Energy & Technology
Below are the comments C2ES submitted on June 25, 2012, on EPA's proposed greenhouse gas emissions standard for new power plants.
Comments of the Center for Climate and Energy Solutions on
Standards of Performance for Greenhouse Gas Emissions for
New Stationary Sources: Electric Utility Generating Units;
United States Environmental Protection Agency
(77 Fed. Reg. 22392 (April 13, 2012))
Docket ID No. EPA-HQ-OAR-2011-0660; FRL-9654-7
This document constitutes the comments of the Center for Climate and Energy Solutions (C2ES) on the proposed standards of performance for greenhouse gas (GHG) emissions for new electric utility generating units (Proposal), proposed by the U.S. Environmental Protection Agency (EPA) and published in the Federal Register on April 13, 2012. C2ES is an independent nonprofit, nonpartisan organization dedicated to advancing practical and effective policies and actions to address our global climate change and energy challenges. As such, the views expressed here are those of C2ES alone and do not necessarily reflect the views of members of the C2ES Business Environmental Leadership Council (BELC). In addition, the comments made in this document pertain to new sources in the specific industrial sector addressed by the Proposal and may not be appropriate for other industrial sectors or for existing electric utility generating units.
Preference for Market-based Policy
C2ES believes market-based policies—such as emissions averaging among companies, a cap-and-trade system, an emissions tax, or a clean energy standard with tradable credits – would be the most efficient and effective way of reducing GHG emissions and spurring clean energy development and deployment. Properly-designed market-based policies create an appropriate division of labor in addressing climate change, with the law establishing the overarching goal of reducing GHG emissions, and private industry determining how best to achieve that goal. Under market-based policies, the government neither specifies a given company’s emission level nor requires the use of any given technology—both of these questions are determined by the company itself.
Beyond providing an incentive for the use of best available technologies, market-based policies provide a direct financial incentive for inventors and investors to develop and deploy lower-cost, clean energy technologies, and leave the private market to determine technology winners and losers. Market-based policies can be designed to minimize transition costs for companies and their customers in moving from high-emitting technologies to low-emitting technologies; to prevent manufacturers in countries without GHG limits from using this as a competitive advantage over U.S. manufacturers; and to reverse any regressive impacts of increased energy prices. At the federal level, market-based policies have been used to reduce sulfur dioxide emissions at a fraction of the originally estimated cost, while at the state level they have been used successfully in renewable energy programs and cap-and-trade programs.
However, enactment of federal legislation that would establish a comprehensive market-based policy to reduce GHG emissions does not appear imminent. Given the urgency of addressing the rising risks that climate change poses to U.S. economic, environmental and security interests, C2ES believes that in the absence of Congressional action to reduce greenhouse gas emissions, EPA must proceed using its existing authorities under the Clean Air Act.
The Context of the Proposal
The Proposal is consistent with the EPA’s authority to implement the Clean Air Act, as interpreted by the U.S. Supreme Court. On April 2, 2007, in the case of Massachusetts v. EPA, the court found that the harms associated with climate change are serious and well recognized, the EPA has the authority to regulate CO2 and other GHGs under the existing Clean Air Act, and, although enacting regulations may not by itself reverse global warming, that is not a reason for EPA not to act in order to “slow or reduce” global warming.
The Court required that the EPA determine whether GHG emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare. The EPA released a draft Technical Support Document (TSD) in 2008 that provided technical analysis of the potential risks of GHGs for human health and welfare and contribution of human activities to rising GHG concentrations, and adopted a final endangerment finding in December 2009. The finding explained and documented the determination that (1) the ambient concentration of six key GHGs—CO2, methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)—contribute to climate change, which results in a threat to the public health and welfare of current and future generations, and (2) emissions from motor vehicles contribute to the ambient concentration of the GHGs.
The EPA’s endangerment finding did not, by itself, impose any restrictions on any entities. It was, however, a required step in the EPA’s process of regulating GHG emissions. The EPA has already issued several requirements pertaining to GHG emissions—two as a consequence of the endangerment finding, and two in response to specific Congressional mandates regarding the reporting of GHG emissions.
Reporting CO2 emissions from power plants. Under section 821 of the Clean Air Act Amendments of 1990, the EPA requires power plants to monitor their CO2 emissions and report the data to the EPA, which makes the data available to the public. Under this provision, power plants have been reporting their CO2 emissions since the early 1990s, and the data have been made publicly available through the EPA’s website.
GHG Reporting Rule. As part of the Fiscal Year 2008 Consolidated Appropriations Act, signed into law in December 2007, the EPA was ordered to publish a rule requiring public reporting of GHG emissions from large sources. The GHG Reporting Program database was published for the first time in January 2012, and consisted of data reported under the rule.
Vehicle tailpipe standards. The first and most direct result of the Supreme Court’s ruling in Massachusetts V. EPA and the EPA’s subsequent endangerment finding was the EPA’s promulgation of GHG emissions standards for vehicles. In April 2010, the EPA and the U.S. Department of Transportation issued a joint regulation to establish new light-duty vehicle standards for Model Year (MY) 2012 to MY 2016; in August 2011, they issued the final rulemaking for heavy-duty vehicles for MY 2014-2018; and in November 2011, they issued a joint proposal for light-duty vehicle standards for MY 2017 to MY 2025.
