1. Power Sector Views on Cost Containment Eric Holdsworth Director, Climate Programs NARUC Task Force on Climate Policy Washington, DC May 30, 2008 1

2. EEI Climate Principles Developed to guide power sector in climate debate Alignment of targets and timetables with widespread commercial deployment Cost containment mechanisms – Economic safeguards – Offsets International comparability/engagement of major trade competitors Funding of climate technology research, development and demonstration Economy-wide approach to carbon reductions 2 2

3. EEI Climate Principles Four pillars for addressing cost containment: 1.Aligning targets and timetables with technology development timeframes 2.Economic safeguard Safety valve/price collar Carbon Market Efficiency Board Banking/borrowing 3.Offsets 4.Allowances 3 3

4. Climate Targets & Technology Availability 4

5. Cost Containment 1.Safety valve/price collar Would let an entity know its maximum financial liability, which helps with long-term financing of major projects Prevent severe economic disruptions, particularly in near-term 2.Carbon Market Efficiency Board Economic impacts shown to date would not be lessened by CMEB Can borrow from 2031-2050 pool (6,000 MMT) - 475 MMT available in 2012 (declines thereafter) - Minimum price: $22-$30/ton in 2012; maximum price: ? 3.Banking/borrowing 10% penalty for borrowing under L-W 5 5

6. Offsets According to MIT and EPA, offsets availability has a larger impact on allowance prices than the availability or constraint of key enabling technologies Current version of Lieberman-Warner appears to be improved regarding offsets (more availability) There should be no limits to the use of offsets— quantity, project type, location, etc. Need to ensure projects are real, measurable and verifiable – can be done through standards, protocols 6 6

7. Allowances Some free allocation of allowances will be necessary to mitigate cost impacts of climate bill Not like E.U. system – no windfall profits - Under L-W, power sector will be “short” allowances, especially in the near-term - Even if fully allocated would still need more (offsets, international markets, other?) Any auction revenues need to go towards the RD&D of advanced, clean energy technologies and measures 7 7

8. Concerns About Cost Containment Auction Only ensures minimum amount of financial liability Drives up long-term allowance prices to meet near- term targets – Ensures that future reduction targets are even more difficult and expensive to meet Will not dampen prices much – Entities will purchase and bank allowances for future use CCA minimum reserve price will dominate market pricing of allowances 8 8

9. Contact Information Questions or comments? Eric Holdsworth Edison Electric Institute Director, Climate Programs (202) 508-5103 eholdsworth@eei.org eholdsworth@eei.org9