Reducing Greenhouse Gas Emissions: How and at What Cost? Robert L. Hance President/CEO Midwest Energy Cooperative

Climate Change Greenhouse Gases (GHG) in atmosphere that absorb and emit radiation – water vapor, carbon dioxide (CO 2 ), methane, nitrous oxide and ozone –Real and human caused –Impacts often wildly exaggerated –Need simpler, smarter and more efficient solutions –More important issues – hunger, poverty, disease, etc.

Climate Change Information United Nations International Panel on Climate Change (IPCC) Cool It by Bjorn Lomborg

Cap and Trade Basics Baseline Declining Cap Time

How Cap and Trade Works Step #1 – Set Goal –17% below 2005 CO 2 emissions by 2020 –83% below 2005 by 2050 Step #2 – Establish Cap –Total emissions of GHGs from designated group of emitters (e.g., power plants, manufacturers, smelters, transportation) is capped based on current totals or reduced totals

How Cap and Trade Works Step # 3 – Cap is allocated among emitters –Total cap is allocated among regulated facilities as allowable emissions permit that allow GHG emissions by ton per year –Or, part of the cap is allocated “free” and part is auctioned by government with proceeds used to: Invest in research and development Reduce individual income taxes or provide energy rebates Reduce corporate taxes

Federal Climate Change Proposals HR 2454 – The American Clean Energy and Security Act (Waxman-Markey)HR 2454 – The American Clean Energy and Security Act (Waxman-Markey) passed U.S. House of Representatives in June – –Section One: Consumer Protection (now there’s a clue) –Caps CO 2 emissions 17% below 2005 level by 2020 (adjusted for growth in electricity demand could mean a 24% reduction) –83% below 2005 by 2050 (estimated to reduce global temperature by a mere 0.05 degree Celsius) –Price of carbon permits could reach $48-$61 per metric ton of CO 2 by 2020

Federal Climate Change Proposals Obama Administration budget projects $624 billion revenue from carbon cap & trade tax over More than 80% earmarked for tax credits – not clean energy development “Under my plan, of a cap and trade system, electric rates would necessarily skyrocket.” Candidate Barack Obama in January 2008 (view on YouTube) EPA greenhouse gas endangerment finding

Source: 2007 EIA-906 Generation & Emissions data Strategic Analysis Unit May 2009 *based on fuel mix of co-op-owned generation and other known co-op power suppliers (TVA, BPA, Santee Cooper etc); any other co-op power purchases were assumed to be at an emissions rate typical of the NERC sub region. CO 2 emissions in pounds per kWh: High 1.70 and above Medium 1.00 to 1.69 Low 0 to 0.99 CO 2 Intensity of Distribution Co-ops* DE 1.23 MD 1.71 CO 2 emissions in pounds per kWh

With Cap-and-Trade, the devil is in the details… Program design requires choices among dozens of alternatives –Choices will create winners and losers among stakeholders –Costs to Michigan consumers could be billions of dollars depending on how the cap and trade program is designed –Congressional Budget Office estimates HR 2454 will raise a family’s electric bill $175 per year. Does not include impact on costs of other fuels, food and consumer goods

the devil is in the details… –Heritage Foundation estimates by 2035 An average of 844,000 jobs will have been lost each year Electric rates up 90% (inflation adjusted) Gasoline prices up 74% Residential natural gas up 55% Average family’s energy bill up by $1,500 a year –At $20/ton price on CO 2, a residential electric co-op consumer in MI could see a 16% increase – at $50/ton a 40% increase

Copenhagen Consensus Consulting Expert panel of five top economists including three Nobel Laureates concluded that greater resources should be spent on research into climate engineering and green energy. Panel scrutinized 21 ground-breaking research papers by top climate economists that analyzed the costs and benefits of different responses to global warming. Based on analysis of the research, they created a prioritized list that outlines the best and worst ways to respond to climate change.

RATINGSOLUTIONCATEGORY “Very Good”1Marine Cloud Whitening ResearchClimate Engineering 2Energy R&DTechnology 3Stratospheric Aerosol Insertion ResearchClimate Engineering 4Carbon Storage ResearchTechnology “Good”5Planning for AdaptationAdaptation 6Research into Air CaptureClimate Engineering “Fair”7Technology Transfers 8Expand and Protect ForestsForestry 9Stoves in Developing NationsCut Black Carbon “Poor”10Methane Reduction PortfolioCut Methane 11Diesel Vehicle EmissionsCut Black Carbon 12$20 OECD Carbon TaxCut Carbon “Very Poor”13$0.50 Global CO 2 TaxCut Carbon 14$3 Global CO 2 TaxCut Carbon 15$68 Global CO 2 TaxCut Carbon

Michigan Capacity Need Forum January 2006 findings: –Peak electric demand is projected to increase at an annual rate of about 2.1%. –The average age of Michigan’s power plants is 48 years. Demand growth, coupled with the expected retirements of some of Michigan’s existing base load power plants, will necessitate the addition of one or two base load plants by Build time on a base load plant is at least six years. –By 2009, unless enhancements to existing supplies are undertaken, growing demand will cause existing electric generation and transmission capacity in the Lower Peninsula to be insufficient to maintain reliability standards. –Resource enhancements available could include a wide variety of near- term options, including additional demand-side options (energy efficiency improvements, load management, and demand-response programs) and generally faster-to-complete supply-side options such as transmission improvements, natural gas combustion turbines or combined cycle generators, renewable energy, and combined heat and power systems.

Lower Peninsula Forecast Demand and Supply

Questions?