Green Tech

CAMBRIDGE, Mass.--President Barack Obama on Friday called on the U.S. Congress to pass energy-and-climate legislation, a move he said would stimulate technology innovation and improve the economic competitiveness of the United States.

Obama delivered a speech at the Massachusetts Institute of Technology here after touring student laboratories and before attending a fund-raiser for Massachusetts Gov. Deval Patrick.

President Obama speaking on clean energy at MIT on Friday.

(Credit: Martin LaMonica/CNET)

A "comprehensive" energy-and-climate bill will address both environmental and economic problems, Obama said. Countries around the world recognize that energy supplies are limited while demand is rising. That situation is giving rise to a "peaceful competition" among countries to develop clean-energy technologies that "will propel the 21st century."

"There are going to be all sorts of debate both in (the) laboratory and on Capital Hill, but there is no question that we have to do these things," he said. "The nation that wins that competition will be the nation to lead the global economy. I'm convinced of that, and I want America to be that nation."

Obama urged Congress to pass an energy-and-climate bill the Senate is now considering, the Clean Energy Jobs and American Power Act. He specifically praised the bill co-sponsor Democratic Massachusetts Sen. John Kerry, who was present at the talk, and Republican South Carolina Sen. Lindsay Graham. The senators co-wrote an editorial in the New York Times earlier this month outlining the main components of a desired bill, which was seen as a key step toward passage.

The House bill, which narrowly passed in May, includes a national mandate for utilities to use renewable energy and a cap-and-trade system in which large polluters can buy and sell permits for carbon dioxide emissions.

The president did not weigh into the details of the existing bills, but he did outline the contours of an energy policy that reduces the country's reliance on fossil fuels while making better use of natural resources.

The ingredients of energy policy should include clean use of coal, oil, and natural gas; "safe nuclear power;" sustainably grown biofuels; and energy from wind, solar, and wave power, Obama said.

"It is a transformation that will be made as swiftly and carefully as possible, to ensure we are doing everything we can to grow this economy in the short, medium, and long term. And I do believe that a consensus is growing to achieve exactly that," he said.

Obama said the Pentagon and energy security hawks are stepping up efforts to reduce oil imports while businesses and environmentalists are working together. Young people, too, view energy-and-climate as the challenge of their generation, he added.

"We are seeing a convergence. The naysayers, the folks (who) would pretend this is not an issue--they are being marginalized," Obama said.

He said key pieces of the Senate bill have been approved in various committees but he warned that opposition to passing an energy-and-climate bill will increase as passage gets closer.

There were about 700 people at the MIT talk, including a number of local green-technology entrepreneurs, investors, and students at the university, which has become a hotbed for energy science and technology research.

The Obama administration is pushing for a "comprehensive" energy and climate bill because it will provide the economic foundation to spur investment in clean-energy technologies, said Carol Browner, the president's assistant on energy and climate.

Browner, the former administrator of the Environmental Protection Agency, was interviewed on Friday along with other business and political leaders at the Atlantic's First Draft of History conference at the Newseum in Washington, D.C. The interview was streamed live online.

Carol Browner, assistant to the president on energy and climate change, speaking at MIT earlier this year.

(Credit: Martin LaMonica/CNET)

She argued that U.S. businesses will invest more in clean-energy technologies once Congress passes a law with incentives for renewable energy and efficiency as well as a cap-and-trade system that limits heat-trapping greenhouse gases.

"The point is we have to get started, we have to send a signal to the marketplace that we are going to be dealing with these (greenhouse gas) emissions in a different way," she said.

The House narrowly passed an energy and climate bill in May. The Senate earlier this week introduced its own version although passage of any combined bill is not expected before the end of this year. The timing is significant in international negotiations because the Copenhagen round of international climate negotiations will start in December this year.

A number of large companies and green technology start-ups continue to urge lawmakers to set up regulations that put a price on carbon emissions, with many business people preferring a cap-and-trade system. With a cap-and-trade, large polluters such as utilities can buy and sell permits to emit carbon to stay under a government-set cap, a system already used to reduce other air pollutants.

Passage of the bill in the Senate is far from certain with 60 votes needed. Earlier this week, the Environmental Protection Agency went ahead with a program to see how carbon dioxide and other greenhouse gases from stationary sources, such as power plants and factories, would be regulated under the Clean Air Act. But that is not the route that the Obama administration prefers, Browner said.

