Power Deregulation Fueled Pollution - NAFTA Agency
By Robert Melnbardis Reuters 6/17/2002

In a 45-page report on the continent's electricity market, the Commission for Environmental Cooperation, a Montreal-based agency created under the North American Free Trade Agreement, said power companies cut expenditures on energy efficiency measures to $1.4 billion in 1999 from $2.4 billion in 1995.

That added to air pollution in the United States, Canada and Mexico, which hurts both the environment and human health, the agency said.

Power companies made the cuts largely because of the restructuring of the electricity industry, which includes the privatization of public utilities, the commission said.

"Much of the electricity demand growth during this period could have been significantly moderated by energy efficiency measures, thus avoiding the associated air pollution and other environmental impacts, had these programs not been left to languish under restructuring," the report said.

The study came just two days after the administration of U.S. President George W. Bush ( news - web sites) said it would relax costly air pollution rules when utilities are repaired or expanded. The move triggered a storm of protest from environmental groups, who warned that would increase air pollution and worsen respiratory ailments such as asthma.

DEREGULATION RAISES RISKS

Janine Ferretti, the commission's executive director, said deregulation has left power utilities with less incentive to implement energy conservation measures. Ongoing efforts to deregulate the sector add to the risk and uncertainty of investing heavily in energy efficiency, she added.

"It's hard for them to make those investments with that kind of uncertainty and risk," she told Reuters.

"There needs to be some sort of effort to minimize those uncertainties and risks so that the behavior and pattern of companies is one that is consistent with meeting environmental outcomes."

As electricity markets deregulate in the three countries and the cross-border trade in power rises, environmental considerations will be even more important, Ferretti said.

Critics have blamed the deregulation of California's power market for last year's electricity shortage, which sparked brownouts in the state and a subsequent flurry of investigations and lawsuits.

Ontario has abandoned a planned C$5.5 billion ($3.5 billion) sale of Hydro One, the provincially owned electricity transmission grid, after its plan faced a public backlash and was blocked in court.

ELECTRICITY SECTOR A TOP POLLUTER

According to research by the commission, North America's electricity sector is the top polluter because of the use of fossil fuels such as coal, oil and gas in many power plants.

In 1999, the year for which the most recent data is available, power plants reported the largest toxic releases of all industrial sectors. They emitted 450,000 tonnes of pollutants to air, land and water, the agency said.

In the United States, the electricity sector produces one-quarter of all air emissions of nitrogen oxides, 70 percent of the sulfur dioxide, 25 percent of mercury and 35 percent of carbon dioxide. Some of the gases contribute to air pollution effects such as acid rain, as well rising levels of greenhouse gases, which researchers say are a key factor in global warming.

Furthermore, forecasts call for growth in electricity demand of 21 percent in the United States, 14 percent in Canada and 66 percent in Mexico from 2000 to 2009, the agency said. There are plans to build nearly 2,000 new generating units in North America by 2007, a 50 percent increase over current installed capacity.

Even if only a fraction of that is built, governments will have to grapple with the implications for the environment, Ferretti said.

"It's hard to tell what fuel source will be used and this is why it is important that the three countries work together to address any kind of possible negative implications," she said.

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