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Posted: September 01, 2008

Colorado not ready to crack down on carbon

The Ritter administration is watching — but not joining — a regional cap-and-trade plan

Allen Best

The market-based cap-and-trade mechanism for reducing carbon dioxide and other greenhouse emissions is coming rapidly — perhaps as soon as 2012 in the West.

Colorado is on the sidelines, taking notes. Despite the campaign of Gov. Bill Ritter to establish a clean energy economy, he elected not to join the Western Climate Initiative. Rules for the emerging market are instead being hammered out by seven states and three Canadian provinces. Their goal is to reduce greenhouse gas emissions 15 percent by 2025, and between 50 percent and 85 percent by mid-century.

Few people still debate the merits of reducing greenhouse gas emissions. But there’s a lively debate about how to achieve those reductions. The debate is particularly sharp in Colorado, where there are vast stores of coal, gas and oil. Some say the state’s economy could be wrecked by a well-intentioned but impractical market mechanism that fails to recognize the role that hydrocarbons will play for decades more. Renewables such as wind and solar cannot begin to fill that gap, they say.

The Ritter administration is only observing Western Climate Initiative deliberations because it expects this and other regional efforts to be superseded by federal action.

"Everybody thinks the feds will come up with a cap and trade," says Ginny Brannon, climate change manager for the Colorado Department of Public Health and Environment. "And if it is viable, these regional initiatives will collapse into that."

If Congress does not act, Colorado can reconsider whether the Western Climate Initiative is a good fit, she says.

Even as the dust settles on the "is it real?" debate about global warming, arguments are growing about how to best reduce emissions. One side advocates a straightforward carbon tax. The Wall Street Journal last year polled 50 economists, and 47 of them said the carbon tax would most effectively stimulate innovations.

A handful of states already have such watered-down taxes on carbon, commonly called public benefits fees, usually applied to electricity bills. The money is then redirected to energy efficiency and renewable energy projects. British Columbia in July began imposing a tax on gasoline, oil and gas that will escalate until 2012.

In Colorado, a group called Clean Energy Progress proposed a similar tax, a "fee" of $3 per ton of CO2 emissions. The group’s leader, J. Thomas McKinnon, a professor of chemical engineering at the Colorado School of Mines, said the tax would have increased heating and electrical bills 3 percent. The revenue would have been funneled to Ritter’s administration to fund energy efficiency projects.

"We’re just so wasteful of energy," he says. "It’s easy to have savings."

But McKinnon’s group is not seeking voter approval in November. The state’s mainstream environmental groups withheld support, opting instead to devote their resources to the fight for an increased severance tax. Without their access to donors who can write $25,000 checks for such a campaign, the proposal was doomed, McKinnon said. His group may return with the idea in 2010.

Tax increases are tough sales. That’s the major reason Congress has been sidling toward a cap-and-trade system. The most recent iteration was the hotly contested Leiberman-Warner Climate Security Act. Both major presidential candidates also favor cap and trade.
Cap-and-trade market mechanisms were implemented beginning in 1990 as a means of reducing emission of sulfur dioxide and nitrogen oxides from power plants, the primary source of acid rain. The caps monetized the pollution, giving companies incentives to find ways to reduce emissions, trading credits — and making money — for innovations.

Such a cap-and-trade system will soon be applied narrowly to C02 emissions from power plants by the Regional Greenhouse Gas Initiative, a consortium of nine states in the Northeast.

The Western Climate Initiative was spawned by California, which has managed in recent decades to expand its economy without a direct increase in its energy use. With Oregon and Washington, then Arizona and New Mexico, the collaboration has now spread to include Utah and Montana, plus the Canadian provinces of British Columbia, Manitoba and Quebec. The emissions system does not yet include transportation, but does include forestry practices, power plants and other sources of both emissions and sequestration.

