U.S. States & Regions
States and regions across the country are adopting climate policies, including the development of regional greenhouse gas reduction markets, the creation of state and local climate action and adaptation plans, and increasing renewable energy generation. Read More
Written in conjunction with the Regulatory Assistance Project, this discussion paper examines the policy options and implications for a clean energy standard (CES).
A transition from conventional fossil fueled electricity generation to clean energy offers several benefits—particularly the growth of new clean energy industries and associated jobs, diversification of energy supply, and reductions in the public health and environmental damages (especially from air pollution) associated with conventional electricity generation.
The current status of clean energy generation depends on how one defines clean energy. While there is no universally agreed upon definition of clean energy in the power sector, various stakeholders endorse some or all of the following as at least partially clean energy options: highly efficient natural gas combined cycle generation; fossil fuel use coupled with carbon capture and storage (CCS); nuclear power; renewables; and electricity savings from energy efficiency and conservation. These generation sources provide about half of U.S. electricity today. While market dynamics and current state and federal policies have led to recent growth in clean energy generation—such as the growth in renewable generation driven in part by state renewable electricity portfolio standards—projections for the power sector indicate that, absent significant new policies to promote clean energy, the status quo in terms of power generation will continue largely unchanged for at least the next quarter century.
Given the benefits of clean energy and the dependence of substantial growth in clean energy generation on new policies, policymakers have lately turned their attention to the idea of a clean energy standard (CES). A CES is a type of electricity portfolio standard that would set aggregate targets for the level of clean energy that electric utilities would need to sell while giving electric utilities flexibility by: (1) defining clean energy more broadly than just renewables, and (2) allowing for market-based credit trading to facilitate lower-cost compliance. As a concept, a CES builds on the successful experience of the majority of states that have implemented renewable and alternative energy portfolio standards and draws on a history of federal policy deliberation regarding national electricity portfolio standards.
States could pursue new CES policies singly or jointly to create multi-state programs. State CES programs could complement existing state renewable portfolio standards, and a CES may be a promising option in states where more narrowly defined renewable electricity policies have had less appeal. A handful of states have already enacted electricity portfolio standards that have many of the attributes of a CES.
The federal government could also enact a national CES. A federal CES has recently received bipartisan support, with several Republican Senators sponsoring federal CES proposals in the last Congress and President Obama endorsing a federal CES in his 2011 State of the Union address. While the prospects for near-term enactment of a federal CES are uncertain, a federal CES has received substantial attention and warrants close consideration by stakeholders.
This paper introduces stakeholders to the concept of a CES, explains how a CES works, describes the benefits that a CES can deliver, and explores federal and subnational options for CES policies. This paper also explores some of the nuances of CES policy design and the implications of different design choices. This discussion can help both state and federal policymakers, utility regulators, and other stakeholders decide whether a CES is an appealing option and to help state stakeholders understand the potential impacts of a federal CES on their states so that they might formulate and communicate federal CES policy design preferences.
Several of the paper’s key points are summarized below.
- Absent significant new policies to promote clean energy, the share of total U.S. electricity generation obtained from clean energy sources will likely not increase by more than a few percentage points over the next 25 years.
- Substantial increases in clean energy generation can offer important benefits, including:
- Growth of new clean energy industries and associated jobs—e.g., wind turbine manufacturing, solar panel installation, and nuclear power plant construction;
- Diversification of energy supply to limit electric utilities’ and ratepayers’ exposure to fuel price volatility and regulatory risk associated with particular energy sources;
- Mitigation of environmental and public health impacts from electricity generation—including criteria and hazardous air pollutants, greenhouse gases emissions that contribute to climate change, and other impacts.
- A CES is a promising policy for spurring a transition to clean energy in the power sector.
- As a type of electricity portfolio standard, a CES sets requirements for the percentage of electricity sales that must be supplied from qualified clean energy sources and allows electric utilities to demonstrate compliance via tradable credits that they earn themselves for their own generation or buy from other electric utilities or clean energy generators.
- As a market-based policy, a CES can effectively increase clean energy generation and achieve associated benefits while offering substantial compliance flexibility for electric utilities thus minimizing impacts on electricity consumers.
- By broadly defining clean energy, a CES provides opportunities for utilities, states, and regions to exploit their unique mix of clean energy options.
