Federal

The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
 

Comments of the Center for Climate and Energy Solutions on the Clean Power Plan's Clean Energy Incentive Program

C2ES December 2015 comments of the Center for Climate and Energy Solutions on the Clean Power Plan’s Clean Energy Incentive Program (CEIP) 

Download as PDF

This document constitutes the comments of the Center for Climate and Energy Solutions (C2ES) on the proposed Clean Energy Incentive Program proposed by the U.S. Environmental Protection Agency (EPA). 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).

OVERARCHING COMMENTS

C2ES believes that market-based policies are the most efficient and effective way of reducing greenhouse gas emissions, and we applaud EPA for including multiple provisions in the final Clean Power Plan that promote market adoptions that can be used by states. Market-based policies harness market forces to spur innovation, development and deployment of clean energy technologies. To that end, trading of allowances or emission rate credits (ERCs) under the Clean Power Plan (CPP) can help ensure that emission targets are achieved at the lowest possible cost. Complementary to this, C2ES believes the Clean Energy Incentive Program (CEIP), properly designed, can help meet CPP objectives, promote market mechanisms and provide additional clean energy benefits as outlined below.

The CEIP provides economic value

CEIP credits (allowances or ERCs) issued by states and matched through EPA’s reserved pool could provide economic value to clean energy projects in two ways. First, if a project developer is an electricity generator subject to the CPP, these credits can be used for compliance. Second, if the project developer does not have a compliance obligation, these credits can be sold, which creates a revenue stream that can improve the financial viability of a project. As states develop their implementation plans, they may be able to provide early enhancements for project financing if some of the CEIP credits are allocated in advance by project type. This can help mobilize capital markets who would now know that the additional incentive would be available.

The CEIP will accelerate early market formation and price discovery

CEIP credits will complement other trading mechanisms that states may establish to comply with the CPP and add additional liquidity to CPP markets. Liquidity is important to an emissions trading market because it lowers the risk of price volatility or sudden price spikes caused by an inability to find available allowances. In addition, it can help with price discovery because these will likely be available before CPP compliance markets are functioning.

The trading of CEIP credits could be a key strategy for electricity generators to comply with emissions limits, either by incentivizing them to reduce their emissions and sell (or avoid purchasing) credits, or by purchasing credits from other generators at a lower cost. Early implementation of the CEIP may play a role in fostering the development of these trading regimes.

The CEIP could speed the development of state implementation plans and help reduce regulatory uncertainty

Projects become eligible for CEIP credits only if they commence construction after a final state implementation plan is submitted in the project’s host state. EPA allows plans to be finalized as late as September 2018. Because of the value of CEIP credits, project proponents may encourage states to finalize plans as soon as possible in order to open CEIP eligibility to a greater number of projects. Early plan finalization may give utilities additional time to plan for compliance and lower the regulatory uncertainty around CPP implementation.

The CEIP can incentivize city-level clean energy programs

Finally, the CEIP could provide a way for cities to have a role in meeting CPP compliance goals. U.S. cities have tremendous citizen and policymaker interest in reducing carbon emissions, improving energy efficiency and deploying more renewable energy, but they often face resource constraints. CEIP credits could provide cities a crucial funding resource to expand existing programs or launch new initiatives.

SPECIFIC RECOMMENDATIONS

While noting that the CEIP as proposed has many benefits, C2ES also sees several potential enhancements, and we recommend the following:

Ensure the maximum number of projects can receive credits under the CEIP

Opportunities for wind, solar, and energy efficiency projects abound, and there is a chance that the demand for credits will exceed 300 million tons. We advise EPA to prepare for this situation by anticipating how to allocate credits when there are not enough to match each megawatt hour generated or avoided.

One way to accomplish this is to provide a reservation system for credits. Clean energy project developers would request credits prior to 2020, based upon two requirements—the launch of the program/beginning of construction and the expected performance of the project. In 2020 and 2021, after the project’s performance is verified, the project could then be allocated credits. C2ES believes this would add certainty to the project financing during the development stage by reducing the chance that a project would receive no credits (because the CEIP pool had been depleted), as could happen under a first-come, first-served system. EPA or states could also modify a reservation system to achieve other policy aims by prioritizing projects that meet desired characteristics. For example, criteria could include project size, project cost, or project operation start date. This approach can help mobilize capital markets earlier.

