Carbon Cap and Trade

The importance of a carbon cap and trade program to the future of the renewable industry is hard to capture. It’s critical. It’s paramount.

In many ways, it’s the linchpin of the industry–for better or worse.

That’s because without limits on carbon emissions, renewable energy would take much longer to become broadly competitive.

But a cap on carbon changes everything. It puts a price on emissions that makes them an instant liability.

Burning coal becomes much more expensive. So does burning natural gas. And companies with intensive factory operations will also be at risk.

And for all the bickering and lost revenue on the liability side of cap-and-trade there are equal cheers and potential increased revenue on the other side of the debate. Although it’s really not a debate anymore. Cap-and-trade is coming.

Coming Cap and Trade

I’ve talked about coming cap-and-trade legislation before in these pages. At that time, cap-and-trade was only a congressional rumor–talked about but nowhere near ready for the primetime.

That’s all changed now, as I have some concrete information that a cap-and-trade scheme is on it’s way to the States in a big way.

President Obama is going to release the details of his budget this Thursday.

But thanks to an early release of the budget to the New York Times, there is now proof that cap-and-trade is, indeed, on its way.

Here’s the piece of the budget outline that gives it away:

On energy policy, Mr. Obama’s budget will show new revenues by 2012 from his proposal to require companies to buy permits from the government for greenhouse gas emissions above a certain cap. The Congressional Budget Office estimates that the permits would raise up to $300 billion a year by 2020.

It doesn’t take a genius to figure out that the only way to generate governmental carbon revenue by 2012 is to implement a cap-and-trade program.

The budget doesn’t say how much revenue is expected by 2012, which would give us a much clearer picture on the scope of any coming carbon legislation, but $300 billion a year by 2020 implies a fairly robust program.

Whitehouse.gov, for example, lists the goal of implementing an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.”

And while I doubt we’ll see a program that intensive initially, and price increases associated with burning fossil fuels are one more notch in the parity belt renewables.

Cleantech Wealth: Two Legs Down

For alternative energy to catch on in a mainstream way (That is, generating baseload power at competitive prices without significant subsidy), three things must happen:

1. Introductory incentives
2. A price on carbon
3. A national RPS

With the president’s hinting at a imminent price on carbon, only one major hurdle exists.

You see, we’ve had introductory incentives for years; they’re necessary when trying to implement any new strategy that disrupts the norm or costs a bit more initially for a better product. (think first-time homeowner incentives)

For cleantech, the model to follow has been Germany’s feed-in tariff program, which allowed generators of solar electricity to sell it at higher rates than retail. In the States, we went the way of tax incentives via the production tax credit and investment tax credit–both of which have been expanded and improved thanks to the most recent stimulus.

A cap-and-trade system in the next few years would take care of the second pillar.

And a national renewable portfolio standard (RPS) requiring utilities to generate a certain portion of their electricity from renewable resources could come as early as this year as well. Senator Udall from New Mexico has already introduced legislation that would require utilities to generate 25 percent of their electricity from wind, solar and other renewable energy sources by 2025.

For perspective, we only get about 2% of our electricity from renewables right now if you don’t count hydro. So, needless to say, a national RPS would be a boon to the industry.

Bottom line: the stars are aligning for the cleantech space. Times have been rough as they have been in all global markets. But it seems the road to recovery, in many cases, is paved with clean technology.

Expect cleantech to be a continued major part of global economic recovery efforts. And begin loading up now on shares of companies that will be the Exxons of the new century.

To green energy and green profits,

Chris
CleanEnergySector.com

P.S. What are your thougts on cap and trade and our government’s plan to reduce carbon emissions? Please leave your comments below.