The U.S. House Committee on Energy and Commerce held a subcommittee hearing on lessons learned from existing cap and trade programs.  The hearing continued a series of official discussions in the U.S. Congress focused on the best path forward for mandatory U.S. climate change policy.

One of the witnesses at the hearing was Ralph Izzo, chairman and chief executive officer-elect of New Jersey's Public Service Enterprise Group (PSEG).  Izzo called for a national carbon dioxide cap and trade program.

"PSEG believes that global climate change represents a real environmental threat and significant business challenge, as well as opportunity.  We support mandatory greenhouse reductions on a national level and a cap-and-trade mechanism to achieve those reductions," said Izzo.

Izzo also called for an initial output-based approach for allocations with an auction of 25 percent of the allowances transitioning to a 100 percent auction system over a period of 10 years.  Izzo indicated that auction proceeds could be used to fund research and development for clean coal technology or low income assistance for gas and electric customers.  Resources for the Future economist Dallas Burtraw, also a member of the panel, expressed support for an auction approach.

"There is no silver bullet - no single solution to this problem.  But the pace of technology development and deployment will hasten dramatically when the United States establishes a market price for carbon," said Izzo.

"We have, in fact, many options available to reduce our emissions, all of which are commercially available; many more will emerge as we reduce regulatory uncertainty by enacting a market-based climate change policy that establishes a price signal for carbon and other greenhouse gases," he added.

Izzo explained that these options include: (1) end-use energy efficiency; (2) supply-side energy efficiency; (3) renewable energy technologies; (4) nuclear energy technology; and (5) a wide range of greenhouse gas offsets.

Izzo asserted, "In order to achieve significant greenhouse gas reductions, we need to create incentives for the rapid deployment of existing renewable and energy efficiency technologies and for the development of new compliance options such as carbon capture and storage.  In short, we need to transform the ways in which we use and generate electricity."

PSEG made its recommendations in part based on its experience in the development and implementation of several national and regional cap-and-trade programs for sulfur dioxide (SO2), nitrogen oxide (NOx), and CO2.  Izzo pointed out that the cap-and-trade systems for NOx and SO2 have worked and have shown to encourage least-cost compliance solutions by allowing the market to select a variety of compliance strategies.  Overall electric industry SO2 emissions have been reduced about 44% and NOx emissions have been cut about 36% since 1990.  SO2 emissions were reduced at a cost well below what was originally anticipated.

While noting the success of existing cap-and-trade programs for SO2 and NOx, Izzo said an output-based allocation would be the better public policy option in a greenhouse gas reduction program because it would provide incentives for companies to improve the efficiency of their plants and invest in new low-carbon and zero-carbon technologies.

Izzo was optimistic about the country's response to the climate change issue.  "Our nation has the intellectual capital and the innovative spirit that will allow us to meet this challenge while providing new economic opportunities.  What we need now is the political will to take those necessary first steps toward a lower-carbon economy."

"With the right combination of policies and the establishment of a national market for greenhouse gas emission allowances, I am optimistic that we can reverse the current emissions trend and position our nation as a leader in the fight to combat global climate change."

PSEG is a member of the Clean Energy Group, a coalition of electric companies managed by M. J. Bradley & Associates.

Click here for a copy of Izzo's full testimony before the committee.