Guns, Butter, or Green?

Deck: 

Utilities will face stark tradeoffs in meeting the next round of emissions controls.

Fortnightly Magazine - April 2005

Some utility execs gasp at the shear breadth of environmental proposals being bandied about during the past few weeks. Even the environmentalists are calling "historical" the extent to which different kinds of emissions will be regulated.

No sooner had the "Rest of the World" at last enacted the Kyoto Protocol, but that U.S. lawmakers had begun to respond. For example, they slowed work on the Bush administration's "Clear Skies" multi-pollutant legislation so that, among other things, they could discuss adding a federal mandate on greenhouse-gas emissions (GHG). And while no agreement was reached, Congress came surprisingly close (the vote ended in a tie), prompting many to believe that a federal greenhouse mandate may well win passage within the next few years.

If anything, at least some utility execs have come to prefer a federal mandate over a hodge-podge of state-imposed plans. But that's just the tip of the proverbial environmental iceberg.

At press time, the Environmental Protection Agency (EPA) had finalized its Clean Air Interstate Rule, or CAIR, and its regulations on mercury emissions. CAIR reduces emissions of sulfur dioxide (SO2), nitrogen oxides (NOX ), and mercury, and focuses on states whose SO2 and NOX emissions still contribute significantly to fine-particle and ozone pollution problems in downwind states. CAIR covers 29 states in the eastern United States and the District of Columbia, and is viewed as the most substantial tightening of air-quality standards since the Clean Air Act was last amended in 1990.

Yet many utility executives believe the mercury ruling might become even more restrictive after it takes a turn through the appellate courts.

A spokesman from the Edison Electric Institute saw some benefit from litigation-driven delay, but not much:

"Stretch this process out another few years, we might be able to turn to some new mercury technologies—primarily activated carbon injection—but we'd be making these retrofits while also installing scrubbers to reduce sulfur dioxide and selective catalytic reduction (SCR) units to cut nitrogen oxides.

"Power companies would be forced to abandon significant existing coal-based electric generation in favor of natural gas, placing additional strains on natural gas supply and prices.

"Under this scenario, electric reliability becomes an area of genuine concern."

So much for mercury, but when it comes to controlling greenhouse gases, the ante is raised. The technology poses so many challenges that utilities are pushing a voluntary approach. In late December, the U.S. Department of Energy and seven organizations representing utilities signed a memorandum of understanding formalizing a voluntary agreement to cut GHGs. But that agreement may not mean much.

John Novak, executive director at the Electric Power Research Institute, told a Congressional audience recently that the current pace of innovation in today's power generation technologies—fossil, nuclear, renewable—will not be sufficient to meet either tomorrow's economic or greenhouse-gas reduction needs.

Of course, economists and utility experts say that new restrictions would force some somber discussions within the industry. Should government play a role, given the dearth of available technologies to address emissions of mercury and greenhouse gases?

I'm "Renewable," You're Not

Even as utilities around the country are spending billions to buy and install scrubbers and the like to clean up coal plants, Congress has been exploring a federal renewable portfolio standard (RPS) to harmonize all the state initiatives.

Many panelists at a recent hearing held by the Senate Committee on Energy and Natural Resources called for a redefinition of what a renewable portfolio standard should be. Executives Wayne Brunetti (chairman & CEO, Xcel Energy) and Don Furman (senior vice president, regulation & external affairs, PacifiCorp), each called for an expanded definition of a federal renewable portfolio standard that would include so-called "non-traditional" renewables, such as clean coal and nuclear.

Tom Kuhn, president of EEI and a staunch supporter of clean coal, chimes in:

"If the development of these new technologies is funded adequately and they are successful, the next generation of coal-based generators available commercially between 2025-2035 will feature greater than 99 percent removal of SO2, NOX , and particulate matter, 95 percent removal of mercury, and the ability to capture and sequester CO2."

Nevertheless, such proposals (to expand the definition of "renewable") have met with some resistance. Nuclear, for example, has garnered a disproportionate share of federal largesse, if you compare it with other, more traditional "renewable" resources. A study conducted in 2003 by the Renewable Energy Policy Project showed that between 1943 and 1999, the nuclear industry had received over $145 billion in federal subsidies versus $4.4 billion for solar energy and $1.3 billion for wind energy. All the same, nuclear power is seen increasingly as the answer.

At a conference held several weeks after Kyoto's enactment, John Carberry, director of environmental technology at DuPont, one of the largest U.S. chemical manufacturers, talked of his company's early programs to reduce greenhouse gas emissions. The DuPont executive could boast of a program with goals of holding energy use flat (1990 through 2010), while seeking to reduce 65 percent of his company's GHGs. So successful was his program, in fact, that by 2003 his firm had already achieved a 70 percent reduction. All this while the company's production grew 35 percent.

But Carberry admitted that it would become more difficult and possibly costly to hold energy use flat as new production opportunities arise. He suggested that nuclear power might be the only energy technology that could sustain future American business growth and competitiveness while meeting tougher environmental goals.

The Domenici Code and American Corporate Competititiveness

Sen. Pete Domenici offers support for nuclear in his recently published book, A Brighter Tomorrow: Fulfilling the Promise of Nuclear Energy. The senator acknowledges regulatory roadblocks (waste disposal, etc.) that confront nuclear developers, but his analysis illustrates what other countries are doing to manage the fuel mix.

DuPont's Carberry suggested that what might be required is a Japan-style resource mix goal of 70 percent nuclear to keep American business competitive. In fact, Domenici found that the Japanese government announced that a heavy reliance would have to be placed on nuclear power to achieve greenhouse-gas emissions set by the Kyoto Protocol.

If you spent any time in college studying Economics 101, you'll already know all about "Guns or Butter." At the University of Virginia, for example, Economics professor Kenneth Elzinga had another name for this debate—"Beer or Deodorant"—but the concept was the same: produce more of one, and you must give up some of the other.

We're accustomed to using this model to talk about the conflict between consumer goods and military spending. Add in a third dimension, however (environmental investment, creating higher-cost energy), and the policy complications grow exponentially.

As utility executives, regulators, and environmentalists review their energy resource options, let them never forget that when guns and butter both become more costly to produce—it means less of each.