Slump Slows Carbon Efforts

Slump Slows Carbon Efforts

Location: New York
Author: Ken Silverstein, EnergyBiz Insider, Editor-in-Chief
Date: Thursday, October 30, 2008

The economic downturn is pulling under the sweeping attempt in this country to cap carbon emissions. Until an uptick occurs, the focus will be altered and now concentrate on making gradual adjustments to limit greenhouse gas emissions.

The global liquidity crisis is not just grabbing headlines. It's also causing a shift to the new paradigm. With credit tight, utilities and other industries are trying to preserve their cash and reduce their debt. It's now more about survival and less about cutting carbon emissions.

"There's no question that the sick economy will cast a shadow over an economy-wide plan to restrict carbon dioxide emissions," says Frank O'Donnell, executive director of Clean Air Watch. "It was already an uphill climb. Now the hillside is even steeper.

"There are still opportunities and I don't think Congress should put the measure on hold. There is long-term financial harm in doing nothing. But the politics now make it tougher. We can still act: Look at the challenge in pieces rather than the whole enchilada at once."

While the nation's priorities have been temporarily modified, the overall goal of cutting those heat-trapping emissions has not evaporated. Indeed, whoever is elected president of the United States has vowed to keep the issue warm in the minds of Americans while the Democrat-led Congress has said the topic will top its agenda. Their argument remains that a transition to the new model will not just save the planet from heat waves and other forms of environmental devastations, it will also benefit the U.S. economy.

Given the financial slump, experts say that carbon dioxide emissions that are tied to climate change are expected to increase only slightly when compared to the year before. According to a recent report by the United Nations, the rate of such carbon emissions jumped by 3 percent in 2007. UN scientists, who have authored a well-received report on global warming, say that those releases must be cut at least in half by 2050 if the environment is to be sustained.

Various bills are now working their way through the congressional maze. One such measure in the House would utilize a cap-and-trade system that would require the country to cut its greenhouse gases by 6 percent from 2005 levels by 2020. That would rise to 44 percent by 2030 and 80 percent -- the absolute safety level that UN scientists are suggesting -- by 2050.

Under a cap-and-trade system, utilities and other industries covered by the law would be able to purchase credits if they are unable to meet the requirements. Any revenues from the sale of those credits would be used to fund the advancement of clean energy technologies. An aggressive move is afoot, however, to at least initially give away those credits so as to jumpstart such a program. When the economy rebounds, they could then be auctioned.

Hunker Down

Even Europe that has led the effort to limit greenhouse gas emissions is taken aback by the financial turmoil. Overall, though, the continent remains committed to the cause, although some countries there are expressing concerns over losing an economic edge to those nations that have taken less aggressive approaches. To halve carbon emissions by 2050, the International Energy Agency in Paris pegs the overall cost at 1.1 percent of total global economic output during this time period.

On a practical level, that would mean building dozens of new nuclear plants each year as well as countless wind and solar farms -- energy forms that produce little to no carbon emissions. It would also mean converting older coal-fired power plants to modern facilities that could capture and sequester carbon dioxide. To create the incentive to move in this direction, the international agency says that the price of carbon credits would need to far exceed the cost of actually implementing those new technologies.

Senator James Inhofe, a Republican from Oklahoma who is a chief critic of global warming, said that his House colleagues should not be highlighting the carbon measure now while the country is fighting off recession. In a blog entry noted in one news report he writes, "The current economic crisis only reinforces the public's wariness about any climate bill that attempts to increase the costs of energy and jeopardizes jobs."

It is an uncertain time for everyone, especially for utilities. They are pressed from many angles, not the least of which is the need to expand their generation, transmission and distribution infrastructure so as to meet the expected future demand for power.

As Sierra Energy Group vice president Warren Causey and this writer said in a mutually-authored blog, utilities appear relatively stable when contrasted with the banking institutions. But they have just emerged from the post-Enron deregulation financial morass. With few exceptions, they are not strong enough to fund environmental and infrastructure projects out of cash flow and as such, most need solid lines of credit -- money that is tough to get right now.

Being regulated entities, utilities operate on relatively narrow margins tightly controlled by state commissioners. They are not cash cows. The "hunker down" option seems the only one readily available to them and one they already are beginning to embrace. JEA in Jacksonville, FL, one of the leaders in advanced technology, said that it will be slashing its capital budget from $700 million to about $183 million, primarily because of the difficulty with financing municipal bonds in the current credit crunch. Other utilities are likely to follow suit.

The need to move away from fossil fuels and toward those energy sources that are environmentally friendly is still a noble cause. But it is also an expensive proposition. Until there is a global economy recovery, the colossal effort to de-carbonize society will have to downshift.