Greenhouse Gas Emission Credits and Other Competitive Strategies for Electric Utilities April 1999
13
Editors Note: This ar-
ticle contains informa-
tion from presentations
and keynote addresses
delivered at the Electric
Utilities Environmen-
tal Conference held in
Tucson, AZ, January
1113, 1999. Portions
were excerpted from press coverage of the
conference as reported by Alec Zacaroli in
the January 15, 1999, issue of the Envi-
ronment Reporter, published by the Bu-
reau of National Affairs, Inc., Washington,
DC. The conference, organized and chaired
by Dr. Prabhu Dayal, was attended by
nearly 600 environmental professionals.
INTRODUCTION
The Electric Utilities Environmental
Conference, in its third incarnation, has
gained national recognition and cred-
ibility among environmental profession-
als and experts from the industrial,
government, consulting, academia, and
regulatory sectors. The previous two con-
ferences, sponsored by the Air & Waste
Management Association, called Acid
Rain & Electric Utilities, were held in
January 1995 and 1997 in Scottsdale, AZ.
This years conference was cosponsored
by the U.S. Environmental Protection
Agency (EPA), U.S. Department of En-
ergy (DOE), Electric Power Research In-
stitute, Edison Electric Institute, Electric
Power Supply Association, National As-
sociation of Environmental Profession-
als, Troutman Sanders, WEST Associates,
EM
Feature
and Tucson Electric Power Company.
More than 160 technical presenta-
tions were made during the three-day
program. Technical papers were pre-
sented on emerging new regulations,
impacts, solutions, practical examples,
and case histories. The topics covered fell
into one of three areas: (1) impact of
emerging new requirements on the elec-
tric utility industry for the control of
greenhouse gas (GHG) that affect global
climate change, (2) new regulations for
air pollution control and continuous
emission monitor requirements, and (3)
electric utility divestiture implications
and impacts from new regulations (new
source review, visibility, toxic release re-
porting requirements, and other regional
issues). Provided below is a synopsis of
the implications of the Kyoto Protocol
and the impact of impending GHG re-
duction requirements on fossil genera-
tion-dependent electric utilities.
GHG IMPLICATIONS AND
MANAGEMENT STRATEGIES
A number of industry representatives
cited the basic problems the industry and
the nation will face in making the ad-
justments needed to cut GHG emissions
by 7% from 1990 levelsthe U.S. com-
mitment under the Kyoto Protocol. Ex-
perts cited the nations heavy reliance on
coal, the potential for over-reliance on
natural gas, and the vast uncertainties
surrounding renewable fuels as some of
the major obstacles on the road to meet-
ing Kyoto targets. Many utility officials
and industry analysts noted the diffi-
culty, costs, and timing constraints for
the U.S. electric utility industry to
achieve massive emission reductions by
the Kyoto Protocols 20082012 first
budget period. At a November 1998 meet-
ing in Buenos Aires, Argentina, govern-
ments agreed that they would not make
final decisions until late 2000 on issues
such as international emission trading
that will implement the Kyoto Protocol.
Dirk Forrister, chair of the White
House Task Force on Global Climate
Change, stated in
his keynote address
the need for U.S.
electric utilities and
other companies re-
sponsible for GHG
emissions to spend
the next two years
preparing for cli-
mate change ini-
tiatives rather than
await the fate of
international ef-
forts to combat the
problem. Specific
details for imple-
menting the Kyoto
Protocol, such as
a g ree m ent s o n
em i ssi o n l i m i ts
and guidance for
trading and verifi-
cation, are not ex-
pect e d
t o
b e
finalized wit hin
Greenhouse Gas Emission
Credits and Other Competitive
Strategies for Electric Utilities
by Prabhu Dayal, Tucson Electric Power Company, Tucson, Arizona
Prabhu Dayal
In his keynote
address, Dirk
Forrister, chair of
the White House
Task Force on
Global Climate
Change, told
attendees that
the next two
years offer
companies a
great opportunity
to position
themselves as
active partici-
pants in the effort
to combat global
climate change. EM
Feature
14
April 1999
the next two years. Companies that de-
lay preparation could find themselves
at a competitive disadvantage in the fu-
ture, and the coming two years offer
companies a great opportunity to posi-
tion themselves as active participants in
efforts to combat climate change. He
stressed the importance of early action,
pointing out that the climate change is-
sue is real and emission reductions will
be eventually implemented. He added
that as utility restructuring takes place,
companies will find themselves branded
by consumers based on the position they
take on climate change.
Thomas Jensen of the law firm of
Troutman Sanders, L.L.P., explained why
utilities that engage in carbon manage-
ment today might be in a better posi-
tion to take advantage of future domestic
and international regulatory regimes re-
lated to GHG emission credits and
trades. Jensen also described proposed
legislation encouraging early reduction
of GHG emissions by awarding credit to
companies for reductions made prior to
2008. John Varholy, also of Troutman
Sanders, explained why companies in-
volved in projects overseas, or who are
upgrading or retrofitting facilities at
home, should consider and address the
issues of how best to allocate both the
risks inherent in an immature market
for GHG credits and the potential ben-
efits of credit ownership among the
projects sponsors from the beginning
of their negotiations.
Companies in the Lead
Many companies already have decided
to take action, Forrister said. For in-
stance, British Petroleum and Shell Oil
Co. pledged to reduce their GHG emis-
sions by 10% in coming years and
United Technologies pledged to boost
its energy efficiency by 25%. All of these
are global companies, Forrister said,
suggesting that some companies view
taking early action as a market advan-
tage. The pressure to act, in most in-
stances, is not necessarily coming from
the United States.
In his keynote
address, Illinova
Corp. Chairman
Charles E. Bayless
detailed the use of
various flexibility
mechanisms to re-
duce GHG emis-
sions such as (1)
providing technol-
ogy transfer to de-
veloping countries
using efficiency
projects to lower
GHG emissions
through
joint
implement at ion
with developed
countries; (2) developing land-use
changes or forest sinks that remove
GHG; and (3) trading GHG emission re-
ductions and purchasing GHG emission
reductions from projects approved un-
der the Clean Development Mechanism.
Forrister outlined a list of activities
companies can take to better position
themselves for making cost-effective
GHG reductions, such as (1) diversify-
ing their portfolios for controlling air
pollution by looking at renewable en-
ergy sources, efficiency measures, and
other technologies; (2) exploring joint
implementation pilot projects and mak-
ing strategic alliances with companies
in other countries; and (3) examining
the internal GHG trading systems that
companies such as BP are setting up.
Developing Country
Commitments
In a conversation with Alec Zacaroli, re-
porter for the Bureau of National Affairs,
Forrister reiterated the Clinton
Administrations position that it will not
seek ratification of the Kyoto Protocol
without meaningful commitments
from developing countries that they will
accept binding emission reduction tar-
gets. Forrister added that the Clinton
Administration is working through a
series of bilateral diplomatic efforts to
gain commitments from developing
countries. He described the meetings as
quiet conversations that mostly in-
volve educ