NCEP recommends 50% allocation of GHG allowances to industry

Washington (Platts)--15Mar2007

An expert commission is recommending that a national climate-change
policy should contain an emissions trading scheme that allocates 50% of its
total emission allowances to industry, a move the group thinks would advance a
consensus to cap greenhouse gas emissions.

Already, the new white paper by the National Commission on Energy Policy
on allocating GHG emission allowances had the electric utility industry and
the environmental community weighing the proposal.

The Edison Electric Institute in the past has favored a straightforward
allowance allocation over an auction of these devices, by which emitters can
comply with a GHG cap with less additional cost. Now, the investor-owned
utility lobby "will discuss with members ways in which an auction scheme could
be equitable to the regulated entities and beneficial to the customers," EEI
spokesman Dan Riedinger said.

Environmentalists have long advocated an auction system, but Clean Air
Watch President Frank O'Donnell said NCEP "is probably correct that a pure
auction system has potentially insurmountable political challenges."

The NCEP argues the merits of giving away 50% of a pool of GHG
allowances to major energy producers or consuming industries and providing the
other half to "public purposes," such as mitigating the cost of addressing
climate change to low-income consumers or investing in low-carbon
technologies. The independent panel of academics, industry and former
government officials, however, recognized in its paper released Wednesday that
the debate on that component of an economy-wide GHG cap and trade program will
remain contentious.

"Since it will not be possible to distinguish winners from losers at the
individual firm level, a 50% free allocation will undoubtedly result in some
over-compensation to firms that will be competitively advantaged under a
greenhouse gas trading program," the NCEP paper said. "The commission believes
this is a legitimate trade-off in the interest of addressing legitimate cost
concerns among some industry stakeholders and to advance the prospects for
reaching a political consensus."

--Cathy Cash, cathy_cash@platts.com