Power Sector Views on Cost Containment

Eric HoldsworthDirector, Climate Programs

NARUC Task Force on Climate PolicyWashington, DC

May 30, 2008

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EEI Climate Principles

Developed to guide power sector in climate debate

• Alignment of targets and timetables with widespread commercial deployment

• Cost containment mechanisms– Economic safeguards– Offsets

• International comparability/engagement of major trade competitors

• Funding of climate technology research, development and demonstration

• Economy-wide approach to carbon reductions

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EEI Climate Principles

Four pillars for addressing cost containment:

1. Aligning targets and timetables with technology development timeframes

2. Economic safeguard• Safety valve/price collar• Carbon Market Efficiency Board• Banking/borrowing

3. Offsets

4. Allowances

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Climate Targets &Technology Availability

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Cost Containment

1. Safety valve/price collar• Would let an entity know its maximum financial liability, which

helps with long-term financing of major projects• Prevent severe economic disruptions, particularly in near-term

2. Carbon Market Efficiency Board• Economic impacts shown to date would not be lessened by

CMEB• Can borrow from 2031-2050 pool (6,000 MMT)

- 475 MMT available in 2012 (declines thereafter)- Minimum price: $22-$30/ton in 2012; maximum price: ?

3. Banking/borrowing• 10% penalty for borrowing under L-W

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Offsets

• According to MIT and EPA, offsets availability has a larger impact on allowance prices than the availability or constraint of key enabling technologies

• Current version of Lieberman-Warner appears to be improved regarding offsets (more availability)

• There should be no limits to the use of offsets—quantity, project type, location, etc.

• Need to ensure projects are real, measurable and verifiable – can be done through standards, protocols

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Allowances

• Some free allocation of allowances will be necessary to mitigate cost impacts of climate bill

• Not like E.U. system – no windfall profits- Under L-W, power sector will be “short” allowances,

especially in the near-term- Even if fully allocated would still need more (offsets,

international markets, other?)

• Any auction revenues need to go towards the RD&D of advanced, clean energy technologies and measures

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Concerns About Cost Containment Auction

• Only ensures minimum amount of financial liability

• Drives up long-term allowance prices to meet near-term targets– Ensures that future reduction targets are even more

difficult and expensive to meet

• Will not dampen prices much – Entities will purchase and bank allowances for future use

• CCA minimum reserve price will dominate market pricing of allowances

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Contact Information

Questions or comments?

Eric HoldsworthEdison Electric Institute

Director, Climate Programs(202) 508-5103

eholdsworth@eei.org

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