The New Carbon Cycle

China Announces That It Will Unveil A Plan to Cut Greenhouse Gas Emissions

BEIJING - China will unveil its national plan to tackle global warming next month, including concrete measures to cut carbon dioxide emissions, a top climate change official said on Thursday.

Gao Guangsheng, head of the Office of the National Coordination Committee for Climate Change, said the plan, to be announced on April 24, would include policies for cutting back greenhouse gases but declined to comment on whether it would give an overall national target.

"We will make clear what policies and (in) what areas we plan to reduce greenhouse gas emissions," Gao told the Renewable Energy Finance Forum in Beijing.

China could become the world's top emitter of greenhouse gasses as early as this year, analyst estimates based on the country's latest energy data suggest.

Gao declined to comment on that forecast, or an International Energy Agency one that it will overtake the United States before 2010, because he said the country does not have an accurate idea of its own emissions.

An inventory is now under way but results could take up to three years to come through, he added.

Beijing has resisted calls for caps on its rapidly rising emissions, saying rising global temperatures are largely the result of fossil fuel use by industrialised nations and it has the right to chase the same level of prosperity they enjoy.

But 35 developed nations that have agreed to cut emissions under the Kyoto Protocol want others -- especially China and the United States -- to do more.

Gao also ruled out any possibility of an emissions trading exchange in the next two to three years, although he had been present at the launch of a UN scheme which officials had said would include carbon trading.

"No Chinese official said there would be an exchange," Gao told Reuters on the sidelines of the forum.

His office had earlier posted a notice denying reports of the exchange plans, but UN officials had said they were still working with Chinese counterparts on some kind of blueprint.

REUTERS NEWS SERVICE

Michael Porter and Mark Kramer Publish a Watershed Article in the Harvard Business Review on Corporate Social Responsibility Strategy and Practice

In a post on my companion Law and the Environment blog, I discussed the article published by Michael Porter, the famous business management guru and Harvard Business School professor, an associate Mark Kramer, on Corporate Social Responsibility (CSR) that has recently been published in the Harvard Business Review.  Porter and Kramer believe that the current CSR efforts of companies often reflect merely public relations campaigns.  They argue that the exercise of good corporate citizenship is an important part of corporate activity and the conduct of business.  However, they advocate a strategic approach to CSR that aligns the actual business of the company to social issues that the company can actually significantly affect and incorporate into day-to-day operations.  The article suggests a significant change in corporate governance to address corporate social responsibility.

I would recommend the post on the Porter and Kramer article that suggests the need for a new approach to Corporate Social Responsibility for all companies.  I proposed that this is particularly true for those companies that are significant emitters of greenhouse gases or consume large amounts of electricity that requires significant burning of fossil fuels.

Webinar on April 5--Environmental Disclosure Issues Related to Recent SEC Enforcement Activity and FAS 143/FIN 47

From the convenience of your own computer, join environmental attorney Scott Deatherage of Thompson & Knight LLP, as he addresses the environmental disclosure issues companies are facing today related to recent enforcement activity by the Securities and Exchange Commission and the development of new accounting standards.

Designed for in-house attorneys and outside counsel, environmental managers, CFOs and accountants for companies that must comply with environmental disclosure requirements, this e-seminar will concentrate on a variety of disclosure issues.

............................

Thursday, April 5, 2007 • 12:00 - 1:30 PM EST

.................................................................................................................................................................

• The recent SEC enforcement activities relating to environmental

disclosure.

• What the SEC expects in terms of companies’ management of

their environmental disclosure processes.

• How Sarbanes-Oxley and other changes to accounting standards

impact companies’ disclosure policies.

• What you should know about the SEC’s expectations for internal

controls on reporting environmental liabilities.

• What actions auditors and the SEC expect companies to take

regarding environmental liabilities.

• The roles and responsibilities in overseeing environmental

management and disclosure.

CLE

Andrews Publications anticipates

CLE approval from all states

that accept telephone presentations

for CLE credit.

PRICING

$119 to attend -- ask about the

discount for multiple registrations.

To register for this e-seminar, call

Becky LaCroix at 800.328.9352,

ext. 85968, or e-mail her at

[email protected].

