Virginia Coastal Protection Act: New UCS Analysis Highlights Opportunity for Carbon Revenue

Update (February 8, 2016): The analysis has been updated using the most up-to-date Renewable Energy Deployment System (ReEDS) model from the National Renewable Energy Laboratory. Learn more.

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Virginia’s General Assembly has just started a whirlwind two-month session, and will be considering significant legislation that would help the state raise revenues from a carbon trading program, to be used for investments in coastal resilience, energy efficiency, renewable energy, and economic development. Today UCS released an analysis that finds that Virginia could generate an average of $251 million annually by participating in a similar carbon trading program.

What the proposed legislation does

The bill has been introduced in the House, and a companion bill is expected to be introduced soon in the Senate. Delegate Ron Villanueva sponsored HB 351, the Virginia Alternative Energy and Coastal Protection Act, based on a similar bill he spearheaded in last year’s legislative session. The bill directs the Governor “to seek to join the Regional Greenhouse Gas Initiative or other carbon trading program with an open auction of carbon allowances.” From the sale of carbon allowances, the bill establishes the Commonwealth Resilience Fund, to be used to support specific programs in counties and municipalities, and proposes the following breakdown in priorities for expenditures:

• 50 percent “to assist cities, counties, and towns affected by recurrent flooding, sea level rise, and flooding from severe weather events with adaptation and resilience efforts;”
• 30 percent “to provide energy efficiency and conservation grants and support the development and promotion of energy efficiency programs and conservation in the Commonwealth” (with at least half of this funding going to low- and moderate-income programs);
• 10 percent “to provide economic development, education, and workforce training assistance for families and businesses in Southwest Virginia for the purpose of revitalizing communities negatively affected by the decline of fossil fuel production;”
• 5 percent “to provide renewable energy grants and support the development and promotion of Distributed Renewable Energy Programs in the Commonwealth;” and
• 5 percent for administrative costs.

UCS analysis shows how Virginia can raise millions of dollars in carbon revenues

UCS has just released a new analysis that highlights the millions of dollars in auction revenues that would be available were Virginia to adopt a carbon trading program, similar to those outlined in the bills. While our analysis did not analyze the impact of HB 351 directly, we did look at the impact of Virginia joining a carbon trading program. We found that trading carbon allowances would raise $251 million in average annual revenue from 2022 to 2030. If Virginia were to split the $251 million in revenue as directed by HB 351, approximate funding levels would be as in Table 1.

Table 1: Estimated Annual Revenue Available for Purposes Specified in HB 351

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Approximate Annual Revenue	Proposed Allocation	Purpose
$125,500,000	50%	coastal adaptation and resilience
$75,300,000	30%	energy efficiency and conservation programs
$25,100,000	10%	workforce training in southwest
$12,550,000	5%	renewable energy grants
$12,550,000	5%	administrative costs

 

Our revenue estimate is consistent with other analyses, from the Chesapeake Climate Action Network and the Acadia Center, that have calculated around $200 million per year in potential revenue. While we assumed a carbon trading program would begin in 2022 (the start date for the Clean Power Plan) the state could earn revenues earlier by starting the program in 2017 as proposed in the bill.

Why take advantage of a carbon market?

Here are three compelling reasons why it makes sense for Virginia to adopt a program like the one outlined in HB 351. And they all come down to how the revenue generated from auctioning carbon allowances could be put to use to benefit all Virginians.

• Virginia is among the states most vulnerable to the impacts of climate change. Norfolk alone will need an estimated $1 billion to cope with flooding worsened by rising seas. HB 351 provides a way to channel much needed resources to coastal communities.
• Virginia lags behind most states in achieving energy efficiency savings and investing in renewable energy. HB 351 would establish programs to jumpstart conservation and energy efficiency programs in the state. Further, it specifies that at least half of the money should be directed to programs designed to benefit low- and moderate-income customers.
• Southwest Virginia has suffered as the transition away from coal continues nationally. HB 351 recognizes that limiting carbon dioxide emissions could hurt coal communities, and provides resources for workforce training and economic development in affected communities. The bill directs revenue to the Southwest Economic Development program within the Tobacco Region Revitalization Commission. Using the estimate from Table 1 ($25 million), the Southwest program would grow by more than five times.

