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Utilities Want Cap and Trade – The Sooner, the Better

Utilities prefer cap and trade legislation to the use of regulatory CO2 limits – but would choose either over continuing uncertainty, according to a survey.

The study by risk management consultants DNV also found that utilities foresee a possibility for business interruption and negative effects on reputation from the physical effects of climate change.

Cap and trade was cited by 71 percent of respondents as their most supported potential federal action, compared to 50 percent for energy efficiency incentives and only 14 percent for regulatory CO2 limits, such as those being put in motion by the Environmental Protection Agency (EPA).

But many utilities said that whatever types of legislative actions or regulations are implemented, it would be better to do so sooner rather than later. Most utilities interviewed said they have significant concern that the uncertainty surrounding CO2 regulation makes it difficult to make critical investment decisions.

The utilities surveyed also tended to see cap and trade as a more likely eventuality than regulatory carbon limits. Of the U.S. and Canadian utilities responding to the survey, 79 percent thought that cap and trade would be implemented within the next three years.

Energy efficiency incentives (79 percent) and renewable portfolio standards (71 percent) got similar responses. One-half expect regulatory limits, and only 21 percent expect a carbon emissions tax.

The EPA introduced its regulations of GHG emissions during the last Congress, as it became increasingly clear that lawmakers would not be approving the creation of a cap-and-trade scheme. The regulations were attacked first by the state of Texas, and more recently by congressmen, led mostly by House Republicans.

The survey found that utilities do not find the effects of such regulation to be wholly negative. They foresee the possibility for enhanced company reputation, if they respond proactively to climate change legislation. More than half of those surveyed also expect that demand for clean energy will create opportunities for increased revenue.

But respondents indicated that such regulation was more likely to lead to decreased revenue. Regulated utilities could in theory pass their costs on to customers, DNV said, so they see less financial risk from climate change legislation than unregulated utilities do.

In the meantime, utilities need a better approach to integrated corporate-level risk management, to help cope with these uncertainties, DNV said.

The utilities’ most common strategies for mitigating the consequences of climate change legislation or regulation are building clean or renewable generation facilities, collaborating within the industry to develop new technologies, and increasing the efficiency of existing generating facilities. The technologies most cited as needing industry-wide technological development were carbon capture and storage (71 percent), and solar (71 percent), followed by advanced nuclear and biofuels (both on 57 percent).

A majority of respondents said they did not anticipate a high likelihood of negative climate change effects including business interruption, lower generating efficiency or effects on their company reputation, and companies were more concerned about local extreme weather events than about global, long-term effects. Utilities in the American and Canadian West have high dependence on hydropower and are concerned about changes in rainfall and snowpack, DNV said. Those companies with operations on the Gulf Coast have significant concerns about the frequency of hurricanes and other major storms.

Eight U.S. utilities and five Canadian utilities with an average capacity of 10,458 MW participated in the survey. On average their largest generating source was natural gas (38 percent) followed by coal (25 percent) and hydroelectric (19 percent).

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3 thoughts on “Utilities Want Cap and Trade – The Sooner, the Better

  1. This article is wrong on so many levels, beginning with the title. My interpretation of the survey results reported here: The utilities don’t “want” cap and trade. They just want an end to the uncertainty caused by EPA’s new rules, and they really don’t want EPA running things, so they prefer congress to pass its hopefully more reasonable regs. They don’t want bad press from the environmental sector. They know they will lose money once these regs are put in place, but they hope to pass some of the loss on to consumers. And some of the utilities seem to be under the false assumption that greenhouse gases are causing floods and droughts, which DO affect them. No real scientist will claim that reducing CO2 will change the local weather.

  2. How do the utilities feel about a carbon tax? It is a much simpler option for transforming the market toward lower carbon intensity electrical generation. This survey does the country a disservice by not including a carbon tax as a potential policy option to ask the utilites about.

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