Colorado utilities would be in the front line of impacts. More than 80 percent of electricity consumed in Colorado is produced by burning coal. Among the largest utilities is Tri-State Generation and Transmission, which distributes electricity to rural electrical co-ops in Colorado and three other states. If carbon emissions were monetized at a cost of a "fairly conservative" figure of $50 per ton, the total impact to Tri-State’s customers through 2030 would be $8 billion, says Barbara Walz, vice president, environmental.

Tri-State and other utilities say the economy of Colorado and other Rocky Mountain states depends upon fossil fuels. With its vast reserves in Wyoming and Colorado, the United States has enough reserves at current rates of consumption to last 230 years. They want federal investment in carbon capture and sequestration technology. However, the federal government earlier this year yanked the plug on an experimental project in Illinois called FutureGen because of spiraling prices.

"Many people are thinking that carbon capture and storage will be ready in 2018," Walz says. "If you have a cap and trade in place and you don’t have the technology, you are essentially taxing the technology," she says.

The same point is made by Dan Hodges, government affairs liaison for Colorado Springs Utilities. Colorado would be a net loser in a regional cap-and-trade system, he says. "We are about 91 percent fossil-fuel based," he says of his utility. Washington and Oregon have much more hydroelectric, and California burns lots of natural gas, which has only half the CO2 emissions per equivalent energy of coal.

Colorado could shift more electrical production to natural gas, but at a tremendous hit to consumers, Hodges says. If an end game of 80 percent reduction by mid-century matters more than modest, short-term CO2 reductions, then a regulatory regime must recognize that reality. Being handcuffed to the short-term goal sets up failure, he says.

"As wonderful as renewable energy is — and it’s growing, now up to 6 percent of Colorado’s electrical supply — it will never be enough to displace traditional resource generation," he says.

Stuart Sanderson, president of the Colorado Mining Association, inflates that same argument to global proportions. "Colorado’s emissions account for 1.5 to 1.7 percent of total national anthropogenic emissions, and only 0.35 percent of the world’s," he says. "Without participation by developing nations like China and India, all the Western Climate Initiative will do is impose additional costs, borne most by the energy sector, electricity consumers, and business consumers."

This argument fits with what Jeff Goodell, author of "Big Coal," recently described as a strategy of "delay, delay, delay."

But New Mexico also brims with hydrocarbons. The argument there is that global warming is sufficiently serious as a problem that immediate action is needed, and regional cap-and-trade efforts will advance that movement, says Ned Farquhar, former energy advisor to Gov. Bill Richardson.

Environmental activists in Colorado are at least slightly annoyed with Ritter but happy with his energy policies. "We have not spent a lot of time beating him up," said Pam Kiely, legislative program director for Environment Colorado.

Another group, Environmental Defense, is also light in its criticism. "For reasons not entirely clear to me, the administration decided to take a more go-slow approach," says Dan Grossman, the Rocky Mountain regional director.

He predicts national legislation that will draw heavily on the Western Climate Initiative and other regional cap-and-trade registries. He questions why Colorado wouldn’t want to help draw up a cap-and-trade system that will cover 20 percent of the U.S. economy and 73 percent of the Canadian economy.

"If Colorado has unique attributes that need to be defended," Grossman says, "I think it would be important to defend them at the Western Climate Initiative."

Even Utah is participating, Grossman notes. "(Gov. Jon) Huntsman is no raving liberal, and he’s at the table."

But even with Colorado on the sidelines, there is movement. Such disparate entities as the Aspen Skiing Co. and the Southern Utes have registered with various climate registries. So have Fortune 500 and other major companies doing business in Colorado.

Farmers are also figuring out their place in this new world of monetized carbon. While hopeful of gaining income from wind energy in rural areas, the Rocky Mountain Farmers Union has enrolled 400,000 acres in a program that documents agricultural practices that sequester atmospheric CO2. That sequestration is expected to be worth money.

"We may be part of the carbon problem, but we can be part of the carbon solution," says Tony Frank, the trade group’s director of renewable energy development.

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