Federal Climate Change Legislation Moves Forward. By Roy Thilly

At the end of June, the U.S. House of Representatives approved a massive energy bill that focuses on climate change. The bill would establish a federal cap and trade system to regulate emissions of greenhouse gases, including CO2 from power plants. Under a cap and trade program, a cap on total emissions from covered sectors (transportation, industry and utilities) would be set and the cap would decline each year. Allowances to emit one metric ton of CO2 would be created up to the cap amount. Emitters would have to surrender an allowance for each metric ton emitted. The proposed legislation would lower emissions by 2020 to a level 17% below 2005 emissions. The utility sector is responsible for approximately 40% of the greenhouse gas emissions that would be covered by the program, with a substantial portion coming from coal-fired power plants.
Many were surprised that the House was able to muster sufficient votes to pass this legislation. Many tradeoffs are involved in the final bill, which is over 1,400 pages long. Purportedly, 300 pages were introduced at 3:00 a.m. of the morning that the bill passed! The issue now moves to the U.S. Senate where passage is likely to be more difficult. Coal-dependent states like Wisconsin will be disproportionately affected by this legislation. We expect Senators from the Midwest to push hard for greater cost protections for the region.
Key issues for Lake Mills and WPPI in this debate are insuring that allowances are allocated at little or no cost to utilities rather than auctioned. An allocation system will substantially lessen the cost of the program. Some have proposed that all allowances be auctioned instead. We are very concerned that an auction could lead to high prices requiring significant rate increases, as well as allowance price volatility.