The utility’s role is changing, and regulation must change along with it – to spur innovation and respond to evolving customer needs. Modernizing the industry will require a dynamic approach.
Energy Reform: A Legislative Washout?
Congress is shifting U.S. energy policies toward green alternatives. Is the new direction temporary or permanent?
This summer, legislators in both parties were promising to bring a serious effort to enact mandatory GHG constraints, probably in the form of a cap-and-trade program, in the fall of 2007. This promise results directly from horse trading among House Democrats that allowed the earlier measures to move forward.
Specifically, House Energy & Commerce Committee Chairman John Dingell, D-Mich., urged his colleagues to remove the most contentious aspects of the energy bill—namely CAFE standards, incentives for coal-to-liquids (CTL) projects, and a federal RPS—and leave them for a “good bare-knuckle fight” in the fall. The result of that fight, in theory, would be a comprehensive climate-change bill that would aim to reduce U.S. GHG emissions 60 to 80 percent by 2050.
Addressing climate change as part of a package, including these other issues, sets the stage for both conflict and compromise. Lawmakers from coal-producing regions, such as Rep. Rick Boucher, a Democrat from a coal-producing area in Virginia—might look more favorably on GHG constraints if the government finances CTL infrastructure. Lawmakers that oppose CTL—because it would increase GHG emissions—might accept CTL incentives for the price of a federal RPS. And Dingell’s Detroit constituents might be more prepared to accept CAFE standards if their fuel-economy efforts earn them carbon credits.
Other major constituents—especially petroleum and power companies—will negotiate compromises based on their particular interests. Coal-burning utilities will argue for a credit-allocation formula that rewards them for reducing emissions from their current baseline, and nuclear generators will favor a system that rewards them for being more climate-friendly at the outset. In any case, a consensus is building for enacting carbon constraints sooner, rather than later.
“Utilities are favoring early action on global warming,” says Keith Martin, a partner with Chadbourne & Parke in Washington, D.C. “The political calculus suggests they are better off working something out while Bush is still president than they are waiting for a Democrat.”
Any climate-change bill President Bush would sign, however, seems unlikely to inspire support from Democratic legislators.
“The political dynamic would be similar to what it was on the Bush administration’s Clear Skies proposal,” says Easterbrook of the Brookings Institution. “It would give environmental advocates two-thirds of what they want, making it politically essential for Democrats to fight it to the death, so they can say the Republicans did nothing on climate change.”
The most likely scenario, therefore, seems to be a legislative debate on comprehensive climate-change legislation that falls short of a veto-proof majority, but allows candidates in 2008 elections to campaign on the basis of their voting positions in the debate.
“I’d lower expectations of getting anything meaningful done on climate change for the rest of this year,” Garvin says. “I’ll believe it when I see it, because of the obvious political difficulties that arise with major policy changes. Whether it’s an RPS for the nation or a tighter CAFE standard, everyone has a different point of view.”
Power of the Purse
Implicit in all conversations about adopting greener energy sources is one question: Who pays?
Although the tax packages most recently proposed in Congress would