Transcript Slide 1

Federal Climate Change Legislation:
Potential Impacts on Hydropower
Kyle Danish
Van Ness Feldman, P.C.
Northwest Hydroelectric Association Annual Conference
Portland, Oregon
1050 Thomas Jefferson Street, NW
February 19, 2008
Seventh Floor
Washington, DC 20007
(202) 298-1800
Millenium Tower
719 Second Avenue, Suite 1150
Seattle, Washington 98104
(206) 623-9372
Overview
• Potential timing and form of federal GHG
legislation
• Potential impacts on hydropower
o
Market impacts
• Higher prices for fossil fuel-fired generation
o
Allowance impacts
• On the basis of load
o
Funding impacts
• For new zero-carbon generation
2
Emerging Federal Legislation
• Question has shifted from if to when and how
• Drivers
o
o
o
o
o
Science
Public opinion
Democratic takeover of Congress
Supreme Court decision in Massachusetts v. EPA
State and regional action
• Possible timing
o
o
3
Enactment: 2009, 2010, 2011
Effective date: 2012, 2013, 2014
Status of Legislation
• House of Representatives
o
Focal point
• Energy and Commerce Committee
– Chairman John Dingell
• Air Quality and Energy Subcommittee
– Chairman Rick Boucher
• Senate
o
Lieberman-Warner Climate Security Act of 2007
• Reported out of the Environment & Public Works Committee in
December 2007
• Possible Senate vote in May-June
• Not clear that it will pass, but L/W bill is current template for
consideration.
4
Cap-and-Trade Basics
• Set a cap on emissions for group of sources
o
Can decline over time
• Distribute allowances equal to the cap
o
Each allowance equals a right to emit one ton
• Sources must submit allowances for their emissions
• Sources can buy and sell allowances
o
o
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High cost sources buy allowances from low cost sources
Cap is met through lowest-cost combination of actions
Design of Lieberman-Warner
• Cap-and-trade with annually declining cap
o
o
o
2012 = 2005 level of emissions
2020 = 1990 level of emissions
2050 = 70% below 2005 level of emissions
• Points of regulation
o
o
o
o
o
Consumers of coal (submit allowances for direct CO2 emissions)
Natural gas processors and importers (submit allowances for CO2 emissions
imputed to use of product)
Petroleum refiners (submit allowances for CO2 emissions imputed to use of
product)
Sources and producers of non-CO2 gases
No allowance submission requirements for hydropower
• Distribution of allowances
o
Mix of auction / free allocation
• Trade sanctions for imports from uncapped countries
6
Cost Containment Under
Lieberman-Warner
• Trading of allowances
o
o
Banking
Borrowing
• Limited credit for pre-program emission reductions
• Ability to use “offsets” for compliance
o
Emission reduction projects at sources not reached by the cap
• Can use reductions from domestic projects to meet up to 15% of
compliance obligation
– Under Lieberman-Warner definition, hydropower capacity additions would
not generate offset allowances
• Can use international allowances to meet up to 15% of compliance
obligation
• Carbon Market Efficiency Board
o
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Can intervene if allowance prices turn out to be higher than expected
Stringency of LiebermanWarner
10000
No Controls
9000
Million Metric Tons CO 2e
8000
McCain/Lieberman
Bingaman/Specter
7000
1990 U.S. Emissions
6000
Sanders/Boxer
Lieberman/Warner
Kerry/Snowe
5000
4000
2005
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2010
2015
2020
2025
2030
Impacts on Electric Power
Sector
• Compare to McCain-Lieberman bill
o
Less stringent than Lieberman-Warner bill
• DOE EIA study of McCain-Lieberman
o
Allowance Prices
• $22.20/tonCO2e in 2020
• $47.90/tonCO2e in 2030
o
Electricity prices
• 6-14% higher than the base case in 2020
• 16-25% higher than the base in 2030
o
Delivered energy prices in 2020
• Natural = 13.8% higher than base case
• Coal = 128% higher than base case
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EIA findings: “Non-hydro
Renewables”
• Overall
o
o
2030 base case = 9% of total generation
2030 McCain-Lieberman = 24-31% of total generation
• Biomass
o
o
>300% increase over base case by 2020
>800% increase over base by 2030
• Wind
o
o
>200% increase over base case by 2020
>250% increase over base case by 2030
• Implications for hydropower
o
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Value of hydropower should increase, particularly in wholesale markets
Allowance distribution
• The $120 billion question
o
Assume approx. 6 billion tons at approx. $20/ton
• “Old school”
o
Acid Rain program
• Distribute <90% of allowances for free to regulated generators
• “New School”
o
Emphasis on auction
• Phase-down free allocation in favor of auction over time
o
Use of allowances like money
• Transitioning fossil generators
• Promotion of clean energy
• Moderate impacts on rate payers
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Allowance Allocations in
Lieberman-Warner Proposal
Breakdown of Auction Proceeds*
2%
Allocation
.5%
7373.5% Auction
%
6.5
226.5%
3
%
4.5
5%
U.S. Farmers
and Foresters
Int’l Forest %
Rural
5%
1%
%2%Elec.
Protection
2.5 1 Coops
2.5%
1%
1%
Natural Gas
Distributors
2%
Landfills/Coal
Mines
1%
%
.5
72
%
11
.5%
69
.5%
30
5%
5%
2.
