Cap & Trade, Simply Put...

We are continuing our effort to voice concern about the potential for global warming legislation to dramatically increase electric bills.

As we have moved forward with the Our Energy, Our Future campaign, we have received many questions about one of the terms used--called “Cap and Trade”. We would like to provide you with a summary of Cap and Trade without the “smoke and mirrors” or political rhetoric.

Cap and Trade is a plan whereby carbon dioxide emissions from electric generating plants would be taxed. Carbon dioxide--CO2--is created from burning any type of fuel. Coal accounts for the largest percentage of fuel used to generate electricity. Those who feel that global warming is occurring due to man-made causes feel that CO2 is the culprit, and that action needs to be taken to curb emissions.

THE CAP:
With the Cap & Trade concept, the idea is to tax those who create CO2 up to an arbitrary level--or a “cap”. For instance, that level might be set at reducing emissions to the same level as 1995. The funds generated from such a tax by the federal government would not necessarily be used to develop alternate energy resources, but a large percentage of them would be used to support other government programs. It has been estimated that this “cap tax” could generate as much as $640 billion. Those funds are ultimately taken from you--the electric consumer--who will be paying higher electric bills, possibly triple what you are paying today!

THE TRADE:
Once the cap for emissions has been set, a “trade” system would be established. Power plants whose CO2 emissions exceed the “cap” will have some difficult choices to make. They will be required to comply with the “cap”, and to do so they may opt to shut down some of their existing generation resources. Instead, they may purchase energy on the market from a non-CO2 emitting resource such as nuclear, wind or solar. Those forms of generation will be more expensive than current generation and will further increase the customer’s electric bill.

Another choice would be to go to “market” to purchase carbon credits from other power plants, which have earned credits for achieving carbon emission levels that fall beneath the cap. These credits would be traded on Wall Street. A utility that exceeds the cap can purchase credits in order to continue operating their existing plants.

These credits will be traded at a price that the “market will bear” and that cost will also be passed on to the consumer as an additional increase in their electric bill.

Under Cap and Trade, utilities will look for the least expensive method to produce electricity within these rules. A likely side effect would be a movement away from coal generation into natural gas. While both fuels create CO2 emissions, natural gas produces less and would help utilities to meet the cap. However, it is likely that a Cap and Trade program would not only increase your electric bill, but your natural gas bill as well. Natural gas prices have a history of being driven by demand.

The shift in fuels for electric generation will likely raise the natural gas market, affecting what you pay for your household gas usage, the price of fertilizer for farmers, and industries.

Cap and trade is a concept designed to force our economy away from CO2 emissions by increasing the cost of those emissions to a point where we can no longer afford them. Some believe that increased electric rates are good, because energy has been too cheap. They feel we have been wasteful and high prices will encourage conservation. Some even feel we live a more extravagant lifestyle than we need to, and should reduce the size of our homes and vehicles. Cap and Trade is about the environment, but is in direct contradiction with the health of our economy.

Regardless of how you feel about global warming issues, or Cap and Trade, chances are you are concerned about how you will pay your utility bill if your rates skyrocket. Now is the time for us to engage in a conversation with our Congressman, Adrian Smith; and Senators Ben Nelson and Mike Johanns. We’ve made that communication simple for you. If you have access to the internet, simply log on to www.southernpd.com/oeof and you can begin the dialogue with a personalized email or letter. If you know someone who does not have access to the internet but would like to become involved, we encourage you pass on this form, which can be returned to Southern Power District, and we will forward your message on to Washington DC.