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Eco-friendly CEO? Cinergy's Jim Rogers ponders coal's future in a "carbon-constrained world.".

Cinergy's Jim Rogers wants to position himself as a leader on climate change, but that's hard when you're CEO of one of the country's most coal-dependent electric producers. Its plants are major emitters of carbon dioxide (C[O.sub.2])--the most plentiful and problematic of the greenhouse gases that cause global warming.


Reducing pollution means spending more on technology to control it, or simply reducing production. The Clean Air Act of 1970, for example, gradually tightened emissions of coal's traditional pollutants--sulfur dioxide and nitrogen oxides. Pollution control devices that keep companies in line with those regulations require electricity that can initially consume as much as 20 percent of a plant's output. And the power industry as a whole will have to spend $64 billion by 2020 to comply with a further tightening as well as new mercury regulations enacted March 10, calculates Cambridge Energy Research Associates.

Little wonder utilities are so unenthusiastic about reducing carbon emissions as well. But Rogers, repeating a company mantra he uses frequently, says the future is an inevitably "carbon-constrained world" reflecting growing concern about climate change, which Rogers thinks industry should prepare for.

Such talk is unusual coming from an energy CEO. But Rogers is not just talking. He is seriously grappling with the issue--in speeches, in meetings with environmentalists, in company reports, and where it counts most, in voluntary measures to reduce carbon emissions.

For these reasons, Cinergy gets high marks from some environmentalists, and that is high praise indeed. "In an industry that has hundreds of players, I'm able to rattle off the top of my head under 10 who have said they are going to deal with climate change," says Jessica Holliday of Environmental Defense, a nonprofit organization that works with companies on market-based pollution solutions. "In this industry to even say 'climate change' is a big deal."

The company's December "Air Issues" report that examined the financial implications of future scenarios of carbon constraints also has won praise. The investment arm of the Presbyterian Church, which co-sponsored shareholder resolutions that asked for the risk assessment, praised Cinergy's report as "groundbreaking" and for having "modeled leadership in corporate social responsibility." Two other coal utilities also targeted by similar shareholder pressure for being major polluters--American Electric Power and TXU Energy--have come out with similar reports. So far, however, Cinergy has won the most praise for its candor, working with outside environmentalists, making it a board-level issue and doing most of the work in-house to develop long-term expertise in this area.

For one, Cinergy's company reports clearly spell out that it is currently emitting 74 million tons of carbon dioxide from nine pulverized coal plants. And Rogers says the company is committed to curbing greenhouse gases by 5 percent from there. In a business-as-usual scenario, emissions would have increased to 80 million tons per year; instead, Rogers plans to keep them to 70 million in the 2010-2012 period--a net reduction of 30 million tons. The company has earmarked $21 million for the purpose. Rogers is not sure $21 million even meets his own "grandchildren test" of taking "a truly long-term view" mindful of their welfare. But he is quick to point to other efforts lowering the company's overall pollution profile, including converting a coal-burning plant to gas, which produces two-thirds less C[O.sub.2].

While there are efforts in Congress, such as the McCain-Lieberman Climate Stewardship Act, that would mandate C[O.sub.2] reductions, their passage is unlikely anytime soon. And Rogers says he would prefer to start such efforts voluntarily now so the company can learn as it goes along and be better prepared for inevitable mandatory caps. The firm spent $2 billion in the past decade meeting earlier non-carbon reduction requirements, and will spend a similar amount in the next 10 years doing so.

Much of the industry is opposed to even reporting C[O.sub.2] emissions and has helped Congress block such requirements. Utility companies account for 37 percent of the country's total C[O.sub.2] emissions. (The transport sector is responsible for a similar share.) The Kyoto Protocol, rejected by the United States, calls for reducing carbon emissions by at least 5 percent below what they were in 1990.

The only other U.S. utility to have spent real money reducing absolute carbon emissions is Entergy, which spent $25 million over the last five years, according to Holliday, who has worked on both efforts.

Cinergy also is involved in developing new, cleaner coal technology--specifically the integrated gasification combined cycle (IGCC) plant. It offers significant reduction in pollution emissions, including the possibility of capturing carbon that can be stored or sequestered underground. The Department of Energy has spent billions to develop the technology, including setting up two demonstration plants. But it can take years of tinkering with plants to work out the kinks; usually, companies prefer to see peers go first while they learn on the sidelines from others' mistakes. But Cinergy is one of three companies ready to proceed anyway. After a recent encouraging feasibility study, done with General Electric and Bechtel, Rogers intends to build what may be the first commercial-scale IGCC plant in the U.S. "I am making a bet on gasification because I don't see any other way forward," Rogers told the Washington, D.C.-based environmental think tank Resources for the Future.

