Selling Smog: a Shell Game : Energy: Utilities face off over smokestack allowances.
Welcome to the brave new world of “tons,” which dawned last fall while we were all busy watching Scuds and Patriots.
“Tons” is slang for marketable pollution allowances, a bizarre commodity created by the 1990 Clean Air Act. Like medieval indulgences, each allowance excuses a sin and is available for a price.
The sin is emitting sulfur dioxide, and each allowance lets you put one ton of that reeking pollutant into the air during one year between 1995 and 2010. So if you can acquire enough tons, you can build a power plant with no pollution control to burn the dirtiest, cheapest coal money can buy.
Under the rules soon to be announced, there will be big losers along with the big winners. Since electricity can’t be generated without allowances, utilities that find them too expensive will have to shut down.
Here’s how it works--roughly, that is, because the rules are as complex as you’d expect: The 110 dirtiest power plants are listed in the law; each gets liberal allowances from 1995 to 1999. From 2000 on, all power plants in the country get allowances. However, the total available to all of them will cover less than half of today’s emissions. That’s quite a squeeze. But you can bring unused allowances forward to use or sell.
Utilities that install expensive scrubbers or buy expensive clean coal can sell their unused tons to defray the cost. Buyers can keep right on polluting. How is this good? Well, the total amount of pollution goes way down, though this may be small comfort to those downwind of plants with many allowances.
As with any untested gimmick, things will go wrong; what will go wrong is anybody’s guess. Suppose we have a cold winter, a hot summer, and a chilly fall and the country’s whole power system runs out of tons in November? We could get cold there in the dark, waiting for New Year’s Day. Of course, the government would back off before this became a national catastrophe, but it can happen regionally or even locally when severe weather burns up a utility’s allowance. Clean plants can afford to spend more for tons than dirty plants, so maybe only the really dirty plants will shut down--and those poor souls downwind will breathe easy while they freeze.
Anyone can buy tons. You, me, the Sierra Club, the Japanese, even Saddam Hussein--anyone who wants to speculate in or restrict our electric generating capacity. Interesting. . . .
Environmental extremists are expected to buy allowances to cut emissions. These “clean air crazies” will not care if electricity costs triple. It will merely bring on those radical lifestyle changes they have wanted for years. The greatest danger of all is that the law provides no allowances for new power plants. At least 340 are planned by 2000.
To build a plant you must either buy tons or save them from your current operation. How are we going to keep up with national growth? Proponents say that we will develop pollution-reduction technologies to get more power per ton of emission. Maybe, maybe not. Perhaps hydro and nuclear will make a comeback? Perhaps Mexico will be our fallback?
The problem is that you can’t plan for the unpredictable. Tons are a commodity, like wheat; they are weather- and market-dependent. When the future is uncertain, consumable commodities are hoarded. Utilities, like farmers, will hoard to ensure survival. Speculators will hoard to make a killing. Foreign interests may hoard to retard our economic growth, or simply to hurt us. Without wheat, people starve. Picture a nation starving for electricity.
Why didn’t you hear about these dangers before the Clean Air Act passed? Because it went to a vote during the Gulf War, with very little discussion in the press. Why a President who once was our chief regulatory reformer would buy this scheme is a mystery.
In any case, this “tons” game is as dangerous to the electrical industry as deregulation has been to the airlines and banking. Utility stock and bond prices should reflect these risks. At a minimum, the law must be changed so that only those who use tons to generate electricity can buy them. Hoarding must be prohibited. Otherwise it’s going to be a devil of a scenario to play out with our national power system.
