How will greenhouse gas limits affect the 100 largest power companies in the United States? During today's OnPoint, Dan Lashof, science director of the climate center at the Natural Resources Defense Council, discusses a new report that analyzes carbon allocation scenarios and their varying financial effects on power companies and consumers. The report, cosponsored by Ceres, outlines how the Lieberman-Warner bill's allowance approach could help offset electricity rate increases. Lashof also discusses how lawmakers should be using the example provided by the European Union's emissions trading scheme when developing carbon allocation scenarios for the United States.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dan Lashof , science director of the Climate Center at the Natural Resources Defense Council. Dan, thanks for coming back on the show.
Dan Lashof: Sure, you're welcome.
Monica Trauzzi: Dan, NRDC recently released a report in conjunction with Ceres, PSEG, and PG&E and it provides an economic comparison of the Lieberman-Warner and Bingaman-Specter climate bills. How does this analysis differ from the other economic analyses that we're seeing circulating out there right now?
Dan Lashof: Well, this report, this is the benchmarking report, and it provides data on the air emissions from the 100 largest electricity producers in the United States, covering NOX, SOX, mercury, as well as carbon dioxide. Of course, most of the attention right now is focused on carbon dioxide and the new piece of data in this version of the report for this year, which is emission allowance allocation scenarios. This is not really an economic analysis of the overall impacts of the bill. What this tries to do is say for a particular scenario for allocating allowances, and we look at an approach to allowance allocation based on the Lieberman-Warner bill. We also do another case that's based on the Bingaman-Specter bill and compare the two on a company-by-company basis how much value of emission allowances would each company get, depending on how they're, the basic message is emission allowances are worth a lot and it matters how it you distribute them. So, for example, we're able to pull out, under the Lieberman-Warner bill, and we use a benchmark price of $10 a ton. And that's not a prediction. We're not trying to get into that game in this report, just to give a level playing field so you can compare at that price. If you think it's going to be $20 you just double all the numbers, right? But at $10 a ton the value of the emission allowances that the Lieberman-Warner bill would distribute to AEP, Southern Company, about a billion dollars for each company. So, it's able to give you that type of information.
Monica Trauzzi: So Lieberman-Warner comes out ahead though, when you compare the two, in terms of money that's going to be allocated?
Dan Lashof: Well, it depends on the company. For heavy emitting companies, electricity companies, for a given that allowance price, if you have the same allowance price under the two bills, than many other companies would receive a greater value under the Bingaman-Specter bill because it takes a larger portion of the total allowances to electric generators than in the Lieberman-Warner bill. Under the Lieberman-Warner bill the allocation to electricity companies comes in sort of two parts. There's part of the allocation that's based on past emission and part of the allocation that goes to the distribution company based on their sales. So, for companies that have a cleaner portfolio they're likely to get more value under the Lieberman-Warner bill.
Monica Trauzzi: So, this isn't an endorsement for Lieberman-Warner?
Dan Lashof: Well, this analysis, this joint analysis, is, no, it doesn't reach specific policy recommendations. It really is designed to put the data out there. It's certainly intended to inform the debate in Congress, but also to inform investors. That's why Ceres is involved in it. And basically the goal is get all the data out there and it's all available on our Web site at NRDC.org. You can actually download the spreadsheets. You can put in your own allowance value if you think it shouldn't be $10 a ton and you want to put in 15, recalculate that. You can go and look up whatever company you're interested in.
Monica Trauzzi: So, I want to sort of take a broader look at the economic debate that's happening right now because there's a tremendous amount of conflicting information out there. We were discussing this right before the show. And there are all these different analyses by ACCF, Charles River, EPA, EIA, and a lot of them say that Lieberman-Warner could have negative impacts on the economy, there could be a slowdown in job growth and we could see energy prices skyrocketing. Are we cherry picking at this point because there are so many different competing analyses? How do we know which one is right?
Dan Lashof: Well, I'm sure that's different interests may cherry pick the analyses, but I think if you look at the basic conclusion, particularly from the two governments analyses, the EIA analysis and the EPA analysis, it's clear that the overall impact on the economy from the Lieberman-Warner bill is quite modest. They both show that the economy grows robustly with or without the bill. We're talking about doubling total economic output and maybe reach that level a few months later under the bill than without the bill. So, I think the basic impression that the legislatures, the senators will get from looking at these analyses is that this is affordable.
Monica Trauzzi: And so would there be higher fuel and electricity costs for Americans?
Dan Lashof: Well, there's a lot of factors that go into fuel and electricity costs. And EIA, for example, is projecting a decrease in world oil prices that is bigger than the impact that the bill would have. So, it's actually projecting that gasoline prices would be lower than current levels out into the future under the Lieberman-Warner bill. So, the types of changes that we're seeing in customer energy bills are much smaller than the types of changes that people have experienced over the last few years with natural gas price volatility and the run-up in oil prices to over $100 a barrel. The other thing to keep in mind is that the impact on a consumer isn't just on their rates but on what their actual bill is. And the Lieberman-Warner bill has in it important provisions that really haven't been fully modeled by anything that's out there yet, that direct allowance value to promote energy efficiency. And this is actually going back to the benchmarking report. One of the examples that we give for Indiana shows that when you take into account the allowance value that's allocated to the utility, which in that state has to be distributed back to their customers because it's a fully regulated state, and the energy efficiency investments that are quite easy to do, that the average customer's bill could actually go down under the Lieberman-Warner bill rather than up, even though electric rates per kilowatt hour might go up a little bit. If people are investing in more efficient lighting, appliances, building shells, air conditioning, their bills could go down and that really ought to be our goal. We think that's definitely achievable.
Monica Trauzzi: And there's some concern over offering up too many free allowances as we've seen in Europe. So, what are some of the lessons learned from ETS, the Europe ETS, that legislators should be looking at here in the U.S.?
Dan Lashof: Sure, there are a number of important lessons. First of all, as you indicated, if you give away a lot of allowances to electricity generators based on their historic emissions, in competitive markets that will not benefit consumers. That money will basically float to shareholders as windfall profits. Europe has found that and they're moving away from that approach. The Lieberman-Warner bill, I think, still gives away too many allowances to generators initially, but it does phase that out pretty rapidly, so by 2031 there are no more free allocations to generators. But the other piece of the Lieberman-Warner is that it provides allocations to regulated electricity distribution companies on behalf of their customers. And we think if you're going to give allowances to companies rather than auction them, that's a much better approach. Because the electric distribution companies are regulated in every state you can ensure that the value of those allowances actually go to customers, either for energy efficiency investments, which we think is the best way to use it, or for rebates to low income customers or small businesses that may need a short-term rebate like that.
Monica Trauzzi: Final question here, with the current political climate and high gas prices, this debate over whether we should have a gas tax holiday, we're seeing a slowing economy as well, is there a scenario in which this bill may not be brought to the floor because Republicans may say the Democrats are trying to cause higher electricity and gas prices for Americans?
Dan Lashof: The majority leader says it's coming to the floor in early June. Everything I'm hearing from the Hill indicates that people are working diligently on a manager's amendment and are preparing for a floor debate. So, everything I'm hearing is we're headed for a debate in June.
Monica Trauzzi: All right, looking forward to it. Thanks for coming on the show.
Dan Lashof: Thanks.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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