New Source Review/Best Available Control Technology. Under the Clean Air Act, major new sources or major modifications to existing sources must employ technologies aimed at limiting air pollutants. Once GHGs were regulated as air pollutants through the vehicle tailpipe standard, the requirement that new or modified sources must use “best available control technology” (BACT) for GHGs also took effect. In November 2010, the EPA released guidance to be used by states in implementing BACT requirements for GHG emissions from major new or modified stationary sources of air pollution. Under the BACT guidance, covered facilities are generally required to use the most energy-efficient technologies available, rather than install particular pollution control technologies. More than a dozen facilities have received permits under the program.
The Proposal is the first GHG standard proposed by the EPA under the New Source Performance Standard provision of the Clean Air Act. Electric power plants account for about one-third of U.S. GHG emissions—nearly twice the contribution of light-duty vehicles.
Comments on the Proposal
C2ES has some concerns with the Proposal, as discussed below. If the concerns are adequately addressed, C2ES supports moving the rule forward.
The EPA should set the emissions standard at a level that can be reliably achieved by currently available technology under reasonably expected operating conditions.
The technology on which the standard in the Proposal is based is natural gas combined cycle (NGCC). It is imperative that the EPA set the GHG emissions standard at a level and in a form that can be reliably achieved by currently available NGCC technology under the full range of reasonably expected operating conditions. A recent study raises questions about the extent to which currently available NGCC units can reliably achieve the standard in the Proposal. In order to maximize the efficiency of the overall interconnected electric system – and often to minimize the overall GHG emissions – it is sometimes necessary to run a particular plant at less than peak efficiency. The standard should reflect this reality.
C2ES agrees that, as proposed, the standard should not cover simple cycle combustion turbines and biomass-fueled boilers.
The standard must be consistent with the advancement of carbon capture and storage technology.
Carbon capture and storage (CCS) is not one of the technologies on which the Proposal’s standard is based. Rather, CCS is a method by which a facility could potentially comply with the NGCC-based standard.
CCS operations have been built at scale in other industrial sectors, but not yet in the electricity sector. The first commercial-scale U.S. power plant with CCS is currently under construction. Power companies are planning several additional CCS projects, some of which will be in conjunction with enhanced oil recovery (EOR). CCS power projects that would supply captured CO2 to EOR are in the planning stages in Texas, Mississippi, California, North Dakota, and Kentucky for the 2014—2020 timeframe. Several more power companies have had plans to build CCS operations that did not go forward primarily because of the cost of CCS and the uncertainty with respect to CO2 emission regulation and legislation.
The Proposal offers an alternative compliance mechanism in which a coal power plant could be operated for 10 years without CCS, followed by 20 years with CCS. While the standard and the alternative compliance mechanism could make it easier for public utility commissions to approve proposals to build coal power plants with CCS, given the current cost and limited demonstration and deployment of CCS technologies, these alone may not be enough to surmount the challenge of financing a plant with CCS. (Please see the discussion of CCS under “Related Matters” below.)
More concerning is the possibility that the standard could inadvertently inhibit the advancement of CCS. For example, one intermediate step in demonstrating the compatibility of CCS with large-scale electricity generation might be to capture and sequester only a fraction of the CO2 from a large coal plant – which might not be allowed under the Proposal. C2ES suggests that the EPA consider mechanisms by which CCS demonstration projects and other operations important to the advancement of CCS could go forward.
Given the unique circumstances of electricity generation today, it is on balance appropriate to set a standard that does not differentiate between fuel types for new power plants. A non-differentiated standard may not, however, be appropriate for other industry sectors or existing sources in this sector.
Perhaps the most novel aspect of the Proposal is that it does not issue separate NSPS for coal and natural gas. Under the Clean Air Act, section 111(b)(2), the EPA “may distinguish among classes, types and sizes within categories of new sources for the purpose of establishing [NSPS] standards.” (Emphasis added.) It has in fact typically been the case that Clean Air Act regulations have established separate air pollution standards for coal- and natural gas-fired power plants. While this differentiation is authorized, however, it is not required by the Clean Air Act. Because the proposed rule would apply to new units only, and because prospective owners have options in selecting the designs of their units, fuel switching (i.e., replacing coal use at existing plants with natural gas) would not be required by the rule.
Moreover, recent developments having nothing to do with GHG regulation, such as the availability of inexpensive natural gas and the regulation of other pollutants, have created conditions under which the GHG emissions intensity of electricity generation is declining. Aside from a small number of facilities far along in the planning process and specifically exempt from the Proposal, no new construction of conventional coal plants is currently foreseen at recent forward market natural gas prices through 2020 (when the Clean Air Act requires that the rule be reevaluated). The Proposal reflects the projections of independent analysts with regard to the future of new coal and natural gas electricity generation. For this reason, the Office of Management and Budget estimates that there will be no cost for industry compliance with the Proposal as compared with the status quo.
That said, it is important to recognize that widely fluctuating natural gas prices are a recent memory, and that, while the majority of independent analysts currently project an abundant and inexpensive supply of natural gas for decades to come, this forecast may prove wrong. Issuing a standard that in effect prohibits the construction of new high-emitting coal plants (i.e., those not using CCS) therefore poses risks – as would issuing a standard that allows the construction of such plants. If the construction of new high-emitting coal plants is effectively prohibited and natural gas prices rise higher than currently foreseen, electricity rates could face an upward pressure. On the other hand, allowing the construction of new high-emitting coal plants could lock in the emissions of those plants for decades to come, exacerbating the challenges the United States faces in reducing its GHG emissions and increasing the risks and costs of dangerous anthropogenic climate change.
