New Energy Bill Divides Industry

By Eric Fox | May 25, 2009 AAA

Corporate America is starting to line up on both sides of the new energy bill working its way through congress, as the industry weighs the benefits and costs of the proposed system to control greenhouse gas emissions. The American Clean Energy and Security Act of 2009, as it is harmlessly called, has generated controversy since hints of what it might contain started leaking out at the beginning of the year. When the text of the legislation was released, the controversy heated up even more. (For more, see Five Companies Leading The Green Charge.)

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The crux of the issue has to do with the allocation of allowances for carbon emissions that are being given away for free to those industries that produce pollution. The refiners are only being given 2% of the emissions while the electricity generation industry gets 35%. Industries that don't have enough allowances will have to purchase them in the marketplace. Critics say that these allowances are not being given out in proportion to the amount of pollution that each industry produces.

Conoco Phillips (NYSE:COP) is an integrated oil company that owns refining and other energy related assets. The company criticized the bill in a statement released last week, "U.S. refiners will be bearing the cost for roughly one-third of the nation's greenhouse gas emissions but only receiving 2 percent of the total allowances under the current proposal. It is likely that refiners will not be able to pass along 100 percent of the costs of securing allowances." Conoco said that the refining industry is being unfairly tagged with the emissions associated with the consumption of transportation fuels.

On the other hand, NRG Energy (NYSE:NRG), which has 24,000 megawatts of electricity generation capacity, is quite pleased. The company praised the bill sponsors for their "leadership and willingness to seek pragmatic solutions to tough issues." Edison International (NYSE:EIX) also supports the legislation. The company said that it would lead to "reductions in greenhouse gas emissions while minimizing disruptions to our economic recovery." Edison is a power generation that operates through two subsidiaries - Southern California Edison, a regulated utility, and Edison Mission Group, a competitive power business. (For more, see The Industry Handbook: The Utilities Industry.)

Companies that do not have enough allowances are not stuck with buying excess allowances; they can try to reduce those emissions. Dynegy (NYSE:DYN) said during its recent conference call that it had reduced emissions of other pollutants by installing scrubbers at its facilities. Exxon Mobil (NYSE:XOM) recently built a facility to generate power at a refinery it owns in Belgium. The company said that the facility would remove 200,000 tons of emissions per year, or the equivalent of 90,000 cars.

The Bottom Line
President Obama and the accompanying support of strong majorities of Democrats in Congress make it likely that the American Clean Energy and Security Act of 2009 will become law. Corporate America is split as it lobbies to try to influence legislation that will impact its profitability for years to come. (For more, see The Industry Handbook: The Oil Services Industry and Oil And Gas Industry Primer.)

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