Utility-Environmental Groups Deal in Kansas Reflects Changing Times in Terms of Deals That May Be Necesary to Obtain Permits for New Power Plants

Another green energy deal between environmental groups and a utility appears to reflect a new trend in the deals utilities must enter to allow permtting of new power plants.  After the TXU deal, which may fall through based on the actions of the Texas Legislature, the idea of making deals with national and local environmental groups may portend a trend in negotiating power plant deals.  The Sierra Club, Kansas City Power and Light and Concerned Citizens of Platte County entered into an agreement to reduce greenhouse gas emissions and spur clean energy development.   The article below details this agreement.

(CSRwire) KANSAS CITY, Mo.--(BUSINESS WIRE)--March 20, 2007--In a groundbreaking agreement that can serve as a model for environmental groups and utilities working together, the Sierra Club, Kansas City Power & Light (KCP&L), and the Concerned Citizens of Platte County (CCPC) have agreed on a set of initiatives to offset carbon dioxide (CO2) and reduce other emissions for the Kansas City-based utility. Under the agreement announced today, KCP&L agrees to pursue offsets for all of the global warming emissions associated with its new plant through significant investments in energy efficiency and renewable energy, and cut pollution from its existing plants in order to improve air quality in the Greater Kansas City metro area. The agreement proposes other investments in clean energy, significant decreases in emissions and resolves four appeals pending between the Sierra Club, CCPC, and KCP&L. Full implementation of the terms of the agreement will necessitate approval from the appropriate authorities, as some of the initiatives in this agreement require either enabling legislative policy or regulatory approval.

"We believe there is significant potential through new energy technology and innovative approaches to improve the environment and offer additional value to our customers across the Kansas City region. This is especially true with energy efficiency and wind generation, which we have been implementing already through our Comprehensive Energy Plan developed in 2005," said Mike Chesser, Chairman and CEO of Great Plains Energy. "We look forward to collaborating with the Sierra Club and other stakeholders as we pursue these exciting new opportunities."

"This agreement is a win for our climate, for the environment, and for the residents of the Kansas City area," said Carl Pope, Sierra Club Executive Director. "It is the latest sign that smart energy solutions like wind power and energy efficiency are gathering steam. We look forward to working with KCP&L to help the Midwest realize its full potential as a leader in the clean energy technologies that will fuel the economy of tomorrow."

The most significant element of the agreement is the unprecedented commitment by KCP&L to pursue the offset of carbon emissions from its proposed Iatan 2 generating station, located near Weston, Missouri. The estimated 6,000,000 tons of annual carbon dioxide emissions are targeted to be offset by adding 400 megawatts (MW) of wind power; 300 MW of energy efficiency; and a yet to be determined combination of wind, efficiency, or the closing, altering, re-powering or efficiency improvements at any of its generating units. These proposed offsets will be partially implemented by 2010 and fully implemented by 2012. The parties are also agreeing to work together on a series of regulatory and legislative initiatives to achieve an overall reduction in KCP&L's carbon dioxide emissions of 20 percent by 2020.

"This agreement shows that we can work together to curb air pollution, combat global warming, and protect our local communities," said Susan Brown, chairperson for Concerned Citizens of Platte County. "The renewable energy investments in this agreement can revitalize the region's manufacturing economy and offer rural landowners a new source of steady income from wind turbines located on their property. The large investment in energy efficiency will also help everyone use less energy -- reducing emissions and saving consumers and businesses money each month."

In addition to offsetting its global warming emissions, residents of the Kansas City area will benefit from reduced emissions of criteria pollutants at KCP&L's existing Iatan 1 and La Cygne plants. The agreement calls for annual reductions in nitrogen oxides, sulfur dioxide and particulate matter estimated to total some 9,100 tons. Within the next year, KCP&L will also work with the Sierra Club to study options, including retiring, re-powering or upgrading its Montrose power plant. Finally, KCP&L will fund several community projects including: recommendations of the Kansas City Climate Protection Committee targeting global warming reduction measures; additional monitoring of soot and smog pollution in the metro area; and an upgrade to the drinking water infrastructure in Weston, a community near the Iatan station.

