Improvements Needed on National Clean Energy Standard

May 16, 2012 | 3:50 pm
Jeff Deyette
Director of State Policy and Analysis

On May 17th, the U.S. Senate Energy and Natural Resources Committee will hold a hearing on a national clean energy standard (CES). The dialogue is a welcome step, but in order to transition toward a truly low-carbon, clean energy future, the bill requires several improvements.

U.S. CapitolRestarting the National Clean Energy Conversation

In March, Sen. Jeff Bingaman, chairman of the Energy Committee and long-time champion of the renewable energy industry, released S. 2146, the Clean Energy Standard Act of 2012, a bill that requires electric utilities to secure an increasing portion of their power supply from no-carbon or low-carbon sources, including renewable energy, nuclear, natural gas or coal facilities that capture and sequester their carbon emissions. The annual targets begin at 24 percent in 2015 and increase to 84 percent in 2035. The bill is based on a proposal by President Obama, and it re-starts the conversation about developing a much needed, long-term national clean energy policy.

Back in January, I wrote that a well-designed CES can be an effective tool for affordably and reliably moving our nation to a cleaner, more sustainable energy system, but that it is critical to get the details of policy right. Laudably, S. 2146 sets aggressive targets and a long-term time frame that will increase low-carbon energy and give investors the policy certainty needed to develop projects. It also positively emulates many state renewable electricity standards by using a proven tradable credit system to track compliance and allow utilities greater flexibility in achieving the targets. But there are at least three major shortcomings that should be addressed before the bill goes further.

Mature Technologies Don’t Need Further Incentives

The CES gives utilities tradable credits to mature industries like natural gas and nuclear power. In case you haven’t heard, the natural gas industry is doing very well in the power markets these days. In many parts of the country, natural gas facilities are the least cost source of electricity, competing favorably even with existing coal generation. It does not need additional “clean energy” incentives, especially in light of concerns around hydraulic fracturing and fugitive methane emissions.

It is one thing to allow natural gas to count toward the target of the purchasing utility, but awarding a tradable credit, even a partial one as the bill proposes, gives it additional value that is unnecessary for stimulating deployment. It also reduces the development of truly sustainable, renewable energy sources like wind and solar. Making the credits non-tradable is an easy way to acknowledge the value of low-carbon, mature energy technologies without funneling incentives away from other low-carbon energy technologies that need the support.

Prioritize New Low-Carbon Energy Development

For most eligible technologies S. 2146 awards tradable credits to facilities placed in service as far back as 1992. One of the primary objectives of a clean energy standard is to stimulate investments in new technologies and to bring additional facilities online. Giving tradable credits to facilities that are as much as 20-years old significantly undermines this goal, particularly in the near term when the annual targets are lower. And while it is true that some existing facilities may need additional incentives to stay competitive, most do not. In this case, the simple and fair solution for rewarding early adopters of low-carbon energy is to provide non-tradable credits for existing facilities, and shift the eligibility of tradable credits to facilities that come online after the date of enactment.

Bringing Energy Efficiency into the Mix

Outside of allowing for combined heat and power technology, which is very much welcome, energy efficiency plays virtually no role in the CES. That’s a mistake. Energy efficiency is our cheapest and most readily available energy source that can result in significant near-term reductions in carbon emissions. If it can’t be adequately integrated into the CES itself, then the legislation should include a stand-alone energy efficiency resource standard and other efficiency measures. Coupling a CES with strong energy efficiency policies would greatly reduce costs of the whole program to consumers.

Given the stalemates that have plagued this Congress, the CES isn’t likely to get much more attention this year than tomorrow’s hearing. At a minimum though, members of the energy committee should consider making at least these three improvements.

That way, when Congress is ready to put aside polarizing politics, this legislation could serve as a more useful starting point for creating a clean energy policy that will drive innovation and economic development, reduce carbon pollution, and protect consumers.