An alternative approach would be to set a maximum number of credits that a project could request from the CEIP. In this way, an allocation to a large project would not leave too few credits for other projects. A system could be developed where allocation requests happened in stages, so that if, after all eligible projects had received credits for some fraction of the electricity generated or avoided, they could request additional allocation if credits remained in the CEIP matching pool. This is different than the redistribution formula on which EPA is requesting comment, in that this staged distribution would occur in the same year in the same state and applies only to the situation in which the CEIP is oversubscribed.

We recognize that setting a priority to maximize the number of projects that receive CEIP credits creates a risk of missing opportunities for least-cost project development. Giving a large number of CEIP credits to a small number of projects may be more cost effective because it may result in lower costs for project administration per unit of renewable energy or energy efficiency delivered. However, given the limited duration of the CEIP, C2ES believes that the environmental benefits of broad participation outweigh the economic concerns of possibly incentivizing more costly programs over less costly ones.

 

SPECIFIC COMMENTS REQUESTED BY EPA

 

EPA requested comment on a number of provisions in the proposed CEIP. C2ES thanks EPA for the opportunity to comment on a few of these areas.

Definition of commence construction

C2ES believes EPA should use a definition of “commence construction” that already exists. This lowers the administrative costs of the CEIP and facilitates faster deployment of CEIP-eligible projects, since developers would not need to educate themselves about a unique definition.

As an example, certain federal-level clean energy tax credits define “commence construction” as when either work of a significant physical nature has been undertaken or more than 5 percent of a project’s total capital cost has been spent. Such requirements are well-understood by project developers and are not considered overly burdensome to meet or demonstrate to authorities.

Definition of low-income community

Similarly, C2ES believes EPA should use a definition of “low-income community” that already exists. State and city policymakers and project developers are familiar with existing terms, for example a geographic region’s area median income, or a comparison to the federal poverty line. While we are agnostic on exactly which definition is used, we believe it should be one currently used in other federal programs, reflecting regional differences in cost of living, and consistent across all states.

 

C2ES identifies a second aspect of the low-income community definition under the CEIP that we believe should be changed – the prescribed extent in which low-income communities are served. Some projects serve only low-income communities, for example residential energy efficiency improvements. Others, however, serve the broader community, including low-income households. For example, energy efficiency projects at water treatment plants serve the broader community, including low income households.

C2ES believes that applying a broad definition of how communities are served will maximize the environmental and economic benefits of the CEIP. It will do this by increasing the number of projects that are eligible – some of which may be larger and therefore lower cost to implement. Energy efficiency tends to lower electricity bills as consumers who have deployed more energy efficient technologies reduce their consumption of electricity. This provides an additional benefit that can significantly help low-income communities given the regressive nature of any energy cost increase. In addition, it has the added benefit of making these consumers less vulnerable to extreme heat or cold.

Evaluation, measurement, and verification requirements should be explicit and consistent

C2ES recognizes the critical role that evaluation, measurement, and verification (EM&V) requirements play in maintaining the environmental integrity of carbon trading programs. Having EPA-defined EM&V requirements reduces potential costs for state agencies by avoiding the need to develop requirements in every state and provides consistency for project developers as part of the model rule.

C2ES recommends that as EPA finalizes the EM&V requirements, it should prioritize processes that are low-cost and can be applied uniformly across states to allow a greater deployment of energy efficiency under the CPP.

Timing of credit allocation

C2ES notes that having credits available to the market as early as possible is the best way to reduce uncertainty and stimulate early market formation. In terms of credit allocation to projects in 2020 and 2021, C2ES recommends that EPA provide matching credits to clean energy projects shortly after performance, potentially on a quarterly or six-month basis.