Meeting and exceeding the Clean Power Plan

The new UCS analysis shows how Virginia can comply with the Clean Power Plan by implementing a carbon trading program and strengthening its renewable energy and energy efficiency policies.

We examined the economic and environmental impacts of Virginia complying with the CPP using by joining a mass-based trading system for carbon allowances, while simultaneously strengthening state policies for renewable energy and energy efficiency. We dubbed this suite of policies the Clean Energy Compliance Pathway (or “Clean Path”) Case, and found that it provides significant environmental, economic, and health benefits for the state, with minimal impacts on residential electricity bills. We found that the policies in the Clean Path Case would:

• Generate $251 million in average annual revenue from 2022 to 2030, from the sale of carbon allowances, for investments in Virginia’s economy;
• Invest $3.4 billion in energy efficiency improvements to benefit Virginia consumers;
• Reduce the typical Virginia resident’s electricity bills by 4 percent in 2030, for an annual savings of $62;
• Develop 6,252 MW of new wind and solar capacity in Virginia by 2030, generating $3.7 billion in new capital investments;
• Avoid 78 million tons of CO₂ through 2030; and
• Provide health and economic benefits worth an estimated $2.7 billion cumulatively through 2030 by avoiding CO₂, sulfur dioxide (SO₂), and nitrogen oxides (NO_x) pollution

The Clean Path Case assumes that Virginia adopts the Clean Power Plan’s mass-based targets, including both new and existing sources, and that Virginia establishes mandatory targets for renewable energy (8 percent of electricity sales in 2025, growing to 16 percent in 2030) and energy efficiency (9 percent of statewide electricity sales in 2022 through 2030) to strengthen its currently voluntary targets.

More details on our methodology can be found in the report, as well as in the technical appendix.

A smart compliance plan for the Clean Power Plan

Based on our analysis, UCS offers the following recommendations for Virginia’s CPP compliance plan:

• The Virginia Department of Environmental Quality should develop a compliance plan for the Clean Power Plan that includes a mass-based carbon trading program and prioritizes renewable energy and energy efficiency.
• The General Assembly should endorse a carbon trading program with auctioned allowances to raise revenues, as well as stronger renewable energy and energy efficiency standards.
• Virginia electric utilities should work to diversify their portfolios, prioritizing low-cost renewables and efficiency.

Virginia policymakers should pass legislation to generate carbon revenues

Virginia policymakers have an important opportunity ahead to pass legislation that would address multiple needs: raising much-needed revenue for coastal resilience and adaptation; investing in a clean energy future for coal dependent communities in southwest Virginia; establishing a real commitment to energy efficiency and renewable energy; and cutting carbon emissions that contribute to rising sea levels and other climate impacts.

Action from the legislature could also help Virginia develop a compliance plan for the Clean Power Plan with a carbon trading program as its centerpiece.

It’s not often that so many priorities can be addressed with a three-page bill. If you live in Virginia, please let your policymakers know that you want them to pass the Virginia Coastal Protection Act.

UPDATE (February 8, 2016):  This analysis was based on modeling using the National Renewable Energy Laboratory’s (NREL’s) Regional Energy Deployment System (ReEDS) model. Since we released our report, NREL has provided us with an update to correct some minor errors. We have therefore redone our analysis using the most up-to-date version of the model, which had a slight impact on some of our results. Using the updated model, the Clean Path Case would:

• Generate an average of $241 million annually from the sale of carbon allowances that could be invested in Virginia’s economy;
• Lead to $3.4 billion in energy efficiency improvements to benefit Virginia consumers;
• Reduce the typical Virginia resident’s electricity bills by 5 percent in 2030 for an annual savings of $77;
• Spur 6,163 MW of new wind and solar capacity in Virginia by 2030 to generate $3.4 billion in new capital investments;
• Avoid 77 million tons of CO₂ through 2030; and
• Yield health and economic benefits worth an estimated $2.6 billion cumulatively through 2030 by avoiding carbon dioxide, sulfur dioxide, and nitrogen oxide pollution.

The slight change in projected average annual revenue changes the values in Table 1 as follows:

• $120,500,000 for coastal adaptation and resilience
• $72,300,000 for energy efficiency and conservation programs
• $24,100,000 for workforce training in southwest
• $12,050,000 for renewable energy grants
• $12,050,000 for administrative costs