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If the U.S. regulates carbon emissions, would your portfolio take a hit?

A discussion with Dan Bakal, director of electric-power programs for Ceres.

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Would carbon regulation wallop the electric-power industry?

Mr. Bakal: It certainly will have a significant impact. And I would say both positive and negative. So it will wallop maybe some companies. But it doesn't necessarily wallop the industry overall.

What's the negative impact?

A lot of it depends on what happens in Congress.... At a basic level, the companies that emit the most CO2 will be certainly impacted as you put a cost on CO2 emissions, which is what any regulation is going to do. That does have an impact on the biggest emitters. And those tend to be the biggest coal-fired generators, meaning they use coal to produce electricity.

Let's talk about the impact on the investor. Depending on the legislation, the impact varies hugely.

That's true. We are not doing analysis on what the impact on any company is. We show what their emissions are and allocations they might get under various scenarios. And then we expect analysts ... to be doing the more rigorous financial analysis about what the impact is on specific companies.

But your report makes pretty clear that some companies are far more efficient than others in generating electricity without too much CO2.

What really impacts the rates are the fuels that are being used to generate electricity. Coal is the most CO2-intensive. Natural gas has about half the CO2 intensity of coal. Oil has more than natural gas. Nuclear is very low on CO2 emissions. And of course, renewable energy, like wind and solar, [is] essentially carbon-free. So that's the primary factor in determining a company's CO2 emissions.

If investors were looking at specific utilities, they would look at how much of their energy comes from coal?

That's a key factor. Then again, the markets they operate in are pretty key – whether or not they're in states that are regulated or deregulated. Approximately half of the country is still regulated.... Those are rough numbers. There are a lot of factors that go into this.

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