In another important step for clean energy, KCP&L will also file for approval of a net metering program within six months. Net metering allows a utility's customers to generate small amounts of renewable energy on-site, such as from rooftop solar panels or a small wind turbine, and sell any excess energy back to the utility.

KCP&L's Comprehensive Energy Plan was collaboratively constructed with a broad group of stakeholders and includes investments in new generation (including renewable wind energy); innovative efficiency, affordability and demand response programs; infrastructure improvements; and proactive environmental investments. This balanced approach will enable KCP&L to satisfy growing energy demands across the region for years to come while improving environmental stewardship.

"KCP&L's current Comprehensive Energy Plan addresses the energy needs and emissions reductions for the Kansas City region with actions into the year 2010. This Agreement is the start of the next set of discussions with stakeholders as we develop our plans for the 2010-2015 timeframe," said Bill Downey, President and CEO of KCP&L. "It reflects the ongoing atmosphere of collaboration we established in developing the CEP, and proactively resolves differences. We look forward to working with all stakeholders to secure a long-term energy supply for Kansas City while improving air quality."

This agreement builds on the success of a 2006 agreement that Sierra Club brokered with City Water Light and Power of Springfield, IL. That agreement stipulated that the municipal utility retire one of the dirtiest coal plants in the nation, purchase 120 MW of wind, invest four million dollars in energy efficiency, and significantly decrease emissions of soot, smog and mercury pollution. In addition, all of the government buildings owned by the state of Illinois are to be powered with green electricity. Last week, CWLP announced that it stands to at least break even and may reap significant profits from its purchase and resale the wind power investments required in their agreement.

"We were and continue to be very pleased with the agreement we reached in Springfield," commented Pope. "Our exciting new agreement with KCP&L raises the bar even further and demonstrates just how much we can achieve when utilities and groups like the Sierra Club work together."

About the Sierra Club

Sierra Club, founded in 1892, is the nation's oldest and largest grassroots environmental organization with over 1.3 million members and supporters. For the past two years the Great Rivers Environmental Law Center has represented Sierra Club and CCPC in their appeal of the Missouri PSC approval of the Iatan 2 power plant. For the past year
Washington University Interdisciplinary Law Clinic has represented Sierra Club in its appeal of the air permit Missouri DNR issued for
Iatan 2.

About the Concerned Citizens of Platte County

Concerned Citizens of Platte County, Inc. (CCPC) is a group concerned about quality of life, children's health and property values in Platte County, Missouri and the surrounding region. The organization was incorporated in the early 1990's.

About Kansas City Power & Light

Headquartered in Kansas City, Mo., KCP&L (www.kcpl.com) is a leading regulated provider of electricity in the Midwest. KCP&L is a wholly owned subsidiary of Great Plains Energy Incorporated (NYSE: GXP), the holding company for KCP&L and Strategic Energy L.L.C., a competitive electricity supplier.

Information Concerning Forward-Looking Statements

Statements made in this release that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are intended to be as of the date when made. Forward-looking statements include, but are not limited to, statements regarding projected delivered volumes and margins, the outcome of regulatory proceedings, cost estimates of the comprehensive energy plan and other matters affecting future operations. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Great Plains Energy is providing a number of important factors that could cause actual results to differ materially from the provided forward-looking information. These important factors include: future economic conditions in the regional, national and international markets, including but not limited to regional and national wholesale electricity markets; market perception of the energy industry and Great Plains Energy; changes in business strategy, operations or development plans; effects of current or proposed state and federal legislative and regulatory actions or developments, including, but not limited to, deregulation, re-regulation and restructuring of the electric utility industry; decisions of regulators regarding rates its subsidiaries can charge for electricity; adverse changes in applicable laws, regulations, rules, principles or practices governing tax, accounting and environmental matters including, but not limited to, air and water quality; financial market conditions and performance including, but not limited to, changes in interest rates and in availability and cost of capital and the effects on pension plan assets and costs; credit ratings; inflation rates; effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments; impact of terrorist acts; increased competition including, but not limited to, retail choice in the electric utility industry and the entry of new competitors; ability to carry out marketing and sales plans; weather conditions including weather-related damage; cost, availability, quality and deliverability of fuel; ability to achieve generation planning goals and the occurrence and duration of unplanned generation outages; delays in the anticipated in-service dates and cost increases of additional generating capacity; nuclear operations; ability to enter new markets successfully and capitalize on growth opportunities in non-regulated businesses and the effects of competition; application of critical accounting policies, including, but not limited to, those related to derivatives and pension liabilities; workforce risks including compensation and benefits costs; performance of projects undertaken by non-regulated businesses and the success of efforts to invest in and develop new opportunities; the ability to successfully complete merger, acquisitions or divestiture plans (including the acquisition of Aquila, Inc., and the sale of assets to Black Hills Corporation); and other risks and uncertainties. Other risk factors are detailed from time to time in Great Plains Energy's most recent quarterly report on Form 10-Q or annual report on Form 10-K filed with the Securities and Exchange Commission. This list of factors is not all-inclusive because it is not possible to predict all factors.