- A CES program can build upon the success of existing electricity portfolio standards that a majority of states have already implemented, provided that the percentage targets are increased in proportion to the potential of newly eligible resources. If additional clean energy resources are allowed to qualify for an existing portfolio standard without increasing the targets, the mix of resources used to meet the standard and the resulting compliance costs may change, but the total amount of clean energy generation will not increase and the goals of the policy may not be furthered.
- At the state and federal levels, CES policies have attracted bipartisan support, including CES proposals from President Obama and Republicans in Congress.
- CES programs enacted by the federal government or by states singly or in coordination could spur incremental clean energy generation and deliver associated benefits.
- Federal CES proposals have attracted bipartisan support in previous years, but it is not clear if or when legislation to create a federal CES will move forward.
- States have already proven themselves to be policy innovators with respect to renewable electricity portfolio standards, and states may seek to reap the benefits of clean energy for themselves by implementing new CES policies—either singly or as part of multi-state programs.
- At least four states (Michigan, Ohio, Pennsylvania, and West Virginia) already have electricity portfolio standards that credit cleaner, non-renewable energy sources, and Indiana has a similar but voluntary program. These states offer several lessons for future state or federal CES programs, including:
- Utilities tend to comply with electricity portfolio standards by deploying the lowest-cost qualified resources, so policymakers may need to include special provisions in a CES if they hope to provide a meaningful incentive for less commercially mature and higher-cost technologies.
- Policymakers can design CES programs that have very modest impacts on electricity rates.
- A combination of factors—including the policy’s target and the types of energy sources that qualify—determine how much incremental clean energy generation a CES program will deliver beyond “business as usual,” and policymakers should consider the interaction of such factors in developing a CES to ensure the program can meet their goals for additional clean energy generation.
- The net effects of a CES policy are a function of interrelated policy design decisions. Policymakers and stakeholders should understand CES policy design options and their interactions and implications. Policymakers and stakeholders might usefully evaluate a CES in terms of key criteria and think about implications of different policy design decisions in light of these criteria.
- Effectiveness – What is the magnitude of the policy’s desired impacts?
- CES targets set the requirements for overall clean energy generation.
- The degree to which a CES delivers the benefits associated with clean energy depends on how policymakers define qualified clean energy under the program.
- Certain policy design options (e.g., exemptions for certain utilities and alternative compliance payments) can have the effect of reducing a CES program’s effective target for incremental clean energy deployment.
- Policymakers may include provisions in a CES to provide particular incentives to certain technologies—e.g., less commercially mature or higher cost ones—in order to reap particular clean energy-related benefits.
- Cost-effectiveness – how efficiently does the policy achieve its intended aims?
- As a market-oriented policy, a CES is an inherently cost-effective program.
- Policymakers have several options for providing electric utilities with compliance flexibility under a CES (e.g., banking and borrowing of credits).
- In general, the more flexibility that utilities have for meeting clean energy targets (e.g., the more broadly clean energy is defined), the more cost-effective a CES program will be.
- Fairness – does the policy lead to any undue burdens or unearned windfalls for particular utilities, power generators, or regions and customers?
- Owing to a variety of factors, different electric utilities supply their customers with electricity from widely varying existing generation mixes. In addition, utilities, states, and regions have different cost-effective options for increasing clean energy generation (e.g., because of different renewable resource endowments).
- How policymakers set CES targets, treat new vs. existing clean energy generators, and define qualified clean energy sources determine how the effects of a CES program vary among different utilities, power generators, or customers.
- Effectiveness – What is the magnitude of the policy’s desired impacts?
On October 20, 2011, the California Air Resources Board (CARB) adopted final regulations for a cap-and-trade program that will help the state reduce greenhouse gas emissions to 1990 levels by 2020. Beginning in 2013, cap-and-trade regulations will apply to all major industrial sources and electric utilities, and will expand in 2015 to cover the distributors of transportation fuels, natural gas, and other fuels. An overall emission cap applies; individual companies are not required to reduce emissions to a certain level, but they must hold allowances to cover their emissions. CARB will freely distribute the majority of initial allowances to industrial sources to prevent emissions leakage. Electric utilities will also receive free allowances, some of which must be sold at auction to benefit ratepayers. Additional allowances can be purchased at quarterly auctions or from a trading market. The amount of allowances available will decline by about 3 percent each year as emissions are reduced. In addition to allowances, offsets from CARB-certified projects in forestry management, urban forestry, dairy methane digesters, and the destruction of ozone-depleting substances may be used to cover 8 percent of a company’s emissions. CARB expects the regulations to cover the sources of 85 percent of the state’s emissions from about 360 businesses and 600 facilities. Overall, the cap-and-trade program will be one of the main tools used to meet the emissions reductions targets established by California’s climate change legislation, AB 32.
