PNM's Sterba says climate change technologies not ready for implementation

As the midterm elections approach, energy issues are proving to be prevalent in several campaigns. During today's OnPoint Jeff Sterba, chairman and CEO of PNM Resources and incoming chairman of the Edison Electric Institute calls for decreased focus on lowering gas prices and increased focus on climate change solutions. Sterba discusses the need for placing greater emphasis on creating new technologies that will diminish our carbon footprint. He also talks about the need for a national, mandatory scheme for reducing greenhouse gas emissions.


Darren Samuelsohn: Welcome to OnPoint. I'm Darren Samuelsohn. Joining me today in Washington is Jeff Sterba, the chairman and CEO of PNM Resources, an Albuquerque-based electric utility. Jeff is also the incoming chairman of the Edison Electric Institute. Jeff thanks for coming on the show.

Jeff Sterba: Thanks for having me.

Darren Samuelsohn: Earlier this year, I watched you stand before a roomful of utility officials in Tucson, Arizona. You told them that it's time to get behind a mandatory cap on carbon dioxide pollution. Tell me, why did you say that?

Jeff Sterba: Yeah, what I said is that it's time to get behind addressing climate change, and I believe that includes a mandatory scheme. The reason why I believe that is that I'm one of those people who believes that a slow, stop, and reduce to addressing climate change is essential. And if we wait too long, then the slow and stop may not be options for us, we will just have to reduce in a much more dramatic fashion. So I believe it's better to attack these kinds of issues sooner rather than later, and move about them in a reasonable way.

Darren Samuelsohn: Tell me, what kind of response have you received?

Jeff Sterba: Well, I think like any issue that's pressing and has dollars tied to it, people, based on where they are and their viewpoints, will have different kinds of perspectives. The thing I found in working with my co-CEOs throughout the industry is that generally there's pretty strong agreement that a mandatory system will come. The differences are questions around when and what. The one thing that I think we all agree on though is that no matter what system you put in place, that system will not solve the problem. What will solve the problem is technology. And technology is what we have to focus on to ensure that we've got options for both demand and supply, on both the demand and supply side that will have a smaller carbon footprint than the options we have today.

Darren Samuelsohn: Are you surprised that it's now nine months later and that there is no legislation that's been enacted?

Jeff Sterba: No, not at all. This, in my view, is that the passage of legislation of what kind of a mandatory system will be years in the making I don't expect that to happen quickly. But what I do hope will happen is a more concerted focus on the technology challenges we have. And, I think, more open debate about what's the right kind of constraint that should be imposed? My personal belief is we need an economy-wide constraint; that we need to embrace and engage those developing countries along with us. I don't think that we should say, "let's wait until they decide to do something, then we'll join the bandwagon." I think the United States has to lead that effort. I'm a very strong supporter of the APP or AP6 Initiative, that engages China. And I laud the administration for the pushing of that effort because it engages China, India, Korea, as well as bringing Japan and Australia and the United States onto the same wavelength. But it's one piece.

Darren Samuelsohn: Your view is different than the administration in terms of stopping, stabilizing, and trying to reduce carbon dioxide emissions through a mandatory cap. How have you tried to engage the administration?

Jeff Sterba: Well, it might be different in certain elements, but I don't think it's that different. For example, when I talk to a Jim Connaughton, you know, Jim has said, what the president has said is that we want a system that cuts emissions intensity by eighteen percent by 2012. Well, what if those voluntary systems don't get there? He has never, in my understanding, ever ruled out a mandatory system. So I think it's coming up with what's the right approach. I personally would like to see it happen sooner rather than later, but I don't know that there's as much space as some people make it out to be.

Darren Samuelsohn: You seem to imply though that the time now is right to do it, get it while the getting is good, while the Republicans are in control of Congress, while President Bush is in the White House. It might be a better system for the utility industry as opposed to waiting for the next Congress or the next president?

Jeff Sterba: Well, you know, the great thing about politics is everyone can have a different view. I focus fundamentally on the notion that the sooner we engage the issues the better off we will be, because we'll have more time to create the solutions. And, you know, it does get muddied up in politics. I don't know what's going to happen this election or what will happen in 2008. Quite frankly, you'd look at both the leading Republican contender and the leading Democratic contender, both of them are supporting mandatory systems. So I'm not sure how much that matters, as it does for me, getting something in place that we have adequate time to respond to. You know, one of the things that disconcerts me the most is there is a tendency for hype to be around this issue that solutions are available today. For example, and I don't mean to speak -- it's a very good publication, but Scientific American just put out a very wide spread, which is very good, on climate change. But the problem is it left you with the perception that the solutions are here today, and we don't have to do anything except implement those. That's not the case. Whether you look at IGCC or you look at nuclear or you look at the deployment of strong energy efficiency, it's going to take time. And today, whether its nuclear or, frankly, IGCC with carbon capture and sequestration, it's at least 12 years away.

Darren Samuelsohn: And 12 years away being a time well out past this administration.

Jeff Sterba: That's correct. So we really need to focus on getting the technologies moved further down the path of development.

Darren Samuelsohn: Do you think though that the cap is necessary to stimulate and to actually force those technologies out into the marketplace?