Redistributing unused credits

If there are insufficient projects in a state to utilize its full share of EPA’s matching pool, C2ES recommends that the credits be available to projects in any state in which the CEIP is implemented and there is excess demand for credits, on a first-come, first-served basis. The initial matching pool allocation to participating states will ensure that states with a large capacity for clean technologies do not utilize the entire pool at the expense of states with smaller capacities. However, if a state’s share of the matching pool is unused, this would most likely reflect capacity that is too expensive to develop in the 2020-2021 timeframe. C2ES believes the EPA matching credits should then be rewarded to projects in other states that have met eligibility criteria but have not yet been allocated credits (reflecting an oversupply of economic renewable and energy efficiency potential in that state).

Converting the 300 million short ton matching pool into ERCs

C2ES believes that such a conversion should be administratively simple and consistent with the actual emission reductions taking place on the electricity grid. For example, the emission rate of the marginal generation source in a given power market could be used. In addition, C2ES recommends that the conversion factor be periodically updated to account for the expected change in carbon intensity of electricity generation occurring even before the first compliance period. For example, if new renewables lowered the carbon intensity (in tons/MWh) of electricity in a power market between 2020 and 2021, the conversion factor (expressed in tons/MWh) would have to be similarly lowered so that projects receiving ERCs or allowances are treated fairly, with respect to one another.

Participation by states, tribes and territories without CPP goals

Since CEIP-eligible projects serve to reduce overall emissions of the entire electricity grid, it is appropriate to allocate CEIP credits to projects in states that do not have CPP goals but are connected, via interstate transmission lines, to states that do. These jurisdictions, if they wish to participate in the CEIP, should submit an intent to do so in the same way as CPP states. EPA should then allocate a portion of its matching pool to these jurisdictions using the same formula as for other states. Since there is no corresponding state match for these jurisdictions, EPA could consider doubling the allotment from the federal matching pool for projects in these jurisdictions only. In this way, project developers would have an equal incentive to develop CEIP-eligible projects in these jurisdictions. For example, an energy efficiency project located in the District of Columbia could be granted two full CEIP credits from the EPA matching pool for every megawatt hour of electricity avoided. In this way, the project receives the same economic incentive as a project located in a state with a CPP target.

Other Considerations

C2ES recognizes that EPA has finalized the eligibility criteria in the final Clean Power Plan. As mentioned earlier, the CEIP has the potential to be an important stimulator of clean energy and also of market-based implementation plans. We view these as important and that the CEIP can play this role.

However, in finalizing the eligible projects to solar, wind, and energy efficiency in low income communities, EPA is making some essential policy advances, but at the same time missing some others.

Encourage other clean energy technologies

C2ES believes that the CEIP as proposed encourages other clean energy technologies too narrowly. For example, hydropower and geothermal facilities could increase capacity at existing plants within a similar two-year construction window, while carbon capture and storage (CCS) could be deployed at existing coal and natural gas units to significantly decrease emissions.

We suggest that EPA explicitly help states to understand and use the flexibility they have in their overall state-wide allocations to complement the objectives of the CPP and CEIP, including rate payer protection, and potentially allocations for other clean energy technologies. Each state is unique, with its own set of industries, resources and population needs. For example, we believe one state may desire to buffer rate impacts, while another might want to use a portion of its allocation to credit a CCS retrofit or capacity upgrade at another existing power plant. We believe that states should have as much flexibility as possible.

Related to this issue, states should also be granted the flexibility to determine how many CEIP credits to allocate to clean energy or energy efficiency technologies from their state budgets. For example, under the proposal, a wind project would receive half credit from a state and half credit from EPA, for every megawatt hour generated. If a state wanted to give a wind project a full credit, for example, we see no issue (even if EPA only provides a half of a credit). Similarly, if a state deems CCS to be eligible for CEIP allocation, but EPA does not, then a state should be able to decide the size of the credit for the the CCS project. In this way, the megawatt hour generated from wind and the CO2 reductions from CCS would receive the same economic incentive, even though the source of this incentive (state versus EPA) would be different.

 

 

 

 

 

 

Carbon Pollution Standards

Carbon Pollution Standards

The U.S. Environmental Protection Agency (EPA) issued final rules in August 2015 to limit carbon pollution from existing and new power plants. Electric power generation accounts for 40 percent of U.S. carbon emissions, making it the largest source. 

