Cleaning up the climate

Now that virtually everyone agrees global warming is a problem of potentially catastrophic dimensions, powerful forces are beginning to battle about what to do and how much money to spend.

No one questions who will pay. Not surprisingly, it's you.

Still, the clear message from experts is that the price tag will not be as high as many people have feared. Florida Power & Light, the biggest emitter of greenhouse gases in the state and now a supporter of decisive action, believes the cost could be as low as an extra $5 or $7.50 a month on your electric bill to start, eventually climbing to maybe $15 to $50 a month over the next several decades.

If you include car emissions and other steps, the most respected estimate, from a British study group, says that reversing climate change might cost Americans $140 billion a year -- about how much this country spent on the Iraq War this year. That's a big bite, but manageable.

The vast majority of scientists, the American public and even the captains of industry believe the nation needs to act quickly, but that's all they agree on. Action in Congress has stalled as the politicians consider seven proposals.

The details get messy -- and combative. Lew Hay, the usually mild-mannered chief executive of FPL Group, has gotten into sharp-tongued confrontations with other utility leaders. Hay is worried that many proposals would force Floridians to pay more than their fair share.

Hay supports a plan being pushed by economists, Al Gore and a conservative think tank. It has virtually no chance of passage. Instead, congressional leaders, some environmentalists and Wall Street investment bankers back a concept that has been a disaster so far in Europe.

Sound confusing? You're not alone. Many experts, like John Reilly at Massachusetts Institute of Technology, warn that ``the devil is in the details.''

What follows is a laymen's primer about the dense, complicated topic of how to stop South Florida from sinking into the sea.

A FOCUS ON UTILITIES

Proposed approaches

start with power industry

Virtually all policy makers agree that the easiest place to start reducing global warming is the power industry, where a few hundred utilities account for 40 percent of greenhouse gas emissions in the United States.

There are two ways to reduce those gases: a carbon tax, which would force utilities to pay a penalty for the millions of tons of carbon and other pollutants they spew into the air, or cap-and-trade, a system in which companies would buy and sell credits for the gases they generate.

• Cap-and-trade. The government decides how much carbon should be in the atmosphere, with gradual reductions over time. Each year, it gives or sells allowances to emit carbon. If a company does a good job of cutting its emissions, it could sell left-over allowances to others that are having trouble reducing carbon. In this system, the market determines the price.

Cap-and-trade was the system recognized in the 1997 Kyoto Protocol, an international agreement signed by more than 170 countries to work together to reduce greenhouse gases. The United States, the largest emitter of the gases, is the only industrialized country not to ratify the agreement.

Still, many Republican and Democratic members of Congress now support cap-and-trade because they don't want to be accused of increasing taxes. The financial community likes it because it creates a profitable new commodities market.

Some environmentalists like it because it sets controls. ''Why do something about global warming without setting limits on greenhouse gases?'' asks Lexi Shultz of the Union of Concerned Scientists.

So far, this system has been a disaster in Europe -- with the worst polluters getting billions in windfall profits. Countries gave away too many allowances at the beginning. Big manufacturers and utilities made billions by selling the credits to other companies and speculators. Some utilities made a double profit by charging customers for the perceived cost of the credits.

Prices for the credits, which climbed to about $40 a ton during a speculative rush, later collapsed to 3 cents. ''Some made a lot, but others lost a lot,'' says Alex Rau of Climate Wedge, an investment advisory firm.

John Reilly at MIT is more positive: ''A lot of lessons to be learned from that system.'' The credits are reissued annually, so the system can easily be adjusted. ``This first phase was intended to be a test phase. So they can iron out the bugs and tighten it up.''

That's what is happening. In the European carbon market, a ton of carbon for 2008 is going for about $33. Still, Kenneth P. Green of the Enterprise Institute says Europe's struggles mean that it is ``likely to achieve no more than one-quarter of its Kyoto [mandated] reductions by 2012.''

• Carbon tax. The theory is that by putting a price on the most common greenhouse gas -- say, $10 to $40 a ton -- utilities would reduce their pollution to cut their expenses. They would either clean up their carbon-loaded coal plants or shift to cleaner sources of power: nuclear, wind or solar, depending on what is most economical.

Although a carbon tax is untested, many American economists, Al Gore and even the conservative think tank American Enterprise Institute believe that a tax is the best way to go.

Danny Cullenward and David G. Victor of Stanford University write in Scientific American: ``Taxes give clear, long-term price signals that make it easier for firms to make intelligent investments that will cut carbon emissions, whereas the price volatility of cap-and-trade systems impedes wise planning. . . . Tax systems are also more transparent. . . . They offer fewer opportunities for political favoritism and corruption.''

Green, of the American Enterprise Institute -- a think tank not known for supporting tax increases -- believes that in this instance a carbon tax is the better way to go because cap-and-trade has ''the great potential for fraud'' and political shenanigans. Green favors a ''revenue-neutral'' tax, where other taxes would be cut to equal what a carbon tax brings in.