On balance, C2ES believes the best choice in implementing the NSPS requirement for new power plants is to issue one standard, regardless of fuel type, but with a mechanism that allows for technological innovation (as discussed above). This should be accompanied by heavy federal investment in low-emitting technologies, including CCS, with the goal of maintaining a diverse set of energy sources in generating the nation’s electricity.
Finally, while the establishment of one emission standard regardless of fuel type may be appropriate with respect to new facilities in the power sector, it may not be appropriate for existing facilities in the power sector or for other sectors for which the EPA may issue regulations.
The United States needs a comprehensive energy strategy that delivers a diverse set of affordable low-emitting sources of electricity.
C2ES believes that as a matter of national policy and economic common sense, it is imperative to enhance energy diversity through programs that advance low-emitting uses of coal and natural gas; nuclear power; renewable energy; and efficiency in generation, transmission and end-use.
In particular, the United States needs an effective strategy for demonstrating CCS and making it inexpensive enough to use on future coal and natural gas power plants. Coal- and natural gas-fired generation will likely be predominant sources of electricity in the United States and most of world’s other major economies for decades to come. It will therefore be essential to advance CCS to the point that its use is economical in the context of electricity generation.
A CCS strategy should include a major research, development and demonstration effort, and subsidies to actively encourage the use of CCS with new and existing natural gas and coal power plants so that the technology can travel down the learning curve. C2ES strongly supports, among other measures, the federal grant programs that have allowed the construction of the previously-mentioned CCS projects. Another option is to establish a trust fund to support demonstration projects at commercial scale for a full range of systems applicable to U.S. power plants. CO2-enhanced oil recovery (CO2-EOR), a practice in which oil producers inject CO2 into wells to draw more oil to the surface, presents an important opportunity to advance CCS while boosting domestic oil production and reducing CO2 emissions. A coalition, co-convened by C2ES, has called for a federal tax credit for capture and pipeline projects to deliver CO2 from industrial and power plants to operating wells. (Note that the recommended tax credit is focused on plant and pipeline operators, rather than EOR operators.)
In addition to investing in CCS, it should be a national priority to invest in and otherwise advance a range of low-emitting energy technologies—for economic, as well as environmental, reasons. The diversity of energy sources used in electricity generation has been a valuable hedge against the unpredictable volatility of the various fuel sources, including natural gas. An electricity sector that increasingly relies on any single fuel would create unintended risks for our economy.
C2ES urges the EPA to move forward with the GHG NSPS for existing power plants, and to do so in a way that builds on existing state programs and allows states to use flexible market-based measures to implement the standards.
As mentioned, C2ES believes market-based policies would be the best way of reducing GHG emissions and spurring clean energy development and deployment. In the absence of a legislated solution, there appears to be an opportunity to utilize market-based policies in the regulation of GHG emissions from existing power plants.
Under section 111(d) of the Clean Air Act, the EPA, in concert with the states, is required to establish GHG emission standards for existing stationary sources—including existing power plants, which account for about one-third of U.S. GHG emissions today. The EPA has, in fact, entered into a settlement agreement under which it will implement section 111(d) for existing power plants. C2ES urges the EPA to move forward in implementing section 111(d) in a manner that can utilize market-based policies as soon as practicable.
Over the next few years, power plant owners will have to make billions of dollars’ worth of decisions about retrofitting, retiring, and replacing a large number of older, carbon-intensive coal plants in light of pending non-climate air, water, and waste regulations. Not knowing what GHG standards these existing facilities will have to meet presents facility owners with enormous uncertainty, greatly complicating and even delaying their decisions, ultimately at the expense of electricity rate payers. Because the Proposal addresses only new sources, this uncertainty pertains even to reconstruction or modification of existing sources. The Proposal mitigates some of the regulatory uncertainty faced by the power sector, but not all.
At the same time, several northeastern states already have an operational regional cap-and-trade program for CO2 from power plants (the Regional Greenhouse Gas Initiative), California is implementing an economy-wide GHG cap-and-trade program, and several states have renewable energy standards, alternative energy standards, or other programs that are effective in reducing the average GHG emission rate across all sources, as well as the overall level of GHG emissions.
C2ES strongly prefers that Congress establish a comprehensive, national market-based GHG reduction policy that would cover both new and existing sources and help to reduce this patchwork quilt of state and regional regulation. In the absence of such legislation, however, C2ES recommends that, in implementing section 111(d) for existing power plants, the EPA issue GHG emission rate-based performance standards in a manner that allows for averaging, banking and trading among sources, giving states the flexibility to adopt various market-based policies that will meet or outperform the standard.
3. Matthew J. Kotchen and Erin T. Mansur, “How Stringent is the EPA’s Proposed Carbon Pollution Standard for New Power Plants?” University of California Center for Energy and Environmental Economics, April 2012.
As Rio+20 negotiators rush to complete a consolidated text of outcomes before heads of state begin arriving tomorrow, participants at hundreds of side events are calling on business and government to take stronger action on clean energy, poverty elimination, food security, oceans, sustainable cities, green technology development, education, and more.
On Sunday at the U.S. Center pavilion, C2ES and the Global Environment Facility (GEF) convened a panel of companies, small-business innovators, and business representatives highlighting the critical roles played by each in promoting low-carbon innovation and sustainable development.
One of the centerpieces of this month’s Rio+20 summit is an important initiative called Sustainable Energy for All (SE4All). C2ES is pleased to be contributing to this initiative as a founding member of a new global partnership aimed at improving energy efficiency and curbing greenhouse gas emissions through the use of information and communication technologies.