Soil Tillage Can Generate Salable Carbon Credits and Additional Cash for Farmers

Improved soil tillage methods can reduce carbon dioxide in the atmosphere, and generate new income stream in agriculture.  Climate change concerns are being addressed in numerous ways.  Farming can through improved soil tillage provide a means of removing or "sequestering" carbon dioxide in the atmosphere and placing it in the soils.

The carbon dioxide reduction has economic benefit to farmers.  Through the Chicago Climate Exchange (CCX), a voluntary carbon credit exchange, farmers can sell these credits through a contract entered into with CCX.  US Senator Richard Lugar has entered his farm into the CCX. 

The CCX Agricultural Soil Carbon Offset Program operates through a contract entered into by the party reducing carbon emissions or sequestering carbon, and then industrial or other generators or consumers of fossil fuels purchase these voluntary reductions to offset their carbon emissions or “carbon footprint.”

 

Basic CCX Contract Specifications for Soil Offsets:

Conservation Tillage and Grass Planting

• Minimum four year contractual commitment to continuous no-till on enrolled acres.

• CCX CFIs issued for conservation tillage at a rate of 0.5 metric tons CO2 per acre per

year.

• Grasses planted after January 1, 1999 in CCX eligible counties credited at 0.75 metric

tons CO2 per acre per year.

• Carbon sequestration projects must be enrolled through a CCX-registered Offset Aggregator.

All projects are subject to independent verification.

CCX CFIs will be earned at a rate of 0.5 metric tons CO2 per acre per year to land

managers who commit to continuous conservation tillage (defined as continuous

no-till, strip till or ridge till) for a minimum four year period on the acres specified

upon project registration. The U.S. countries and parishes in which conservation

tillage representations a CCX-eligible project can be provided upon request.

CCX CFIs are also generated when land managers commit to maintain soil carbon

storage realized as a result of grass cover plantings that were undertaken on

or after January 1, 1999. The commitment must be maintained for a minimum

of four years on the acres specified upon project registration. Under this provision,

CCX CFIs will be issued at a rate of 0.75 metric tons CO2 per acre per year.

The U.S. counties and parishes in which these practices may be credited can be

provided upon request from CCX.

Carbon credits can be sold from about $1 to $5 per metric ton of CO2 equivalents.

Farmers should consider whether carbon sequestration through different soil methods may generate an additional income stream for them and allow better soil management.

Offshore Wind Project in the North Sea Demonstrates Risk Management Through Multiple Lenders

The article set out below from Renewable Energy Access demonstrates how the use of multiple lenders can reduce the financing risk and permit the development of offshore wind projects in the initial stages of the offshore wind industry.

March 16, 2007

Dutch Offshore Wind Project Sets Financing Precedent

The Q7 wind farm financing structure includes features that lower the risks associated with construction of wind turbines in the North Sea.

Haarlem, The Netherlands

Located 23 kilometers off the Netherlands coastline in the North Sea, the 120-megawatt (MW) Q7 wind farm is already garnering attention and awards -- not because construction is ahead of schedule with 42 mono piles already in place -- but rather because of the project's unique financing structure.

"Q7 appears to be the financial engineering template for getting funding until lenders become more comfortable with the relatively new offshore technology risk."