California’s cap-and-trade regulations are designed to link with similar programs in U.S. states and Canadian provinces that are members of the Western Climate Initiative. The regulations were set to be implemented in January 2012, but concerns about implementation preparedness delayed the program for a year. CARB developed the regulations over three years and received input from various stakeholders through comments and public meetings and workshops. Several companies representing several economic sectors voiced concerns at the CARB’s October hearing about the economic cost of compliance with the cap-and-trade program. In an attempt to address these concerns, CARB also passed an adaptive management plan to alleviate implementation challenges. Despite the apprehension of some industries over cap-and-trade, AB 32 enjoys broad public support in California. Voters rejected a November 2010 ballot proposition to suspend AB 32 by a nearly 24 point margin. Overall, CARB believes that its cap-and-trade regulations will help California attract significant investment in clean technology and complement the state’s existing initiatives to reduce pollution and increase energy efficiency.
The American Council for an Energy-Efficient Economy (ACEEE) ranked Massachusetts first among all fifty states for energy efficiency. Massachusetts’s implementation of the 2008 Green Communities Act, as well as several additional forward-thinking efficiency laws and programs, contributed to its ranking. ACEEE’s 2011 Scorecard assessed states on six energy efficiency policy areas: utility and public benefits programs and policies, transportation policies, building energy codes, combined heat and power, state government initiatives, and appliance efficiency standards. The highest ranking states were credited for showing innovative and aggressive policies to promote additional energy efficiency, while other states were recognized for adopting Energy Efficiency Resource Standards and increasing the budgets for ratepayer-funded electricity and natural gas efficiency programs. Overall, ACEEE believes that the states that first adopt energy efficiency technologies will be centers for energy efficiency innovation, job creation, and economic growth.
Massachusetts’s unique approach won it the top ranking, and its Green Communities Act (GCA) touched on many of ACEEE’s ranking areas. Passed in 2008, GCA established an Energy Efficiency Advisory Council, which works with utilities to establish three-year efficiency programs for the state. The first three-year plan’s savings for electricity (2.4% of 2012 sales) and natural gas (1.5% of 2012 sales) are the most aggressive in the nation for energy efficiency and could draw investment of $2.2 billion in efficiency and demand resources in the near future. In the transportation sector, Massachusetts achieves greater efficiency by providing financial incentives to municipalities that follow smart growth principles and encourage development near access to transportation networks. The state’s Department of Transportation also plans to reduce transportation greenhouse gas emission by 7.3% by 2020 and 12.3% by 2035 from 1990 levels through smart growth and incentives for more efficient vehicles.
California, which had ranked first for the last four years, is now ranked second, and Michigan, Illinois, Nebraska, Tennessee, Alabama, and Maryland were among the most improved states. Despite the slow nationwide economic recovery and state-level struggles to balance budgets, energy efficiency programs received increased funding and bipartisan support across the country. The 2011 Scorecard reports that states now budget $4.5 billion for energy efficiency programs, up from $3.4 billion in 2009, and that 24 states now have Energy Efficiency Resource Standards. 29 states also adopted or are making progress in adopting the latest energy-saving building codes for homes and commercial properties, up from 10 states in 2009.
For those of you who came to our website today expecting to find information and resources from the Pew Center on Global Climate Change, please don’t click away. Today we announced an exciting transition. We are now C2ES — the Center for Climate and Energy Solutions. In addition to changing our name, we’ve refreshed our mission and strategic approach, updated our website, and made other changes to ensure that we can continue to craft real solutions to the energy and climate challenges we face today.
Yes, a great deal has changed in the last 24 hours. But what hasn’t changed is the need for straight talk, common sense and common ground. Today’s climate and energy issues present us with real challenges — and real opportunities as well. This is about protecting the environment, our communities and our economy. And it is about building the foundation for a prosperous and sustainable future.
Over the past few weeks, college students have been shedding light on the future of solar energy on the National Mall in Washington, D.C. Out of 19 teams from around the globe and 10 energy performance and livability contests, one overall winner emerged at the recently held U.S. Department of Energy 2011 Solar Decathlon. The winning WaterShed home design, built by students from the University of Maryland, was inspired by the Chesapeake Bay ecosystem. The house included a 9.2 kilowatt rooftop solar array and prominently featured storm water management and recycling components, such as a butterfly roof and pollution filtration.
