Energy Cooperatives Oppose Obama

Posted on | April 23, 2009 | 1 Comment

The National Rural Electric Cooperative Association (NRECA) is opposed to the President’s Cap-And-Trade auction plan. Their position statement:

Cooperatives Oppose Full Auction of Allowances Under Carbon Cap-and-Trade

Under a “Cap and Trade” approach to reducing greenhouse gases, Congress must decide how to distribute emissions allowances. Congress can choose to freely allocate allowances to the regulated community or others; it can auction all allowances to the highest bidder; or it can adopt a hybrid approach of allocating some allowances freely and auctioning the remainder.

President Obama’s FY2010 budget proposes to auction 100% of all emission allowances under a cap-and-trade climate change program that has yet to be developed.

* Consumer-owned electric cooperatives strongly oppose a 100% auction of emission allowances and urge Congress to minimize the economic impacts of climate change legislation on consumers.

Auctioning Raises Costs to Rural Electric Cooperative Consumers

Unfortunately, auctioning all allowances only serves as a backdoor, variable tax on electric cooperative consumers to raise revenue for the government. Even worse, the level of the tax would be determined by Wall Street and large multi-national energy companies who would likely be the highest bidders in any auction. Cooperatives would likely be price takers under an auction. If the government needs to raise revenue to fund important national priorities, those taxes should be set by the government and collected by the IRS, not set by Wall Street and collected by utilities.

Further, auctioning allowances is not necessary to achieve the environmental objective of a cap-and-trade plan – namely to achieve significant, long-term reductions in greenhouse gas emissions. Those reductions are achieved by the cap established in the legislation. An auction of allowances will not result in any further reductions of CO2 emissions. It won’t reduce emissions, it will only raise revenue.

Additionally, one of the main reasons given by advocates, including President Obama’s budget, for auctioning allowances to the highest bidder is to avoid giving industries “windfall profits.” However, electric cooperatives are not-for-profit, consumer-owned utilities that provide electricity to our members. As not-for-profit entities, it is by definition impossible for cooperatives to receive “windfall profits.”

Since cooperatives provide electricity on an at-cost basis, any additional costs borne by cooperatives gets passed directly through to our member-consumers. Conversely, any costs avoided save on our consumers’ monthly electric bills.

In the case of cooperatives, the most straightforward, efficient method of minimizing higher costs to our member-consumers is to freely allocate allowances to cooperatives. Co-op consumers will still face higher costs resulting from efforts to reduce emissions, and those costs will grow over time as the emissions cap declines. However, consumers can be protected from unnecessary higher costs that would result if co-ops have to bid on allowances against other for-profit entities.

Avoid the “Enronization” of any Auction

Some proposals contain explicit language allowing any entity to bid on allowances in an auction. Under this structure, rural electric cooperatives not only would be competing for allowances with large investor-owned utilities, manufacturing giants, and multi-national oil companies, but also deep-pocketed financial firms.

Investment houses and other brokers have a role to play in ensuring a liquid market, but should not be enticed to buy allowances at the auction, hold them to drive up prices, and then sell them purely to make a profit. Those profits would come directly from the pockets of consumers and would not provide any CO2 reductions.

Greenhouse gas emission allowances should not be treated as just another commodity like pork bellies. Much like how Enron manipulated the electricity markets in California in 2000, such a structure could drive up prices, promote extraordinary market volatility, and threaten the economic and energy security of the country without providing any additional environmental benefits.

* NRECA strongly urges Congress to restrict the use of allowances to only those entities which have a regulatory compliance obligation under the legislation, and clearly define the role of non-regulated actors in ensuring a liquid market.

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