(BN) NRG Energy, Barclays Make First California Cap-and-Trade Deal


NRG Energy, Barclays Make First California Cap-and-Trade Deal
2010-11-17 12:55:00.3 GMT

By Jim Efstathiou Jr. and Simon Lomax
Nov. 17 (Bloomberg) -- NRG Energy Inc., the largest U.S.
independent power producer, and Barclays Plc have completed the
first deal for carbon-dioxide permits under California's planned
cap-and-trade program for greenhouse gases.
Under terms of the trade, to be announced today, permits or
carbon allowances will be delivered in December 2012, said Kedin
Kilgore, head of U.S. emissions trading for London-based
Barclays. The state's cap-and-trade program begins in 2012 for
utilities and manufacturers and in 2015 for cars and trucks.
Eventually, 85 percent of California emissions will be covered.
The most populous U.S. state is moving ahead with its
program to curb global-warming gases after federal cap-and-trade
legislation championed by President Barack Obama stalled in
Congress this year. Republicans and some Democrats called the
plan an energy tax in disguise.
"California is the eighth-largest economy on the planet,"
Kilgore said in an interview. "Trying to cover and reduce 85
percent of the emissions in California is significant."
Kilgore declined to say whether Princeton, New Jersey-based
NRG was a buyer or seller in the deal, or the price of the
permits traded. Pollution permits, each representing one metric
ton of carbon dioxide, may cost $15 to $30 each by 2020,
according to an analysis from the California Air Resources
Board, the agency that will run the program.
"We do not believe market fundamentals will begin to
support increased carbon pricing until we see the broader
economy begin to improve," Kilgore said.
The trading program is authorized under California's Global
Warming Solutions Act, which requires the state to cut its
greenhouse gases to 1990 levels by 2020. The agency's 11-member
board will meet Dec. 16 to decide whether to approve the cap-
and-trade plan.

Suspension Rejected

This month, voters in California rejected a ballot measure
backed by oil refineries that would have suspended the global-
warming law signed by Republican Governor Arnold Schwarzenegger.
Oil refiners Tesoro Corp., Valero Energy Corp. and Flint
Hills Resources LLC, a subsidiary of Koch Industries Inc.,
helped fund efforts to delay the law through a proposition on
the Nov. 2 ballot. The measure, which would have suspended the
law until California's unemployment rate is cut by more than
half, was defeated with 62 percent of voters opposed, according
to state election records.
Supporters of the global-warming law, including Microsoft
Corp. founder Bill Gates, Google Inc. co-founder Sergey Brin and
venture capitalist John Doerr, raised more than $30 million to
campaign against the ballot measure with radio, television and
print advertising.

Double Northeast Market

The program will cover almost 400 million metric tons of
carbon dioxide from power plants, factories, refineries and the
tailpipes of cars and trucks once fully phased in by 2015.
That's more than double the emissions covered by a carbon market
for power plants in the U.S. Northeast, called the Regional
Greenhouse Gas Initiative, and almost one-fifth the current size
of Europe's cap-and-trade program, according to data compiled by
By 2015, refiners in California would probably have to buy
permits in state-run auctions and would be able to pass on
higher costs to consumers, the air resources board said in a
report last month. Gasoline prices may increase 4 percent to 8
percent if permits are priced from $15 to $30 each, the agency
said in a report. If carbon allowance prices climbed to $75
each, gasoline prices would be 19 percent higher in 2020.

Smaller Vehicles

Higher fuel prices "may induce some consumers to switch to
smaller vehicles that are both more fuel-efficient but less
expensive than the larger vehicles chosen without cap-and-
trade," according to the agency's economic analysis. Others may
respond by driving less, the agency found.
California will try to expand its carbon market by
persuading other U.S. states and some Canadian provinces to set
up similar cap-and-trade programs, which could be linked, the
air resources board said in its report.
"Lower transaction costs and market efficiency are the
best tools for managing carbon risk," Brannen McElmurray,
director of environmental commodities at NRG, said in a

For Related News and Information:
Top environment stories: GREEN <GO>
Stories about U.S. and climate: TNI US CLIMATE <GO>
Global emissions data: EMIS <GO>
Northeast U.S. trading: RGGI <GO>

--Editors: Larry Liebert, Terry Atlas

To contact the reporters on this story:
Jim Efstathiou Jr. in Washington at +1-212-617-1647 or
Simon Lomax in Washington at +1-202-654-4305 or

To contact the editor responsible for this story:
Larry Liebert at +1-202-624-1936 or