Duke Energy on Cap and Trade: What's in It for Me?

June 2, 2008

Longtime cap-and-trade advocate Jim Rogers – CEO of Duke Energy, before that of Cinergy (which merged with Duke), and before that protégé of none other than C)2 cap-and-trade pioneer Ken Lay – tells CNN that “he supports climate action but warns that Lieberman-Warner would have a ‘draconian effect’ on his customers and others in the 25 states that now burn 80% of the coal in the United States. It’s unfair, he argues, to place the burden of solving the climate-change problem on coal-burning states…‘I believe in cap and trade. I believe we ought to put a price on carbon [dioxide],’ Rogers says. But senators who want to auction permits, and then use the money for a variety of projects - ranging from deficit reduction to water projects to job training - threaten to turn the climate-change bill into the ‘ultimate in earmarking.’”

Rogers is even quoted by the Sunday Washington Post as saying “this bill raises too much revenue from coal users while diverting too much of it to other purposes. ‘Only the mafia could create an organization that would skim money off the top the way this legislation would skim money off the top,’ he said.”

This may be a little confusing to students of the issue, after all it is no secret what Vattenfall CEO Lars Josefsson also told the Post, last year, that “higher electricity prices are ‘the intent of the whole exercise. . . . If there were no effects, why should you have a cap-and-trade system?’” Possibly the point of contention is who gets the money?

To clarify what it is Rogers objects to, let’s turn to the Pew Center’s recent report addressing cap-and-trade, what with Duke being one of Pew’s flagship members (Enron was quickly airbrushed out of Pew’s hall of fame once the, ah, unpleasantness hit the papers, as I write about in my book). This paper, as I note in detail, here, reads very much like a long apology for “keeping” the original notion of giving the ration coupons away to covered parties (and a few others to get their buy-in, er, for them to sell, it is worth mentioning) – found in Duke’s own proposal, which the Senate elected to not adopt, much to Rogers’ chagrin and apparently contributing to his change of heart.

Free ration coupons are what generated the “windfall profits” of tens of billions of dollars for utilities in Europe so far under their version of McCain-Lieberman-Warner; the more that are “allocated” rather than auctioned, the greater the windfall profit. Either way, your rates go up the same amount. But, as noted if somewhat reluctantly by the Pew authors, “whether allowances are distributed for free or through an auction will typically have no effect on market prices in competitive electricity markets, although it will affect individual supplier profitability.” (p. 27)

That helps explain Rogers’ bemusement, even if couched in terms of concern for those poor folks who would have to pay higher rates under this scheme; it’s all good, up to the part where utilities don’t get to keep the rate increase. His newfound, if selective, candor is admirable. Yet, while we're happy to have him on our side against this particular version of energy rationing, if only until the putative windfallers can tweak the legislation, it does threaten to give rent-seekers a bad name.