Carbon Cap and Trade Bill Passes

James Cerwinski
July 13, 2009

It was a historic moment when the house passed the carbon cap and trade bill on June 26th. This is confirmation of a major shift in US policy on the topic. The following post explains the certain outcome you need to plan for.

There has been much debate on the details on the bill — the good, the bad and how it might be modified when the senate takes up the debate. I will leave that debate to others.

From my perspective, one certain outcome is that the price of electricity will rise. Therefore, you need to prepare to be more energy efficient now.

The following confirms the direction.

• The congressional budget office and the EPA forecast that energy prices will increase due to this legislation.
• Ralph Izzo, the CEO of PSEG Energy, is quoted as “yes ,energy prices will rise”

Key provisions of the bill

1. Mandates that 20% of electrical demand be met with renewable sources by 2020. If you assume utilities are using the lowest cost fuel today - a mandated shift to another source will mean a shift to a higher cost source otherwise you would not have to mandate it. Higher cost fuel sources mean higher prices.
2. Mandates a 17% reduction of greenhouse gas emissions by 2020 and 80% by 2050. This will likely require utilities to both shift fuel sources and purchase new technology to reduce emissions from burning coal. Increased capital expenditures will mean higher prices.
3. Mandates new energy standards for buildings and industry. This could result in unforeseen demand shifts — large demand increases in areas that shift to “plug in cars” and falling demand in other areas. A large change in demand will result in a price change . The law of supply and demand does not always work in the regulated world, often a drop in demand can result in a rate increase since prices are determined by return on equity.

I hope for the best, but plan for the worst. I hope we realize all the promised benefits. But you need to plan for higher electric rates.

Share your energy savings strategies.

James Cerwinski