On September 22, Governor Jerry Brown signed into law three bills that will expand existing renewable energy programs and expedite the permitting process for renewable energy projects. Together, the bills will help businesses and residences invest in renewable energy and assist California in meeting its energy targets and creating clean energy jobs.
S.B. 585 authorizes the California Solar Initiative (CSI) to provide $200 million in rebates to school districts that invest in solar installations. It also increases the overall cost limit on CSI from $3.4 billion to $3.6 billion. California aims to have 20,000 megawatts (MW) of solar power capacity installed by 2020. CSI has provided rebates for public and private sector entities to invest in solar power and is funded through investor-owned utilities. To date, CSI has helped California install 900 MW of solar capacity.
A.B. 1150 extends the Self-Generation Incentive Program (SGIP) through 2014. The program provides rebates to residential, commercial, and industrial customers who install distributed generation systems such as wind turbines, fuel cells, solar panels, and energy storage technologies. SGIP is funded through a surcharge on utility bills, and it makes $83 million available in rebates each year. To date, SGIP has provided $619 million in rebates and aided the installation of 348 MW of renewable capacity.
S.B. 16 hastens the CA Department of Fish and Game’s permitting process for renewable energy projects. The department will have 45 days to determine if an application is complete and 60 days after that to issue a permit. The bill also allows developers to pay a fee for an expedited review process.
On September 1, 2011, H.B. 3268 went into effect requiring the Texas Commission for Environmental Quality to develop a streamlined air permitting process for Combined Heat and Power (CHP) generators. Previously, CHP generators faced the same regulations as large-scale powerplants, but under H.B. 3268, they are freed from these regulations and recognized for their net emissions and electricity savings benefits. The reduced regulatory burden on CHP is expected to lower overall CHP system costs, which will ease the strain on the Texas electricity grid as well as create related job opportunities.
With the Northeast still reeling from the impacts of Hurricane Irene, the possibility of even more flooding was almost too much to comprehend. But last week the remnants of Tropical Storm Lee stalled and sent plumes of precipitation toward the Northeast, creating a replay of the floods a few weeks earlier. This time the area along the Susquehanna River in Pennsylvania and New York was in the bulls-eye. Since the ground was still saturated from Irene, this new round of flooding was worse, surpassing the previous record event set in 1972 when Hurricane Agnes dropped a torrential downpour on the area.
This Q&A orginally appeared on Singapore International Energy Week's website.
Q1. The Kyoto Protocol expires in 2012. Do you see an agreement on its successor during negotiations at Durban later this year? Or is an extension of the Kyoto Protocol or a move to a transitional framework a more likely outcome?
Eileen Claussen: The Kyoto Protocol has played an important role in advancing climate change efforts in some parts of the world. Most notably, the European Union established its successful Emissions Trading System and other policies in order to fulfil its obligations under the Kyoto Protocol. However, because developing countries are exempt from Kyoto's emission targets and because the United States has chosen not to join, the Protocol covers just one-third of global greenhouse gas emissions. Japan, Canada and Russia have made clear that they will not take on new binding targets post-2012 without commensurate obligations by the United States and the major developing countries, which are not prepared for binding commitments. Hence, there appears very little prospect of new Kyoto commitments being adopted in Durban.
While our ultimate aim should be a comprehensive and binding international climate framework, we must accept that getting to binding commitments will take time. The Cancún Agreements made important progress in strengthening the existing frameworks in the areas of finance, transparency, adaptation and technology. Further incremental progress in these areas will promote near-term action and will strengthen parties' confidence in one another and in the regime, thereby building a stronger foundation for a later binding agreement. At the same time, countries must continue strengthening political will and policies domestically. In Durban, parties should make concrete progress in implementing the Cancún Agreements--for instance, by establishing the Green Climate Fund and agreeing on stronger transparency measures--while affirming their intent to work toward binding outcomes.
Q2. Global GHG emissions increased by a record amount last year. Is the goal of preventing a temperature rise of more than 2 degree Celsius just a "nice Utopia" as IEA's Dr Fatih Birol put it?
EC: Long-term goals are tricky. On the one hand, they provide a rallying point to help focus attention and orient action, and a yardstick for measuring progress. On the other hand, they are meaningful only if they can be operationalized, and if interim efforts don't appear to be on track, people may be discouraged as a result and the will to act may actually weaken. In the case of climate, a temperature goal is appealing because it is easily related in the public mind to the core issue--global warming. But as a metric, it is several steps removed from the action that is needed: Reducing emissions. From a practical standpoint, a global emissions goal might be more helpful.
