GET READY for free-market enviornmentalism.

Two big pending changes in the energy world - one state-wide, one national - have the potential to change the city's fortunes.

On Jan. 1, 2011, state Act 129 takes effect. It mandates that rate caps come off the state's electric utilities, like PECO, heralding the dawn of a new energy world.

While lifting the caps, the law also requires PECO to mitigate the effects of the higher rates by creating incentives to reduce energy consumption. Electric companies will be penalized if they don't meet certain goals.

Here, that means PECO will be paying for large-scale energy-efficiency improvements, and they'll have financial incentives to do so. Laurie Actman, deputy director for policy of the Metropolitan Caucus, estimates that compliance will cost PECO $30-35 million a year in the city, and $800 million in the region.

That money will be spent to hire people and firms who can make energy efficiency improvements - everything from distributing energy-efficient lightbulbs to retrofitting buildings. It offers the potential, Actman says, to create a new industry in the region as big as pharmaceuticals.

But here's where it gets good.

Because of the city's density, and the fact that we have a large stock of aging energy-inefficient houses, the savings in the city will be significant. And that's going to have even bigger economic benefits if the Obama administration's plan for "Cap and trade" succeeds. "Cap and trade" essentially puts a limit on an entity's harmful greenhouse gas emissions and gives them credits for any amount below the cap. There will be a market for these credits. And because of the city's density, our savings will be significant, and so will our energy credits, which the city can then sell as an asset.

The mayor's office of sustainability, headed by Mark Alan Hughes, is creating a strategy to help the city exploit this new era.

One potential idea: creating a regional energy authority, which, Actman points out, is a great opportunity for collective decision-making across county lines. In fact, it's not insignificant that Actman, who works closely with Hughes, also heads the Metropolitan Caucus. She suggests another idea: a revolving loan fund to leverage public investment in return for private investment. The region could also pool its resources to buy cheaper energy, or to create a bonding authority.

Robert McKinstry, an environmental lawyer with Ballard Spahr, says that many states are already there: Delaware, following the lead of Vermont and New Jersey, has created a sustainable energy utility (SEU) to facilitate investment in energy efficiency and alternative energy and will soon issue bonds.

Chester County's Greenhouse Gas Reduction Task Force is recommending an SEU, and the Montgomery County commissioners voted to explore a bond issue to fund projects to reduce greenhouse gases. Pennsylvania has passed laws authorizing a bond issue and state tax credits for energy efficiency and alternative energy, but has not implemented them. *

- Sandra Sea