U.S. lawmakers who are struggling to win support for a cap-and-trade emissions market will probably settle this year on a smaller proposal that forces more electricity to be produced by wind farms, solar panels and other low-carbon sources, an emissions trading group said.

A national renewable electricity standard might pass Congress this year as a stand-alone measure, Thaddeus Huetteman, chairman of the Environmental Markets Association, said in an e- mail. Such a standard was part of cap-and-trade legislation that passed the House last year and stalled in the Senate.
“It is more politically probable that we will have a national market for renewable power in the near term than a national carbon market,” said Huetteman, whose group represents traders and brokers in existing markets for acid rain and smog pollution rights.

A renewable standard would spur a national market for low- carbon electricity credits worth as much as $9.9 billion in 2020 and $44 billion in 2025, according to Energy Department estimates. Cap-and-trade legislation would create carbon dioxide permits valued at $100 billion to $300 billion a year.

The Jan. 19 election of Massachusetts Republican Scott Brown to the U.S. Senate makes it “very tough” for the Democratic-run Congress to pass the larger measures this year, Huetteman said.

Permits and Credits

Both cap-and-trade and a renewable electricity standard try to get companies to use cleaner sources of energy. Under cap- and-trade, the government issues permits that carry the right to emit one metric ton of carbon dioxide and reduces the number of permits over time. Companies can buy and sell the permits.

A renewable electricity standard requires utility companies to produce or purchase a minimum percentage of their power from wind turbines, solar panels and other sources that pollute less than oil, gas and coal plants.

A credit, or certificate, is awarded for every megawatt- hour generated from sources that meet the low-emission standard. Utilities have to surrender a target number of credits each year to comply with the renewable standard. Companies can buy credits from those with a surplus.

The renewable standard in the House cap-and-trade bill would require utilities to obtain as much as 20 percent of their electricity from low-emission sources by 2020. In the Senate, legislation that cleared the energy committee last year included a renewable standard of 15 percent by 2021.

Both the House and Senate proposals would set a maximum price for renewable credits. Under the House proposal, instead of surrendering credits, utilities can make an “alternative compliance payment” of $25 for every megawatt-hour they are short of the renewable power goal. The Senate plan’s fee is $21 a megawatt-hour. Both plans would index the fee to inflation.

Mandates in 29 States

Renewable electricity mandates exist in 29 U.S. states, Justin Barnes, a policy analyst at North Carolina State University’s Solar Center in Raleigh, North Carolina, said in a telephone interview. Most have an alternative compliance payment that puts a “price ceiling” on renewable credits, Barnes said.

Prices for state-issued credits vary widely because the states have different targets, disagree over which sources can be called renewable and don’t rely on the same sources due to geographical differences.

Renewable credits in Texas were 90 cents a megawatt-hour yesterday, according to data compiled by Bloomberg. In Massachusetts they were $26.50.

Nuclear Option

Last year, Senate Democratic leaders sought to merge the energy legislation containing a renewable electricity standard with a cap-and-trade proposal from the environment committee. While similar to the House-passed bill, the environment panel’s proposal didn’t include a renewable standard.

Some Senate Democrats, including Byron Dorgan of North Dakota and Blanche Lincoln of Arkansas, said the combined measure would be too controversial to pass and called for the energy legislation to be debated and voted on first.

Legislation with a national renewable standard would be easier to pass this year than a cap-and-trade bill, Alaska Senator Lisa Murkowski, who leads the Republican members of the energy panel, said in an interview. She said some Republicans could support it if “more robust” incentives were added for nuclear power, which also provides carbon-free electricity.

While those changes might win over some Republicans, some Democrats may vote against an energy bill that doesn’t directly impose limits on carbon dioxide and other gases that scientists have linked to climate change, Senator Lindsey Graham, a South Carolina Republican, said in an interview.

Source: www.businessweek.com