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Stavins says that the bill is better than the alternative–regulation by the EPA. Under the bill, companies would be free to select the cheapest methods for reducing emissions. They could also decide to buy allowances from other companies that have found cheaper ways of reducing emissions. Regulations typically aren’t as flexible, which makes them more expensive. “The regulatory approach is going to be hideously costly,” he says.

Based on an initial review, Duke Energy, a large utility in the South and Midwest, also supports the bill, says Kevin Leahy, the company’s managing director for climate policy and economics. That’s because it sends a clear signal about what kinds of power plants and efficiency measures the utility should be investing in over the coming decades. Its approach to reducing greenhouse gas emissions is “the most cost effective and the least harmful.”

The utility wants to have a clear greenhouse gas policy in place, he says, because “it’s not in your interest, when you’re investing a billion dollars in a power plant, to have new regulations sprung on you that may force you to shut it down in five years.” He says that the bill is “quite an improvement over previous bills,” because of measures to ensure that costs will rise gradually over time, rather than jump suddenly. For example, the bill directs more money raised from the sale of allowances to consumers and businesses, to help offset costs. “There’s no economic shock in any one year,” he says. “Initially, our analysis shows almost no electricity rate impact in the Carolinas, and a very small impact” elsewhere, in areas that rely almost entirely on coal for power, he says.

If the bill doesn’t pass, Leahy says, electricity rates could go up either because of EPA regulations or because uncertainty about future regulations will require the utility to hedge its bets by investing in a variety of power plants, some of which won’t prove to be the cheapest in the long run.

Critics of the bill say there should be more incentives for businesses and consumers to conserve energy by making them pay more for carbon-intensive energy. By offsetting higher electricity prices with rebates and other measures, “you’re sending about as confused a message as you can imagine,” says Michal Moore, a senior fellow at the Institute for Sustainable Energy at the University of Calgary in Alberta.

Supporters of the bill have been presenting it as a way to reduce petroleum consumption, particularly in light of the ongoing oil spill in the Gulf of Mexico, but Gilbert Metcalf, a professor of economics at Tufts University, says that’s just a “sideshow.” The primary impact of the legislation will be reducing carbon emissions from coal, he says. The proposed bill’s caps on greenhouse gases affect coal far more than oil, because burning coal emits more carbon dioxide. And the caps will do their job well, he says. “The short-term goals are achievable at a cost that won’t be noticeable to households, for the most part,” he says. The long term goals “depend on technology that doesn’t exist yet,” he says. “But this is a strong nudge to get us going.”

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Credit: Jimmy Thomas/Flickr

Tagged: Energy, climate change, greenhouse gases, coal, oil, nuclear, carbon capture, energy policy, legislation, Duke Energy

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