-- Jaap Groenhof, Energy Investment Holding

The $510 million offshore project, which recently won the prestigious Deal of the Year Award, an initiative of Euromoney in cooperation with Project Finance Magazine, is financed completely by a group of international banks.

"Without bank loans we would not have got involved in this project. Although the negotiations on the various agreements were long and tough, the final result is a package that balances the risks and rewards for all those involved: sponsors, contractors and banks," said Toon Meijers of ENECO Energie. "Q7 demonstrates that limited recourse financing is possible for offshore wind and should help boost the development of similar projects."

Owned and developed by subsidiaries of ENECO, a Dutch energy company, Econcern and Energy Investment Holdings, two Dutch renewable energy developers, the project is being financed on a non-recourse basis.

This means that the leading banks involved -- Dexia, Rabobank and BNP Paribas -- rely solely on the project to generate the revenues needed to service the interest costs and principal repayment of the financing with very limited additional sponsoring support.

Another unique aspect is that the financing also covers the construction phase of the wind farm. This has resolved an issue which has bogged down a number of other similar projects in Europe, where contractors have been wary of providing fully wrapped Engineering, Procurement and Construction (EPC) contracts, normally a standard requirement of project finance and sponsors.

"Q7 is based on proven technology and an EPC contract with a renowned international offshore contractor (Van Oord group). Rabo was involved at the outset and later joined by Dexia, in a combination that is beyond doubt one of the cornerstones of the project. Both banks are really 'putting their money where their mouth is' -- they are not only proving that they are taking climate change seriously, but also that they can earn money," said Dirk Berkhout, a board member of Econcern.

The financing structure includes a number of features that lowers the risks associated with the construction and long-term operation of wind turbines in the North Sea. These include:

-- The availability of a contingent facility to cover potential cost overruns or delays. If it is required, this will be shared 50/50 between the project company and the banks, so the banks fully share the construction risk.

-- Tailored availability guarantees under the operating contract with Vestas, allowing debt service to continue even during periods when the availability is lower than expected.

In addition to the sponsors' equity, a significant part of the project is financed by loans from Rabo, Dexia and BNP Paribas acting as Mandated Lead Arrangers (MLA). Eksport Kredit Fonden, the Danish export credit agency supported the export of the Vestas turbines by also participating in the financing.

The debt financing for the project includes an EU 189 million [US $251 million], 11-year, long-term project finance facility as well as an EU 30 million [US$ 39 million] standby facility to cover contingencies.

"Q7 appears to be the financial engineering template for getting funding until lenders become more comfortable with the relatively new offshore technology risk," said Jaap Groenhof of Energy Investment Holding.

Built by Vestas Wind Systems, the Danish wind turbine manufacturer and Van Oord Dredging and Marine Contractors, the Dutch offshore construction contractor under separate construction contracts, the Q7 wind farm will initially be operated by Vestas Offshore, an affiliate of Vestas, under a 5-year warranty, operations and maintenance contract.

The 60 Vestas V80-2MW wind turbines will be placed at a depth of 19 to 24 meters. Once completed in March 2008, the wind farm will produce approximately 400 GWh per year.

Energy Security Leadership Council and Two Senartors Announce New Bill to Address Energy Security

The Energy Security Leadership Council, a group of U.S. business executives and retired military officers that seeks to reduce U.S. oil dependence to improve economic and national security, joined Sen. Byron Dorgan (D-ND) and Sen. Larry Craig (R-ID) on Capitol Hill yesterday to unveil the Securing America's Future Energy (SAFE) Energy Act adopts the key policy proposals put forth by the Energy Security Leadership Council last December in its report entitled Recommendations to the Nation on Reducing U.S. Oil Dependence.

This bipartisan legislation calls for stricter fuel economy standards, expanded domestic oil and natural gas production with increased environmental protections and accelerated development of long-term renewable energy sources.

A new poll released March 14 by the Council found 80 percent public support for these measures.