"We want to tools so we can work with the business community to reduce these pollutants," Browner said. "Every time we've implemented environmental clean-air regulations, we've gotten solutions more quickly and at dramatically less cost than anticipated."

She said that a "piecemeal" approach to regulations will not create the certainty that businesses need to make investments in clean-energy technologies because the regulations create demand.

The process around the passage of Waxman-Markey worked because lawmakers addressed regional and competitive issues posed by a cap on carbon emissions. For example, special programs to address high-polluting industries and incentives for regions that rely heavily on coal were set up.

Some lawmakers are drawn to clean-energy technology policies out of concern that China will "best" the U.S. economically, she added.

In response to a question, she said that nuclear power has to be part of the U.S. energy future. "You can't rule out clean sources of fuel," she said. Energy storage, particularly for solar and wind, and smart appliances that lower household electricity usage are some of the most active areas of technology development, she said.

CAMBRIDGE, Mass.--A change in national energy policies would help spur innovation around green technologies, but policymakers are motivated by power and pet projects rather than energy security or environmental protection, a panel of energy and business experts argued here Thursday.

The speakers--three academics with expertise in energy and economics and a venture capitalist from Khosla Ventures--delved into the question of what role government should play in energy at the EmTech emerging technology conference at the Massachusetts Institute of Technology on Thursday. On the whole, they were pessimistic about the prospects of effective legislation for promoting a cleaner energy industry.

The talk was timely. Although political debate in Washington has been dominated by health care over the past few months, the Senate is expected to take up a climate change and energy bill as early as next week, following a House version which narrowly passed in May. The broad House bill proposes a national system for regulating greenhouse gases, introduces higher efficiency standards, and calls for a mandate on renewable energy from utilities.

Many companies and investors see energy as a promising area of economic growth, with more than $5.8 billion of venture capital placed in green tech last year. But energy is very different from information technology or other traditional tech industries. Bringing new energy products to market requires not only technology breakthroughs but also coordination among start-ups, large corporations, financiers, and government.

The panelists argued that the House bill of the version is far from perfect but it's an important step because it puts a price on carbon emissions. Under a cap-and-trade program--one of which is already in effect in the U.S.-- large polluters, such as utilities and manufacturers, are given permits to pollute. Those carbon allowances can be bought and sold among participants so that they stay under a cap set by the government.

"We can go into the details about the problems with all the subsidy schemes that have been tried but fundamentally there is this common sense that underlies cap and trade, which is that if something is bad, you should tax it and that is, in effect, what cap and trade does. And that puts things that don't have that bad characteristic in a better competitive position," said Richard Schmalensee, the director of the MIT Center for Energy and Environmental Policy Research.

Right now, there are subsidies and tax credits to promote the installation of solar and wind power. In the federal stimulus plan, the Department of Energy was allotted tens of billions of dollars to fund long-term research and promote development of existing technologies, such as plug-in electric vehicles.

In the past, renewable energy policies have led to boom and bust periods, which resulted in many failed companies, said Henry Lee, the director of environment and natural resources programs at Harvard University's school of government.

To avoid that cycle, the U.S. needs a combination of policies, including tax incentives, research money, and a cap-and-trade program, Lee said. Caps on carbon emissions won't start to take hold for many years, panelists said. So, abandoning existing supports for solar now would essentially shut that industry down, even though the cost of solar continues to drop, Schmalensee said.

Rising oil prices can help drive investments in clean-energy technologies, but the volatility of prices makes sustained investment difficult, said Lee. Another challenge related to energy in the U.S. is the difficulty of locating good spots for wind and solar power projects and the resistance from states over national efforts to build new transmission lines to transfer solar and wind power.

No kind words
In practice, policy making around energy is messy business, the panelists said. It's even harder now, given the fierce partisanship now in Washington and the shaky economic situation, noted Lee.

The trend in energy policy has to been to promote a set of technologies, such as fuel cells or biofuels, for a while but not stay with it, said Lee. Corn ethanol, for example, has been criticized for questionable environmental benefits and contributing to higher food prices, but maintaining the program makes sense because second-generation ethanol could deliver significant improvements, he said.