Led by UN Secretary General Ban Ki-moon, SE4All recognizes the dual energy challenges facing the global community. We need to rapidly expand access to affordable energy for the 1.3 billion people who now lack even basic services, but do so in an environmentally sustainable manner that doesn’t put their health at risk or threaten the climate stability of our planet.
Opportunities for low-carbon innovation are growing, driven by policy changes, market shifts, and continued growth in energy demand, particularly in developing countries. This Sunday in Rio de Janeiro, ahead of the UN’s “Rio+20” Conference on Sustainable Development, C2ES will have a chance to share what it’s learned about low-carbon innovation with partners from around the world.
With the Global Environment Facility (GEF), we will convene a panel of companies (Johnson Controls, DuPont), small-business innovators (from the Cleantech Open), and government and business representatives (from UNIDO and ABDI) to share stories and lessons from the front lines of clean-tech entrepreneurship. The event, to be held at the U.S. Center pavilion, will examine the keys to successful low-carbon innovation, and the benefits for climate mitigation and adaptation, energy security, resource efficiency, and job creation.
A Senate Transportation Committee hearing tomorrow will be the latest show of ire against the European Union’s effort to regulate greenhouse gas emissions from international aviation through its mandatory Emission Trading System (EU ETS). From Beijing to Delhi to Washington, governments claim the EU’s unilateral move violates international aviation law.
Indeed, in Washington, this is one of the rare issues these days where Democrats and Republicans find themselves on the same side opposing the EU’s action. The Obama Administration has weighed in with a strongly worded letter from Secretaries Clinton and LaHood urging the EU to drop its unilateral efforts and to work through the International Civil Aviation Organization (ICAO) to reduce aviation sector emissions.
But if tomorrow’s hearing before the Senate Transportation Committee is simply another round of EU-bashing, it will be a missed opportunity to focus on the one solution that virtually everybody (including the EU) appears to support—effective action by ICAO. Frustrated by years of inaction within ICAO, the real motivation behind the EU’s move may be to reignite efforts to reach agreement within ICAO.
Analysis for Carbon Dioxide Enhanced Oil Recovery: A Critical Domestic Energy, Economic, and Environmental Opportunity Detailed Methodology and Assumptions
The Center for Climate and Energy Solutions (C2ES) and the Great Plains Institute (GPI) conducted an analysis, with extensive input from the participants of National Enhanced Oil Recovery Initiative (NEORI), to inform NEORI’s recommendations for a federal production tax credit to support enhanced oil recovery with carbon dioxide (CO2-EOR). In particular, C2ES and GPI explored the implications of the recommendations for CO2 supply, oil production and federal revenue. This document describes the research, assumptions, and methodology used in the analysis.
C2ES and GPI compared the likely cost of a federal tax credit for greater CO2 capture and supply with the federal revenues expected from applying existing tax rates to the resulting incremental oil production. C2ES and GPI quantified two key relationships for CO2-EOR develop-ment and a related tax credit program:
- Cost gap – the difference between CO2 suppliers’ cost to capture and transport CO2 and EOR operators’ willingness to pay for CO2. The goal of the tax credit is to bridge the cost gap. Thus, the cost gap determines the expected level of the tax credit in a proposed competitive-bidding process.
- Revenue neutrality/revenue-positive outcome - the federal government will bear the cost of a CO2-EOR tax credit program, yet it will enjoy increased revenues from the expansion of CO2-EOR oil production when existing tax rates are applied to the additional production. C2ES and GPI analyzed when the net present value of expected revenues would equal or exceed the net present value of program costs.
C2ES and GPI calculated the tax credit required to bridge the cost gap, and the cost and revenue implica-tions. C2ES and GPI developed input assumptions based on real-world physical and market conditions after consulting with NEORI participants and other industry experts and reviewing available literature. C2ES and GPI developed a core scenario based on “best guess” inputs and conducted several sensitivity analyses of key inputs. C2ES and GPI demonstrated that a program can be designed that will become “revenue positive” (defined as when the federal revenues from ad¬ditional new oil production exceed the cost of a carbon capture tax credit program after applying a discount rate to both costs and revenues) within ten years after tax credits are awarded. Sensitivity analysis reveals that the program remains revenue positive using a realistic range of likely assumptions.
My C2ES colleague, Judi Greenwald, will be testifying on Thursday at a hearing of the Senate Energy and Natural Resources Committee on the Clean Energy Standard Act of 2012, a bill written by Sen. Jeff Bingaman (D-NM), the committee chairman. As mentioned in my previous blogs (The Bingaman Clean Energy Standard: Let the Conversation Begin and The Bingaman Clean Energy Standard: What is "Clean"?) and in our primer on the design of a clean energy standard (CES), we think a CES holds a lot of potential for maintaining a diverse energy mix, advancing clean energy technology and associated industries, and reducing the environmental footprint of the electric power sector—including the sector's greenhouse gas emissions, which account for about one third of the U.S. total.
As Judi will attest, we also think Sen. Bingaman's bill is a great start, and balances the multiple objectives we would have for such a measure. On Thursday, we get to hear what a few other people think.
Watch this space Thursday morning as I live blog from the hearing and post updates below.
Update May 17, 11:58 am: It’s a standing-room-only crowd at this morning’s hearing before the Senate Energy and Natural Resources Committee on Senator Jeff Bingaman’s proposal for a federal clean energy standard.