There are benefits to getting in on new technology early. Cinergy is keen to contribute to industry standardization while learning to squeeze costs out of the plants and then depreciate them faster. The same is true of power construction companies that will have a huge worldwide market to develop. GE's purchase last year of Chevron-Texaco's gasification technology signaled its commercial potential.

Even without major glitches, IGCC plants will not come on-stream until 2010 at the earliest. Carbon capture and sequestration are to be phased in later. ("In my world, tomorrow is six years from now," Rogers likes to say.) Coincidentally, that's the time frame in which the Bush Administration has said the U.S. should revisit the issue of carbon emissions.

But many experts contend this is not nearly soon enough. With 6 billion to 7 billion tons of extra carbon pumped into the atmosphere every year, the world is well on its way to doubling--and possibly tripling--atmospheric greenhouse gas levels before the Industrial Revolution. The Kyoto Protocol seeks to stabilize concentrations below the doubled level. "This is not a scenario that should inspire complacency, nor is it consistent with the goal of reducing the nation's exposure to potentially serious economic, environmental and security risks," a bipartisan National Commission on Energy Policy report intoned in December. Adds David Hawkins, climate change director at the National Resources Defense Council: "The scale of response is simply not matching the problem."

Voluntary Vs. Regulated Curbs

While accepting carbon constraints as inevitable, Rogers is not actually trying to hasten their arrival. His company was on record supporting Clear Skies legislation favored by the Bush Administration that excluded carbon from regulation. The bill appeared to be finally defeated in March before reaching the Senate floor. Some utilities--banded together in the Clean Energy Group--actually favor mandatory caps on carbon, but these companies are typically far less dependent on coal. Some of them are largely nuclear, which emits no C[O.sub.2]. New Environmental Protection Agency rules slash emissions on utilities' traditional pollutants but still don't deal with C[O.sub.2], which so far remains unregulated in the U.S.


Congress seems at loggerheads on the issue, both for regional economic reasons and differences over the real threat from global warming. "It's really not a Republican or Democratic thing from my perspective," says Rogers. "It's really about what region of the country you live. It goes at the heart of the economy of different parts of the country; it's going to be very difficult to get a consensus on this." Oklahoma Senator James M. Inhofe, chairman of the Environment and Public Works Committee, is particularly implacable, denouncing global warming as the "greatest hoax" perpetuated against the American people, or more recently as "the second greatest hoax, after the separation of church and state."

This largely forfeits the carbon issue to states, which are becoming increasingly active. Nine northeastern states are developing a multistate regional "cap-and-trade" initiative for carbon emissions, as already exists for sulfur dioxide and nitrogen oxide. California, Oregon and Washington state are looking into something similar. (California also is trying to cut carbon emissions from cars by 30 percent by 2016.)

The resulting Balkanized regulation sends companies to seek more certainty in terms of national uniformity from Washington. "From a competitive point of view you want to drag everybody into the water," explains Rogers. "I need to get to work to make sure I build the political base that allows us to say, 'Let's include everybody. Let's not just target our industry.' What good is it if you just target 40 percent of [all] industries?"

After five years chairing the environment committee of the industry's Edison Electrical Institute, Rogers says he is not entirely convinced about the science of climate change. Still, it's a real enough possibility that he'd like to hedge against it. "I want to be out front on this issue," he says. "When the debate starts in Washington, I want to be able to sit down with both extremes and hammer out a compromise." That brokering is bound to get tougher as the consequences of global warming become more irrefutable at the same time as the U.S. is still stuck with its high dependence on coal.

RELATED ARTICLE: Coal Dependency

Coal supplies 50 percent of U.S. electricity needs and is expected to remain the country's premier fuel source for decades.

Why are we so dependent on it?

* It's cheap. Customers in Cinergy's main service area, which includes portions of the coal-producing states of Ohio, Kentucky and Indiana, have become accustomed, even dependent, on energy rates 35 percent lower than the national average.

* It's plentiful. With U.S. reserves sufficient for 230 years of present consumption, the U.S. is the "Saudi Arabia of coal," with far more than any other country, roughly 25 percent of the world's total. By contrast, U.S. oil and gas reserves are calculated to be only 3 percent of the world's total.

What are the alternatives?

* Rising dependence on foreign oil. The U.S. currently imports 50 percent of its oil, compared to 28 percent at the first Arab oil embargo.

* Importing expensive natural gas. Gas imports are complicated by the difficulty domiciling LNG terminals regarded as accident risks and magnets for terrorists. Natural gas prices have nearly tripled in the last three years and are expected to remain over $5 per million BTUs, making the huge 1990s build-out of gas-fired electric plants not such a good bet.

* Building more nuclear power. They emit no C[O.sub.2], but nukes have critical safety, waste-storage and proliferation issues.
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Title Annotation:ENERGY
Author:Stier, Ken
Publication:Chief Executive (U.S.)
Geographic Code:1USA
Date:Apr 1, 2005
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