"One of the problems with Washington is that they fall in love and then they fall out of love after two or three years," said Lee. "But you can't give up on these things after three or four years and in our government we have a tendency to do that. We don't have a lot of patience and it takes time to make things that really work."

Small green-tech start-ups and venture capitalists are now spending a significant amount of time in Washington because energy is heavily regulated. But there's concern that bills are structured to favor certain technologies, said Alex Kinnier from Khosla Ventures, a Silicon Valley venture capital firm that is making an aggressive push into green tech.

"We're all in agreement we want a price on carbon...The thing that concerns us greatly is that the ways these rules can be written can very much bias who the winners are and who the losers are over the long term and can sub-optimize the ultimate solutions," Kinnier said.

For example, incentives to store carbon underground at coal plants will lead many companies into that field. But Kinnier said that policies should also encourage technologies that use carbon dioxide to make a product, such as building materials or chemicals.

Ken Zweibel, director of the GW Solar Institute at George Washington University, criticized the trend toward overemphasizing high-risk, high-reward energy research. "Programs to do practical research have shrunk during the last five years and programs to do high-risk, blue-sky research have gone through roof," he said. Solar photovoltaics are becoming more affordable as prices fall, but proposals to the newly formed ARPA-E are unlikely to yield anything useful, Zweibel said.

He also complained policymakers make decisions based on "very shallow knowledge" and are easily swayed by the media. Fears that China is taking over leadership in low-carbon technologies appear to motivate policymakers more than protecting the environment or concerns regarding climate change, Zweibel and Schmalensee said.

"We are not convinced that we have a global warming problem," said Zweibel. "Let's face it--that's the truth."

Updated September 26 at 6:50 a.m. PT with correction to Alex Kinnier's affiliation.

The House Energy and Commerce Committee passed an energy and climate bill on Thursday that puts a cap on greenhouse gases in a way designed to give heavy polluters years to transition to low-carbon technologies.

The American Clean Energy and Security Act of 2009, sponsored by Congressmen Henry Waxman and Edward Markey, passed through the committee after four days of marathon "markup" sessions where dozens of amendments were considered.

The bill calls for a cap-and-trade system designed to reduce greenhouse gases and a mandate that would require utilities to get a portion of their electricity from renewable energy sources.

Concessions were made during negotiations, causing some environmental groups, including Greenpeace, to withdraw support for the bill and business groups to warn that the impact on new technology development will muted.

Even after the passage through committee by a 33-25 vote, the bill needs to pass other House committees before it can be voted on later this year.

There is concern that the targets won't effectively cut back on global warming emissions. But on the whole, green technology advocates and business people were pleased to see the U.S. move forward with some form of regulation to put a price on carbon emissions.

Carbon regulations will only affect energy-intensive industries such as utilities and industrial manufacturers. Creating a cap that declines over time will stimulate development of energy efficiency and alternative power generation technologies, proponents said.

"As the President's economic advisers said this week, a cap on global warming pollution is essential to our economic recovery and our long-term financial health. The economic benefits of a cap are too big to pass up, and the costs of inaction on climate are too big to ignore," said Fred Krupp, the president of advocacy group Environmental Defense Fund, in a statement.

Other provisions in the bill include a "cash for clunkers" program where consumers get a credit after purchasing a more fuel-efficient car.

A Clean Energy Bank would be created to help finance development of emerging energy technologies, such as algae-based biofuels and enhanced geothermal.

Coal tech and allowances
The cap on greenhouse gas emissions is set at 17 percent below 2005 levels by 2020, and 83 percent by 2050, which is a less aggressive timescale than originally proposed. The cap-and-trade program would allow heavy polluters to buy and sell pollution permits, or allowances.

A renewable electricity mandate would require utilities to get 6 percent of their electricity from renewable sources--sun, wind, geothermal, or biomass--by 2012 and 20 percent by 2020.

In general, businesses prefer a cap-and-trade system over a tax on carbon emissions. A cap-and-trade system works around permits through which heavy polluters, such as utilities and big manufacturers, can buy and sell theses allowances to emit carbon.

The bill is structured so that energy-intensive industries have time to transition to more efficient and less polluting operations by giving them free permits, rather than auctioning them.

In the utility industry, about one-third of the allowances would be free to utilities during the initial years. Giving away these permits is designed to prevent utilities and natural gas companies from spiking up energy cost for consumers.

