Auctioning Allowances Will Not Cut Carbon Emissions Faster

To the casual observer, it might seem logical to assume that coal-burning electric utilities would be opposed to regulating greenhouse gas emissions. But although we are often conveniently cast as the villains by some in the debate, Progress Energy and other coal-based electric utilities strongly support a federal cap-and-trade program to reduce carbon emissions.

We also believe strongly that to succeed, such a program must have clear objectives and achievable targets based on science and technology, and it must be affordable for customers.

In short, utilities support getting the biggest reductions at the least cost to consumers. And we believe that if federal policy changes are developed and implemented in the right way, the carbon-reduction targets that President Obama has laid out are potentially achievable.

Here’s the right way: Establish a cap-and-trade program, administered through state regulatory commissions, that allocates allowances to utilities based on historical emissions, and reduce allowances over time. This is a proven method that drives significant emission reductions and technological innovation and ensures that consumers get the benefit of all reductions and allowances.

In other words, all revenues generated by the program are used to fund carbon reductions. Regulators will ensure that only utilities in full compliance with reduction targets would be allowed to sell excess emission allowances and that the proceeds of those trades benefit the customers, not the utility.

The Clean Air Act sulfur dioxide (acid rain) trading program from the 1990s is a prime example of how initial allowance allocation works to drive real emission reductions at the lowest cost to consumers. Under the acid rain program, Congress distributed 97% of the SO2 allowances, at no charge, to utilities. Utilities, with oversight from state regulators, are required to use the allocated allowances, and any gains from allowance trading, to mitigate price increases for consumers.

Allocation of allowances is supported by diverse groups and organizations, including the U.S. Climate Action Partnership, the Pew Center on Global Climate Change, and the National Association of Regulatory Utility Commissioners, among many others.

Meanwhile, many environmentalists, as well as President Obama, propose to auction allowances to industry, particularly the power sector. Some have portrayed coal-based utilities as the bad guys, arguing that auctioning allowances will “force polluters to pay.” While this makes for a good bumper sticker, an auction will not reduce carbon emissions faster, and auction costs will go directly to the consumer.

Auctioning allowances would result in an $80 billion per year consumer tax on electricity that saddles Americans with significantly higher energy prices but produces no additional reduction in carbon emissions.

The last point is worth repeating—auctioning allowances does not result in any emission reductions. In fact, to the extent auctions increase the cost to the consumer, their imposition will actually impede utilities’ ability to develop a less-carbon-intensive infrastructure.

The issue of climate change legislation is important and will transform the energy industry. As our nation moves forward with sweeping change, it is imperative that we do so with clear objectives based firmly on what’s achievable and affordable for consumers.

Even in this economy, we can achieve real climate change improvements and meet the president’s aggressive targets. But to do so, we must ensure that every dollar raised from our citizens to reduce greenhouse gas emissions goes to that purpose.

—Bill Johnson is CEO, president, and chairman of Progress Energy, which serves 3.1 million customers in the Carolinas and Florida. His comments are reprinted from the May 12 issue of The Energy Daily, COAL POWER’s sister publication.

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