Senators in attendance: Committee chairman Sen. Bingaman (D-NM), top committee Republican Sen. Murkowski (R-AK), Barrasso (R-WY), Cantwell (D-WA), Coons (D-DE), Corker (R-TN), Franken (D-MN), Manchin (D-WV), Risch (R-ID), Shaheen (D-NH), Udall (D-CO), Wyden (D-OR)
Here are some highlights of the question-and-answer session during the hearing’s first panel, with witnesses David Sandalow, Assistant Secretary for Policy and International Affairs at the U.S. Department of Energy, and Dr. Howard Gruenspecht, Acting Administrator of the Energy Information Administration:
Sen. Bingaman pointed out that EIA projects that electricity rates would increase by 2035 under the CES, but then asked how would electricity bills will be affected. Mr. Sandalow answered that the modeling shows that the average household energy bill would actually decline by $5 a month by 2035, in large part because of the energy efficiency promoted by the bill. Dr. Gruenspecht agreed.
Sen. Murkowski asked whether the cost of renewable energy being used by federal agencies under the Energy Policy Act of 2007 is an indication of the costs that would be seen under Sen. Bingaman’s bill. Mr. Sandalow pointed out that a key difference between Sen. Bingaman’s bill and the 2007 law is that the CES would give credit not only for renewable energy, but for nuclear power, natural gas, and clean coal, which would lead to lower prices than renewable energy alone.
Sen. Barrasso asked whether the Obama administration would rescind greenhouse gas regulations promulgated under the Clean Air Act if Sen. Bingaman’s bill were enacted. Mr. Sandalow said the administration would not support such an amendment to the Clean Air Act. For the record, C2ES believes that if a CES, or any other measure, led to significant reductions in GHG emissions from a given economic sector, we should be open to using that measure rather than the existing provisions of the Clean Air Act that pertain to that sector.
Sen. Franken suggested that it might be worth setting aside a fraction of the bill’s requirement for clean energy specifically for renewable energy. In fact, while most states have renewable energy standards in place, four—Michigan, Ohio, Pennsylvania, and West Virginia—have alternative energy standards, similar to Sen. Bingaman’s clean energy standard proposal, and each of the four takes an approach that favors renewable energy sources over the other qualifying clean energy sources.
Update May 17, 1:55 pm: Here are some quick notes on the second panel of this morning’s hearing. The room is still full even though many of the Senators and journalists have left—thus missing a discussion on preemption that was arguably the most noteworthy exchange of the entire hearing.
After the opening statements, Senators Bingaman and Murkowski had an extended back-and-forth with the panelists about the overlap between the Bingaman bill and other regulatory programs. The panelists offered a range of views, with a couple supporting preemption of the Clean Air Act authority. C2ES’s Judi Greenwald expressed a more nuanced view:
The key issue is environmental results. If a CES is ambitious enough, and can achieve greater environmental benefits than we can get under existing Clean Air Act Authority, it might make sense to consider replacing some Clean Air Act provisions with a CES. However, we need to be very cautious. The Clean Air Act has very broad authority to address GHG emissions throughout the economy and the CES only applies to power plants. We would need to ensure that EPA maintains its authority to continue to make progress in other sectors, for example, as with the successful greenhouse gas standards for vehicles.
Perhaps the biggest obstacle to exploring this issue is the deep partisan divide over EPA and the Clean Air Act. With members of Congress calling for an evisceration of EPA and the Clean Air Act, there is a legitimate concern that opening up the Act for an ostensibly narrow revision would lead to a gutting of provisions having nothing to do with greenhouse gases.
On another topic, Sen. Franken discussed Minnesota’s energy efficiency resource standard, and asked whether incentives for energy efficiency could be incorporated into the Bingaman bill. Judi Greenwald pointed out that many of the bill’s features would indeed promote energy efficiency: crediting of combined heat and power, the use of revenues raised through the alternative compliance payment, and the very structure of the proposed standard—it would be set as a percentage of total electricity production; if electricity use goes down, the requirement is easier to meet.
One thing we wish we could've said:
During the first panel, Sen. Corker said carbon capture and storage (CCS) will be broadly deployed when donkeys fly. Sen. Manchin, who takes a decidedly more favorable view towards CCS, was nevertheless concerned that the bill does not promote CCS.
Here's what we would have said, had they raised those points during the second panel:
While EIA projects that CCS is not deployed under the bill, it could be. CCS could play a bigger role under this bill if we can bring down its costs. There are a number of options for doing that. For example, C2ES co-convenes the National Enhanced Oil Recovery Initiative, which is calling for a federal tax credit to capture and transport CO2 from power plants and industrial sources for use in enhanced oil recovery. In addition to driving a lot of domestic oil production, and reducing CO2 emissions, it would generate additional revenue to cover the cost of CCS. We would expect that as CCS costs come down, it would enable coal to have a bigger role. A CES could help in other ways as well. AEP put the Mountaineer project on hold and withdrew from its partnership with DOE on this project because regulators in several states could not justify the expense for a technology that is not required by law. The CES could make the case for projects like Mountaineer to go forward.
Testimony of Judi Greenwald, Vice President for Technology and Innovation,
Center for Climate and Energy Solutions
Committee on Energy and Natural Resources United States Senate
May 17, 2012
Hearing on The Clean Energy Standard Act of 2012
Mr. Chairman, Senator Murkowski, and members of the Committee, thank you for the opportunity to testify on the Clean Energy Standard. My name is Judi Greenwald, and I am Vice President for Technology and Innovation at the Center for Climate and Energy Solutions (C2ES – formerly known as the Pew Center on Global Climate Change).