Reducing power sector emissions is a key part of President Obama’s Climate Action Plan, which aims to reduce overall U.S. greenhouse gas emissions 17 percent below 2005 levels by 2020. In addition, the U.S. contribution to the international climate agreement in Paris sets an economy-wide target of reducing greenhouse gas emissions by 26-28 percent below 2005 levels by 2025.

Under the Clean Power Plan for existing power plants, each state has its own target (due to regional variation in generation mix and electricity consumption). Overall, the rule is designed to cut emissions 32 percent from 2005 emission levels by 2030.

In February 2016, the U.S. Supreme Court issued a stay halting implementation of the Clean Power Plan while a legal challenge is resolved in a lower court. Some states may suspend their planning efforts, given the court’s stay, but others will press on with preparations. If the plan is ultimately upheld, the implementation timeline may have to be extended.

EPA's “Carbon Pollution Standard for New Power Plants” finalizes a standard first proposed in March 2012 that was modified and proposed again in September 2013. States would apply the standards for new coal- and natural gas-fired plants (measured as tons of greenhouse gas emissions per megawatt-hour of elec­tricity produced) at each regulated plant.

Explore the issues and options involved in reducing carbon pollution from power plants through the following resources:

C2ES Resources on the Clean Power Plan

C2ES Resources on the Clean Energy Incentive Program

Additional Resources

 

Recommendations for Maryland's Greenhouse Gas Reduction Plan

Recommendations for Maryland's
Greenhouse Gas Reduction Plan

December 2015

By Todd McGarvey, Timothy Markle, and Doug Vine

Download the Brief (PDF)

Amid the more well-known national-level activity, U.S. states are demonstrating serious climate action. In the past 15 years, 18 states have set greenhouse gas emission reduction targets through legislation or executive orders. Efforts in some of these states have faded as proactive governments have been replaced with less climate-friendly administrations. However, eight states (California, Maine, Maryland, Massachusetts, New York, Oregon, Vermont and Washington) remain committed to their greenhouse gas reduction targets and stand out as leaders. These sub-national efforts (including programs and plans announced by U.S. businesses) are critical to the United States meeting its international climate commitments, as analysis has shown that current and announced federal policies fall around 6 to 9 percent short of its 2025 target.
 

Doug Vine
Timothy Markle
Todd McGarvey
0

Map: Energy Efficiency under the Proposed Carbon Pollution Standards

 

NOTE: This map is based on the proposed Clean Power Plan, which factors in each state's energy efficiency potential in determining state-specific emission rates. The final rule does not include energy efficiency as a building block, though states are allowed to use energy efficiency to meet their clean power goals.

In its proposed Carbon Pollution Standards for Existing Power Plants (also called the Clean Power Plan), the Environmental Protection Agency (EPA) proposes a unique 2030 target emissions rate for each state. This target is based on EPA projections of how each state could leverage a variety of carbon-cutting measures, including customer energy efficiency.

Through energy efficiency programs, states can drive down their total consumption, including consumption of electricity generated by fossil fuels. This in turn reduces greenhouse gas emissions, bringing states closer to their emission rate target. EPA projects that each state is capable of eventually reducing electricity demand by 1.5 percent each year, in line with the rate leading states have achieved. States are projected to meet this figure in varying years, taking into account how advanced each state was in 2012. This 1.5 percent projection is incremental, meaning EPA expects an additional 1.5 percent savings each year, for a much larger cumulative savings by 2030. Projections for states that currently reduce demand by less than 1.5 percent per year are designed in a way that allow a ramp-up period before reaching this level, but EPA has determined that all states have the capacity to meet this projection by 2025 at the latest. Note that under the proposal, states are not obligated to meet EPA's efficiency projections in demonstrating compliance; provided the ultimate target emission rate is met, states could use any combination of measures they see fit.

The map above shows each state's 2012 incremental efficiency savings as a percentage of the 1.5 percent projection. States colored with a darker shade of blue are closer to meeting this projection. Two states, Arizona and Maine, reported savings above 1.5 percent in 2012.

