Consider climate change policy carefully

In 2008, as the realities of climate change become increasingly clear, New Hampshire is preparing to implement two public policy initiatives that have far-reaching implications for the electric utility industry and consumers.

Both policies —Renewable Portfolio Standard (RPS) legislation and the Regional Greenhouse Gas Initiative (RGGI) — aim to reduce carbon dioxide emissions from the electricity generation sector and lessen our dependence on fossil fuels.

New Hampshire’s RPS requires electric utilities and energy suppliers to meet a percentage of their customers’ load with renewable resources. But much work remains to be done to ensure that New Hampshire can realize the aggressive renewable energy goals prescribed by the new RPS law. This challenge is complicated by the fact that, since the region operates as a single wholesale electricity market, utilities and energy suppliers throughout New England will be competing with New Hampshire for the same limited resources to meet their own RPS requirements.

If you combine all of these requirements, it becomes clear that the region will be severely challenged to achieve its RPS obligations if it relies solely on New England’s own resources.

Thus utilities are beginning to look to Canada as a potential resource to help meet the region’s RPS (and RGGI) policy objectives. Importing large amounts of renewable and carbon-free energy from Canada will require significant investments in transmission infrastructure, as well as a concerted effort among all New England states, but it may be the one option available that can produce the sizeable amount of green energy that our policies require.

Regulated utilities, too, could contribute to the solution. PSNH’s Northern Wood Power Project, which converted a coal-fired boiler at Schiller Station to burn carbon-neutral wood fuel. If allowed by the state, PSNH is ready and willing to develop more regulated resources to help New Hampshire meet its RPS obligations.

RGGI is an agreement among 10 Northeastern states to achieve a 10 percent reduction in carbon dioxide emissions from power plants by 2018 using a cap-and-trade approach.

Although the overarching parameters are consistent in all 10 states, each has the opportunity to customize their RGGI design to best fit their state’s needs. In 2008, policymakers will decide how RGGI will work in New Hampshire.

One aspect that warrants consideration in the proposed RGGI design is the “100 percent auction” approach for selling the carbon allowances that a power plant must acquire in order to legally produce electricity. Under the proposed design, a buyer doesn’t have to be a power producer to bid on the state’s allotted allowances; any interested party can participate.

This approach is expected to lead to the development of a secondary market, wherein a carbon “broker” could purchase credits and then resell them to the power producers that need them to operate, resell them to a party that wants to be “carbon-neutral” in their operations, but doesn’t require the credits to operate, or retire the credits permanently.

If past experience is any indication, the market for carbon credits will be complicated, and we will need to design safeguards up-front to ensure carbon reduction objectives are met without prompting unintended consequences that could significantly impact the price or supply of electricity.

As with most statewide policy initiatives, success lies in working with the impacted parties to ensure an objective understanding of the potential outcomes. In the case of RPS and RGGI, we must also clearly understand how these regional policies will impact New Hampshire’s businesses and consumers.

Gary A. Long is president and chief operating officer of Public Service of New Hampshire.