations of the current regulatory environment were highlighted by Ethan Podell, former senior vice president at the Chicago Climate Exchange, in recent testimony before the Senate Committee on Commerce, Science, and Transportation. 8 At present, only Massachusetts has instituted a mandatory CO 2 cap-and-trade program, while outside that state steps to reduce emissions are being taken on a voluntary basis. Only those companies with prospects to sell allowances are acting, Podell stated, while potential buyers "are not yet prepared to join a voluntary cap-and-trade program." Thus, while voluntary measures by the utility industry demonstrate the ability to reduce emissions, and state regulations address climate change in a piecemeal manner, it appears that significant reductions in U.S. GHG emissions will require federal legislation that mandates participation.

The Debate Reaches Capitol Hill

As noted above, though still in the minority, a growing number of U.S. utilities now favor mandatory federal carbon caps. Shareholder resolutions, litigation, public scrutiny, and a patchwork of state actions to regulate GHGs all contribute to this drive. State policies in particular have the potential to affect utility views on federal action by:

  • Creating a clearer picture of the form of future federal regulation, thus reducing investment uncertainty;
  • Increasing demand for emissions reduction credits, thereby making emissions markets more efficient and less risky. The potential for financial gains in these markets increases incentive for utilities to voluntarily reduce emissions, regardless of their regulatory status;
  • Shortening the time period in which utilities expect federal action,