Climate Bill May Hinder Search for Cleaner Fuel Alternatives, says Jeff Civins

06/12/2009

Climate Bill May Stifle Incentives for Utilities to Swap Coal for Gas
Platt’s Gas Market Report

Compromises made in order to secure passage of the American Clean Energy and Security Act of 2009 may curb financial incentives for utilities to move away from coal and toward gas and other more carbon-neutral fuels, industry sources say.

On May 21, H.R. 2454 passed the House Energy and Commerce Committee in the first step toward the Obama administration's goal of instituting a cap-and-trade system for carbon emissions. Under the bill...only 15% of allowances will actually be auctioned off, with the rest being allocated by the bill itself.

And that compromise, some gas producers, end-users and analysts argue, may leave gas out in the cold.

"The largest amount of allowances, about 35%, will go to electricity providers — which is about 90% of what they asked for — in order to protect consumers from the cost of paying for emissions," said Jeff Civins, chair of the Environmental Practice and Climate Change and Corporate Sustainability Group at Haynes and Boone. "The electricity allocation will begin phasing out in 2026 and will phase out over five years."

And as long as those allocations are in place, Civins added, utilities would have no financial incentive to start looking for cleaner-burning fuels such as gas.

"By how you allocate or auction off these emissions, you are able to control investment and growth in a particular industry," Civins said. Critics of the allocations "are saying they're discouraging people from using alternative and cleaner technologies because they're subsidizing the coal industry."

Article excerpted from Platt's Gas Market Report.  For full text, click here. (Subscription required.)

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