Zoom in and click on a state to see:

  • What incremental percentage of its electricity demand was reduced in 2012 through efficiency programs
  • How its current incremental savings rate compares to EPA's 1.5 percent annual projection
  • Whether the state has an Energy Efficiency Resource Standard in place, including:
    • A Mandatory Energy Efficiency Resource Standard, through which electric utilities must meet certain demand reduction targets (21 states)
    • A Voluntary Energy Efficiency Resource Standard, through which electric utilities are encouraged to meet certain demand reduction targets (4 states)
    • A Renewable Portfolio Standard that includes efficiency as qualifying generation (2 states)
    • An Alternative Energy Portfolio Standard that includes efficiency as qualifying generation (1 state)
    • A Renewable Portfolio Goal that includes efficiency as qualifying generation (4 states)
    • No Energy Efficiency law (17 states)

More information: C2ES Carbon Pollution Standards Resource Page

Note:

D.C. and Vermont are not included because they are not covered by the proposed Clean Power Plan

Source: EPA Clean Power Plan Technical Support Document: GHG Abatement Measures, Table 5-4: 2012 Reported Electricity Savings by State

The Clean Power Plan and Market Options for Compliance

The Clean Power Plan and
Market Options for Compliance

September 2015

Download the Fact Sheet (PDF)

Over the next year, states will be working with stakeholders to submit plans to implement the new federal Clean Power Plan and submit comments on the U.S. Environmental Protection Agency’s (EPA) proposed federal implementation plan and model rules. In its final Clean Power Plan, EPA has shown strong support for market-based approaches to reduce emissions and has granted states significant flexibility to implement market options. This document provides an overview of the Clean Power Plan and highlights aspects of the rule that warrant close attention from a market readiness perspective.

0

There's growing business momentum for climate action

Can you feel the momentum?

With negotiators meeting in Bonn this week and only six weeks to go until Paris, the business community is not only stepping up to the plate, but is swinging for the fences on its support climate action (Yes, it’s playoff season, so baseball is also on my mind).

This week’s announcement that 69 companies have joined the White House’s American Business Act on Climate Pledge brings the total to 81. Many of these companies pledging to reduce their emissions, take other actions to tackle climate change and support a strong international agreement include a number of members of our own Business Environmental Leadership Council: Alcoa, Bank of America, GE, General Motors, HP, IBM, Intel and PG&E. Together the 81 companies represent a combined $3 trillion in revenue and 9 million employees.

And last week, 14 companies with a combined revenue of $1.1 trillion and 1.5 million employees signed a statement organized by C2ES in support of a Paris climate agreement, that began “Paris presents a critical opportunity to strengthen efforts globally addressing the causes and consequences of climate change, and to demonstrate action by businesses and other non-state actors. ”

But these companies aren’t just talking about climate change; they’re doing something about it. They’re making commitments to reduce their own emissions, and some are even committing to use 100% renewable energy through the RE100 campaign.  They are also working both internally and with communities and cities to increase climate resilience.

Now it’s time to take this enthusiasm and put it to work. We know there is growing support for a strong agreement in Paris, and hopefully that’s what we’ll get in December.  But that’s just the first step—we’ll need to ensure that countries live up to their commitments, and back here in the United States, we’ll be working with businesses, states, and cities to build partnerships that harness the power of the markets to reduce emissions, develop innovative financing for clean energy and strengthen our resilience to climate impacts.

We have some real momentum going now. Let’s make the most of it.

New commitments to reduce HFCs show leadership

The fastest growing family of greenhouse gases – extremely potent hydrofluorocarbons (HFCs) -- aren’t going to be growing as fast in the future.

Today’s White House announcement of voluntary industry commitments to reduce hydrofluorocarbons (HFCs), along with new regulations put in place over the past year, have created game-changing shifts toward more environmentally friendly alternatives.

Developed as substitutes for ozone-depleting chlorofluorocarbons (CFCs) in the late 1980s, HFCs have become widely used worldwide in refrigerators, air conditioners, foam products, and aerosols. While they don’t contribute to ozone depletion, HFCs can trap 1,000 times or more heat in the atmosphere compared to carbon dioxide. This means they have a high global warming potential (GWP).

