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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

price be what it will be.

In April the NCEP increased its recommended safety-valve price from $7 a ton of CO 2 to $10 a ton, and changed the rate of escalation to 5 percent a year in real terms, rather than 5 percent in nominal terms. I voted for both changes.

The first question is when will Congress act? Second, how sharply and sternly will it act? Third, how are permits under cap-and-trade going to be allocated? This will be a huge source of conflict among utilities based on their traditional power source.

If the permits are all to be sold, that’s the economically efficient option, but it might be too hard on customers of coal-burning companies. If the permits are to be given away for free, that’s not fair for other customers. The NCEP suggested half of the credits should be free as a transition mechanism, and that’s not a bad place to start.

Hay, FPL: To be effective, a GHG reduction program should be mandatory and economy wide, and should require reductions from all sectors. It should recognize, reward and encourage technological innovation, just as it should acknowledge and reward early action. Our efforts thus far, for example, have had an obvious environmental benefit, but there’s a cost associated and, as such, recognition is deserved.

We support a market-based, economy-wide program that directly places a price on carbon emissions, and believe it will have the best prospect of achieving sensible environmental goals and maintaining economic growth. Imposing a price or fee on CO 2 emissions that predictably, steadily and gradually escalates over time offers substantial practical advantages. It will support long-term capital deployment; avoid distortions in the economy; and be more efficient and fair to administer than a cap-and-trade program. It also will support increased R&D funding; provide transitional assistance to economically disadvantaged consumers; and preserve the competitive position of U.S.-based companies.

Instead of being based on a potentially misleading metric like historical emissions, the solutions should look at performance and efficiency. And, while it may be possible to develop a fair and effective cap-and-trade system that accomplishes this end, FPL recommends a more straightforward fee to be imposed equally on all carbon used as fuel anywhere in the nation. The price of all downstream goods would rise in proportion to the use of carbon-intensive fossil fuels in their manufacture and distribution.

It will be important, however, to avoid raising the cost of fossil fuel uses that don’t emit CO 2, such as the capture and permanent storage of CO 2, and the use of petrochemicals to make plastics. To that end, mechanisms such as credits, rebates or exemptions should be implemented for non-emitting uses, thus providing an incentive to incorporate new technologies for carbon capture or sequestration.

Saggau, Great River Energy: I think cap-and-trade works better because it allows the free market to value those credits and creates a marketplace for utilities that are progressing a bit faster to benefit economically compared to those that are moving slower. We have seen great success with the SO