How will cap-and-trade affect wind energy?

Cap and trade

Cap and trade is a regulatory system that sets a government limit on overall emissions of pollutants like the heat-trapping gases scientists have linked to global warming -- the "cap." Each company gets a certain amount of credits or permits, beyond which companies cannot emit more pollution. It then allows utilities, manufacturers and other emitters to "trade" pollution permits, or allowances, amongst themselves.

On June 26, 2009, the U.S. House of Representatives passed a comprehensive energy bill that contains the first-ever nation-wide mandatory greenhouse gas “cap and trade” program.  Formally entitled the “American Clean Energy and Security Act of 2009,” the bill is more commonly referred to as the “Waxman-Markey Bill” after the bill’s cosponsors – House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and Rep. Ed Markey (D-MA). With the passage of the bill in the House, the debate now moves to the Senate. The bill would in general limit heat-trapping pollution from factories, refineries, and power plants emitting at least 25,000 tons per year of CO2-equivalent which covers about 85% of total U.S. emissions. Although a significant portion of the allowances will be allocated at no cost to these sources, the remainder of the allowances will be auctioned off to raise money for other clean energy programs. The percentage of allowances allocated freely instead of auctioned off will decline steadily until 2030, after which time all allowances will be distributed via auction.  For instance, for electric utility sources, 43.75% of the allowances would be allocated at no-cost to this sector in 2012 and 2013, and that number would decline over time to 7% in 2029 and then none thereafter. This way companies that would find it hard to reduce their pollution would buy greater credits for a higher price. Companies that manage to reduce their pollution below their credit limit would be allowed to sell off these excess credits to companies that have a tough time doing so, thereby creating an economically feasible trading market.

The approach has been embraced as an alternative to top-down regulatory schemes which would simply levy taxes on harmful emissions.

Impact on Wind Energy Industry

The government assumes that the cap and trade system should be up and running by 2012, giving companies some time to adjust and plan their emissions according to this legislation.

The introduction of this bill reduces the current uncertainty about the shape of future greenhouse gas regulations. ‘Uncertainty’ is a deterrent to investment, but now if companies cannot stay within their pollution limits, then they can be heavily fined by the US government. Therefore, the amount of money companies will be willing to spend to decrease their pollution would be directly proportional to the amount of money it would cost them to buy the credits if they weren’t able to decrease their pollution.

This is great news for the wind industry as wind turbines are zero-carbon emitting sources of power. There will definitely be a jump in the demand for wind energy, both for industrial and utility scale wind turbines. Many companies which will be subjected to the cap will look to generate their own power from wind, thereby reducing their carbon footprint. Renewable electric utility sources such as wind farms which put power onto the grid will also have a reserve of credits in which they can trade and profit from. This, together with the renewable electricity standard, a mandate requiring electric utilities to generate a minimum percentage of their electricity from clean renewable resources, will continue to provide the wind industry with a host of incentives such as federal grants and subsidizes. Consequently, this will heighten the demand for utility scale wind farms.