FPL Group Chairman and CEO Lewis Hay Testifies on Capitol Hill today; Proposes a Carbon Fee to address Global Climate Change
FPL Group (NYSE: FPL), recognized nationally among electric utilities as being at the forefront of clean energy production and conservation, stepped up today on Capitol Hill to help shape the debate on how to deal with global climate change. FPL Group Chairman and Chief Executive Officer, Lewis Hay, III, strongly endorsed a carbon fee as the best way to achieve meaningful reductions in greenhouse gases. His testimony before the U.S. Senate Committee on Environment and Public Works called the carbon fee “the most effective way” to make a difference.
Hay acknowledged that global climate change is real and “requires prompt policy attention.” He said, “The simplest, most effective way to do this is through a carbon fee. A carbon fee is administratively simple; it can be implemented quickly across our economy; it is immune from market manipulation, it rewards those who have taken prior action; its costs are certain and, crucially, it provides us in industry with clear price signals, which we need to make appropriate long term capital decisions.”
Hay pointed out that greenhouse gas emissions are not just an electric utility issue, they are an economy-wide issue, and must be addressed on that basis. A carbon fee, FPL Group believes, guarantees that every single business and industry will be motivated to reduce CO2 emissions. The reason is clear: the higher the CO2 emissions, the higher the carbon fee that a business or utility will pay. Hay said that to be effective, any program must set a market price on carbon; apply it throughout the economy; protect export- and import-sensitive industries; recycle the dollars that consumers will pay in higher prices back into their pockets; and fund needed new technologies.
Hay’s testimony on Capitol Hill noted that The Economist and the Los Angeles Times support the concept of a carbon fee, as do numerous economists, including former Federal Reserve Chairman, Alan Greenspan. Hay’s written testimony also included the conclusions of William Pizer, an economist for Resources For The Future. Pizer has studied greenhouse gas controls for more than a decade. Pizer has said, “I find that price mechanisms produce expected net gains five times higher than even the most favorably designed quantity target.”
Hay spoke from a position of strength before the Senate panel because he heads a company that leads U.S. utilities in several important categories: number one in wind energy production, number one in solar energy production, and number one in energy conservation programs. FPL Group also has one of the lowest emissions rates profiles in the U.S. electric industry.
The same opportunities being employed by FPL Group are there for other corporate producers of greenhouse gases to embrace. But, in many cases, as Hay told the congressional panel, “they have little incentive to do so because they are not required to pay for their carbon emissions or global warming effects"
Hay acknowledged that some others advocate a different path to achieving greenhouse gas reductions, arguing a cap and trade program makes more sense for industry and the overall economy. That complex approach involves a system of carbon allowances spread across U.S. businesses and industries, and FPL Group estimates those allowances could be worth between $70 billion and $300 billion a year. The concerns with that approach are many, chief among them; creating a fair system of allocation and, with the money at stake, creating a system that could be shielded from politics and influence seeking in Washington.
Hay emphasizes that if a carbon fee really is politically infeasible, the next best alternative must be the right type of cap and trade program. FPL Group’s analysis suggests the best approach would involve auctioning the majority of allowances and giving away the remainder for a short transition period. The allowances, Hay argues, should be allocated based on electricity output, which helps focus on energy efficiency. However, the complexity of even the best designed cap and trade proposals only reinforces Hay’s conclusion: a carbon fee is simply the best way to go.
There also is the debate about whether a carbon fee is really just another name for a new tax. Hay’s written testimony explained the crucial difference. He said, “Taxes are generally designed to be unavoidable. Companies can avoid paying a carbon fee by not emitting carbon -- exactly the behavior we need to encourage. Moreover, if it is effective, in time a carbon fee will be self-extinguishing.”
Hay said that there is enough evidence of global climate change to warrant taking action today. He said, “We know enough to know there is a risk of severe consequences, and just as we buy insurance, we need to address that risk.” Hay went on to note that just as we do not give up all our income to purchase insurance, government and industry must be balanced in the approach to addressing that risk. ”A moderate carbon fee, escalating steadily and predictably, and recycled directly back into the economy, will have only a modest drag on the economy, but it will over time induce massive change in our carbon emissions profile, especially when it is supported by adequate research and development" Hay said. “A moderate escalating carbon fee as we have proposed strikes the right balance.
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