Certain small utilities with some of the nation’s highest carbon dioxide emission rates want to change the climate bill pending before Congress to give themselves more allowances to emit carbon dioxide (CO2). This would be the ultimate “cash for clunkers” program for dirty power plants, with one key difference: Unlike the real program, in this case the clunkers would get to stay on the road. The Senate should reject this change.
Under the House version of the legislation, known as the Waxman-Markey bill, the electric power sector would initially receive an allocation of allowances roughly proportionate to the industry’s carbon emissions. As the chief executive officers of low-emissions power providers, two elements were critical to our support of this provision: First, that the full value of the allowances would go to customers. And second, that the allowances would be distributed fairly between high-emitters who burn more coal and low-emitters who have invested in clean energy.
It is the second of these provisions that is now threatened by various small, coal-based power companies that want to re-write a carefully crafted compromise to grab more allowances for themselves.
Power plants are not that different from cars. The efficient ones have low emissions while the clunkers spew lots of CO2 into the atmosphere. Some of the high-emitters in the electric power sector are arguing that the clunkers should receive twice as many emissions permits as the efficient plants. In other words, the dirtier you are, the more allowances you get. If you are looking for a system that rewards those who pollute the most and penalizes those who emit the least, this is it.
Such an approach would be fundamentally unfair to the customers of clean utilities, who are already paying to address climate change in the form of higher prices for lower-emissions electricity. In the states where our customers live, a typical monthly electric bill averages $106. In parts of the country that burn cheap, high-emitting coal, it is as low as $65.
Even with a price on carbon, customers of predominantly coal-based utilities would still pay lower rates than customers of clean utilities. This price advantage would be greatly exacerbated if the Senate chooses to give the coal-based utilities twice the emissions permits of their cleaner counterparts.
The issue is one of basic fairness. Giving the lion’s share of allowances to high-emitters punishes the customers of those companies that have done the most to tackle climate change. It’s the equivalent of taking the tax credit away from those who drive a Prius and giving it to those who drive a 1960s muscle car.
Of the 934 coal units in this country, 549 of them—or nearly 60%—are at least 40 years old. They are fully depreciated, fully paid for, and by far the biggest emitters in the industry, churning out almost 20% more CO2 than new coal plants and 185% more CO2 than new natural gas plants. It is high time such units were retired. Yet under a system that distributes allowances based on how much power plants have emitted historically, the companies that run these plants, and their customers, would reap rewards.
Forward-looking power companies have modernized aging fossil fuel plants, switched to cleaner fuels, enhanced the efficiency of our nuclear fleets, promoted conservation and efficiency, and invested in renewable energy. The result: In 2006, the last year for which industry-wide data are available, our collective CO2 emissions rate was 574 pounds per megawatt hour, compared to an industry average of 1,310 pounds per megawatt hour.
Within the electric power industry, we were willing to meet coal-based utilities in the middle as part of a compromise brokered by our national trade group, the Edison Electric Institute. Half of the allowances would be allocated based on a company’s historical emissions, favoring customers of coal-based utilities. The other half would be based on retail energy sales, which benefits the customers of clean-energy companies that produce more megawatts per ton of emissions.
This compromise respected the fact that coal is an important energy source for America and that coal-based utilities will have to make significant investments to clean up their fleets. At the same time, it respected the significant investments that cleaner power companies have already made and that our customers are paying for today. That’s why it was adopted as the allocation formula in the Waxman-Markey bill.
Giving more emissions allowances to dirty power plants than they will already get under the Waxman-Markey bill has no place in sound climate legislation. It runs the risk of allowing these energy clunkers to stay on the road for years to come instead of trading up to cleaner power.
—Lew Hay is chairman and CEO of FPL Group; Ralph Izzo is chairman, president and CEO of Public Service Enterprise Group; Tom King is president of National Grid U.S.; John Rowe is chairman and CEO of Exelon Corp.; Mayo Shattuck is chairman, president and CEO of Constellation Energy. Collectively, the companies serve nearly 16 million customers and generate 11% of the nation’s electrical power.
This commentary was originally published by The Energy Daily, a sister publication of COAL POWER.