'The irony is that there is a broad consensus in favor of a carbon tax everywhere except on Capitol Hill, where the `T' word is anathema,'' Green and colleagues write in a paper, ``Climate Change: Caps vs. Taxes.''

FPL IS AN ADVOCATE

Florida utility's leader

advocates a carbon `fee'

Lew Hay, chief executive of FPL Group, has become a combative cheerleader for what he calls a carbon ''fee,'' otherwise known as a tax.

Hay insists that the fee/tax would be much cheaper, and fairer, for Florida's consumers. The reason is ''coal, which provides half of the electricity in this country, but produces 80 percent of the CO2,'' says Steve Clemmer of the Union of Concerned Scientists.

Coal is plentiful in America -- and cheap. In large parts of the country, it is the fuel of choice. But not for FPL. Less than 5 percent of FPL's power comes from coal. About 20 percent comes from nuclear energy, and much of the rest comes from natural gas, which is far more expensive than coal but emits only half the carbon.

By its own calculations, FPL disgorges 53.9 million tons of carbon into the atmosphere each year. That may seem like a stunning amount, but it works out to an emission rate of 0.38 ton per megawatt-hour -- about half the emission rate of the average utility, according to the Energy Information Administration.

FPL hired a Massachusetts consulting firm, The Brattle Group, which calculates that if a carbon tax starts at about $10 a ton, as FPL proposes, or there is a cap-and-trade policy that works out to about the same stable price, the cost to the consumer would start at about a half-cent or a cent per kilowatt-hour.

Because FPL's power uses so little coal, the utility estimates that a tax or an equivalent cap-and-trade could mean starting costs for the average customer of about $5 to $7.50 a month. Since this would have to ramp up each year as the world squeezes more carbon out of the atmosphere, it could mean an extra $15 to $50 a month by 2050.

Hay argues that FPL customers have been paying for clean air for years by spending more for electricity produced by natural gas. They should be paying for their own pollution, but not for those coal producers elsewhere, he says.

But at the moment, Congress is facing seven cap-and-trade proposals, with many variations. FPL says that quite a few of them could be unfair to FPL customers. Some would give a lot of free credits to the coal companies, allowing them to profit by selling some. The worst scenario would be Congress ordering each utility to reduce emissions by a certain percentage. That would be much more difficult -- and expensive -- for the clean-burning FPL than it would be for the coal polluters.

FPL has joined with dozens of other major American businesses -- including General Electric and Ford -- to form the U.S. Climate Action Partnership. The business partnership's mission is ``to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.''

But that doesn't mean the businesses agree. While Hay backs a carbon ''fee,'' big coal users such as Duke Energy insist that cap-and-trade is a must because otherwise the costs would be too high for customers in regions fueled primarily by coal-produced energy.

At one energy conference, Jim Rogers, Duke Energy's chief executive, noted that Hay ''is saying fee but he means tax.'' Hay responded that if his colleagues wanted to fight, ``I have a Jerry Springer bouncer backstage.''

In early November, Hay erupted with an uncharacteristically irate outburst when a Senate subcommittee approved a bipartisan proposal by Sens. Joseph Lieberman, I-Conn., and John Warner, R-Va., that proposes giving away allowances to utilities under cap-and-trade.

Hay believes that giveaways would favor the polluters. Better for the government to auction off the credits, so each utility need buy only what it needs. Hay issued a statement saying the bill ``would reward the country's biggest emitters of carbon dioxide with billions of dollars of free allowances that they don't need. . . . That's like giving a bigger rebate to those of us who dump the most trash on our sidewalks.''

Rogers at Duke Energy maintains that the big coal plants need a lot of free allowances to start off, or their customers might be unduly burdened by dramatically higher electric bills.

Many environmentalists disagree. ''Allowances are a public good and should not be given away for free,'' says a report from Clean Air Watch. ``A CO2 program must not create windfall profits for the polluting companies.''

Economists acknowledge the potential for lobbyists to persuade Congress that ''Big Carbon,'' as the Stanford authors call the coal producers, needs a lot of free credits. Shultz at the Union of Concerned Scientists knows that cap-and-trade can get tricky: ``If designed wrong, you are going to have big winners and big losers. . . . The stakes are really high in this system.''

Heated battles are likely to take place in Congress about mandating more renewable energy (which would increase costs), loans to utilities, ''safety valves'' in cap-and-trade programs, and many other details.

EARLY FIX IS DOUBTED

Pessimism about legislation

is linked to election year

The possibilities are so complex and the White House so opposed to the proposals that almost no one sees any chance of a bill passing Congress before the 2008 election.

David Hunter, director of U.S. policy for the International Emissions Trading Association, predicts that all of the proposals now before Congress ``will die.''

Because of that, several state legislatures -- including Florida's -- are now considering their own climate legislation. But many of those proposals also have become bogged down. In Tallahassee, Gov. Charlie Crist insists that cap-and-trade would not hurt the state's economy, but the Florida Chamber of Commerce and House leaders remain concerned about the economic costs.