However, Waxman told committee members on Thursday that he will hold more hearings on allowances to further refine the details, according to reports.

Many politicians from Midwest and southern states that rely heavily on coal for power generation sought to push back the timing of the caps so that technology to pump carbon dioxide from coal-burning power plants can be developed. Many utilities plans to use carbon capture and storage to meet the emissions caps but the technology is still not commercially available.

Meanwhile, politicians from southeastern states that don't have the same sun or wind resources resisted the renewable energy mandate. In addition to using alternatives such as biomass, utilities can partially meet the mandate through efficiency measures.

Policies now being considered to boost renewable electricity generation and efficiency at utilities will make it cheaper to comply with caps on greenhouse gas emissions, said members of the Energy Future Coalition, a group of business, environmental, and labor advocates.

Both the the House and Senate are expected to move ahead with energy and climate change bills in the coming weeks.

The Waxman Markey bill in the House combines both energy and climate regulations in a single bill, while the Senate is working on separate efforts. Committee markup meetings in the House and Senate are expected, starting as early as this week.

One of the key sticking points to passing a climate change bill is addressing the question of whether putting a cap on greenhouse gas emissions will raise prices for energy and by how much. Also, some utility industry executives have said that a limit on carbon is sufficient action on climate change without a renewable energy mandate.

During a conference call with reporters on Monday, members of the Energy Future Coalition argued that the best way to control the costs of complying with greenhouse gas caps is to set national standards on renewable energy and efficiency at utilities. (Click for PDF of analysis.)

"Energy efficiency and renewable energy are going to reduce the amount of carbon that a cap-and-trade system has to deal with," said Marchant Wentworth, the Washington representative for the clean energy program of the Union of Concerned Scientists, which is a coalition member. "In both cases (these standards) establish a market where was not a market before."

One of the provisions of the House energy bill is a national Energy Efficiency Resource Standard (EERS) where utilities would need to run efficiency programs to cut their customers' energy consumption. Nineteen states have already established efficiency standards. The House bill calls for utilities to save cumulatively 15 percent on electricity and 10 percent on natural gas by 2020

These sorts of energy efficiency measures are considered far less expensive than building new power plants--at three cents per kilowatt-hour versus seven to 17 cents per kilowatt-hour--to meet growing demand, while cutting utility bills.

Also proposed is a national renewable electricity standard--already mandated in 27 states--where utilities would need to get 25 percent of their energy production by 2025 from renewable sources, such as solar, wind, geothermal, and biomass.

Diversifying the energy mix with renewables acts a hedge against volatility in the energy markets for fossil fuels and softens demand for natural gas which is used in power plants, Wentworth said.

Under climate regulations, large polluters, notably utilities and heavy manufacturers, would need to ratchet down their carbon emissions in a cap-and-trade system over the coming decades.

Many coal-dependent utilities anticipate meeting caps on greenhouse gas emissions by installing carbon capture and storage technology at coal plants to pump carbon dioxide underground. That technology is still in the research and development phase and is not expected to be commercially available until about 2020.

Meanwhile, efficiency and renewable energy "are technologies that can make a difference between now and 2020," said David Gardiner, a senior adviser at the Energy Future Coalition, on the call.

Transmission upgrade
Critical, too, is the installation of high-voltage transmission wires to carry wind and solar power from remote areas, according to the Energy Future Coalition.

The Energy Future Coalition recommends a high-voltage transmission network dedicated to transferring electricity from wind and solar farms in remote areas of the U.S. to where most of the electricity is consumed in city centers. Members propose that natural gas "peaker" plants that can meet baseload power be part of that grid "overlay" to ensure demand can be met, said Bill White an advisor to the Energy Future Coalition.

All three measures--efficiency, renewable energy, and a transmission lines--will help create jobs, they said. These policies would also help create demand for green technologies like renewable energy and smart-grid technologies.

This year is turning into a crucial year for legislative action on clean energy and climate change.

Although all the major provisions of a House energy and climate bill are now known, after four days of hearings last week, the House Energy and Environment Subcommittee is still seeking to rally enough votes for passage, according to Energy & Environment Daily.

Much of the pushback appears to focus on the cost of complying with greenhouse gas caps, particularly for states that rely on coal, which emits far more carbon dioxide than natural gas.

