By Keith Johnson
The climate-change bills Congress is mulling will create winners and losers—in the utility business and in industry. Who and how much they win depends on how the game is played.
We’ve noted before that the devil is in the details when it comes to legislating caps on greenhouse-gas emissions. But for the electric power companies under target—which would shoulder 80% to 90% of the burden of cuts in the popular Lieberman-Warner bill—those details are potentially worth hundreds of millions of dollars a year.
A new study released today by Ceres, a shareholder coalition pushing companies to curb their global-warming emissions, and the National Resources Defense Council, an environmental group that wants the same thing, breaks down the impact of two leading bills on the U.S. power sector, which accounts for 40% of the country’s emissions of carbon dioxide.
The two climate bills—Lieberman-Warner and Bingaman-Specter—would initially give away most of the permits to emit CO2, selling about one-quarter. Later in the process, both bills would sell more than half the new permits issued. Utilities like the idea of freebies, while economists argue that selling the permits makes more sense.
But one crucial question is how to divvy up the permits. Both bills currently propose doling out emissions permits based on how much carbon dioxide each company has emitted in the past. That means utilities that burn a lot of coal, and have a lot of emissions, would get more permits than, say, nuclear power utilities.
The differences can be huge: According to the report, a company with lots of nuclear assets like Exelon would receive about $51 million worth of emissions permits in 2012 (the report assumes for argument’s sake that a permit to emit one ton of carbon dioxide costs $10). A coal-heavy utility like Southern Company would get $734 million worth of permits under Lieberman-Warner.
But what if the allowances were doled out based on the share of electricity each company produced? The idea is to avoid penalizing utilities that haven’t been dirty in the past. That would change the situation dramatically. Exelon would get almost as many permits as Southern—or $454 million. Southern’s share would fall, to $600 million.
The political battle over who shoulders the biggest burden in fighting climate change is just starting, but with industry groups increasingly resigned to the passage of some sort of climate bill in the near future, expect the emphasis to shift from fighting federal action to trying to game the fine print.
In fact, it already has: Pacific Gas & Electric, one of the utilities that commissioned the study, would see a nearly 50-fold increase in permit allocations if what counts is how much electricity is produced, rather than how dirty the utility was in the past.