C2ES is an independent nonprofit, nonpartisan organization dedicated to advancing practical and effective policies and actions to address our global climate change and energy challenges. Our work is informed by our Business Environmental Leadership Council (BELC), a group of 36 major companies, most in the Fortune 500, that work with C2ES on climate change and energy risks, challenges, and solutions. The views I am expressing are those of C2ES alone.
C2ES recently published two papers on the topic of this hearing, Clean Energy Standards: State and Federal Policy Options and Implications (jointly with the Regulatory Assistance Project), and An Illustrative Framework for a Clean Energy Standard for the Power Sector. I'd like to ask that they be entered into the record.
To summarize my testimony, C2ES applauds Senator Bingaman's leadership in introducing this bill. It begins the public debate on this promising approach to protecting the environment, diversifying energy supply, and promoting clean energy industries. C2ES believes that Senator Bingaman's proposal embodies a number of design features that are innovative and reasonably balance the multiple objectives of a Clean Energy Standard. In particular, we would highlight the following: a flexible, market-based approach including clean energy credit trading and banking; a target that starts off modestly but increases over time; a broad "all-of-the above" definition of clean energy; and a crediting system that rewards environmental performance based on carbon intensity.
My testimony will focus first on the general concept of a Clean Energy Standard, then on lessons from the state experience with such standards, and finally more specifically on Sen. Bingaman's proposed Clean Energy Standard Act of 2012.
Balancing our objectives with a Clean Energy Standard
I'd like to begin with a note on use of the word "clean." There is no commonly accepted definition of "clean" energy. Indeed, one person's definition of "clean" can differ dramatically from another's if their objectives for energy policy differ. Renewable energy, nuclear power, natural gas, coal with carbon capture and sequestration, energy efficiency, and emission offsets all have their advocates as falling under the definition of clean. Unless otherwise noted, in my testimony I will use the word "clean" to refer to these options generally and "conventional" to refer to all other forms of electricity generation.
Moving from conventional electricity generation to clean energy offers three types of possible benefit: the reduction of the environmental and public health damages associated with conventional electricity generation, the growth of new clean energy industries, and diversification of energy supply. A clean energy standard usually refers to a market-based approach that can achieve all of these objectives cost-effectively: it requires an increasing amount of clean electricity, but gives utilities the flexibility to comply by generating or buying clean power, or purchasing tradable clean energy "credits" (CECs), typically denominated in megawatt-hours.
One objective is the protection of public health and the environment. Electric power plants are the leading U.S. source of emissions of sulfur dioxide, mercury and many other metals, and acid gases. The electricity sector also ranks third among all U.S. sources of nitrogen oxide emissions and fourth in emissions of fine particulates. The vast majority of the emissions in this sector are associated with coal-fired power plants. Clean energy sources emit zero or very low levels of these pollutants.
Today, the power sector is the source of about a third of U.S. greenhouse gas emissions. As we heard during the hearing the committee held on sea level rise a few weeks ago, recent findings in the peer-reviewed science provide only more cause for concern about the impacts of climate change. A properly designed clean energy standard would lead to the reduction of these emissions from power plants.
A second objective is to advance the position of the United States in the global competition to deliver the next generation of energy technologies. In a world hungry for energy services, we can be confident that modern energy technologies, especially those with a smaller environmental footprint than those we have today, will be a global growth area for decades to come. A recent report finds that global renewable energy finance and investment grew significantly in 2011 to $263 billion, a 6.5 percent increase from the previous year. The renewable energy sector is emerging as one of the most dynamic and competitive in the world, witnessing 600 percent growth in finance and investments since 2004. A clean energy standard would spur technology and economic development in the United States, allowing the market to determine the winners among clean technologies.
A third objective is to ensure a diverse energy supply. Currently we obtain 42 percent of our electricity from coal, 25 percent from natural gas, 19 percent from nuclear, and 13 percent from renewables. Under business as usual, this energy mix is not expected to change significantly over the next two decades; while new builds are expected to be primarily natural gas, overall electric generation is growing fairly slowly.
In many respects, a properly designed clean energy standard would advance all three objectives. There are a few aspects in the design of a clean energy standard, however, that require one to choose between the objectives, or at least to strike a balance between them. Design choices may be evaluated in light of additional criteria, including:
- Effectiveness – what is the magnitude of the policy's desired impacts?
- Affordability – does the policy balance the benefits associated with increased clean power generation against the cost impacts of the policy?
- Cost-effectiveness – how efficiently does the policy achieve its intended aims?
- Fairness – does the policy unfairly burden particular groups or regions or lead to any undue burdens or unearned windfalls for particular utilities, power generators, or customers?
- Innovation – does the policy drive innovation in the lowest-emitting and/or least mature technologies with the greatest potential long-term benefits?
I'll elaborate on a few examples of how design choices can involve tradeoffs and affect costs.
Targets, coverage, and alternative compliance payments. More ambitious clean energy targets will achieve greater benefits and drive greater innovation in the lowest-emitting technologies, but at higher cost. Broader inclusion of electric utility companies will increase the effectiveness of the standard and more broadly share the costs, but could impose greater administrative burdens. Allowing utilities to pay an alternative compliance payment if clean energy credit prices get too high limits the rate impacts but can also reduce the effectiveness of the targets.
Definition of clean energy. In general, a broader definition of clean energy will lower the cost because it allows greater scope for identifying the least expensive solutions. It also makes the standard more equitable across regions, because different regions have different natural endowments of different types of clean energy. Supply diversity is also a hedge against price volatility. However, because different types of clean energy have different characteristics, policy-makers might not be neutral with respect to the role each type plays. There are many possible compromises on this issue, depending on the attribute of concern.