Under discussion is whether emissions permits, which could be bought and sold in a cap-and-trade system, will be auctioned or granted to utilities and other businesses. The timetable for emission target reductions and the how much renewable energy utilities need to generate is also being negotiated.

States in the south-east U.S. have resisted renewable electricity mandates because other regions have better wind and solar resources. With a combination of hydroelectric, solar, and wind, that region could meet 50 percent of its current needs, according to Wentworth.

This was originally published on CBSNews.com.

WASHINGTON--Congressional Democrats' proposal to create a trading system for carbon emissions will create jobs and bolster the economy, the Obama administration told Congress on Wednesday.

House Republicans insisted, however, that the proposal, which would charge the largest emitters of carbon dioxide for burning fossil fuels, would result in higher energy and gasoline prices for consumers, as well as a loss of U.S. jobs as carbon emitters moved positions overseas to unregulated markets.

"I believe this is a jobs bill that focuses our country's attention on the global industry of the future, which is the clean energy industry," Environmental Protection Agency Administrator Lisa Jackson said before the House Energy and Commerce Committee.

The far-reaching legislation being drafted by Committee Chairman Henry Waxman (D-Calif.) and Rep. Ed Markey (D-Mass.) would institute a cap-and-trade system in which carbon emitters would be allowed to buy and trade permits for certain levels of emissions. The bill would also establish a renewable electricity standard and an energy efficiency standard.

"In the future, it is very clear we will be living in a carbon-constrained world," said Department of Energy Secretary Steven Chu. "The U.S. must position itself so we can lead that transition."

Republicans on the committee, however, countered that the bill does not provide enough specifics to reach the administration's optimistic conclusions and warned that just the opposite could be true.

"My fear, my belief, is this is an intentional move to deceive us so we're not allowed to do the cost-benefit analysis," said Rep. John Shimkus (R-Ill.).

This bill is the "largest assault on democracy and freedom on this country that I've ever experienced," he said.

Specifically, the bill lacks details on whether the permits would all be auctioned to carbon emitters, or whether some would be automatically granted to some companies to relieve their economic burden during the transition to a cap-and-trade system. Other data has yet to be provided, such as a proposed cost for the permits.

"This proposal puts a bull's eye on the back of working families," said Rep. Fred Upton (R-Mich.). "Just wait until they get their hands on their utility bills that are capped and taxed."

The administration representatives said cost of the carbon permits should be returned to the American people in the form of the rebate.

Additionally, they said, any costs that may be passed onto consumers would presumably be offset from the benefits gained from higher-efficiency homes and appliances.

Working with the information available from the draft bill, the EPA completed a preliminary analysis of the cap-and-trade portion of the bill, concluding that it would accelerate the deployment of clean-energy technology while growing the economy, at relatively little cost to the consumer.

Before including cost-saving measures like the increase of energy-efficient appliances, the analysis concludes the cap-and-trade program would cost the average household $98 to $140 a year. To reach that figure, the EPA assumed about 40 percent of the allowances would be returned to citizens in some form such as rebates.

The number stands in stark contrast to the figure of $3,100 a year floated by Republicans. That figure was based on a report from the Massachusetts Institute of Technology, but its author said it misrepresented his findings.

In addition to higher energy prices, consumers would suffer from job losses, said Shimkus, who pointed to the 35,000 coal-mining jobs lost in Ohio as a result of regulations imposed under the Clean Air Act.

Jackson warned, "The 'no, we can't' crowd will spin out doomsday scenarios about runaway costs."

She pointed out that the Acid Rain Trading Program, which was established in 1990 under the Clean Air Act, delivered huge benefits--to the tune of $120 billion a year--with an annual cost of only $3 billion a year. The acid rain program is a trading system comparable to a carbon cap-and-trade program.

Republicans also questioned whether putting a price on carbon in the United States would have any impact, given that growing carbon producers like China and India are not adopting similar programs.

"If the United States does take the lead, China will follow," Chu said, adding that he had spoken at length personally with Chinese officials on the issue. "They are taking it very seriously because they see the impacts of climate change as well."

LAGUNA NIGUEL, Calif.--Absent having a vote in Congress, the best way for people to tackle climate change is to make clean energy cheap, said President Bill Clinton at a green business conference here on Wednesday.

