Commentary: Ameren on climate change: Achieve goals, protect consumers
This article first appeared in the St. Louis Beacon, Oct. 7, 2009 - In these tough economic times, it is imperative that our elected and appointed leaders in Washington bear in mind how every regulation they create or vote they cast affects the daily lives of their constituents. This is especially important over the next few months, as federal regulators and congressional representatives consider energy policy related to climate change. Their decisions will register on every electric bill, in every mailbox, across the nation.
Ameren Corp. believes that it is possible to achieve the climate goals included in these proposals, while protecting consumers. We would support legislative proposals that accomplish both of these objectives. However, done incorrectly, legislation can significantly drive up consumer costs, harm our economy and risk the very goals associated with climate legislation.
In the U.S. and internationally, the push to regulate and limit emissions of the gases associated with changes in our climate has focused on reducing greenhouse gases, particularly carbon dioxide (CO2) from power plants, like ours. The electric generation providing electricity to our homes and businesses often uses carbon-based fuels, and accounts for 41 percent of U.S. manmade CO2 emissions.
In Missouri, 82 percent of all electric generation comes from coal-fired power plants, and coal-fired plants account for 77 percent of the total power generated by AmerenUE. That generation, established under least cost planning requirements, has allowed AmerenUE to offer electric rates that are 40 percent below the national average--some of the lowest in the U.S.
This could change as we deal with mandates to reduce CO2 emissions -- because there is a cost to reducing greenhouse gases. If climate change policy is mishandled, we will see unnecessarily large increases in our energy costs--especially in our region where coal is the dominant fuel used in generating power. We fear high energy costs could result in commerce and industry moving to areas that are less dependent on coal-fired power or overseas where requirements aren't as stringent.
At this point, Congress is considering a cap-and-trade approach for reducing CO2 emissions -- an approach that has been used successfully to reduce other emissions under federal clean air legislation. Under a cap-and-trade program, a cap would be set limiting the amount of CO2 that companies are allowed to emit. These companies would be required to have allowances or permits for any CO2 emitted.
Congress is considering two different proposals on how companies get these allowances -- through auctions or free allocations.
With auctions, electric utilities would have to buy allowances from the government for each ton of CO2 emitted. This approach would be very costly. Customers would pay both for the emissions that utilities are allowed to emit and again for new technology that must be installed to reduce CO2 emissions down to the emissions cap.
In contrast, under the allocation proposal, utilities would receive free allowances for the emissions that they are allowed to emit. Customers would only have to pay for the new technology that must be installed to reduce the CO2 down to the emissions cap.
Both methods achieve the same environmental benefit - reducing emissions down to the capped level. But the allocation approach is much less costly to the customer.
The good news is that at least the House bill offers some free allowances to generators and utilities. However, it doesn't provide enough allowances to avoid much higher costs for compliance -- costs that are passed on to energy consumers. And that bill unnecessarily limits the number of years utilities receive free allowances, which will lead to higher costs for our customers.
Another problem with these proposals is that they do nothing to protect consumers if the price of allowances skyrockets: They do not include a mechanism known as a safety valve. This mechanism sets a maximum price for CO2 allowances bought and sold as part of the cap-and-trade program. A safety valve comes into play when the requirements for emission reductions rise, and the price of allowances increase to unacceptable levels.
Putting price limits on allowances helps reduce price volatility and encourages long-term solutions. Allowing generators to predict expenses and plan for long-term reduction programs provide flexibility to utilities. It protects the economy by protecting consumers from the impact of price spikes in the carbon market.
Finally the current proposals mandate major reductions of greenhouse gases before large-scale emission reduction technologies will be commercially available -- exposing our customers to larger increases in rates and energy prices. These reduction goals should be aligned with technology capabilities to ensure that reductions are achieved while reducing consumer costs.
A smart approach would ensure that we achieve the appropriate balance of emission reductions and consumer protection -- especially here in the Midwest.
We must make sure that the approach to dealing with climate change is fair. And that it works for all Americans. Customers will pay the cost of cap-and-trade through their power bills no matter which approach is used. It's only fair that the benefits flow directly to them as well. Granting sufficient allowances to energy providers and including a safety valve that shields us against paying high allowance prices will protect customers from unnecessary costs, while still protecting the environment.
About the author
Shawn Schukar is vice president for strategic initiatives at Ameren Corp.