As an illustration, natural gas is lower-emitting than coal but higher-emitting than nuclear or renewables. A compromise is to award natural gas partial credit. In addition, advances in shale gas production have increased the availability of inexpensive natural gas. Thus, providing credit for natural gas reduces the cost of achieving the CES target. However, since natural gas is already the dominant choice for new power plant builds, there is a risk that the power sector will become too reliant on natural gas, crowding out other options.
Inherently, a clean energy standard will favor the lowest-cost clean energy source. But policy-makers may want to drive innovation and cost reduction in less mature, advanced clean energy technologies. A compromise might be to place a limit on how many credits can be distributed to the lowest-cost clean energy source. Another option is to provide additional favorable treatment to the lowest-emitting or least mature technologies (e.g., by granting certain subcategories of technologies additional credits, or guaranteeing them a role by establishing "tiers" with separate targets). Finally, policy-makers can design the CES to be technology-neutral, and rely on complementary policies (such as loan guarantees or other financial assistance for nuclear power plants, subsidies for carbon capture and storage, and tax credits for wind and solar power) to drive innovation in less mature and lower-emitting technologies.
The role of energy efficiency. Energy efficiency is cleaner than any of the energy supply options. Providing credit for energy efficiency can lower cost, but increase the complexity of the standard and potentially diminish its effectiveness. Measuring electricity savings from energy efficiency is more challenging than measuring generation from qualified clean energy sources, and it is especially difficult to distinguish energy savings driven by the standard from business as usual.
Crediting existing clean generation. On the one hand, it is fair to reward early clean energy investment. On the other hand, such crediting could result in windfall profits and reduce new clean energy production.
State experience with renewable and alternative energy standards
We have substantial experience with renewable and alternative energy standards at the state level. At this point, 31 states and the District of Columbia have adopted some form of mandatory electricity portfolio standards through legislation, regulation, or public utility commission order. Another seven states have adopted non-mandatory renewable portfolio goals. These policies differ in a number of the design elements described above. Thus we have a wealth of state experience to draw from in designing a federal program. In addition, 22 states have established mandatory long-term electricity savings targets through an Energy Efficiency Resource Standard (EERS), with five other states having a non-mandatory electricity savings goal. In some of these cases, the state electricity portfolio standard is combined with or linked to the EERS policy.
Perhaps the most important lesson to be learned from state portfolio standards is that they succeed in accelerating the deployment of renewable resources. Ninety percent of the nonhydro renewable capacity added in the United States between 2004 and 2010 was built in states with a mandatory renewable portfolio standard. Another clear (and expected) lesson is that state portfolio standards tend to result in the deployment of the cheapest available renewable energy options. In most states, this means utility-scale wind power projects. State portfolio standards are given a good deal of credit for establishing a viable wind turbine supply chain in the United States, along with training and credential programs and some domestic manufacturing facilities. A number of states have driven some innovation in less mature technologies, for example by establishing "carve-outs" requiring that a certain fraction of the requirement be met using solar energy.
A third key lesson is that the impact of portfolio standards on electricity rates has been generally modest, though it is difficult to isolate this impact from other factors that influence prices. Of 14 states where compliance cost data are available, Arizona had the highest impact in 2010 of nearly 4 percent. No other of these states saw a rate impact above 2 percent. As a typical example, the Maine Public Utilities Commission estimates a 0.6 percent increase in rates in 2010 caused by its portfolio standard of 40 percent renewable energy by 2017, and expects a 1.9 percent increase by 2017. Due to the price stability of long-term renewable energy contracts, the portfolio standard may even help reduce rates in some states.
While most of the state portfolio standards focus on energy sources that are renewable, nonrenewable electric generation technologies are given credit in the programs of four states – Michigan, Ohio, Pennsylvania and West Virginia. Natural gas, coal with carbon capture and storage (CCS), coal gasification and liquefaction, coal bed methane, nuclear power, industrial combined heat and power, and greenhouse gas offset projects are given credit under one or more of these programs, in addition, of course, to the traditional renewable energy sources. All of these states have taken an approach that favors renewable sources compared to the other qualifying sources, either by establishing "tiers" that define some fraction of the clean energy targets that must be achieved by renewable sources, or by giving renewable sources extra credits.
The proposed Clean Energy Standard Act of 2012
Let us now turn to Sen. Bingaman's bill, the Clean Energy Standard Act of 2012. The bill would, beginning in 2015, require covered electric utilities to supply an increasing share of their electricity sales from qualifying clean energy sources. Utilities could comply by building their own clean power plants, buying clean power from others, or buying tradable clean energy credits.
Senator Bingaman's CES proposal embodies a number of design features, including the following, that are innovative and reasonably balance the multiple objectives I described earlier:
- A target that starts off modestly but increases over time, balancing effectiveness and cost, and driving innovation;
- A broad, "all-of-the above" definition of clean energy, maximizing flexibility and minimizing cost;
- Appropriately rewarding environmental performance by calculating credits based on carbon intensity;
- Providing some credit for existing nuclear and hydropower, balancing the goal of fairly sharing costs with the goal of recognizing clean energy investment;
- Allowing banking of clean energy credits, affording additional compliance flexibility;
- Allowing utilities to pay an alternative compliance payment if clean energy credit prices get too high, but escalating the payment over time; and
- Advancing energy efficiency by providing credit for combined heat and power, and using alternate compliance payments to fund state efficiency programs.