Speaking at the Fortune Brainstorm Green event, Clinton said through the Clinton Climate Initiative philanthropy, he is involved in a number of projects which show how environmental awareness makes sense for business.

Successful sustainability efforts help provide the political leverage for passing climate change regulations in the U.S., and internationally, Clinton argued.

Former President Bill Clinton speaking at the Fortune Brainstorm Green conference.

(Credit: Martin LaMonica/CNET)

The House this week is having hearings on a energy and climate bill that could pass this year, but faces a less certain path in the Senate. Next year, international negotiations on climate change are set to resume in Copenhagen with the purpose of crafting a successor to the Kyoto Protocol.

"The most important thing you can do, unless you have a vote in the U.S. Congress or a seat at the table in the Copenhagen conference is to prove the transformation we are all committed to undertaking is or can be made good economics," Clinton said.

Clinton is involved in projects that touch health and the environment, such as investments in making building more energy efficient or getting energy from landfills. The Empire State Building, for example, earlier this month announced a $33 million energy-efficiency retrofit that will save the owners $4.5 million a year on electricity and pay back the initial investment in under eight years.

Doing this sort of working in developing countries would have a significant impact both on greenhouse gas emissions and on the global economy, he said.

"If I could do just one thing and had the money to do it, I'd do this, I'd do this energy work in countries at middle- and low-income level," Clinton said.

"I am convinced if we do this energy thing right, it will generate not only an enormous number of new jobs and economic prosperity for countries of every income level, it will cause people to re-imagine how they do everything and therefore, the funds will flow to health care and education," he said.

The financing challenge
Even with his confidence in green businesses, Clinton said the details of carbon regulations are still very important. The debate among staffers right now seems to be over how pollution permits will be allocated in a cap-and-trade system--either by giving them to large businesses or by auctioning them off.

His policy recommendations were in line with many of the proposals being discussed in Washington, including a national renewable energy mandate and construction of more transmission lines to move wind and solar energy to demand centers. Changing the federal auto fleet to plug-in electric and hybrid vehicles and mandating energy efficient lighting would help establish those industries.

He said if states resist "decoupling" regulations that give utilities an incentive to be energy efficient, the federal government should mandate it.

Apart from a climate change policy that puts a price on carbon emissions, the biggest barrier to wide adoption of existing green technologies is financing.

The C40 Cities project, working with the Clinton Climate Initiative, sought to secure money from banks for energy service companies to weatherize large numbers of buildings. The energy savings from these retrofits help deliver a return on investments but the economic crisis has derailed some of those projects.

Clinton argued that new financing models need to be developed for environmental projects. Investment banks secure 20- or 25-year financing for construction of coal power plants. Yet cities that want to tap the methane gases coming off landfills to make electricity don't have the same options, he said.

The initiative is involved in a number of projects, including methane-to-energy or smaller scale projects like one in India where people scavenge organic material to make compost fertilizer for farms.

"I'll make you a prediction. I think people in our business will spend more and more time on what to do about urban waste over the next five years because it's a terrific source of new energy and energy efficiency and advances against climate change. It's like so many of these things, it requires the cash up-front," he said.

In addition to solving global problems like climate change, environmental sustainability projects are powerful symbols, Clinton said. Places with lots of sun resources like Arizona and Nevada, which were hit hard by the real estate crisis, could be "virtually energy independent," but people need to see real examples before making bold moves.

"I think symbols are important. The evidence of success spurs people to take new risks and make new investments," he said.

Updated at 8:15 a.m. PDT to change references to the Clinton Climate Initiative rather than the Clinton Global Initiative.

LAGUNA NIGUEL, Calif.--Despite formidable political challenges, the United States has a good chance of passing legislation to regulate greenhouse gas emissions in the next nine to 12 months, energy industry experts said here on Monday.

The critical factor to passing climate change laws is managing the transition to low-carbon energy sources without sharply raising prices for consumers, said panelists at the Fortune Brainstorm Green conference.

The House on Tuesday will begin hearings on an energy and climate bill its sponsors hope to pass this summer. The Environmental Protection Agency on Friday issued a preliminary finding that greenhouse gas could be regulated under the Clean Air Act because they pose a threat to public health and safety.

