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2007 CEO Forum: Greenhouse Gauntlet

Tackling climate change is a monumental challenge. Power-company CEOs discuss long-range plans for a climate-friendly energy economy.

Fortnightly Magazine - June 2007

2 cap-and-trade program. It’s a method that is familiar to utilities and has proven itself workable. There’s no reason to re-invent the wheel.

Cap-and-trade has the same effect as a carbon tax. Both are designed to accomplish the same goal. The important thing is that we do something to provide certainty and incent R&D folks to address this problem.

Crane, NRG Energy: I don’t understand the thinking that favors a straight tax over cap-and-trade. Cap-and-trade has worked so well on SO 2, why would you do something else? If you turn it into a straight tax, it will raise money but the market will just pass it through. In the U.K., everyone knew in 2003 what the carbon tax would be for 2005, and the forward market just went up by 5 pounds a MWh. That’s not the same level of motivation you get from a market system.

Notwithstanding the fact we didn’t sign the Kyoto accord, the United States is ahead of Europe in developing technology solutions. You have to wonder, with carbon being priced there for several years, why don’t we see the same level of innovation in Europe?

In a federal cap-and-trade system, where less than 100 percent of the credits are allocated, the auctioned credits are effectively a carbon tax anyway. We support that. It’s absolutely necessary, and the sooner it gets imposed, the sooner we will know what regime we are operating under, and the sooner we can make the investments we are contemplating.

The worst-case scenario would be a type of regulation that both hurts companies and is counterproductive in addressing climate change. For example, various states and regions are imposing their own carbon taxes as opposed to the federal government. If New York imposes a carbon tax, it will only change the merit order of plants in the market, so electricity will be imported from out-of-state plants that are even worse than the ones in New York. That would hurt companies and be counterproductive.

China First?

Fortnightly: To what degree should U.S. GHG policy depend on international cooperation—particularly from China and India? Arguably GHG constraints will make it even harder for U.S. businesses to compete internationally.

Crane, NRG Energy: I’m not hung up on whether it’s a global system as opposed to a national system, or a single sector as opposed to multi-sector. We don’t compete with imports from China. And domestically, if lawmakers choose to tax us first, it just means we’ll solve our problem before other sectors will.

Saggau, Great River Energy: We dismiss out of hand the argument that because it’s a global issue we shouldn’t do something nationally. We should be leaders on this issue. If we invest in new technologies to reduce our carbon footprint, those technologies will be used by other countries.

We don’t want to damage our nation’s competitive position with regulations that won’t solve the problem and only create a lot of costs. We have to do it in a rational way that keeps competitiveness in mind. But we can’t choose between clean power and cheap