Can Economics Solve Global Warming?
Friday, February 02, 2007PAUL KANGAS: Some worrisome news tonight on the topic of climate change. The United Nations intergovernmental study on climate change today said that mankind is to blame for the global warming seen over the last 50 years. The Bush administration embraced the report and called for a global discussion on climate change. And as Stephanie Dhue reports, lawmakers are turning to the free market to help provide a solution.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Like traders of pork bellies and corn, Evolution Markets matches buyers and sellers. But the commodity it trades is pollution, mostly, sulfur dioxide. The Federal government's caps the amount of sulfur dioxide emissions from power plants. Plants below the cap sell pollution credits; plants above the cap buy them. Evolution markets CEO Andrew Ertel says the cap and trade concept can also reduce carbon emissions.
ANDREW ERTEL, PRESIDENT, EVOLUTION MARKETS, INC.: The beauty of a cap and trade system is it forces over-compliance, early compliance. It creates low prices for environmental reductions and you get a win/win both for the environment and for business.
DHUE: Cap and trade is at the heart of congressional proposals to address climate change. While it may be a win for the environment, not all businesses will be winners.
ERTEL: There's a lot of questions about who's going to gain the most and who's going to lose the most. It really depends upon how they execute their own internal strategies on this.
DHUE: Utilities with relatively clean nuclear and natural gas generation like Constellation Energy, FPL and Exelon may benefit from a carbon cap. But companies that rely heavily on coal to produce electricity could face a cooler investment climate. Washington analyst Stuart Sweet cites firms like American Electric Power, First Energy and Southern as examples.
STUART SWEET, ANALYST, CAPITOL ANALYSTS NETWORK: When the market finally catches up with the politicians here in Washington and realizes that this is coming, they are going to mark Down the prices of some of these companies.
DHUE: The economic impact of any climate change proposal will depend on how much emissions are restricted and how fast. Howard Gruenspect of the Energy Information Administration says policymakers are struggling to find the right balance.
HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION: Should we make sure that we don't overburden the economy or is it most important to make sure we reach a particular emission reduction in which case the impact on the economy becomes uncertain.
DHUE: Now that the climate change debate is shifting from whether there's a problem to how it's going to be addressed, analysts say the investment climate is changing, too. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