These developments make it more likely than in previous years that rules to put a price on emitting carbon dioxide in the U.S. will be put in place. If they take hold, it would be a turning point for the U.S. economy, creating the financial foundation for sustainable and green technologies, said William Bumpers, the chair of the climate change practice at law firm Baker Botts.

"If enacted and implemented, 20 years from now we'll look down the road and see this is as the most important piece of legislation in the history of the country," said Bumpers. "It has truly transformational potential."

On the panel were energy industry executives who are lobbying for quick enactment of carbon regulations, which would be phased in over the next five years. They included Jim Rogers, the CEO of utility Duke Energy, and NRG Energy CEO David Crane, a power generation company that relies primarily on fossil fuels.

Despite the support in some quarters, climate change laws are opposed by some business leaders and politicians, particularly from states in the South and Midwest that rely heavily on coal for power generation. As such, even if the House passes a bill this year, it faces a tough road in the Senate.

That's why negotiating the details of a "transition period" between now and a future low-carbon economy are so crucial, panelists said.

"We can keep the costs to households to pennies a day," said panelist Fred Krupp, the president of Environmental Defense Fund. "We can limit the costs to very manageable levels if we do it right. I think the equitable thing to do is to have a transition."

Handicapping Washington and carbon: From left Marc Gunther of Fortune, Environmental Defense Fund President Fred Krupp, NRG Energy CEO David Crane, William Bumpers of law firm Baker Botts, Applied Materials CEO Michael Splinter, and Duke Energy CEO James Rogers.

(Credit: Martin LaMonica/CNET)

Businesses typically favor a cap-and-trade system, rather than a straight carbon tax. With a cap-and-trade system, big polluters such as utilities and cement manufacturers purchase or are given permits to emit carbon. Permits can be traded among participants to stay under an emissions limit--the cap--established by government.

Up for debate are how many of those permits are given away, rather than auctioned off. The House bill, for example, calls for giving away permits to heavy polluting industries in an effort to keep them competitive internationally.

Panelists said that a legislative approach to regulating carbon emissions is better than having the EPA regulate them under the Clean Air Act because Congress can better deal with the complexity of the situation. The Obama administration, too, prefers "comprehensive legislation" over regulation by the EPA.

Best or last chance?
It's important to establish a price on carbon emissions because large businesses are waiting for a "price signal" before they make investments in low-carbon technologies, Krupp said.

Once that price is in place, a utility that relies heavily on coal, for example, will invest in renewable energy or technology to store carbon dioxide underground. That also helps create jobs for people in clean-energy industries, Krupp added.

In cap-and-trade proposals in general, there is a long-term horizon for emissions target reductions--the House bill targets an 83 percent decrease in carbon emissions compared with 2005 levels by 2050.

Because of that time scale, a utility can upgrade its power generation facilities around cleaner forms of energy and efficiency and address the "carbon issue" at the same time, said Duke's Rogers.

"The fact is that electricity prices will go up anyway as we retire and replace power generation so why not address this environmental issue at the same time," he said.

"The key is to smooth out the cost increases as much as possible, to help the business plan, and help us use electricity more efficiently," he said.

Successfully managing the transition to minimize or eliminate cost increases on consumers is important to get right in the coming year, Bumpers said. Otherwise, carbon regulations will be set back years.

"Businesses will have an obligation to deal with a capital commitment over the next 30 years that is unprecedented," Bumpers said. "If we don't manage this transition by mitigating cost impacts...there could be political backlash because prices have gone too high too quickly...Those trillions of dollars of investments will turn out to be bad investments."

Most Americans now agree that something needs to be done to reduce our greenhouse gas emissions. Hopefully most Americans now appreciate that this is not a small, but even more so, not a simple problem. I am a big believer that the playing field for our low carbon future should start level, and the market should be structured to allow our major power and energy companies a chance to lead the way, instead of simply dishing out punishment for our combined historical choices. Carrots and sticks work well together, but sticks alone are not going to solve our global carbon problem. I think it is also important to ensure that our carbon legislation does not result in a higher cost to consumers in middle America, just because the Midwest happens to have been historically coal fired, than the cost to those of us living on the coasts. Jim Rogers of Duke Energy puts this much more eloquently than I do.

