The presently proposed ‘Cap and Trade’ approach to curbing mercury emissions from the generation sector could be supplemented by a ‘Create and Trade’ segment, that would leave both environmentalists and utilities relatively pleased, says Bob McIlvaine of the McIlvaine Company.

Under ‘Create and Trade’ the number of emissions allowances is actually created by the reducers and not pre-determined. It provides a substantial and predictable payment for the early reducer and also creates a ‘deficit cap’ for the non-reducer. Those that make big early reductions are in effect paid by those who do not.

The number of allowances and the deficit cap are all determined by the utilities initiating reductions. The early reducers generate allowances based on pounds removed multiplied by the percentage reduction. This sets out an incentive for highly efficient technologies.

An investment in an 80% reduction technology in 2007 could net payments equivalent to 5% or more of present rates for the implementing utility. If other utilities do not adopt similarly cost effective technology, the implementing utility will continue to enjoy this windfall. But the more likely scenario is quick adoption of this technology by the other utilities. At this point the payments to the early reducer are diminished or eliminated, but the early mover will have received substantial payment for an investment that would eventually have been imposed anyway.