Power generators place uncertain bets on CO2

One proposal to encourage investment in clean technology — the mandatory "cap and trade" system in place in Europe — would penalize companies that don’t meet targets and reward those that meet or exceed them. Companies that invest in clean power would get credits that can be sold to companies that exceed pollution caps.

The proposal has won the backing of a wide list of corporate players — from power companies like Duke Energy, PG&E and FPL Group to industrial power users like Alcoa and environmental groups including Environmental Defense and the Natural Resources Defense Council.

Though the group has developed broad agreement that the federal government needs to move quickly to implement a cap and trade plan, there is less consensus on the specific rules of the same. Power generators with large nuclear fleets, for example, stand to make a big profit if they’re granted credits for investments they have long since recovered from rate payers. Companies that rely heavily on coal argue that incentives should be geared toward rewarding new investment that cuts carbon emissions.

“Those kind of intra-sector and intra-industry squabbles could bring this thing to a grinding halt if were not careful,” said Anderson.

It will fall to Congress to sort out who gets what under a variety of proposals making the rounds on Capital Hill. A recent Supreme Court decision — ruling that the Environmental Protection Agency has the right, and the duty, to limit carbon dioxide like other air pollutants — could leave some of the rulemaking to that agency.

Any U.S. carbon market would join an already rapidly expanding global cap-and-trade exchange. Under the Kyoto Protocol on global warming, companies are already trading credits to meet carbon caps. For the first nine months of 2006, that market was worth $22 billion — up from $11 billion for all of 2005, according to the World Bank.

But any global solution has to take into account the impact on all countries of the cost of reducing carbon emissions, according to Morris. That means that if China, India, or other developing countries don’t join a global plan and play be the same rules, they will enjoy an unfair manufacturing price advantage because their industries won’t have to bear the cost of controlling carbon.

“Our definition of reasonable would include either a tariff on their imported goods, or you do like the EU just did in their last meeting on this issue — which is to set a goal," Morris said. "And then if the world doesn’t join, you reduce the goal — or increase the goal if the world does join.”

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