9%
1
Energy
Assistance
Fund
18%
Energy Technology
Deployment
52%
.5%
Natural Gas
Distributors
2%
Auction
69.5%
36
12
1%
2%
Wildlife
Adaptation
18%
2.7
5%
Landfills/Coal
Mines
1%
(% of total available proceeds)
30
.5 %
Load
Serving
Entities
9%
30.5%
Worker
Training
Program
5%
Breakdown of Auction Proceeds
12
.75
%
Allocation
Nat’l
Security
Program
5%
3.7
5%
3.7
5%
2030
States
11%
Nat’l
Security
Program
5%
Worker
Training
Energy
Program
Transformation
5%
2%
*Note: 5% of the 2012 auction allowances will be used
for early auction and decline to 0% in 2015.
Breakdown of 30.5% Allocation
Int’l Forest
Protection
2.5%
U.S. Farmers
and Foresters
5%
Wildlife
Adaptation
18%
1.12.52
%
5%
2%Importers
%
4.754.75%
%
Load
Serving0%
1
Entities
9%
States
9%
11%
(% of total available proceeds)
Energy Technology
Deployment
Energy
52%
Assistance
18%
2012
74%
5%
10
M
Geologic
Carbon %
4
Sequestration
4%
an
uf
a
10 ct
% uri
ng
Electric
Power
%
Generators
19
19%
Early
Action
5%
Oil Importers/
Producers HFC
2%
2% Producers/
14%
Breakdown of 73.5% Allocation
Fine Print on Lieberman-Warner
Power Sector Allocations
•
•
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Fossil-fired generators receive a 20% allocation that declines to zero in 2031
o
Rural electric coops are first in line to receive allowances, specifically a 1%
allocation with a special set aside for Virginia and Montana coops
o
New entrants (including coops) are second in line to receive allowances
based on a national CO2 rate achieved by all fossil-fired generators during
5-year period
o
Existing generators (including coops) are last in line to receive allowances
based on historic CO2 emissions achieved during 3-year period
o
Hydropower does not qualify.
Load-serving entities (LSEs) receive a permanent 9% allocation
o
Allocation is based on electricity delivered (similar to output standard).
o
Allowances must be used to mitigate rate impacts for low- and middleincome consumers or promote energy efficiency among consumers.
o
Hydropower does qualify.
Lieberman-Warner:
U.S. Cap and EGU Allocations
US CAP
Incumbent Allocation
New Entrant
Rural Electric
Load Serving Entities
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Allowance Allocations in
Lieberman-Warner Proposal
Breakdown of Auction Proceeds*
2%
Allocation
.5%
7373.5% Auction
%
6.5
226.5%
3
%
4.5
5%
U.S. Farmers
and Foresters
Int’l Forest %
Rural
5%
1%
%2%Elec.
Protection
2.5 1 Coops
2.5%
1%
1%
Natural Gas
Distributors
2%
Landfills/Coal
Mines
1%
.5%
30
%
.5
72
%
11
9%
.5%
69
5%
2.
5%
1
Energy
Assistance
Fund
18%
Energy Technology
Deployment
52%
.5%
Natural Gas
Distributors
2%
Auction
69.5%
36
15
1%
2%
Wildlife
Adaptation
18%
2.7
5%
Landfills/Coal
Mines
1%
(% of total available proceeds)
30
.5 %
Load
Serving
Entities
9%
30.5%
Worker
Training
Program
5%
Breakdown of Auction Proceeds
12
.75
%
Allocation
Nat’l
Security
Program
5%
3.7
5%
3.7
5%
2030
States
11%
Nat’l
Security
Program
5%
Worker
Training
Energy
Program
Transformation
5%
2%
*Note: 5% of the 2012 auction allowances will be used
for early auction and decline to 0% in 2015.
Breakdown of 30.5% Allocation
Int’l Forest
Protection
2.5%
U.S. Farmers
and Foresters
5%
Wildlife
Adaptation
18%
1.12.52
%
5%
2%Importers
%
4.754.75%
%
Load
Serving0%
1
Entities
9%
States
9%
11%
(% of total available proceeds)
Energy Technology
Deployment
Energy
52%
Assistance
18%
2012
74%
5%
10
M
Geologic
Carbon %
4
Sequestration
4%
an
uf
a
10 ct
% uri
ng
Electric
Power
%
Generators
19
19%
Early
Action
5%
Oil Importers/
Producers HFC
2%
2% Producers/
14%
Breakdown of 73.5% Allocation
Value of Technology Subsidies*
50
45
40
CCS Bonus allowances
238
Adv Transportation
Cellulosic Ethanol
83
Subsidy, $B/year
35
83
Adv Coal/CCS
30
Zero/Low carbon
333
25
Potential funding
for new hydro?
20
535
15
10
Total Value: $1.3 Trillion
5
-
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*Approximate
values based on Bingaman “safety value” prices
Subsidies for Zero/LowCarbon Energy Technology
• Climate Change Credit Corporation receives and
distributes allowance auction revenues
• Share of revenues for “production of electricity
from new zero- or low-carbon generation”
o
Defined as a unit placed into service after enactment of
the Act
• Appears to exclude capacity additions at existing units
• Award is a contract to provide annual production
payment for 1st 10 years of service
o
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Based on competitive bidding process / reverse auction
Questions?
Kyle Danish
[email protected]
(202) 298-1876
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