calpine february 28, 2005 sustainable energy roundtable series: multi-pollutant legislation peggy...
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February 28, 2005
CALPINE
SUSTAINABLE ENERGY ROUNDTABLE SERIES:
MULTI-POLLUTANT LEGISLATION
Peggy Duxbury, Calpine Corporation
Multi-Pollutant Legislation
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CALPINE
February 28, 2005
CALPINE OVERVIEW
Power Portfolio Operation 26,500 mw
Construction 5,500 mw
Development 16,000 mw
TOTAL 48,000 mw
Fuel Natural Gas 98%
Geothermal 2%
Multi-Pollutant Legislation
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CALPINE
February 28, 2005
CALPINE POWER PORTFOLIO
In Operation – Gas-Fired (73 plants)In Operation – Geothermal (19 plants)Under Construction (11 plants)
WECC
MAPP
SPP
ERCOT
MAIN ECAR
SERC
FRCC
MAAC
NPCC-NY
NPCC-NENPCC-O
UK
not to scale
MEXICO
Multi-Pollutant Legislation
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ENVIRONMENTAL EXCELLENCE
Calpine’s Average Fossil Emissions Compared to US Fossil Average (lb/mw-hr)(1):
Nitrogen Oxides – a major cause of smog 93.8% Less
Sulfur Dioxides – a major cause of acid rain99.9% Less
Carbon Dioxides – the principal greenhouse gas,
a contributor to global warming 49.6% Less
Mercury – a neurotoxin, damaging to the development of the
fetus, infant and young children 100.0% Less
Particulate Matter – Contributor to
respiratory problems 78.2% Less(1) The average emission rates for the U.S. fossil fuel fleet were obtained from U.S. DOE Electric Power Annual, Mercury Study Report to Congress, and The National Air Quality and Emissions
Trends Report.
Multi-Pollutant Legislation
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GOALS FOR MARKET-BASED ENVIRONMENTALISM
Protect human health and the environment
Harness tools of economics to achieve cheaper, faster environmental goals.
Allows markets – not regulators – to determine most cost-effective approach to environmental protection
Multi-Pollutant Legislation
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KEY ISSUES IN ESTABLISHING A CAP AND TRADE SYSTEM
Targets and Timelines How much to cut? How fast?
Single or Multi Pollutant Should carbon be included? Should mercury be traded?
Allocation Methodology Input? Output? Auctions? Fuel Neutral/Fuel Specific?
Baseline Calculation Periodic updating? Grandfathering?
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OUTPUT VERSUS INPUT
EXAMPLE 1: Sam & Judy are competitors in a pizza delivery service. Both drivers need ‘exhaust tokens’ to drive. Sam’s car consumes 4 gallons over 40 miles while Judy’s consumers 2 gallons over 40 miles. Sam’s car emits twice the exhaust as Judy’s.
Under input allocation, Sam’s gas guzzler is advantaged over Judy’s fuel efficient car.
Under output allocation, Judy’s investment in fuel conservation and lower emissions is recognized.
Common sense tells us that a market-based program should favor (or at least not penalize) Judy.
Multi-Pollutant Legislation
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UPDATING VERSUS GRANDFATHERING
Example Two: Three years later, Tony moves to town because of the growing demand for pizza. He purchases a hybrid car that needs ½ a gallon to drive 40 miles, with comparable savings in emissions.
Under grandfathering, Tony will need to purchase 100% of his tokens in order to drive for decades to come. He pays competitors (Sam and/or Judy) for this ongoing operating cost – even if one of the incumbent cars is retired.
Under periodic updating, Tony will eventually be given equal treatment with Sam and Judy
Competitive, dynamic economies should welcome new entrants, not create life-long entitlements. Periodic updating provides a balanced, phased-in approach between old and new sources.
Multi-Pollutant Legislation
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S. 131: The Clear Skies Act of 2005
Uses cap and trade program
Applies to multiple pollutants
Establishes timelines and targets
Replace other aspects of the Clean Air Act
Multi-Pollutant Legislation
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S. 131: The Clear Skies Act of 2005 (Cont)
Flaws w/ Clear Skies Allocation Methodology:
Input, not output
No updating for new entrants / new sources
New Source Set Aside far too small
Early action and past good behavior is mostly punished through lower allocation allowances
Multi-Pollutant Legislation
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February 28, 2005
S. 131: Clear Skies Act of 2005 (Cont)
Calpine Fleet Combination of Judy and Tony
Most plants too new to receive ANY allowances
Others will receive few allowance due to low capacity factors, high efficiencies and low emission levels.
No Good Deed Goes Unpunished Low state NOx permits levels lead to even fewer
allowance for cleanest generators (Calpine’s Fleet w/ SCRs = 75% / Industry Average = 13%)
Key states will also face challenges Fast growing states that need more generation (CA) States that have made recent gains in efficiency (TX)
Multi-Pollutant Legislation
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Conclusion
Multi-Emissions Policies w/ Output & Updates
Creates strong incentive to invest in efficiency and lower emitting generation
Focuses on results, not inputs
Leaves room for clean coal (IGCC) w/out taxpayer subsidies
Accelerates the upgrading of aging power fleet
Allows many co-benefits – including lower CO2 emissions
February 28, 2005
CALPINE
CALPINE