Jeff Sterba: My personal belief is that a cap-and-trade system is a good reinforcement mechanism, but I also believe this is a very different situation than the SO2 Clean Air Act amendments because in that instance we had technologies. The question is, where would the cost of those technologies go? Here we've got the concept of technologies, but a magnitude of the amount of carbon that's going to have to be sequestered or the magnitude of alternative generation is much bigger than we ever talked about before.

Darren Samuelsohn: Back during the debate over the 1990 Clean Air Act amendments, industry gave a ballpark estimate on what the costs were going to be for compliance with the acid rain program. It's been much, much, much lower --

Jeff Sterba: Yes.

Darren Samuelsohn: -- because of the way the trading program works.

Jeff Sterba: Yes.

Darren Samuelsohn: Do you think that if we established a mandatory cap on carbon dioxide we might see the costs be a lot lower than what the ballpark estimates are now?

Jeff Sterba: That's a real good question. My sense is, in the longer-term, there's a very good chance of that happening, once technology takes root. The challenge though, if you put a cap-and-trade system in today, and the only thing that we've done is put a price on carbon, we've got a long lead time to get the technology moving. Quite frankly, we may need to break this into two pieces, where we really focus on funding the technology, which is difficult today because this is at the time when we've got a budget deficit. There isn't money to be appropriated. In fact, those things authorized for the DOE aren't being funded. So we really have a challenge about how do we address this technology gap? But --

Darren Samuelsohn: Could there be more presidential leadership on the budget?

Jeff Sterba: I think, frankly, there could be a lot more leadership in a lot of different ways. I hate that -- you know, as we move into what I call silly season, we take our eyes off the ball. And I understand why it has to be, and it's an important part of the democracy, but the energy issue -- I saw a recent survey that asked Americans, what is the most pressing issue that needs to be addressed? And number one was not the Iraq war. Number one was not the war on terrorism. It wasn't education. It wasn't the federal deficit. It was energy, which just really surprised me, but it showed me how much they care.

Darren Samuelsohn: Do you think candidates are talking enough about around the country as they're running --

Jeff Sterba: Well, I think in some of the races I've seen it's getting talked about, but it's mostly getting talked about, about how we've got to lower your price of gas. Well, quite frankly, we have had very cheap energy for a very long period of time and we've moved out of that era. And so I don't know that talking about lowering prices is necessarily the right thing to do. It's really talking about, what's the future of energy?

Darren Samuelsohn: I wanted to ask you, back in your home state, in your region, New Mexico, Arizona, and California, all have taken steps toward enacting caps for trying to limit their greenhouse gas emissions. Explain for me, how is PNM Resources complying?

Jeff Sterba: Well, in New Mexico, we've got a governor's task force, with Governor Richardson, looking at ways to address carbon. But there's been no proposal to put a kind of a cap-and-trade system or a cap system in place. Obviously, California has done something to do that. My problem and concern with that is this is not something that is a state-by-state issue. It is a global issue. We need federal legislation and federal leadership for this to be addressed globally. State solutions that are trying to put caps in place are the wrong way to go. State activism around how do we reduce carbon dioxide and methane, that's great.

Darren Samuelsohn: Back in 2001 you testified before the Senate Environment and Public Works Committee when they were considering a four pollutant bill, and you were in opposition, at that time, to Senator Jeffords' proposal, what has changed in your mind?

Jeff Sterba: Well, I was in opposition to Senator Jeffords' bill because of the specifics of it, not because of the concept of it. I believe the notion of a -- whether you call carbon dioxide a pollutant or you just say it's something that needs to be controlled, I support that kind of an approach. The Jeffords' approach though was too much too fast without things being very well thought through, so I opposed that bill, that's correct.

Darren Samuelsohn: And of the proposals that are out there today, is there any particular proposal -- there's one from Senator Bingaman, Senator Domenici has flirted with co-sponsoring this. What do you think of that proposal?

Jeff Sterba: Rather than the specifics of a proposal let me talk about principles. I support a cap-and-trade mechanism as opposed to an across-the-board tax. I support a mechanism that recognizes you ought to move the allocations upstream, with the exception of coal, because coal -- there's just a handful of users, basically the utilities, where I think you can regulate it there at an effective place. I support an approach that says let's allocate virtually all of the allowances at the front period, and then have them decline over time. If I take those principles -- and I support one, obviously, that embraces an economy wide approach. If I look at what approach or proposal is closest to those principles, Senator Bingaman's comes quite close. If I look at Senator Carper's, which I think is a good effort, frankly, I oppose it because it only focuses on this industry.

Darren Samuelsohn: You want it to focus on other industries as well?

Jeff Sterba: It needs to focus on the economy wide, and I think McCain-Lieberman has some elements in it that are just a bit more aggressive than I think we can afford without impacting the economy. So I think something more moderate is appropriate.

Darren Samuelsohn: Last question, does President Bush sign a bill into law before he leaves office?

Jeff Sterba: That's a great question for the next time you have President Bush on your show.

Darren Samuelsohn: Well, hopefully we'll bring him on. Jeff, thanks so much for coming on.

Jeff Sterba: Thank you, my pleasure.

Darren Samuelsohn: Until next time, this is Darren Samuelsohn for another edition of OnPoint. Thanks for watching.



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