Cap and Trade Emissions Trading Presentation by gox16621

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									Sorry to Disappoint you but
  I’m not THAT Gary Hart


  Senator
    Gary
    Hart
                                                      ”
                                                    ss
  & Donna
    Rice                                       sine
                                           u
                                       e yb
                                 onk
                              “m
  Cap and Trade / Emissions Trading

an innovative new “economic” approach for use in
   addressing our nations environmental issues




                      Gary R. Hart
               Manager - Emissions Trading
                  Southern Company
                      Generation

                    January 14, 2005
                    Emissions Trading

#1 Can this new “solution” for Air also be applied to “water issues”?



                                  ?




#2 Should the FL DEQ be the “Scorekeeper” or “Banker” in such a program?


                                      ?
 Unfortunately, the “devil” is in the details ………

Elements of a Trading Program:

        #1 How often to assure compliance ? annual or more frequently
                 what is an acceptable monitoring/assurance method?
        #2 How to set the cap?
                 baseline data ?
                 grandfather allowance allocations or some other method?
        #3 Do you want to set up an auction for those not allocated allowances?
                 how to create allowances for the auction?
                 hold backs or set-asides?
        #4 Penalties for non-compliance
        #5 Phases of the program
        #6 Who can “play” in this program
        #7 Integrated Information System

              http://www.epa.gov/airmarkets/international/tools.pdf
          Southern Company Generation
                                              Service Territory
       KEY

                                                                             Hammond
 • Coal Plant                                                                    Bowen         Dahlberg
                                                                                      McDonough
                                                                   Gadsden
                                     Gorgas
• Gas/Oil Plants                                    Miller                      Wansley CC
• So. Power Units                                                              • Yates &          Branch
                                                          Gaston               Wansley
• Nuclear Plant
                                                                         Franklin CC         Scherer               Vogtle
                                                                                               Robins
                                          Greene Co.                                                                • McIntosh
                                Sweatt                Harris CC                       GEORGIA              Kraft
                                                  ALABAMA                                                            Boulevard
                                                                                                            Hatch
                    MISSISSIPPI                                                            Mitchell
                                                                                                                    McManus
                            Eaton        Washington Co.                      Farley
                                          Barry
                            Daniel                 NW FLORIDA                Scholz
                   Watson                         Crist
                                                                     Smith
                                Chevron Cogen                                                • Stanton (Orlando, Florida)


     Excludes Hydro Plants
                                                              70 million tons of coal annually!
             Identify “ THE ISSUE”

                             Acid Rain




1980’s


   Is it (acid rain) harming our forests, lakes, rivers, streams and buildings ?
                   If yes, how do we best address this problem?
            Acid Rain


                         H2O
      SO2




SO2


                        H2SO4
        coal
here’s how the whole thing got started…..



       National
         Acid
     Precipitation   NAPAP
     Assessment      10 year Congressional study
       Program       $570 Million
                     Impacts of “Acid Rain”
           Goal of the CAAA of 1990
     Establish a “cap & trade” program to
       cut US SO2 Emissions by 50%
   never intended to be plant by plant nor state by state… nationwide


         1980                                     2000

  17.5 million tons                          8.95 million SO2
                                                                50%
SO2 from Power Plants
     Command and Control




                    Pre 1995 …..
 “you will install the technology that I mandate
on all affected units- no matter the age or size!
  (a cookie cutter / one size fits all approach)
                   Late 1980’s
            Intractable Political Debate
The continuation of “Command and Control”




                       VS.


Environmental                     Business / Utility
    Lobby                              Lobby
  Seeking the           “Right” Balance



              Emissions Trading

Clear Skies

 NOx SIP

CAA 1990                          cents/kwh
        Cap & Trade Concept
                                       $175 / ton




                Surrender
                 40,000
                                                NY Broker
      60,000
   allowances

                                                    “BANK”

Fuel “Switch”   Actual = 40,000
  1% Low
                                 20,000
 Sulfur coal
                            Excess Allowances
                 CEMS
    Clean Air Act Amendments of 1990
          What is an allowance?