Council members in attendance at the press conference included: General P.X. Kelley, USMC (Ret.), 28th Commandant, U.S. Marine Corps (Co-Chair); John F. Lehman, former Secretary of the U.S. Navy and member of the 9-11 Commission; Andrew N. Liveris, Chairman and CEO, The Dow Chemical Company; David P. Steiner, CEO, Waste Management, Inc; and General Charles F. Wald USAF (Ret.), former Deputy Commander of the United States European Command (EUCOM).

Texas To Become the Wind Capital of the World?

Recent leases of large areas of land in West Texas indicate a huge rush is on to build some of the largest wind energy projects in the world in the windblown plains of Texas.   Royal Dutch Shell Group, BP PLC, and a wind-development company owned by Goldman Sachs Group Inc. have entered into leases of vast areas from local ranchers. These entities are planning to build some of the largest wind farms in the world, with thousands of wind turbines, each costing about $2 million.  A recent article in the Wall Street Journal reviews these developments in detail.

With renewable energy requirements increasing in the various states, including Texas, renewable energy credits along with tax incentives will increasingly drive more wind energy projects.  With the future potential passage of climate change legislation, more demand for greenhouse gas emission reduction credits will further drive demand for renewable energy and emission reduction or carbon credits.  Wind energy will be a signicant source of these carbon credits.

We have seen an increasing interest in wind projects at Thompson & Knight LLP in our Texas offices.  More and more clients and potential clients are evaluating investment in wind energy, biodiesel, ethanol, and other renewable energy projects in Texas.

Ironically, long known as an oil and gas state and world leader in the fossil fuels industry, Texas is becoming a world leader in wind and other forms of renewable energy that will reduce the potential effects or serve to offset the effects of the burning of those fossil fuels.

Canadian Government Funds Task Force to Study Carbon Capture and Sequestration

An article from Reuters reported that the Canadian government and the Alberta government are funding a task force to review carbon capture and sequestration as a means of addressing the greenhouse gas emissions from power plants, the oil sands that are such a promising source of oil for Canada and by extension the United States, and other sources of carbon dioxide in Canada.  Carbon capture and sequestration offers a significant potential as a tool to address climate change concerns and the mounting political pressure on governments to institute limits on carbon dioxide and other greenhouse gas emissions and to institute a trading system for carbon emission reduction credits.  As the carbon sands can address many of the energy security issues of the United States, the Department of Energy should be involved in research to address the carbon emissions from the oil sands.  Hopefully, we will see a joint effort by the Canadian and US governments to fund research into carbon capture and sequestration for the oil sands in Alberta.

CALGARY, Alberta (Reuters) - A new task force funded by the Canadian government and the province of Alberta will study ways to capture and store greenhouse gases emitted by the province's massive oil sands projects, Prime Minister Stephen Harper said on Thursday.

The task force will look at methods of capturing carbon dioxide emitted by the oil sands and other big industries, then pumping it underground into aging oil fields, where it can help increase output.

"We may be able to collect (carbon dioxide) from our oil sands, our coal-fired electrical plants and other industrial emitters and pump it deep underground, where it will remain for eternity," Harper said at a news conference in the provincial capital, Edmonton.

Some media reports had said the two governments were considering funding for a multimillion-dollar pipeline to carry the carbon dioxide to oil fields in the south. However Harper said that is just one of the plans the group will look at.

The task force will be headed by Steven Snyder, chief executive of TransAlta Corp., a Calgary-based power company that operates coal-fired plants in Alberta and elsewhere.

Harper said the group will look at the "economic, technical and regulatory hurdles that lie in the road of large-scale implementation of carbon capture and storage."

Alberta's oil sands projects are considered one of the country's largest sources of carbon dioxide emissions, and production from the region is expected to triple over the next decade.

The Alberta government introduced a bill on Thursday that would force large scale carbon dioxide emitters to cut their emissions intensity -- the amount of the gas created per barrel of output -- by 12 percent beginning this year.

The task force is being asked to issue a report by November.

Wall Street Journal Article Says Businesses Now Calling for Climate Legislation

The Wall Street Journal published an article that discusses how businesses are starting to call for climate change legislation. This development follows public and political pressure on Congress to take action. A group of eastern states and recently western states have already passed carbon cap-and-trade programs, and are working to set up regional greenhouse programs. As uncertainty and divergent state programs are developing, business would be wise to call for a national program to avoid this uncertainty and variation across the country. Consistency and certainty are critical to industry, particularly those making investments in power plants.

