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It's more
than a milestone. It's a clear message to the American people. By passing a
comprehensive energy bill that includes carbon caps out of the U.S. House
of Representatives by a vote of 219 to 212, President Obama has a crossed a
threshold never achieved before -- one that sets out to change American
energy policy.
For the
last several years such a concept has languished in the halls of Congress
and often outside the doors of those most in tune with environmental
organizations. That's why the president can boast a victory even if the
measure were to stall in the U.S. Senate.
"President
Obama, however, will be able to claim that the nation has reversed the
course of the prior administration by passing a bill in the House,"
says Christine Tezak, a senior energy and
environmental policy analyst for Robert W. Baird & Co., Inc. "This
appears to have been the administration's goal."
Under the
bill, greenhouse gases must be trimmed by 17 percent from 2005 levels and
all by 2020. Utilities must also generate 15 percent of generation from
renewable energy sources by 2020. Energy efficiency gains of 8 percent are
required, too, by the same time. The overall goal is to cut carbon dioxide
emissions by 80 percent by 2050.
And while
the Democrats dominate the Senate, any measure must still win 60 votes to
sustain a filibuster there. Therefore, it will be the moderate lawmakers as
well as those from rural areas that control the ultimate outcome of the
bill. In coal country, for example, even the Democrats are naysayers.
The basis
of those concerns is whether global warming is man-made. Skeptics are
becoming increasingly vocal that the current warming trends are the result
of natural weather patterns and not carbon emissions from power plants and
automobiles. Not only is such legislation not necessary, they claim, but it
is also expensive. Its costs would be borne by consumers.
But
proponents of the measure say that those concerns are overblown. They say
that the money earned from selling carbon allowances would be split between
the development of new technologies and with customers, who would be
guaranteed stable rates. The Congressional Budget Office estimates that the
bill would have an average annual cost of $175 per household by 2020. The
Environmental Protection Agency projects that the bill would cost American
households $80 to $111 a year.
Financial
Risks
Households
are one segment. Businesses are another. An analysis by the Investor
Responsibility Research Center Institute and Trucost
concludes that the earnings of most companies would be relatively
unaffected by the passing of pending carbon legislation. A few of them,
however, could see much higher operational costs as a result.
The
utilities sector is the most carbon intensive, they say, emitting about 59
percent of greenhouse gases from companies that are in the Standard &
Poor's 500. It therefore faces the highest financial exposure to carbon
costs. If the 34 utilities analyzed in the study were to pay for each
metric ton of emissions, carbon costs could reduce their combined earnings
by 45 percent, the study says.
The
financial risk varies. The examination finds that earnings could drop
anywhere from 1 percent to as much as 117 percent if carbon costs are
incurred. Within the S&P 500, it says that 203 of them would experience
1 percent hits while 71 would see earnings fall by 10 percent or more. The
greatest variation is in the most carbon-intensive sectors -- a risk that
is currently not reflected in companies' financial statements but one that
would be if carbon constraints become real.
"The
cost of carbon emissions has been passed to the public and not reflected in
the financial statements of companies," says Jon Lukomnik,
a director of the institute, which commissioned the study. "The
analysis makes clear that a cap-and-trade system is a real game changer. A
number of companies will have to reform how they think about carbon
emissions and the associated costs, or their bottom line will suffer
greatly."
He goes to
say that companies could be caught off guard if they do not understand the
complex nature of the bill that might ultimately become law. In fact, Lukomnik says that two-thirds of the S&P 500 has
inadequate greenhouse gas emission disclosures. Simon Thomas, chief
executive of Trucost, adds that companies must
begin immediately to measure and reduce their carbon emissions if they are
to thrive in the new environment.
Consider
American Electric Power, which has one of the nation's largest coal-fired
fleets: Its chief executive, Michael Morris, is saying that mandatory
greenhouse gas reductions could put a significant strain on the economy.
But if the policy is implemented alongside others that help facilitate the
advancement of new technologies into the market, it will work without
hampering economic growth. Among the ideas: carbon capture and
sequestration, which his utility is now testing and which will get federal
funds.
The energy
measure's aim is to raise the cost of fossil fuels and thereby encourage
the development of more renewable energy. But if the ultimate proposal is
to win over lawmakers from the nation's coal regions, it must satisfy their
concerns. Given that they now hold the most sway, more concessions may be
forthcoming. That may serve to dilute the president's aspirations, but an
all-out victory nonetheless will still allow him to boast that the country
has entered a new era.
More
information is available from Energy Central:
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