                          “allowances”
              to e
             e nc
                n




                                                #2001- xxxxxxxx
          on a
         = low
       ue Al
     al 2
  r v SO




                                                   12 digit serial #
pa ne
  O




                            “the right to emit one ton
                        of sulfur dioxide during or after a
                             specified calendar year”


                     On-line electronic transfers via CAMD system
                                                                                                          f an fer
                                                                                                      le o rans
                                                                                                   amp c” t
                                                                                               Ex oni
                            966        Recorded           January 11,
Transaction Number
                            99         On                 2005

                                                                                                    r
                                                                                             “e lect
                          TRANSFER FROM                          TRANSFER TO

Account Number            006002000003                           999900000189

Account Name              James H Miller Jr                      JEA

Representative ID         70                                     2022

Representative Name       Willard L Bowers                       Susan N Hughes

E-mail Address            wlbowers@southernco.com                hughsn@jea.com




Year    Start Serial     End Serial     Amount
2005    506485          507519          1035
    Total Allowances Transferred:       1035



A confirmation of this transfer has been sent to your e-mail address: cstarks@southernco.com. If you do not receive an e-mail confirmation,
please contact Alex Salpeter at (202) 343-9157.
Amerex Emissions
             The “Grand Design”
   20,000
    SO2
allowances            NY Broker   Cap= 35,000
                                  Actual = 55,000


                                     Needs 20,000



                                          Plant B


Cap= 60,000
Actual = 40,000

      20,000 excess


   Plant A
 CAAA of 1990 - highlights

• Set a “cap” on the number of tons of SO2 that could be emitted.

•“Cap” in the form of allowances – allowed tons you can emit

•Implemented in 2 Phases
   • 1995 – 1999
   • 2000 and beyond

• established an allowance trading system and allowed for “banking”
  of unused allowances

• injected the economic concept of incentives and flexibility into
     environmental compliance planning
CLEAN AIR ACT AMENDMENTS
  OF 1990 - “Cap and Trade”

                 LI TY
           XI BI
   FLE       …you choose the best compliance
             option(s) for your specific facility



                         IV ES
         NT
      CE….to “over-control” for long term
    IN         economic and environmental
               benefits
       “COMPLIANCE CHOICES”


  ? ??
                       Buy SO2           Switch to
 ?                    Allowances        Natural Gas

        Install
      Scrubbers

                                   SO2 emissions
  Shut-Down &
  replace with a
NG Combined Cycle


                              CEMS
        Fuel
     Switch to
  (low sulfur coal)
Computer Simulation Model




                            Least
                            Cost
                            Compliance
                            Strategy
   Has this concept worked from both an
               economic and an environmental
                                perspective?

                    YES and YES !


Economic/Business Perspective :

     o compliance costs 30% lower than projected & earlier
     o   active trading market - $4 Billion per year
     o   vintage swaps (1999’s for 2004’s)
     o   section 1031 tax free allowance loans
     o   NOx for SO2 swaps / CO2 for SO2 swaps
     o   US trading expertise – transfer internationally ???
Hog Wild for Pollution Trading
Why environmental markets are becoming a very big deal

Fortune Sept 2, 2002 pages 137 through 140
by Cait Murphy



This $4 billion-a-year market is already sophisticated
enough to feature swaps, forwards, puts, calls and options.

“I don’t think Congress envisioned all these type transactions”

laughs Gary Hart Manager of Emissions Trading for Atlanta based
Southern Company.

But if you give an incentive, people will get creative”.
The success of the SO2 program has convinced almost
everyone that trading can be a useful environmental tool.
The Details of a “trading program”


         #1 How often to assure compliance ? annual or more frequently
                 acceptable monitoring method?
         #2 How to set the cap?
                 baseline data ?
                 grandfather allowance allocations or some other method?
         #3 Do you want to set up an auction for those not allocated allowances?
                 how to create allowances for the auction?
                 hold backs or set-asides?
         #4 Penalties for non-compliance
         #5 Phases of the program
         #6 Who can “play” in this game
Clean Air Act Amendments
    of 1990 – Table A
   The Details ………
           #1 How to set the “cap”



“baseline”
1985-’87
generation

EPA “factor”




“holdback”
          SO2 Allowances – Monthly Index Price
                           Jan. 1995 thru Dec 2004
                                                     Cantor Fitzgerald
$800.00
                 Dec 2004 SOCO dispatch penalty is
$700.00             based on $740 per allowance

$600.00

$500.00

$400.00

$300.00

$200.00

$100.00

  $0.00

          1995                                                           2004

								
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