Duke Energy (NYSE:DUK), one of the largest power companies in the U.S., has been a long supporter of energy efficiency, and known for being forward looking when it comes to a low carbon future, smart metering, and advanced energy technologies, despite having a generation fleet that is 70 percent coal fired. Cleantech Blog is delighted to welcome Jim Rogers, CEO of Duke Energy, to give us his thoughts on the devil in the details from their perspective. It is heartening to see a major power company take on the carbon issue full force, and like Duke has done, push energy efficiency in a big way.

- Neal Dikeman, Cleantechblog.com

By Jim Rogers Chairman, President and CEO of Duke Energy

As we debate our differences on how to address the challenge of global climate change, surely we can agree on the end-goal--a secure, sustainable and affordable supply of energy now, and for future generations.

Most Americans also agree that we must act now--and begin building a bridge to an energy-efficient, low-carbon economy.

As the third-largest coal consumer in the United States, and one of the largest greenhouse-gas emitters, Duke Energy has a responsibility to be part of the solution. That means looking at not only how climate change affects our business today, but also the implications for the future.

We support federal legislation to address global climate change by putting a cap-and-trade system in place. The U.S. Senate is in the process of vetting a cap-and-trade bill introduced by Senators Lieberman and Warner in October. This bill is well-intended, contains some good points, and appears to have bipartisan support.

But on closer examination, questions arise. Who really stands to gain, and who stands to lose? What are the real costs to average Americans?

You would expect the bridge to a low-carbon economy to have a cost, just as you might pay a toll to cross any bridge. But should some of us have to pay twice? With the Lieberman/Warner approach, that's exactly what would happen.

Lieberman/Warner proposes to auction a large number of emissions allowances to the highest bidder. In effect, an auction becomes a carbon tax, levied on consumers in the 25 states that depend on coal for electric power--primarily the Midwest, the Great Plains, and the Southeast.

Electric power customers in those regions would have to pay for the auctioned allowances upfront, and then pay again later to upgrade power plants, or build new ones, as carbon-control technologies become available.

A better approach is to allocate allowances at no cost to generators who emit greenhouse gases--and reduce the number of allowances over time, while new carbon-control technologies are being developed and put in place.

Some say that an auction is the only way to take action to reduce emissions, but history tells us otherwise. Allowances were not auctioned under the 1990 Clean Air Act Amendments; nearly 97 percent of them were allocated at no cost. Since then, new technologies to reduce sulfur dioxide and nitrogen oxide emissions have been developed and implemented. Those environmental controls have reduced emissions by more than 40 percent since 1990, and they continue to decrease, without dramatic rate hikes. In fact, the nation's average electric rates have declined.

In contrast, some estimates put the Lieberman/Warner bill's cost to the average family at more than $1,000 per year, while emissions traders would stand to profit greatly from a volatile market for carbon allowances. According to Bloomberg, the Lieberman/Warner bill would create a potential $300 billion annual carbon-trading market by 2020.

So the question comes down to this--are we interested in protecting consumers or enriching emissions traders?

Customers who live in the Midwest, the Great Plains, and the Southeast did not choose to get a large portion of their electricity from coal--it was a matter of economics, geography, and geology. They should not be punished for decisions made decades ago, in good faith, using the best and lowest-cost technology of the time, with regulatory approval--and long before anyone knew about the impact of carbon emissions on climate change.

And before we dismiss coal as a viable energy source for the future, consider this: The U.S. is sitting on more than 250 years of coal reserves, more than any other nation in the world. This rich natural resource has untapped potential for ensuring our country's energy security. The challenge is primarily technological--to find smarter and cleaner ways to use it, such as carbon capture and storage. Until those technologies are available, we must continue to use our existing coal resources and protect the interests of consumers who rely on coal.

The goal for carbon legislation should not be to punish utilities for building coal plants to keep the lights on in the past. It should be to create the incentives to put new clean technologies in place for the future--not just clean coal, but also nuclear and renewable energy, natural gas and the fifth fuel--energy efficiency.

Under the Lieberman/Warner approach, electric power customers in half of our states will carry a disproportionate share of the burden. We need to pass climate legislation that is fair to all consumers and protects the economic interests of all states and regions. Our climate is at stake, and so is our economy. By allocating most allowances, following the precedent set by the successful Clean Air Act, we believe both can be protected.

Jim Rogers is the CEO of Duke Energy, writing as a guest columnist on the Cleantech Blog.