The amount of these compounds produced around the world has been growing at a rate of more than 10 percent per year. Unless controlled, emissions of HFCs could nearly triple in the U.S. by 2030. Strong international action to reduce HFCs could reduce temperature increases by 0.5 degrees Celsius by the end of the century, a critical contribution to global efforts to limit climate change.

The 16 voluntary industry commitments that make up today’s announcement highlight the innovation and leadership U.S. industry is showing in meeting the challenges of addressing climate change. These actions build on 22 commitments made by industry at a White House event just a year ago.

Clean Power Plan Timeline

Clean Power Plan Timeline

February 2016

Download the Timeline (PDF)

On February 9, 2016, the U.S. Supreme Court issued an order staying the Clean Power Plan while litigation proceeds on the legal merits of the rule. No deadlines or other compliance obligations may be enforced while the stay is in effect.

The Clean Power Plan provides guidelines for the development, submittal, and implementation of state plans. States can submit their plans or request a two-year extension by September 6, 2016. States must submit complete plans by September 6, 2018.

While the compliance period for the rule starts in 2022, states can opt to participate in the Clean Energy Incentive Program (CEIP). CEIP seeks to reward early investments in renewable energy and energy efciency measures that generate carbon-free electricity or reduce end-use energy demand during 2020 and/or 2021.

The performance rates are phased in over the 2022–2029 interim period, which leads to a “step down” reduction path. States may elect to set their own goals for the three interim periods as long as they meet their interim and nal goals. States must also demonstrate they have met their interim goal, on average, over the eight-year interim period.

Starting in July 2032 and every two years afterwards, states are required to demonstrate how they met the nal goal.


 

0

Bob Perciasepe's statement on the U.S.-China joint statement on climate change

Statement of Bob Perciasepe
President, Center for Climate and Energy Solutions


September 25, 2015

On today's U.S.-China joint statement on climate change:


The United States and China today advanced the global climate effort on two fronts – by committing to strengthen their national efforts to curb emissions, and by breaking ground on key elements of a new global accord.

In setting a start date for its national emissions trading system, China sends a powerful signal that market-based strategies will play a critical role in the transition to a low-carbon future. In the U.S., states have the opportunity to employ similar cost-effective approaches to cut emissions from power plants under the new Clean Power Plan.

Beyond their respective national efforts, the two leaders helped pave the way for a meaningful agreement in Paris by offering a shared vision for moving beyond the historic developed-developing country divide.

These new understandings can help deliver an agreement that ensures accountability and works to build ambition over time. And by committing $3 billion to help other developing countries, China is assuming shared responsibility for mobilizing critical climate finance.

Many issues remain and the United States and China cannot achieve a global accord alone. But the growing alignment of the world’s two largest economies and emitters bodes well for a successful outcome in Paris.

--

Contact: Laura Rehrmann, rehrmannl@c2es.org or 703-516-0621

About C2ES: The Center for Climate and Energy Solutions (C2ES) is an independent, nonprofit, nonpartisan organization promoting strong policy and action to address our climate and energy challenges. Learn more at www.c2es.org.

How states can best promote clean power

The federal Clean Power Plan gives each state the flexibility to use its own ideas on how best to reduce greenhouse gases from the power sector. One proven, cost-effective approach is to use market forces to drive innovation and efficiency.

It worked before to curb acid rain. It’s working now in California and the nine states in the Regional Greenhouse Gas Initiative. And it can work again with the Clean Power Plan.

The options available to states go beyond creating or joining a cap-and-trade program or instituting a carbon tax. Pieces can be put in place, such as common definitions, measurement and verification processes, so that states or companies could be in a position to trade within their state or across borders. Modest programs that allow companies to trade carbon credits could be explored.

In an op-ed published in The Hill, Anthony Earley, CEO of California energy company PG&E, and C2ES President Bob Perciasepe urge states to give these options serious thought.

 

Read The Hill op-ed.

Syndicate content