Carbon Market Awaits a Regulatory Kick-off
The North American voluntary carbon offset market had been evolving toward a pre-compliance market in anticipation of state, regional and federal cap-and-trade systems. The recession has battered the voluntary carbon markets (as well as the EU ETS market), but Waxman-Markey’s passage by the House in June 2009 accelerated the trend to a pre-compliance market, in which higher prices are paid for those offsets deemed to be closest to what would be required under a regulated system. Waxman-Markey would instruct the EPA to issue offset credits for some precompliance offset projects created before 2009—up to 1%, or 46 million tons, of the total cap in 2012, the first year of the compliance period. To qualify, the offset projects must meet rigorous standards, and many analysts have interpreted the provision to mean that only offsets registered or approved by the California Climate Action Registry, which is transitioning to the Climate Action Reserve (CAR), and Regional Greenhouse Gas Initiative (RGGI) will qualify.

Utilities Wrestle with Buy or Build in Renewables
Utility-scale renewable energy development emerged under the Public Utility
Regulatory Policy Act of 1978, which forced utilities to buy electricity from wind farms and other “qualifying facilities.” Now that wind power in particular has matured as a power technology, more utilities are motivated to own their own wind power assets. Legislation enabling utilities to receive the investment tax credit for solar PV assets has led to increasing utility investment in that technology. A core motivation for utilities is increasing returns to shareholders; not only do they not earn returns on power purchase agreements, but PPAs can be considered a form of debt that impacts credit ratings.

Public Power Utilities Weigh Options to Meet Renewables Targets
Like their investor-owned counterparts, many publicly owned utilities will be sharply challenged by climate-change and energy policies like those in Waxman-Markey. Nationwide, 46% of publicly owned utilities’ generation is from coal-fired power plants, and in some regions the percentage is higher than 75%. While they have access to tax-exempt debt financing to build renewable energy assets, public power entities can’t readily utilize the tax credits that independent power producers and investor-owned utilities can receive for solar, wind and other renewable assets. Additionally, in some of the 29 states with renewable energy standards, publicly owned utilities are exempted or allowed leniency, hence compliance with a national RES would require some public power utilities to build renewable energy assets or procure of renewable power or renewable energy credits (RECs) faster than IOUs in the same state.

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