US Compliance
Figure 1: US Carbon Price Projections, 2005 US$/tonne
wider context of energy,
environmental and economic
policies, where multiple benefits
such as energy diversity and
security, use of non-depletable
resources, innovation and
employment opportunities come
into play.
The US Congress has already
addressed a federal RPS target
but has repeatedly failed to
achieve the support necessary to
establish a nationwide standard.
Attempts are currently underway
to re-examine the issue with the
aim of extending the standards
beyond the roughly 28 US States
Source: Point Carbon
that already have statewide targets in place. Chances for a investors than continued uncertainty over future
national RPS scheme have improved significantly on the back environmental costs. Unsurprisingly, this imperative has
of more aggressive financial incentives in the recent stimulus encouraged a number of large energy sector companies and
bill and mounting concerns over climate change and energy investors to support cap-and-trade legislation.
security. The magnitude of the carbon price signal will be decisive in
Whilst the penetration of renewable power can become an how investors and the energy industry respond. Judging from
interesting contribution to climate change over time, other the economic modelling and analysis that has been
sources of power generation will also remain more important performed, there seems to be little consensus over how a cap-
in the context of contributing emissions reductions. Renewable and-trade programme may evolve. Figure 1 shows a number of
energy sources are mostly intermittent economic analyses that have been
by nature and their access to the grids
Coping with a price on carbon
performed to estimate carbon prices
may be delayed or limited by lack of
timely transmission capacity. The
is less of a concern to investors
following the Lieberman Warner
Climate Change Security Act and bills
geographic and operational flexibility
than continued uncertainty over
of similar stringency.
of natural gas based power combined
future environmental costs
While at first it may seem that
with limited financial exposure will analysts have no clue where prices are
put combined cycle natural gas plants in a more competitive heading, differences in estimates in most cases can be
position as carbon costs hit wholesale power markets. With a attributed to differences in assumptions about critical price
carbon intensity less than half of coal, natural gas is likely to drivers that are inherently uncertain. Such assumptions could
play an important role as a short to medium-term mitigation be important design features of the programme or access to
option for the US. In the longer-term, we may see a resurrection and future cost of generation technologies.
of a US nuclear power industry and deployment of carbon It remains to be seen how a new cap-and-trade bill coming
capture and sequestration technologies for coal plant. out of Congress will look. The proposal may impose a softer
However, there are significant technical and political issues cap in the initial years which, combined with recession, may
that may impair or delay large-scale deployment of both of introduce a weaker price signal. However, such an option
these technologies. would need to be succeeded by a steeper reduction of the cap
in the later years to reach emission reduction targets.
A Price on Carbon – What Price?
In the face of mounting reinvestment programmes, many Offsets – A Market Based Safety Valve
utilities have called for clarity over their future environmental A critical driver for determining the price of carbon are the
liabilities. Coping with a price on carbon is less of a concern to rules controlling the ability of using offsets for compliance.
worldPower 2009 101
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