Businesses Rethink Carbon Curbs.

A growing number of businesses are calling for federal caps on greenhouse-gases, which could spur Congress to action.

For years, most of the business community has strongly opposed controls on carbon dioxide emissions, which contribute to global warming. Reducing emissions would inevitably place new costs on businesses, particularly utilities.

But in the past few weeks, three industry trade groups that have long fought such regulation, the Edison Electric Institute, the American Gas Association and the Electric Power Supply Association, dropped their opposition to a cap. That coincided with calls for an emissions cap by the two private-equity firms bidding for Texas utility TXU Corp. Earlier this year, 10 corporations, including Wal-Mart Stores Inc. and General Electric Co., announced their support for mandatory curbs on greenhouse gases.

The shift underscores a growing belief that Congress eventually will pass mandatory emissions caps. Many business leaders have concluded it would be better for it to happen now rather than later, eliminating the current uncertainty. Moreover, they fear absent federal government action they'll be left to deal with a patchwork of state regulations. And they believe that by endorsing emissions caps, they'll be given a seat at the table in the negotiations over how such a cap would work.

Here's a closer look at what a national emissions "cap-and-trade" system would look like:

How would a carbon "cap-and-trade" system work? Companies would be required to have a permit for each ton of carbon that they produce. The government would limit the amount of greenhouse-gas emissions that companies could produce and create a market for companies to buy and sell permits to produce emissions beyond their caps. Firms that went beyond the mandated limit would have to reduce their emissions or buy permits from companies that had gone under their limits. The aim is to create a marketplace that would provide incentives for companies to invest in new, environmentally friendly technologies.

The 1990 Clean Air Act established a similar cap-and-trade system to combat acid rain, and it has been widely viewed as a success.

What types of proposals will Congress consider? At least five bills propose tackling global warming with some type of cap-and-trade market. The most ambitious bill would reduce emissions to 80% below their 1990 levels by 2050. Sen. John McCain (R., Ariz.) and Sen. Joseph Lieberman (I., Conn.) have proposed a target of 60% below those levels by 2050. The bill has been voted down twice before.

Sen. Jeff Bingaman (D., N.M.) offers a more modest approach, stabilizing emissions at their 2013 level by 2020 and including a "safety valve" that would force the government to issue more permits if the price of those permits rose too sharply.

Who wins and loses in a carbon market? Since the devil is in the details, it's still unclear who will pay how much. Pollution permits could be sold in an auction market or given away to companies. Utilities in the Southeast and Midwest that rely on coal-fired power plants are lobbying for a higher cap or more permits to offset what would otherwise create steep price increases because coal releases more carbon emissions than any other fuel. Conversely, West Coast and Northeast states that rely on cleaner fuels could be more insulated from higher energy costs.

Either way, consumers can expect higher energy prices because most emissions caps target electricity producers, who will pass those costs on to customers. A study by the U.S. Energy Information Administration estimates that under the Bingaman bill, electricity prices could rise 3.5% by 2020. Resources for the Future, an environmental group, predicts that under the McCain measure electricity prices could rise as much as 35% by 2025.

Companies that produce low-carbon fuels or energy-efficiency products could benefit from a carbon cap. But the steel industry, which produces large amounts of carbon dioxide, warns that a cap would raise costs and hurt their ability to compete with overseas rivals that aren't subject to pollution penalties.

FACTS

• Of the 15 original European Union member nations, only Britain and Sweden are on track to meet emission targets under the Kyoto Protocol.

• The global carbon market was worth $21.5 billion in the first nine months of 2006, up from $11 billion for all of 2005, according to the World Bank.

• Alaska, Wyoming and Louisiana led the nation in per capita energy use in 2003. Rhode Island, California and New York had the lowest per capita energy use.

• China is on track to surpass the United States as the world's leading producer of carbon dioxide in 2009.

• Last year's average temperature for the continental U.S. was the warmest on record, nearly identical to the record set in 1998, according to the National Oceanic and Atmospheric Administration.

Write to Nick Timiraos at [email protected]