Transcript 2008 Manager’s Conference - Basin Electric Power Cooperative

Cap & Trade
Cap & Trade (Cap)
• A cap commits a region or country to limits on
greenhouse gas emissions (GHG) and then reduces
those limits over time.
• All proposals set an emissions target (cap)
on sources covered by the program.
• The cap is normally set in terms of a percentage
reduction below a prior year’s emissions level.
– For example:
– 3 percent reduction below 2005 levels by 2012
– 20 percent reductions below 2005 levels by 2020
Cap & Trade
(Covered Sources)
• Covered sources are likely to include major
emitting sectors:
– Power plants and carbon-intensive industries, fuel producers/processors
(coal mines or petroleum refineries), or some combination of both.
• In almost every case, electric power producers
are a covered sector.
• Some sectors that emit greenhouse gases
may not be covered, such as agriculture.
Cap & Trade (Allowances)
• The emissions cap is partitioned into allowances.
• Typically, one emission allowance equals the
authority to emit one (metric) ton of carbon dioxideequivalent.
– A metric ton is equal to 2,200 pounds.
• Why “equivalent”? Greenhouse gases other than
carbon dioxide vary in their global warming potential.
– Other GHG’s: methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons,
and perfluorocarbons.
– Methane absorbs 21 times more radiant energy than carbon dioxide; nitrous
oxide absorbs 310 times more radiant energy than carbon dioxide.
Cap & Trade (Trade)
• Trade means entities may buy, sell or trade
“allowances” between themselves or others.
– This creates a market for “allowances.”
• A trading system places a market price on
allowances.
• The market price should motivate industry,
businesses and families to reduce GHG’s.
• A well-designed trading system should encourage
efficiency, innovation and lowest-cost solutions.
Cap & Trade (Offsets)
• An offset is an activity, other than a direct emission
reduction that can be done to lower GHG emissions.
• An offset must be an approved, measurable activity
reduction, avoidance, or sequestration of
greenhouse-gas emissions from a source not
covered by an emission reduction program.
• Examples of offsets:
– Planting trees
– Paying dairy farmers for methane capture systems
– Paying farmers for reduced or no-till activities
• Use of offsets is normally limited (30%).
Cap & Trade
How does cap and trade work?
• Tally greenhouse-gas emissions
– Energy Information Administration (EIA) and
Environmental Protection Agency (EPA) have the data.
• Set a cap
– 2005 has been selected as the base year; emission cap will begin
in 2012 as a small percentage below 2005 levels.
• Distribute allocations
– Some percentage given out freely, and some will be required to be purchased or traded.
• Enforce the cap
– EPA will be given authority to regulate with severe penalties for non-compliance.
• Step it down
– Cap decreases every year to reach a 80-90 percent decrease from 2005 levels by 2050.
Cap and Trade Basics
Baseline
Tons
Reductions
Cap
Years
How can the electricity
industry respond?
Climate Change
• Basin Electric supports reasonable
climate change legislation.
• We want to be a part of the solution,
not part of the problem.
Energy Diversity
Largest carbon capture
sequestration project in the world
Developing New Technologies
• Commercial-scale pilot
carbon capture project
at the Antelope Valley
Station, Beulah, N.D.
• Working with a technology
provider
• Anticipated start = 2013
• Goal = 90% CO2 removal
What does Cap & Trade mean
to an average household?
=
1 metric ton
carbon/month
Annual Electricity Cost
Increases to the Consumer
$10 – $60/metric ton carbon cost
$120 – $720
$240 – $1,440
$667,000 –
$4 million
Power Supply Options Limited
• Natural gas price
is highly volatile
• Nuclear option
available but in
the future
• Renewables,
conservation and
efficiency can not
yet meet full baseload need
U.S. Economy
CO2 Emissions (million metric tons)
7000
6000
5000
4000
3000
2000
•Flat between 2010 - 2020
•3%/yr. decline beginning in 2020
•Results in “prism”-like CO2 constraint on electric sector
1000
0
2000
2010
2020
2030
2040
2050
Electric Sector CO2
Reduction Potential
3500
Emissions (million metric tons)
U.S. Electric Sector
* Achieving all targets is very aggressive, but potentially feasible.
3000
EIA Base Case 2007
2500
Technology
2000
Efficiency
Renewables
1500
Nuclear Generation
Advanced Coal Generation
1000
CCS
PHEV
500
DER
0
1990
1995
2000
2005
2010
2015
2020
2025
2030
Key Elements in Legislation
•
•
•
•
•
•
•
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Incentives for technology development
Credit for early adopters
Time to develop the technology
Price ceiling for carbon (safety valve)
Free allocations vs. auction
Regulatory certainty
All sectors must be included
Worldwide effort
Waxman-Markey Bill
• Cap and Trade
• Includes RES
• $1 billion/year in
CCS grants
• Allocations
• Offsets
Henry Waxman (CA)
Ed Markey (MA)
American Clean Energy and Security Act
(Waxman-Markey)
4 Titles
I.
Clean Energy (RES
and Transmission)
II. Energy Efficiency
III. Reducing Global
Warming
IV. Transition to a Clean
Energy Economy
• Bill has passed out of
House Energy and
Commerce Committee
• Still needs to go
through several other
committees
• Vote on entire House
floor
Waxman-Markey Climate Provisions
• Targets and timetables
– 17% below 2005 greenhouse gas emissions in 2020
– 83% below 2005 GHG emissions by 2050
• Allowance allocation
– 85% allowances will be freely given out at beginning – more
allowances will be auctioned starting in 2026
• Offsets (agriculture and forestry)
– Domestic and international offsets are limited to 1 billion metric
tons each of carbon per year
Allocations
• Allocations given to Local Distribution Companies
(retail sales)
– Based 50 percent on sales and 50 percent on carbon intensity of
electricity purchases
• Allocations given to merchant generators
– 5 percent of electric generator’s total
• Allocations to electric consumers phased out by 2030
Offsets
• Offset Credits
– 15 percent domestic and 15
percent international
• Offsets Integrity
Advisory Board
– 9 members established by EPA
• Offset Program
– Regulations promulgated by EPA
w/consultation with Federal
Agencies and Advisory Board
• Eligible Projects
– Determined by EPA
• Project Requirements
– Determined by EPA
• Verification
– Determined by EPA
• Issuance of Credits
• Audits
Performance Standards New Coal
• 2009 - 2020: 50%
reduction in CO2
• After 2020: 65%
reduction in CO2
Waxman-Markey Shortcomings
• Allocation formula is skewed
– Some receive more than 100 percent of their needs and double allocations
are given to others
– Allocation should be based entirely on emissions
– Allowances are fazed out too quickly
• Offset Program should be administered by the U.S.
Department of Agriculture
• Credit for current emissions reduction (Early Action)
is missing
• Timing of emission reduction does not match the
development and commercialization of carbon
capture technology
Waxman-Markey Shortcomings
• Auction – no restriction on the types of entities
or individuals who could purchase the allocations
• Safety Valve – no safety valve price is included in the
bill that could mitigate the harmful economic impact
on the end consumers
• Research, Development & Deployment funding inadequate to fund the necessary advancement
in carbon capture technologies
NRECA Negotiations
• NRECA will not oppose the legislation,
but will stand aside and work to
improve the bill in the Senate in return
for:
– Pelosi will not object to Rural Utilities Service
funding new nuclear generation
– No utility shall receive allocations that exceed 100 %
of their needed emissions.
– Additional small utility allocations (less than 4
million MWh) for cooperatives.
Questions