Random Thoughts of Chris Tilley

There's an article form yesterday 'US and Berlin clash on G8 climate text'. The clash revolves around caps and the US insistence that they are not necessary.

Angela Merkel, the German chancellor, would like the summit to agree limits on carbon emissions but the US says climate change should be tackled with technology-based solutions rather than mandatory emissions targets and accuses Berlin of ignoring its stance.

I agree fully that technology is the answer. However there needs to be some motivation to go forward and that is where a Cap and Trade program comes in. Necessity is the mother of invention. Right now very few see reducing carbon as a necessity. When carbon effects their bottom line then it becomes a necessity.

A good example is GE's Integrated Gasification Combined Cycle (IGCC) system. The benefits of such a system are great.

Over a 25-year lifespan a GE IGCC plant being designed today for 600 megawatts is expected to provide significant emission reductions when compared to recently permitted pulverized coal technology, including:
» more than two million tons of carbon dioxide.
» more than 67,000 tons of sulfur dioxide.
» nearly 26,000 tons of smog-forming nitrogen oxide.

The first one of these went online in 1984 and now there are two in the US. Why? Well to some extent reliability is an issue but there are variations out there that have a 90-95 uptime. There is a 25% price premium on current plants, GE's new plants are expect to come in at 10%. Why should I build a more expensive plant when carbon doesn't cost me anything. Now that sounds like raising the price of electricity and it probably will have a minor effect. However coal is still some of the cheapest power around. Eliminating coal is not going to be an option.

A Cap and Trade program would provide incentives to build more efficient plants. That would pump money back into R&D. That would reduce the capital and or operating costs. Develop the technology and then export it. Our strongest competitive advantage is innovation. Too bad a lot of executives only see the bottom line for this year and how much their bonus is going to be rather than the long term growth of the company.