Guv in the hot seat: N.M. role in cap-and-trade plan revealed next week

ALBUQUERQUE -- An ambitious plan to curb greenhouse gas emissions in New Mexico and other western states will be unveiled Tuesday and it could present Gov. Bill Richardson with a politically sensitive decision.

 

One key element of the plan is whether to give away millions of dollars in pollution credits to power plants and other industries or instead auction off the credits and use the revenue for public purposes.

 

Richardson won’t be alone in the hot seat. The governors of seven states and their counterparts in four Canadian provinces in the Western Climate Initiative will determine how to allocate the pollution credits for a program that begins in 2012. There aren’t many options. Many electrical utilities and other large polluters are arguing for a giveaway. Environmental groups want the credits to be auctioned off. A combination of the two is possible, and perhaps likely given the political pressure on the decision.

 

At a teleconference Thursday between representatives of several environmental groups and reporters, Jeremiah Bauman of Environment Oregon said Montana Gov. Brian Schweitzer, a Democrat, has already announced he plans to auction off all the pollution credits in his state. Bauman and others on the teleconference are hoping Richardson, California Gov. Arnold Schwartzenegger and their peers around the West will follow suit. Said Bauman, “All eyes will be on the governors on Tuesday.”

 

Originally, five western governors including Richardson formed the WCI in early 2007, saying they were acting to rein in greenhouse gases because the Bush administration and Congress had not. Richardson’s envoy to the WCI, energy adviser Sarah Cottrell, said the design to be rolled out Tuesday is “the most robust program put forward in the United States,” and is more aggressive than some in Europe.

 

It applies to all large industrial polluters such as power plants, oil refineries and manufacturers and eventually will extend to the transportation industry.

 

The immediate goal is to reduce the major greenhouse gases 15 percent below their 2005 levels by 2020 through the system known as cap and trade. The plan will cap emissions at gradually lower numbers every year, and issue credits annually for every ton of carbon emission. Companies would have to gradually lower their own emissions or buy unused credits to make up the difference.

 

The big question now is how to begin — give away the carbon credits, sell them or have some combination of the two?

 

Fortune magazine in May estimated that over the next 40 years, the carbon credits will create $3 trillion or more in the United States alone. Who gets that newly created wealth -- business? consumers?  government? -- is a key part of the ongoing energy policy discussion in Washington, D.C., as well as in the western region.

 

On the teleconference Thursday, Bauman said the WCI plan will create carbon credits worth as much as $17 billion per year, and that it is expected to give the governors discretion on how to allocate the credits. He and other representatives of Environment America argued that the credits should be auctioned off rather than given away.

 

The revenue could be invested in a number of ways, said Eric de Place, an economist representing Environment Oregon. “They could send a check to rate payers, invest in home conservation, invest in upgrading power plants. We could decide to ramp up alternative energy projects,” he said. “With an auction, the public stays in the driver’s seat.”

 

Many industries argue the opposite, that it makes more sense to give away the credits rather than auction them. An electric utility or oil refinery, for example, that had to spend millions of dollars on carbon credits would simply pass the cost on to its customers. Many companies will be investing in cleaner technology, as well, which is another cost consumers will have to bear.

 

But de Place argues that giving away the credits amounts to windfall profits for polluters and gives them a leg up over other, cleaner businesses. Rob Sargent of Environment America also noted that the European Union program gave away carbon credits in its inaugural cap-and-trade program but has reversed course and it now planning to auction.

 

Cottrell could not speculate on what the WCI plan will entail or which route -- auction or giveaway -- Richardson supports. But she said auctions may make more sense on a national scale. The WCI membership is a patchwork of states, and three of New Mexico’s four neighbors are not members — Texas, Colorado and Oklahoma. Forcing a New Mexico business to buy carbon credits could favor competing businesses across the state line, she said.

 

At least one proposal circulating in Congress on the U.S. cap-and-trade plan suggests a combination of giveaway and auction. According to the Fortune article, the plan calls for giving half the credits away and auctioning the rest. Among the recipients of free credits would be state governments, would could sell their shares.

 

Another variation in the auction vs. giveaway debate is the cap-and-dividend plan. Advocate Peter Barnes suggests placing a cap not on carbon emitters, but on those who sell carbon-based fuels — oil, coal and natural gas — which is a smaller and more easily administered group. The sellers would buy credits, but virtually all the money would go directly to U.S. citizens to help pay their personal share of the greenhouse gas problem. It keeps the government out of the equation and requires far less bureaucratic oversight than capping emissions.

 

If the WCI plan coming out Tuesday does suggest a minimum percentage of the credits be auctioned, de Place said it will be interesting to see how the governors react, given that it was their concern about climate change that spurred creation of the WCI. “These governors see themselves as climate leaders,” he said.

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