If you want an idea of where the utility industry in the U.S. might be headed, you need only look to Europe. Operating for several years, EU carbon emissions trading is now a mature market. While prices have been somewhat volatile in the past, the price of carbon is generally settled at €20.00 – €23.00 per ton ($31 - $36). This price is slightly higher than what economists and industry analysts predict for a U.S. federal cap and trade program when it becomes a mature liquid market.

Carbon Becoming Key Operations Consideration
Last year the global carbon market was worth $60 billion, which was an 80 percent increase from 2006. Point Carbon, a leading consultant for carbon markets, predicts that 4.2 billion tons of carbon emissions will be transacted during 2008, up 56 percent from this year. At current prices, the market will be worth $92 billion. With the carbon market growing so quickly, it’s no surprise that carbon prices have become an important factor in how Europe’s power generators make operating decisions.

One of the more notable outcomes of Europe’s carbon trading market and its ever-escalating growth is that power generators are highly motivated to adopt technologies that improve efficiency and reduce emissions. This is already happening back in the States too, with proactive power plants adopting optimization solutions that lower CO₂ as a function of improved efficiency. Additional steps, such as turbine upgrades, can also improve efficiency (the only means of reducing CO₂ short of capture and sequestration). The range of commercially available options however, is much smaller than those available for reducing traditional “criteria pollutants” such as NO_x or SO₂.

Proactive U.S. Generators Are Preparing for CO₂ Markets
Many U.S. power plants – including NeuCo customers such as Allegheny, Alliant, DTE, and NRG – have voluntarily joined the Chicago Climate Exchange, where efficiency gains can be monetized in a liquid market. Besides financial incentives, participation in the Chicago Climate Exchange provides plants with experience in dealing with CO₂ allowance markets. At current Chicago Climate Exchange rates, a 0.5% heat rate improvement on a 350MW unit would amount to over $72,000 in savings. If the U.S. federal program ends up looking anything like what’s happening in Europe, this heat rate improvement would translate to annual savings of nearly $400,000 per year.

Many U.S. power generators have made investments in technologies and hardware to improve efficiency. Carbon trading markets will add to the value that these plants are already realizing. Proactive power plants can go beyond meeting mandated carbon requirements and use trading to gain a competitive advantage. I wonder how far along generators in the U.S. are with considering these opportunities in their business plans.

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