Energy, Growth and Prosperity
January 20 2010 by ChiefExecutive.net
The U.S.’s prosperity has historically been fueled by affordable energy. But the inexpensive electric power that gave American businesses and the overall economy a competitive advantage over other regions is about to get a whole lot pricier, James Rogers, CEO of Duke Energy, told CEOs gathered for a Summit discussion on energy policy.
Transitioning to a low-carbon world, he points out, will demand that existing power plants be retrofitted or replaced entirely, a process that will take a significant investment of time and money. While the real cost of electric power has been essentially flat pacing inflation over the last 20 years, real rates (adjusted for inflation) are likely to go up between 3 percent and 5 percent, depending on the region of the country. What’s more, the increase could be even steeper, perhaps double or even more, depending on where the U.S. places energy bets and how the country chooses to limit carbon emissions.
A federal cap-and-trade program, for example, could bring energy prices up by as much as 10 percent in areas that are currently heavily dependent on coal. But a federal carbon tax would jump prices even higher and more abruptly, noted Rogers, who has for years been a staunch advocate for cap and- trade legislation despite the fact that his company is the country’s third largest utility and third-largest carbon emitter. Some form of economic incentives for lowering emission rates is inevitable and carbon taxes will raise prices more significantly and more abruptly, he noted.
“The transition [to a lower carbon footprint] needs to be fair and the cost needs to be smoothed out over a period of time so that it’s not disruptive to U.S. businesses or families,” he added. “Cap-and-trade allowances would be allocated in such a way that would smooth out the cost transition for those who are heavily dependent on coal.”
The good news? According to Rogers, mandating a carbon tax is simply not politically feasible. “Cap and- trade is politically doable because the allowances would be allocated in a way that would smooth out the cost transition for states that are heavily dependent on coal,” he says. “Those are the same states that carried out our national policy in the ’70s to build coal plants, and they shouldn’t be punished for that.”
Under a cap-and-trade system, electricity prices in such regions would go up dramatically about 10 percent in year one. But with a carbon tax those increases could top 20 percent, threatening both industry and employment. “Senators and Congressmen just aren’t going to vote for that,” says Rogers.
While Duke Energy is also deeply involved in alternative energy technology like hydro, wind and solar power, Rogers argued strenuously that new nuclear power plants are the best path to expanding the country’s alternative energy. Nuclear power, he noted, produces zero greenhouse gases, provides power reliably and efficiently 24/7 and is likely to produce more jobs per megawatt than solar or wind. “I personally believe the U.S. is missing out in a huge way,” Rogers said. “We’re sitting on our hands with respect to nuclear power. There are 48 nuclear plants being built around the world, and none in the U.S. today. There are 13 being built in China and they have 10more on the drawing board.”
Regulatory policy, however, makes building a nuclear power plant in the U.S. a prohibitively time- and money intensive endeavor. “It takes 10 years to build a nuclear power plant,” said Rogers. “The technology is pretty well established but it takes four years just to get applications approved.”
Finally, Rogers noted that technological advances, such as the decarbonization of coal, could significantly change the energy picture. Effective methods of saving and retrieving surplus energy, for example, are becoming available. “I have one in my home that kicks in during a power outage and provides power to two circuits,” he says. “The technology is really evolving. Storage is the Holy Grail in our business. It will transform the industry when it happens.”