Avista Corp., one of the nations greener electric utilities, is poised to do battle on carbon cap-and-trade systems on the state, regional, and national levels with much larger utilities that get much of their power from coal-burning plants.


The stage for such conflict is set because as Congress is weighing creating a national carbon cap-and-trade system to combat greenhouse gases, efforts are under way by Washington state, six other Western states, and two Canadian provinces to set up a regional system, which they hope to do this year.


The electric utilities that would be involved in the regional system, called the Western Climate Initiative, differ on a key feature of the system. Utilities such as Avista that emit relatively few greenhouse-gas emissions want to base the allocation of carbon credit allowanceswhich would be bought and soldon electrical output or demand, and utilities that produce larger amounts of emissions want the credits to be based on emission levels.


Those allowances are going to be valuable, and youre going to be able to sell them if you dont need them, says Tom Paine, Avistas director of government relations. Basing them on emission levels would allocate the lions share of the credits to utilities with the most emissions, he says.


Avista, which generates about half its electricity with hydropower, creates relatively little emissions, while utilities such as Puget Sound Energy, of Bellevue, and PacificCorp., of Portland, both of which generate much of their electricity at coal-fired plants, oppose the allocation methods Avista prefers, Paine says.


Puget Sound Energy and PacificCorp. dont agree with us, Paine says. The math works out better for them the other way.


Other utilities in populous states in the proposed regional system, such as California and Arizona, also generate large amounts of power with coal-fired plants, and also favor allocating carbon credits based on emission levels, Paine says.


Avista says that in a carbon cap-and-trade system, a cap is put on the amount of carbon that can be emitted from all sources within a certain geographic area. Carbon-credit allowances then are allocated among emitters of carbon dioxide in that area. To cut emissions, the cap on carbon emissions is lowered over time, and as the cap is lowered, the number of carbon credits that are allowed is reduced, requiring each source to reduce its carbon emissions or to buy allowances from another emitter, Avista says.


In theory, businesses that can reduce carbon emissions economically will do so early in the reduction process and will sell their excess carbon credits to companies that face more costly options to reduce their emissions. The idea is that a well-designed cap-and-trade system will provide businesses with much greater flexibility than a system in which the government simply mandates emission reductions.


Avista argues that any such system should be economywide and not limited to one or two sectors. It also says that each jurisdiction in the Western Climate Initiative should be allowed to tailor elements of a cap-and-trade system to its own circumstancesincluding allocating carbon allowances to electric utilities based on power output or customer load.


The option of doing nothing to address the greenhouse-gas problem is no option at all, Avista implies. The scientific questions of whether or not climate change is occurring and whether or not humans are contributing to this change are largely settled, the company says in a briefing it has prepared. Adds Paine, Weve been supportive since 2005 of federal mandates to reduce CO2 (carbon-dioxide) emissions.


In the regional effort, Washington, Oregon, Montana, Cali- fornia, Arizona, New Mexico, Utah, and the Canadian provinces of British Columbia and Manitoba have agreed to be part of the Western Climate Initiative, Avista says. They recognize that if a federal system is set up, the regional system would terminate, but didnt want to wait for the federal government to act, Paine says.


Most people think that nothing will be signed (on the federal level) until President Bush is out of the White House, he says. Thats 2009. The states have been unwilling to wait that long.


As a first step, the seven states and two Canadian provinces involved in the regional effort already have agreed on the cap: a carbon emission reduction target of 15 percent below 2005 levels by 2020 that would apply across all economic sectors, Avista says in the briefing document. The next step is to create a carbon trading system that achieves that carbon reduction goal in a manner that is both equitable and economically efficient. That means a system that achieves reductions from every significant source of carbon, including stationary sources (such as power plants, manufacturing facilities, and commercial buildings) as well as mobile sources (mainly cars).


A report from the Palo Alto, Calif.-based Electric Power Research Institute contends that the technical potential exists for the U.S. electricity sector to cut its carbon dioxide emissions by more than 20 percent from 2005s levels, dropping them below 1990 levels by the year 2030 if seven technologies were adopted aggressively. Those technologies include much greater reliance on nuclear power by 2030 than currently expected; for non-hydro renewable sources of generation to supply 6.7 percent of the national demand, up from an anticipated 3 percent; for upgrades of coal-fired generating plants to make them more efficient; and for all new coal-fired generating plants built between 2020 and 2030 to capture and store 90 percent of the carbon dioxide they emit. Avista says electric utilities are responsible for about a third of U.S. carbon-dioxide emissions, with the transportation industry responsible for another third.


While no precise figures are available yet on how different methods of allocating carbon credits would affect different utilities in a regional system, Avista says that if carbon credits were allocated nationally based on current carbon-dioxide emissions, 80 percent to 90 percent of the allowances would go to utilities in the Midwest and Northeast that rely on coal.


if allowances are allocated based on emissions, relatively few allowances would be provided to utilities in Washington state, Avistas briefing document says. This would require the purchase of allowances at significant cost to energy users in our region.


Avista adds, It has been estimated that an allocation system based on emission levels would cost the people of the Northwest region over $1 billion per year in additional energy costs. Those costs would be spread over numerous utilities.


On the state level, the issue of deciding how carbon credits will be allocated will come to a head before long as the Washington Legislature takes up legislation on the design of the proposed regional cap-and-trade system, Paine says. He says the issue also is gaining attention on the national level.


So, were working on the state level and the regional level and the federal level all at once, Paine says. Were trying to find a method of allocation that is fundamentally fair to all and doesnt penalize utilities like Avista.


Roughly half of the electricity generated in the U.S. is generated with coal, and as Congress discusses how to allocate carbon credits, utilities that rely on coal will call on the powerful U.S. coal industry to provide them with added political muscle, Paine says. Thus, Avista and other low-emissions utilities have a major task ahead of them if they hope to persuade lawmakers to approve a carbon-credit system thats based on something other than current emissions levels, he says.


He adds, though, We also believe its better to be at the table than just on the menu.


Contact Richard Ripley at (509) 344-1261 or via e-mail at editor@spokanejournal.com.