Jim Rogers supported Barack Obama for president, but now the Duke Energy Corp. chairman and CEO finds himself at odds with the president's first big environmental initiative.
Overall, Rogers agrees that a "cap-and-trade" system is the best way to reduce greenhouse gases, believed to be a major contributor to global warming. But unless details change, Duke customers in Greater Cincinnati and Northern Kentucky could end up paying electric utility rates 25 percent to 30 percent higher than today, Rogers says.
Obama aides don't dispute that consumers will get the passed-along costs. But they aren't sure precisely what the costs will be, although they say Obama's tax cuts would mitigate some increase for low- and middle-income families.
"If people don't change how they use energy, then they will face higher costs for energy," Treasury Secretary Timothy Geithner said last week.
Obama's cap-and-trade system would set declining caps, or limits, on new carbon emissions by major coal-burning utilities such as Duke. Companies that can't meet the caps could buy permits, or carbon credits, from other companies that have reduced their emissions of the heat-trapping gases.
The goal is to create an economic incentive for cleaner technology nationwide.
Rogers agrees with the overall approach, "but we want a smooth transition to a low-carbon world," he says.
"We can't do it by punishing those who rely on coal."
The move to a cap-and-trade system is expected to accelerate the push for clean and renewable energy alternatives.
It's not just theory. Environmental and utility advocates say a similar approach was hugely successful in reducing acid rain emissions under the 1990 Clean Air Act amendments.
The acid-rain program achieved nearly total compliance, cost 50 percent less than expected and improved air quality more than 25 percent more than projected, the U.S. Environmental Protection Agency says.
Duke Energy, the nation's third-largest electric utility and third-largest carbon emitter, says it will have spent $5 billion by next year on scrubbers at its coal-fired generating plants under the acid-rain program and reduced its emissions by 70 percent.
The administration's cap-and-trade proposal calls for auctioning 100 percent of the carbon credits, a move that's projected to generate $645.7 billion for the government from 2012 to 2019. About $120 billion of that money would be used to develop low-carbon technologies.
The rest would be returned "to the people, especially vulnerable families, communities and businesses to help the transition to a clean energy economy," Obama's proposal says.
Analysts say the money would be used to make permanent Obama's Making Work Pay tax credit, which will provide up to $400 for certain working individuals and $800 for working families starting April 1.
Last week, White House budget chief Peter Orszag told the House Ways and Means Committee that he could not provide a specific cost to consumers under Obama's plan.
Congressional Budget Office projections last year - based on 1998 pollution levels - estimated that a 15 percent reduction in emissions by 2018 would increase costs to low- and moderate-income families by about 3 percent of their total income.
Rogers' approachRogers says a better approach would be to allocate the credits to companies such as Duke, to offset their investments in clean energy alternatives. That's the approach used in the acid rain program. Otherwise, he argues, utility customers will end up paying twice: once to acquire the credits to stay under the cap and again for investments in new technology.
Besides higher rates, Rogers says, Obama's approach would mean:
A net transfer of wealth from the heavy coal-burning Midwest and South to the East and West coasts, where coal isn't a significant power generator, because most of the revenues would flow directly to taxpayers.
Less money would be devoted to finding a solution to global warming. "If we're going to auction off the permits, all of the money ought to go back into improving energy efficiency," he says.
Groups fire backNot everyone appreciates Rogers' approach.
"Unfortunately, Mr. Rogers' comments aren't helpful," says Joe Mendelson, director of global warming policy for the National Wildlife Federation.
Critics argue an allocation system would be an economic windfall for polluters. Rogers counters that state utility commissions regulate the rate-setting process, and he'd be willing to sign a pledge that revenue from the credits wouldn't be used to benefit shareholders.
"The devil is always in the details," says Tom Bullock, Ohio representative of the Pew Environment Group, part of the Pew Charitable Trust.
"An auction system has proven to be fairer to taxpayers and the least likely to result in windfall profits," he says. Using an auction to allocate the credits also doesn't preclude directing the revenues to those most affected, he says.
Sen. Sherrod Brown of Ohio was one of 10 Senate Democrats who signed an influential letter last year urging that any climate change legislation treat those affected equitably. Brown says he supports the cap-and-trade approach, but revenues should go "back to the consumers, states and industries that are most affected."
Rogers, who led the former Cinergy Corp.'s merger with Duke in 2006, says he spent about six hours over the course of the fall election trying to convert Obama to his point of view.
"I told him people in this part of the country would be hurt," Rogers says. "I wasn't shocked he didn't change his position. I guess I wasn't a very good salesman."
Republican candidate Sen. John McCain also supported cap and trade during the campaign. But he didn't take a position on auctioning and it never became a major campaign issue.
Legislation in pipeline
In his budget message last month, Obama set goals of reducing greenhouse gas emissions by 14 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050.
Rep. Henry Waxman, D-Calif., chairman of the House Energy and Commerce Committee, expects to have a cap-and-trade bill ready by June. Senate Majority Leader Harry Reid, D-Nev., has promised a vote on comprehensive energy and environmental legislation in August.
There's a sense in Washington that Obama wants action on U.S. greenhouse gas emissions this year in time for new international negotiations on global warming slated for December in Copenhagen.
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