An alternative approach to climate regulation.
Ron Binz is chairman of the Colorado Public Utilities Commission and vice chair of the NARUC task force on climate policy. He served as Colorado’s state utility consumer advocate from 1984 to 1995. Email him at firstname.lastname@example.org.
The central conundrum in the politics of federal climate legislation is that relatively low, constrained carbon prices might not produce sufficient incentives for firms to innovate and reduce emissions in the long run. But relatively high carbon prices can be politically unacceptable and invite consumer backlash. Where’s the right balance?
In this article, I outline a “cap-and-innovate” approach to carbon regulation within the electric sector that attempts to resolve this conundrum. This approach caps carbon emissions, while greatly increasing funding for research and development (R&D) in low-carbon generation technologies. If we stimulate innovation and avoid rate shock by allocating emission allowances to consumers through their regulated electric utilities, we’ll effectively reduce carbon emissions using a regime that’s acceptable to consumers.
I write from the perspective of a state utility regulator in Colorado, where we’re making huge strides on carbon reductions, pursuing a 30-percent renewable portfolio standard, robust energy efficiency programs, enlightened resource planning, smart-grid technology and smart pricing. Under Governor Bill Ritter’s leadership we’re moving away from a mostly coal-based electric economy to a new energy economy without much (to this point) leadership from the federal government.