Transcript Document
February 28, 2005 SUSTAINABLE ENERGY ROUNDTABLE SERIES:
MULTI-POLLUTANT LEGISLATION
CALPINE
Peggy Duxbury, Calpine Corporation
CALPINE
CALPINE OVERVIEW
Multi-Pollutant Legislation
Power Portfolio
Operation Construction Development
TOTAL
26,500 mw 5,500 mw 16,000 mw
48,000 mw
Fuel
Natural Gas Geothermal 98% 2% February 28, 2005 1
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CALPINE POWER PORTFOLIO
WECC In Operation – Gas-Fired (73 plants) In Operation – Geothermal (19 plants) Under Construction (11 plants) Multi-Pollutant Legislation MAPP SPP ERCOT MAIN ECAR NPCC-O NPCC-NY MAAC NPCC-NE UK SERC MEXICO FRCC not to scale February 28, 2005 2
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ENVIRONMENTAL EXCELLENCE
Calpine’s Average Fossil Emissions Compared to US Fossil Average (lb/mw-hr) (1) : Nitrogen Oxides
– a major cause of smog
93.8% Less Sulfur Dioxides
– a major cause of acid rain
99.9% Less Carbon Dioxides
– the principal greenhouse gas, a contributor to global warming
49.6% Less Mercury
– a neurotoxin, damaging to the development of the fetus, infant and young children
100.0% Less Particulate Matter
– Contributor to respiratory problems
78.2% Less
(1) The average emission rates for the U.S. fossil fuel fleet were obtained from U.S. DOE Electric Power Annual, Mercury Study Report to Congress, and The National Air Quality and Emissions Trends Report. Multi-Pollutant Legislation February 28, 2005 3
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GOALS FOR MARKET-BASED ENVIRONMENTALISM
Protect human health and the environment Harness tools of economics to achieve cheaper, faster environmental goals.
Allows markets – not regulators – to determine most cost-effective approach to environmental protection Multi-Pollutant Legislation February 28, 2005 4
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KEY ISSUES IN ESTABLISHING A CAP AND TRADE SYSTEM
Targets and Timelines
How much to cut?
How fast?
Single or Multi Pollutant
Should carbon be included?
Should mercury be traded?
Allocation Methodology
Input?
Output?
Auctions?
Fuel Neutral/Fuel Specific?
Baseline Calculation
Periodic updating?
Grandfathering?
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OUTPUT VERSUS INPUT
EXAMPLE 1: Sam & Judy are competitors in a pizza delivery service. Both drivers need ‘exhaust tokens’ to drive. Sam’s car consumes 4 gallons over 40 miles while Judy’s consumers 2 gallons over 40 miles. Sam’s car emits twice the exhaust as Judy’s
.
Under input allocation
favor (
, Sam’s gas guzzler is advantaged over Judy’s fuel efficient car.
Under output allocation,
Judy’s investment in fuel conservation and lower emissions is recognized.
Common sense tells us that a market-based program should
or at least not penalize
) Judy.
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UPDATING VERSUS GRANDFATHERING
Example Two:
Three years later, Tony moves to town because of the growing demand for pizza. He purchases a hybrid car that needs ½ a gallon to drive 40 miles, with comparable savings in emissions.
Under grandfathering
, Tony will need to purchase 100% of his tokens in order to drive for decades to come. He pays competitors (Sam and/or Judy) for this ongoing operating cost – even if one of the incumbent cars is retired.
Under periodic updating,
Tony will eventually be given equal treatment with Sam and Judy
Competitive, dynamic economies should welcome new entrants, not create life-long entitlements. Periodic updating provides a balanced, phased-in approach between old and new sources.
Multi-Pollutant Legislation February 28, 2005 7
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S. 131: The Clear Skies Act of 2005
Uses cap and trade program Applies to multiple pollutants Establishes timelines and targets Replace other aspects of the Clean Air Act Multi-Pollutant Legislation February 28, 2005 8
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S. 131: The Clear Skies Act of 2005 (Cont)
Flaws w/ Clear Skies Allocation Methodology:
Input, not output No updating for new entrants / new sources New Source Set Aside far too small Early action and past good behavior is mostly punished through lower allocation allowances Multi-Pollutant Legislation February 28, 2005 9
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S. 131: Clear Skies Act of 2005 (Cont)
Calpine Fleet Combination of Judy and Tony
Most plants too new to receive ANY allowances
Others will receive few allowance due to low capacity factors, high efficiencies and low emission levels.
No Good Deed Goes Unpunished
Low state NOx permits levels lead to even fewer allowance for cleanest generators (Calpine’s Fleet w/ SCRs = 75% / Industry Average = 13%)
Key states will also face challenges
Fast growing states that need more generation (CA) States that have made recent gains in efficiency (TX) Multi-Pollutant Legislation February 28, 2005 10
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Conclusion
Multi-Emissions Policies w/ Output & Updates
Creates strong incentive to invest in efficiency and lower emitting generation
Focuses on results, not inputs
Leaves room for clean coal (IGCC) w/out taxpayer subsidies
Accelerates the upgrading of aging power fleet
Allows many co-benefits – including lower CO2 emissions
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February 28, 2005
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