FPL's Change of Heart on Cap and Trade

FPL's Change of Heart on Cap and Trade

Images of FPL's Next Generation Solar Energy Centers courtesy of FPL. http://www.fpl.com/environment/solar/projects.shtml?WT.ac=

Several years ago, Lew Hay, the dynamic chairman and CEO of FPL Group, which is the nation’s leading provider of renewable energy ($16 billion in 2008 revenues), gave an impassioned speech at a Goldman Sachs climate change conference in New York, arguing for a tax on emissions of carbon dioxide to deal with the threat of global warming.

A carbon tax, he said, would be simple and fair and speed the transition to a clean-energy economy. By contrast, he said, a cap-and-trade system inevitably would be overly complicated, negotiated in Washington back rooms, subject to political horse-trading and shaped not by the public good but by special interests.

Anyone who’s paid even cursory attention to the Congressional debate over climate change knows that Hay was absolutely right.

So why, I asked him when we spoke by phone, is he now a supporter of cap and trade? FPL is a member of the U.S. Climate Action Partnership, the influential coalition of FORTUNE 500 companies and environmental groups that has put cap and trade on the congressional front burner.

I did strongly support a carbon tax a number of years ago, for several reasons. [Hay said] It’s simple. There’s nothing hard about putting a price per ton on carbon dioxide. You don’t need a big trading mechanism to make that happen. I thought it was fair. You didn’t have the special interest influence, where who has the most lobbying dollars or the best lobbyists gets the most allowances. Everyone would be treated equally. And it was transparent.

Even today, a big part of the debate (about cap and trade) is about what it is going to cost our society. What’s the effect going to be on the economy? We’re living in a world of dueling models. Some folks are saying it going to be incredibly expensive and will destroy our economy and at the other end of the spectrum people are saying it’s hardly going to cost anything so let’s get on with it.

He’s right about that, too.

Supporters and opponents of cap-and-trade trade wild overstatements. Just this week, Sen. John Kerry said his climate bill will create “millions of new jobs and major improvements in every sector of the energy economy.” (Like coal mining?) Sen. Jim Inhofe said the bill would bring about  “the largest tax increase in -- in history!”

{related_content}By contrast, as Hay told me: “With a carbon fee, you know exactly what it’s going to cost ... Frankly, every economist you talk to supports a carbon tax.”

So, again, what’s changed?

“The problem with a carbon tax,” Hay said, “and I knew it at the time, was that it wasn’t going to be politically acceptable.” Even the idea of a revenue-neutral fee on carbon, with monies rebated to customers on a per-capita basis, never got off the ground in Washington.

Put simply, Hay, like most CEOs, is a pragmatist. He made his case for a carbon tax. (As of today, the arguments are still there, on the FPL website, along with a thoughtful position paper critical of cap and trade. When I mentioned that to Hay, he said it probably should be taken down.) The arguments for a carbon tax didn’t carry the day. And so he’s turned to the next best option, an imperfect cap-and-trade approach that’s better than inaction.

“Let me clear -- we fully support a cap-and-trade program,” Hay told me. “The frameworks that Congress is working on are pretty good.”

He didn’t sound wildly enthusiastic, perhaps because he remains concerned about the feeding frenzy going on over free allowances -- those are essentially permits allowing companies to pollute -- as well as uncertainties surrounding provisions in the legislation regulating carbon offsets and protecting against price shocks from rising carbon costs.

Politics, as they say, is the art of the possible, and unhappily  it doesn’t seem possible these days to have a mature political debate about any of the big issues we face -- climate change, health care, entitlement costs, the deficit, whatever. That’s not Hay’s doing.

To his credit, FPL has done a lot of work on the ground to deal with the climate change issue. Just this week, President Obama visited FPL’s DeSoto Next Generation Solar Energy Center in Arcadia, Florida, which at 25MW is the biggest solar photovoltaic power plant in the U.S. Obama was there to announce $3.4 billion in recovery-act grants to promote the smart grid; FPL and partners got $200 million for a program called Energy Smart Florida.

FPL’s regulated utility is also developing a 75 MW solar thermal hybrid plant that integrates solar power with natural gas, with both sharing a steam turbine and generator.

“It really is the first of its kind,” Hay explained. “When the sun shines, we’re making our steam from the sun. When it isn’t shining, we make steam using natural gas.”

Meanwhile, through its independent power generation subsidiary, Next Era, FPL has built more wind-power plants that any other company in the U.S. (I wrote a blogpost last month about Next Era.) Hay told me that he’s bullish about both wind and solar, saying that the costs of wind power have come down by a factor of four in recent years and the costs of solar power, both PV and thermal, have fallen almost in half.

By the way, if you’re wondering whether Hay is worried by all the political maneuvering in Washington because he’s not at the bargaining table, that’s not so. Earlier this month, he was one of four CEOs invited to a private lunch at the White House with the president. The others were Jeff Bezos of Amazon, Irene Rosenfeld of Kraft and Antonio Perez of Kodak. The lunch was off the record, so Hay couldn’t say anything about it other than to observe that Obama was extremely well-informed about a variety of business issues discussed, climate change among them.

I’m pleased to say that Lew Hay has agreed to speak in April at FORTUNE’s Brainstorm Green conference about business and the environment. That’s Lew (with his back turned) and the president in Arcadia with Greg Bove, construction manager of the solar plant. I’m trying to get my conversation with Lew posted to The Energy Collective website as a podcast. I will add a link here when that happens.

GreenBiz.com Senior Writer Marc Gunther maintains a blog at

Images of
FPL's Next Generation Solar Energy Centers courtesy of FPL.