Subject: Best Mercury Approach is “Create and Trade”
If the presently proposed “Cap and Trade” mercury rule is supplemented by “Create and Trade”, environmentalists will be happy and utilities will not be displeased according to Bob McIlvaine of the McIlvaine Company. He asserts that the adoption of “Create and Trade” as a supplement to “Cap and Trade” would eliminate the confrontation and would result in the rapid adoption of cost effective mercury reduction.
A discussion of this plan will take place on February 17 at a meeting sponsored by the Center for Clean Air Policy (CCAP). This association was formed by a group of state governors in 1985 to develop and promote innovative policy solutions to energy and environmental problems. For more information on this meeting e-mail: general@ccap.org .
The proposal has been formally submitted to EPA as part of the comments on the mercury rule. The full text is available at: http://www.mcilvainecompany.com/comments_to_neshap_for_utilities.htm .
EPA has recognized the need for a supplemental program to insure that technologies are available and proven at the time of the cap reduction from 34 to 15 tons. “Create and Trade” would not only serve this function, but would make “Cap and Trade” irrelevant says McIlvaine. In fact, if mercury reduction can be accomplished as cheaply as claimed by the environmentalists, then mercury emissions would drop to 5-10 tons within a few years of implementation of “Create and Trade”.
In one sense “Create and Trade” is a refinement of a CCAP suggestion for additional incentive allowances for early implementers of efficient mercury removal technologies. Under “Create and Trade” the number of allowances is actually created by the reducers and not pre-determined. It provides a substantial and predictable payment for the early reducer (extra allowances do not provide this certainty). It also creates a “deficit cap” for the non-reducer. So you have both the carrot and the stick. Those that make big early reductions are in effect paid by those who do not.
Utilities will like this plan because of the cost ceiling and the certainty. The plan is formally titled “Destination Based Early Mercury Reduction Program” because it insures travel to the true destination which is “cost effective mercury reduction”. This destination by consensus of the ratepayers is about 1-2 percent increase in electricity rates for 80-90 percent mercury removal. So, utility risk is reduced to this amount.
The number of allowances and the deficit cap are all determined by the utilities initiating reductions. The early reducers generate allowances based on pounds removed multiplied by the percentage reduction. This sets a great incentive for highly efficient technologies.
An investment in an 80 percent reduction technology in 2007 could net payments equivalent to 5 percent or more of present rates for the implementing utility. Such an attractive potential return will more than justify the risk.
If other utilities do not adopt similarly cost effective technology, the implementing utility will continue to enjoy this windfall. But the more likely scenario is quick adoption of this technology by the other utilities. At this point the payments to the early reducer are diminished or eliminated. Nevertheless, the early reducer will have received substantial payment for an investment he would have eventually been forced to make anyway.
Continuing analyses of power plant environmental issues are provided in the McIlvaine Power Plant Knowledge System. For more information on this service, click on: http://www.mcilvainecompany.com/energy.html#44I .
Bob McIlvaine
847-784-0012