Reposted from John Daly's site

What Happens When You Run Out of Emissions Credits? (16 Dec 2000)

The `Competitive Enterprise Institute' reports in their latest economic report that California electricity shortages became much worse this week. High demand and cold weather combined with supply problems to threaten the state's power grid with massive blackouts. For over a decade, environmentalists have persuaded regulators to prevent the construction of any large power plants.

The problem has been made more severe by the fact that up to one third of the state's generating capacity has been shut down in recent days. Not all of these shutdowns are due to breakdowns or needed maintenance. Some plants were forced to shut down because they ran out of state `emissions credits'.

A December 9 article in the Washington Post noted that, "About 17 power generation plants - which together produce about 2,500 megawatts of electricity, enough to power 2.5 million homes - were idle because they had reached their pollution limits."

The Oakland Tribune (December 8, 2000), explained that, "The units not operating Thursday were under repair or had exhausted their annual allotment for emissions under air pollution standards, imposed on industries of all types by regional air quality management boards, according to government and industry officials."

Once this news became public, regulators quickly declared an emergency' and allowed the closed utilities to resume production. The next day the Tribune (December 9, 2000) reported, "More than half the electricity generation plants shut down because they reached annual air pollution limits were back in operation... easing the unexpected pre-winter supply crises."

As expected, environmental groups decried the hasty arrangements as a sacrifice of environmental protections. Companies still holding emissions credits may also complain that the value of those credits have been reduced by this action.

If this is the result of imposing an emission credits regime in only one U.S. state, the problems which would arise from a similar regime operated internationally would be magnified a thousand-fold. The California experience will weigh heavily on the minds of Bush administration negotiators when the next climate conference convenes, expected to be in Bonn, Germany during the middle of next year.

-- Malcolm Taylor (taylorm@es.co.nz), December 17, 2000