In our last post in this series, we looked at the first of five timely and relevant new priorities for governments and industry to address for the future of electricity. Here are a few more of these priorities, as I see them…
Carbon Pricing
The vision of a unitary, fully interlinked global carbon agreement is likely to be illusory. Even in a much more straightforward domain such as trade, we have failed to establish a single global agreement under the World Trade Organization (WTO).
But unitary or not, economic constraints on carbon are growing. The EU emissions trading system (ETS) is up for renewal, Japan is eyeing a green tax, and in 2009 Australia proposed its own trading system (although it was unsuccessful, the issue remains on the table). The United States appears less likely now than in 2009 to introduce a cap-and-trade regime over the next few years, while Canada will align itself with what the US decides to do on this score (no more, no less). China’s carbon intensity targets for large emitters entail an implicit carbon price, because they will require retirement or replacement of inefficient technologies. As this diversity indicates, we are likely to see a spectrum of carbon constraints: taxes, cap-and-trade agreements, hybrids between taxes and caps, political commitments to replace capital stock, mandates and incentives for low carbon generation, and other ways of pricing carbon explicitly and implicitly. Important questions for electricity in connection with carbon pricing include the following:
· What carbon price or signal will it take to drive the electricity sector transition to low-carbon?
· The aviation industry recently became the first industry to adopt a global policy position and commitment on carbon reductions. Should electricity do so as well, and if so, why would this be helpful, either to itself or to the broader ambition of carbon reductions? What would the position be?
Clean Energy Capital
The industry will need capital for electricity projects, both for replacement infrastructure and to meet new demand. Stimulus funding in G-20 countries may have helped in the short term, but is not a long term solution. Several questions emerge in connection with the need for clean energy capital:
· Are there alternatives to a rate base for long-term capital investments in generation, transmission and distribution? Are there other sources of patient capital we are overlooking which could complement ratepayer funding?
· How can we ensure that the next generation of infrastructure investment avoids locking in high emissions sources for another generation and instead goes towards clean energy investment? Will the global recession slow down, or help accelerate innovation in the electricity industry?
· How can we increase the industry’s relatively small investment in R&D, as well as early stage innovations that have not yet achieved commercialization and scale?
· Electrical utilities are chasing the same machines, copper wires, transformers, etc. Will there be adequate capital to pay for these needed materials – and what are we competing against in the marketplace? Will regulated return on equity be sufficient?
Part six is available now, to read further please click here.
President and CEO
Canadian Electricity Association
Post new comment