I read an article this morning from Platts.com, which discussed federal carbon dioxide emission limitations which may kick in sometime in the not too distant future. Presently, only California and eight northeastern states have signed an agreement called the Regional Greenhouse Gas Initiative to regulate carbon dioxide emissions from coal-fired power plants. If other states are required by federal law to participate in a similar manner with respect to such restrictions, the cap and trade program may cost utilities millions of dollars. I had always looked at the cap and trade concept in a rather negative fashion, particularly with respect to mercury, given that larger utilities with the most pollution may simply buy as many allowances as possible, resulting in mercury hotspots in certain regions. However, after reading this article, I realized that perhaps I was underestimating the power that a cap and trade system can potentially have on changing utility companies' behavior. According to this article, buying credits during the INITIAL phase of such a program "could cost utilities hundreds of millions a year as thousands of megawatts of generating capacity would have to be replaced with zero emissions energy sources or covered by emission allowances." The article further notes that "the first phase of a national cap and trade program for carbon dioxide could cost more than $6 billion a year."

If these figures are accurate, I can understand some of the hesitation on the part of utilities to limit carbon dioxide emissions, even if this cost will in turn be passed on to consumers. Yet, if utilities close their eyes to what appears to be an inevitable measure to reduce nationwide carbon dioxide emissions, they may face a rude awakening when these restrictions become effective. Even the most profitable utility companies like American Electric Power seem to comprehend that greenhouse gas emissions cannot be entirely ignored. At the same time, AEP is playing both sides a bit. On one hand, it participates in the Chicago Climate Exchange whereby each member company agrees to meet decreasing emission caps via emission allowances and other measures. By 2010, AEP says it will reduce or offset its greenhouse gas emissions by 46 million metric tons, apparently by improving equipment design and planting more trees to counterbalance the emissions. On the other hand, AEP claims that there is no proven way to economically control greenhouse gas emissions from coal-fired power plants. After reading these two positions in Dennis Welch's letter to me, I was left a little conflicted as to whether cap and trade is enough to get the job done, such that we have a real hope of averting climate change. Cap and trade does seem a lot more burdensome than I previously thought; apparently, these allowances don't come cheap and if enough can't be obtained, real changes will have to be made in a power plant to meet any emission restrictions (if and when they are imposed by the federal government). Nevertheless, I can't help but think that there will be enormous loopholes for utilities, especially the biggest and most powerful, which seem to have a lot of influence over our federal government. After all, AEP's position that nothing can really be done to stop carbon dioxide emissions in a cost-effective manner, doesn't lead me to believe that company officials are breaking a sweat over impending federal carbon dioxide emission restrictions.

One thing is clear to me. If California and the eight other brave states are successful in achieving their carbon dioxide limitations, their utilities will be way ahead of the game than those that drag their feet, in the event that the federal government limits carbon dioxide emissions. I also believe that these states' utilities will prove to AEP and other large utilities that carbon dioxide limitations can be attained without these companies suffering financial ruin. Hopefully, the utilities' hold over the federal government won't stonewall genuine progress being made in the way of carbon dioxide reductions. Given that the planet's future is potentially at stake, this is one time where true headway needs to be made in the coming years without excuses or delays.