WSJ.com : In Climate Controversy, Industry Cedes Ground
The global-warming debate is shifting from science to economics.
A growing number of these companies are pushing for a mandatory emissions limit, or "cap." Some see a lucrative new market in clean-energy technologies. Many figure a regulation is politically inevitable and they want to be in the room when it's negotiated, to minimize the burden that falls on them.
The biggest question going forward no longer is whether fossil-fuel emissions should be curbed. It's who will foot the bill for the cleanup -- and that battle is heating up.
In the center of the regulatory cross hairs are utilities. They're the world's biggest emitters of carbon dioxide, the global-warming gas that's produced whenever fossil fuels are burned. Written one way, a cap would help utilities in the Southeast or the Midwest, which burn lots of coal, a particularly carbon-intensive fuel. Written another way, a rule would help utilities on the West Coast, the Northeast and the Gulf Coast. They use mainly natural gas, which produces lower CO2 emissions than coal, and nuclear energy, which produces essentially no CO2.
The Big Three auto companies are making speeches and running advertisements calling on Big Oil to crank out more low-carbon alternative fuels such as corn-based ethanol. Big Oil, in its own speeches and ads, says the auto makers should build more-efficient cars.
The American Iron and Steel Institute, which opposes any emission cap, this month assigned an executive who had been working broadly on environmental issues to focus specifically on global warming. Some companies that oppose a cap argue it would raise their costs and hurt their competitiveness against rivals in developing countries such as China, where no cap exists.DuPont
Co., the chemical giant, heartily endorses a cap in part because it figures it would help boost demand for energy-efficiency products the company makes.Entergy
Corp., a utility that's also pushing for a cap, would likely benefit from her measure because the company's fuel mix includes a lot of low-carbon fuels.
Fossil fuels provided 80% of global energy in 2004, and they're on track to provide 81% in 2030.
Significantly curbing their emissions would require sweeping technological change, from more-efficient power plants and cars to the potential injection and burial of massive amounts of CO2 underground.
Another possibility would be to reduce the rate of growth in fossil-fuel consumption by supplementing the fuel mix with alternatives, from nuclear power to crops to the wind and the sun.
Outside the U.S., many countries already have modest experience in emissions caps, thanks to the Kyoto Protocol. The treaty, which hasn't been ratified by the U.S., requires ratifying nations collectively to cut their emissions 5% below 1990 levels by 2012.
Several Northeast states and California already have announced plans to impose emission caps of their own. And a handful of proposed federal caps are under consideration in Congress.
The federal proposals differ in the structural details of the "cap and trade" system they would set up to regulate CO2 emissions. Under such a system, the government would set a ceiling on how much CO2 the U.S. economy -- or whichever sectors lawmakers pick -- could emit each year. It would ink a corresponding number of pollution permits, each entitling the bearer to emit one ton of the gas.
Then, based on complex allocation rules it devises, the government would divide up the permits among companies. Those companies could buy and sell permits among themselves on a greenhouse-gas market like a Kyoto-related one already under way outside the U.S. Companies that decide it's too expensive to cut their own emissions enough to comply with their government cap would go to the market and buy extra emission permits from companies that ended up with more than they needed. The theory behind the market is to create an economy of scale that reduces everyone's cost.
Other regulatory structures are possible, including a straight tax on CO2 emissions. Politically, a cap-and-trade system is more popular than a tax. Environmentalists like the severity of an absolute ceiling on the amount of CO2 companies can emit. Industry likes the flexibility of a market in which permits to pollute can be bought and sold.
And cap-and-trade systems already are in use. The U.S. has had one for more than a decade to curb the pollution that causes acid rain, a regulation widely viewed as successful.Duke Energy
Corp., based in Charlotte, is the country's third-largest burner of coal, though it also has significant nuclear assets. It's pushing for permits to be distributed based on the amount of CO2 a utility has emitted in the past -- a system that would protect big coal burners such as itself.
Fighting Duke and other coal-burners are utilities such as Entergy. Based in New Orleans, it uses a lot of natural gas and nuclear fuel. Unlike Duke, Entergy wants permits to be distributed based on a utility's total electricity output -- a system likely to give low-carbon generators such as itself excess permits they could sell.
They already face a kind of carbon limit in the federal government's longstanding fuel-economy standards for cars and trucks, because vehicles that burn less gasoline emit less CO2. Those rules give auto makers extra credit for building versions of their conventional vehicles they've modified to run on either gasoline or ethanol. Very few of those vehicles actually wind up running on anything but gasoline. But the credits let the auto makers build more thirsty sport-utility vehicles and pickup trucks -- the industry's bread and butter, particularly when oil was cheaper.
Auto officials who declined to be named said the industry probably will accept some toughening of the fuel-economy standards. But in return, it may seek bigger credits for selling vehicles that burn less oil, including those that can run on ethanol.
In November, Rex Tillerson, Exxon's chairman and chief executive, called in a speech for "steps now to reduce emissions in effective and meaningful ways." Then he listed two: boosting automotive fuel economy and cutting emissions from coal-fired power plants.