At Sen. Bingaman's request the Energy Information Administration has analyzed the implications of the bill using the National Energy Modeling System. As with all economic modeling, we should look at the EIA's work for insights, rather than for hard and fast predictions about the future. In that spirit, we offer the following additional observations about the bill.
The Act and natural gas
Pertaining to the balancing of natural gas against the other clean energy technologies, the EIA projects that under the proposed standard, in 2035, natural gas will be 31 percent, nuclear power will be 30 percent, and renewables will be 20 percent of the total generation mix. According to EIA's scenario, the bill drives the largest increase in natural gas use in the early years, but as the standard becomes more ambitious, we see an increase in lower-emitting technologies. In 2020, natural gas-fired generation under the proposed standard is 13 percent higher than in the reference scenario; by 2035 it is 8 percent higher. Thus the bill takes advantage of natural gas's near-term price and availability while still driving innovation in much cleaner technologies. Additionally, the investment in a range of low emitting technologies in response to the CES provides supply diversity, and a hedge against potential volatility in the price of natural gas.
Moreover, the EIA projects only a modest natural gas price increase, as increased consumption from the electric power sector leads to prices around 10 percent higher than the reference case from 2015 – 2018. Then, the price converges to reference case levels over the following five years. Given the very low projected price of natural gas, in absolute terms, this is actually a small increase. This is good news, considering the current investments being made by manufacturers on the basis of projected low natural gas prices.
The Act and very low-emitting technologies
This modestly increased role for gas, however, depends on a significant increase in one or more very low-emitting technologies. EIA projects especially large growth in nuclear power that may or may not come to pass. EIA also projects some increase in biomass, wind and solar power, but no increase in coal (or gas) with carbon capture and storage. In EIA's analysis of a case in which new nuclear plant builds were constrained, and other assumptions were held constant, natural gas played a more significant role, and this uniformly raised the projected price of natural gas. One could still project a more modest role for natural gas with less growth in nuclear power but with more optimistic assumptions for renewables and/or carbon capture and storage.
If policy-makers are interested in ensuring innovation in zero-emitting technologies, policy options are available, as discussed earlier. In any event, C2ES would strongly recommend making a Clean Energy Standard just one component of a comprehensive strategy to advance the very low-emitting technologies – nuclear power, renewable energy, and carbon capture and storage – a strategy that includes support for R&D, as well as subsidies to allow power companies and others to deploy the technologies.
Nuclear power plants face a number of major hurdles. One hurdle that policy-makers could address is obtaining financing, for example by continuing and potentially expanding the current loan guarantee program and/or providing other forms of financial assistance to a few "first mover" next-generation nuclear plants. This could demonstrate to potential investors that these plants can indeed be built with lower cost and improved safety features, setting the stage for second, third, and nth movers to obtain private financing. This would increase the likelihood of nuclear power playing a significant role in achieving a clean energy standard.
For wind and solar power, EIA projects increases that are significant but not nearly as large as for nuclear power, relative to the reference case. Also, EIA assumes that the production tax credit (PTC) for wind expires in 2012, and the investment tax credit (ITC) for solar expires in 2016. Extending the PTC and ITC could incentivize additional solar and wind investment beyond what would be built solely to comply with the CES.
EIA projects that additional coal (or gas) with CCS will not be deployed under this bill because it is not cost-competitive with other clean energy options. It is technically feasible today to build a commercial-scale CCS operation, which several power companies are doing. However, CCS is very expensive due to its current stage of development, and planned projects are limited primarily because of uncertainty with respect to the regulation of CO2 emissions. Coal- and natural gas-fired generation will likely be significant sources of electricity in the United States, and indeed in most of world's major economies, for decades to come. Thus, ultimately, in order to deeply reduce U.S. and global GHG emissions, we need CCS.
One approach for advancing CCS would involve utilizing the CO2 as a resource, rather than treating it as a waste product. C2ES is a co-convener of a coalition of industry, state, environmental and labor leaders, known as the National Enhanced Oil Recovery Initiative (www.neori.org), which has called for a federal tax credit for capturing and transporting CO2 from industrial sources and power plants for use in enhanced oil recovery. In addition to driving a lot of domestic oil production, a benefit of such a program would be to generate an additional revenue stream to cover the cost of CCS. We would expect that as CCS costs come down, it would enable coal to have a bigger role.
Other Impacts of the Act
EIA projects that under the CES, electricity prices would not experience a significant impact until the mid 2020s. The projected average end-use electricity price under Senator Bingaman's bill exceeds the Reference case by only 1.5 percent in 2023, but that grows to more than 18 percent by 2035. There would be almost no impact for the first ten years, with a gradual increase over the next dozen years, giving people and companies both an incentive to increase their energy efficiency (and potentially reduce their energy bills even as prices increase) and ample time to do so.
Also, total combined heat and power (CHP) generation would benefit from the policy provision that allows qualified CHP generators to earn and sell clean energy credits. According to the EIA, CHP generation fired by natural gas under the bill exceeds the Reference case by 8 percent in 2025 and by 21 percent in 2035. CHP saves energy and promotes industrial competitiveness.
Senator Bingaman, thank you for introducing this bill and beginning the public debate on this promising approach to protecting the environment, diversifying energy supply, and promoting clean energy industries. C2ES is grateful for your leadership, and we look forward to working with you and your colleagues on the Committee to analyze, refine and advance this proposal.