Climate Debate Building to Climax

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SEPTEMBER / OCTOBER 2009
International climate policy can be likened to a game of chicken—countries are willing to take bold steps only if other nations agree to do the same.

Climate Debate Building to Climax

Published: October 21, 2009
Michael Shepard

A high-stakes political drama is unfolding around the drive to regulate and reduce emissions of greenhouse gases (GHGs). The story has subplots at the national and international levels; the U.S. position is key to what other countries will do. The next six months will be critical, and the outcome holds significant implications for utilities and their customers.

With the Kyoto Protocol—the international treaty to reduce GHG emissions—due to expire in 2012, international negotiators have been working for several years to hammer out a successor agreement. They had hoped to make major progress at a United Nations conference in Copenhagen this December. The Obama administration had wanted to arrive in Copenhagen having passed climate legislation that would vault the U.S. into a leadership position on the issue, providing leverage to encourage other nations to make emissions reduction commitments. We’re not quite there.

The U.S. House of Representatives passed a sweeping climate bill in June, but the Senate has only just begun to debate similar measures. Getting such a bill through the Senate will be a taller challenge than in the House and it appears increasingly likely that the Senate debate on climate legislation will spill into 2010. This means that the administration’s negotiators in Copenhagen will only be able to say that the U.S. is potentially close to passing limits on GHG emissions.

International negotiations will remain in limbo until the U.S. position gets resolved. But just as the U.S. position influences other countries, the debates in Congress will be affected by other nations’ commitments. Not surprisingly, a number of world leaders have spoken out lately to signal their intentions. The new Japanese prime minister has committed to raise Japan’s emissions reduction targets to 25 percent below 1990 levels if other major economies step up. And China’s president just announced for the first time a willingness to reduce the intensity of China’s GHG emissions per unit of gross domestic product by a “notable margin.” This is an important development; many Congressional opponents of U.S. reduction targets have argued that we shouldn’t act unless China and other developing economies get on board.

Meanwhile, the interest groups are squaring off in the U.S. domestic debate. Some business groups, including the U.S. Chamber of Commerce, have opposed climate legislation. But a growing number of major corporations are backing U.S. climate protection rules, including oil majors Shell and BP, Detroit automakers, DuPont, and several utility companies. Exelon, Pacific Gas and Electric, and PNM recently dropped their membership in the Chamber in protest of the organization’s stance on climate legislation.

The U.S. Supreme Court recently ruled that the Environmental Protection Agency (EPA) has the authority to regulate GHG emissions. President Obama would prefer that Congress set emissions targets through legislation, but if Congress doesn’t act, the EPA can. In fact, the agency has already started the process, drafting rules that would limit GHG emissions for new and significantly modified power plants, factories, and refineries above certain size thresholds. The prospect of EPA regulation of greenhouse gases may be enough to sway some fence-sitting senators to support a climate bill, if only to keep control of the issue within the legislative branch.

Given this flurry of activity, utilities would be well served to prepare themselves and their customers for added GHG regulation. Emissions caps and reporting requirements will apply directly to power plants and large industrial emitters. The effect on smaller customers will be indirect but still important—a growing number of customers may want to reduce emissions on a voluntary basis.

Beyond compliance, smart utilities will seize strategic advantage by shifting their generation mix to lower carbon power sources and help their customers save money and manage emissions through energy efficiency; demand response; clean, high-efficiency distributed generation; and credible carbon offsets. E Source has a wealth of resources available to help utilities and end users turn the climate challenge into a strategic opportunity.

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About the Author

michael shepard

Michael Shepard
PRESIDENT, E SOURCE

In addition to his general executive role in E Source, Michael oversees the firm’s development of new products and services. He is widely published and speaks frequently on the strategic opportunities and challenges of climate policy for energy producers and users. He serves on the advisory board for Avista Utilities’ energy-efficiency program, is on the judging panel for the Platts Global Energy Awards, and chairs the board of the Institute for Social and Environmental Transition, an international development organization focused on innovative energy and resource solutions for developing economies. He holds a BS with distinction in natural resource conservation from Cornell University and an MA in energy and resources from the University of California at Berkeley.

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