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Midwest Climate Coalition Supports Cost Collar for CO2 Credits

(This article is condensed from EEI Daily Energy News via This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

The Midwest Climate Coalition, comprising 13 member utilities, has called on the Senate to include a price collar on carbon credits in order to limit costs for coal-dependent generators in their region, Energy Washington Week reported today. The price collar is supported by EEI, which is developing a white paper on the concept, and would set upper and lower price limits for CO2 credits.

In a letter to senators, the coalition detailed events, such as a delay in deploying CCS technology, a lag in renewable-energy development, or damage to natural-gas infrastructure, that could lead to higher-than-expected costs for Midwest electric and gas customers. The group wrote that a price collar "provides renewable project developers and offset providers assurance there will be a market for their investments," while mitigating "excessive prices to customers over time," adding that the move also would minimize the damage speculators could do to the new carbon market. An electric utility source said the strategic allowance reserve in the Waxman-Markey climate change bill would not be a sufficient hedge against volatile prices and that utilities see it as one in a combination of measures that is needed.

A source with the Natural Resources Defense Council said a price floor would be needed, but not a price ceiling, in order to keep prices down and control volatility. In its "Dos and Don'ts for Creating Carbon Price Safeguards," the council said EEI and others have proposed a price collar "where if carbon prices rise above a set level, the government just prints and sells more allowances, letting carbon pollution increase well above the cap," adding that a price ceiling "would only encourage risky high-carbon investments and discourage investment in low-carbon technologies we need." The source said the utilities' argument that Waxman-Markey would delay investments in CCS and renewable energy equipment was far off the mark.

Energy Washington Week, Sept. 16; Energy Collective, Sept. 14.