Spurred on by the recent activity in the US House of Representatives, several of my young adult friends have asked my thoughts on the idea of Cap and Trade. The following article appeared in the July 2009 issue of The Tennessee Magazine on pages 6 and 7. Written by David Callis, it reports the current status of the legislation under consideration in the Congress from the electric cooperative's point of view:
What Cap and Trade Could do to Your Electric Bill
Update: In a surprise move, House Leadership worked out compromises with Agriculture Committee members and rural concerns, moving the bill to the floor before the July 4th recess. The bill passed 219-212, despite the defection of 44 Democrats, but picking up 8 Republican votes. House Leaders did a lot of arm twisting and compromising to gain passage. The Senate may not take up Climate Change legislation until the fall. The Senate version will likely be less restrictive in carbon emission caps and renewable requirements.
The United States Congress is debating legislation this month that could dramatically increase the cost of your monthly electric bill. The American Clean Energy and Security Act of 2009 (H.R. 2454) could alter forever the way that electricity is generated and consumed in the United States. Climate change legislation is supported by the Obama administration and House and Senate leadership.
Consumer advocates, trade associations and political parties on both sides of the issue have flooded the TV and airwaves, encouraging citizens to contact their Congressman.
Tennessee’s electric cooperatives believe you need to know the facts about the legislation and what it means to you and your monthly electric bill.
Here are the most significant aspects of the bill for the electric utility industry:
- The bill would require carbon emissions to be cut to 17% below 2005 levels by 2020 by “capping” the amount that businesses could emit. (Carbon dioxide, also known as CO2, is a greenhouse gas that builds up in the atmosphere and contributes to global warming. The burning of fossil fuels, such as coal, is the largest contributor of CO2.) The bill creates a federal cap-and-trade system that limits carbon emissions by allowing manufacturers and power companies that emit carbon to buy and trade credits. For example, if a power plant exceeded that level, it would need the correct amount of emission credits to offset the additional carbon emissions. The owner of the plant might have to purchase the additional emission credits, which would be sold, or “traded”, by companies that have extra allowances.
- The bill provides 35 percent of the carbon emission credits as free allowances to utilities; with 30 percent of that total going to local electric distribution companies, specifically to keep prices down. When the cap-and-trade program begins in 2010, the government would auction 15 percent of the allowances and use the proceeds to help some consumers avoid higher energy costs
- The bill would require that 20% of all energy produced would be generated by renewable energy sources by 2020— though 5 percent of that can be met through energy efficiency programs. States could lessen that impact by establishing an 8 percent efficiency requirement, if the initial targets prove too costly.
After the committee passed the bill in late May, Glenn English, CEO of the National Rural Electric Cooperative Association, commended chairmen Waxman and Markey;
"NRECA believes the collegial manner in which the committee members worked to mark up the legislation has produced, step by step, a better bill than the discussion draft released in late March. As I testified in April before the Energy and Commerce Committee, NRECA supports developing affordable, simple, and flexible climate change legislation. However, the bill does not yet meet that test.”
“We greatly appreciate all members of the Energy and Commerce Committee who have worked hard to improve the legislation, and we look forward to continuing to work with members of the jurisdictional committees to further improve the bill and make it a piece of legislation that electric cooperatives and a majority of the U.S. House of Representatives can support.”
Tennessee has two representatives on the House Energy and Commerce Committee. Congressman Bart Gordon was involved in committee decisions that helped make the bill less costly to electric co-op members. Congresswoman Marsha Blackburn participated during the committee markup, offering proposals that addressed the impact of the legislation on ratepayers.
There is no question that the bill has improved since the first draft. The bill aggressively attacks carbon emissions that are widely believed to cause climate change. The bill also invests in new renewable sources of generation and research and development into cleaner coal technologies.
There is also no question that the bill will increase the cost of electricity in many parts of the nation. Cooperatives will be forced to purchase carbon credits in order to provide enough electricity to service their members. Much work remains before the bill can achieve its stated goals and keep electric bills affordable.
In one of the more concise summaries of the problems with the bill, Mid-American Energy Holdings CEO David Sokol said, "The Waxman-Markey bill is a cap and trade program that will force our customers to pay two expensive costs. First, they will pay the cost of emissions allowances purchased on a complex auction market that will do nothing to reduce greenhouse gas emissions; and second, they will pay the cost of replacing our existing fossil-fuel generation facilities with low-carbon alternatives."
The renewable energy provisions and efficiency provisions have been improved significantly. The renewable energy standard, for example, does not apply to electric cooperatives that sell less than 4,000,000 mwh of electricity per year, exempting most co-ops. Tennessee has one co-op, The Middle Tennessee Electric Membership Corporation, which exceeds that level of sales and could face additional penalties if they don’t meet the renewable standard.
Including temporary free allowances in the bill is a step in the right direction to protecting electric cooperative consumers from unnecessarily increasing electricity bills, but the formula for allocation of free allowances for emission credits is not equitable. The Committee adopted a formula developed by big investor owned utilities, and that formula would not cover the emission credits needed for the coal generation that is vital for rural America. Chairman Waxman has agreed to hold an additional hearing to look at the allocation.
The cap on carbon emissions has been lowered somewhat. However, we believe, as do many members of the committee that they are still overly aggressive in the early years of the program and will need to be lowered.
TECA and NRECA are not opposed to energy legislation that addresses climate change. In fact, we strongly support investments in clean coal technologies that could help us take advantage of an abundant source of energy that exists in our own country. We also support investments that will strengthen our electric grid and create more renewable energy sources, such as solar power and wind turbines.
However, that’s not going to solve all of the nation’s energy problems. Senator Lamar Alexander recently rebutted those that give, “the impression. . .that we can run this big, complex country on electricity from the wind, the sun and the earth. That may be true one day, Alexander said, but it probably will be 30, 40 or even 50 years down the road.”
Congress needs to consider your needs as they work to complete this legislation. We need the flexibility of planning for the future without bankrupting the present. If Congress gets this wrong, you could easily be saddled with a $30 - $50 per month increase in your electric bill – just to pay for the cost of the climate change legislation.
What can you do? Let your congressman know how you feel. Call, e-mail or write and let them know that any climate change legislation needs to be as simple and flexible as possible; but most importantly, it must keep electricity affordable for all of us.
In the end, government doesn’t bear the costs of this bill – you do.
For more information, go to www.ourenergy.coop
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