May 25, 2009

Gainesville carbon cure trumps cap-and-trade

I'm not sure what is scarier: global warming or the 932-page cap-and-trade bill that purports to save us from life in an oven.

You'd think Leo Tolstoy wrote it.

Washington makes things incomprehensible to create hiding places for special-interest groups. It is in all the cracks and crevices of these bills that they stick their provisions, exemptions and allocations.

Cap-and-trade will be the new tax code, with carbon credits the new currency and campaign contributions the same old prerequisite for sitting at the negotiating table.

Politicians understand that when they get to pick the winners and losers, they always win.

It should not be this complicated.

Cutting carbon emissions requires only this basic formula: Increase the cost of fossil fuel and decrease the cost of renewable energy. This then encourages investment in conservation and new technology.

To understand the possibilities, I turn to Gainesville, home to the nation's leading university and most innovative electric utility.

Gainesville Regional Utilities, which is owned by the city, began planning its power future a few years ago. It rejected the traditional approach of building a natural-gas power plant or buying into a nuclear plant.

Instead, the city commission got creative and adopted a German invention known as a feed-in tariff.

The city creates an incentive for investors to build small solar plants by agreeing to buy power from them at inflated prices for a certain period of time.

This gives the investors a guaranteed return on their investment.

It is such a good deal that there would be small solar plants going up all over Gainesville if the city didn't limit their number to reduce the impact on electric bills.

Every year, the city agrees to buy another 4 megawatts of power — about enough for 750 homes. This only raises electric bills about 1percent a year.

It is a compromise between encouraging renewable energy while making it affordable.

The city also gives big rebates to homes and businesses that incorporate energy-saving measures or put up solar panels.

Lastly, Gainesville has contracted with a company to build a 100-megawatt power plant that will run on timber byproducts. This will be more expensive than a traditional natural-gas power plant, at least in the short term.

But like the increased cost of solar power, more expensive is a relative term.

The city looks at it this way: Spending a dollar that stays in the community is better than spending 80cents that leaves the community.

Instead of giving money to Texas natural-gas companies or Kentucky coal mines, Gainesville will be giving it to local contractors who install solar panels and local workers who will collect the wood for the power plant.

Outside investors are paying local businesses to lease their rooftops and parking lots for solar cells.

Hefty rebates for efficient air conditioners and pool pumps have stimulated lots of business for those companies.

"Investor-owned utilities have to look at what costs the least," says Edward Regan, the utility's assistant general manager for strategic planning. "Municipal utilities can look at broader social issues."

All this is a classic example of what is possible by goosing the entrepreneurial spirit with the right incentives.

Congress needs to get in the business of goosing and away from top-down mandates that, by their very nature, favor the big special interests.

This means dumping cap-and-trade for a simple flat tax on carbon. It is a consumption tax that can be used to lower taxes on income and savings.

It is fair. It is predictable. It leads to a good result. Even if humans aren't heating up the planet, we need to get off fossil fuels.

Taken down to Gainesville's level, a simple carbon tax would give the city clarity about the future cost of coal, natural gas and other fuels. From there, the city could crunch the numbers and better calculate the break-even date for its renewable-energy power plants. It could adjust the number of new solar cells it allows and the price it agrees to pay for the energy they produce.

The idea would be to slowly phase out the subsidies as the price of fossil fuel slowly rises.

Now multiply the ingenuity of Gainesville times the nation. In 50 years, I can envision a centralized power grid that taps a growing number of decentralized power plants built by a growing army of entrepreneurs.

The cap-and-trade bureaucracy will centralize power in Washington. And it will increase the power of big utilities, which have little interest in seeing the spirit of Gainesville spread.

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