Countries' pledges to date clearly do not put us on the path to meeting the 2 degree goal. While achieving the goal is not yet out of the question, it would require a dramatic acceleration of efforts around the globe. The bottom line is that we know what direction we must go. Whatever our long-term goal--indeed, whether or not we have a long-term goal--the immediate challenge is the same: Ramping up our efforts as quickly as possible.
Q3. How much of an impact will the recent nuclear power crisis in Japan have on GHG emissions reduction?
EC: It is still too early to know what impact the Fukushima disaster will have on energy choices and greenhouse gas emissions around the world. The most dramatic example is the recent decision by Germany to completely phase out nuclear power. While many in Germany believe that the gap can be filled by renewable energy and improved energy efficiency, others are deeply concerned that the country will deepen its reliance on coal, making it impossible to achieve its ambitious greenhouse gas reduction goals.
Other countries must assess for themselves the implications of Fukushima for their energy futures. For those countries choosing to continue or deepen their reliance on nuclear power, the tragedy clearly offers lessons for improving safety. Given the continued growth in energy demand projected in the future, particularly in developing countries, it is difficult to imagine that we will be able to meet the world's energies needs and simultaneously meet the climate challenge without continued reliance on nuclear power. It is therefore imperative that we continue striving to enhance safety and solve the issue of long-term waste disposal.
Q4. Technology is seen as a key enabler to achieve low emissions growth. In your opinion, what are the top three technologies available today that can make the biggest impact?
EC: There are thousands of technologies available today that could make a huge impact with the right policy support, such as a price on carbon. But the problem, at least in the US today, is that it is unclear when such policy support will be forthcoming. So I will pick my top three based on the ones that need the least additional policy support to make a contribution, either because they yield multiple economic benefits beyond climate, or because they benefit from existing policy drivers.
a. Batteries in cars. Batteries can be used in vehicles in a variety of ways. While a battery-only vehicle may only be able to fill a niche market, hybrid vehicles that run on either gasoline or electricity will likely have broader appeal, and start-stop batteries, which turn off the gasoline engine while a vehicle idles, can be applied to just about any vehicle, achieving modest per-vehicle reductions that add up to significant reductions fleet wide. The combination of new US standards for fuel economy and GHG emissions and electric utility interest in selling electricity can drive battery costs down. The potential emission reductions are enormous, but they depend on cleaning up the electricity grid.
b. Information technology. IT can enable dramatic GHG reductions, for example through energy efficiency (e.g. smart buildings that turn on lights and HVAC when they're needed and turn them off when they're not), substituting videoconferencing for travel, and using wireless communication to optimize transportation routing for people and goods. Convenience and time savings are such powerful drivers of IT that it needs little incremental policy support.
c. Carbon capture and storage (CCS) for enhanced oil recovery (EOR) using CO2. CCS is technically available, and potentially a game changer, enabling us to continue to use fossil fuels but with very low CO2 emissions. CO2-EOR is already economic using naturally occurring CO2, and is close to economic using captured CO2. With very little policy support, EOR using captured CO2 could yield some near-term emission reductions while driving CCS costs down, thereby enabling enormous emission reductions in the future.
Q5. Energy efficiency has long been touted as the lowest hanging fruit to address the energy and climate change challenges. Many Asian countries have announced ambitious targets to cut their energy and carbon intensities. For example, as part of its 12th Five-Year Plan, China has indicated that it aims to cut energy intensity by 16 percent and carbon intensity by 17 percent in the next five years. Do you think Asian countries are doing enough? What more can they undertake to help combat climate change?
EC: Efficiency improvements that generate more economic output with less energy input are important for a variety of reasons, including energy supply security, pollution and greenhouse gas (GHG) emission reduction, and improvement of livelihoods. Countries such as Korea, China and India have taken significant measures to improve efficiency, with the result that the energy intensity of their economies has been lowering over the past decade.
Many energy efficiency measures are classified as "low hanging fruit," meaning the energy savings and other benefits they produce far outweigh the cost of investing in them. Asian countries are currently focusing on exploiting these low hanging fruit, notably in the industrial and power sectors, as well as in appliances and equipment, and large commercial and public buildings. Eventually, achieving additional energy savings will require more expensive investments, and targeting more difficult sectors, such as small and medium enterprises and households.
Asian governments will need to adjust policy tools to meet these new challenges. Policy certainty and appropriate price signals are important to ensure the efficiency improvement potentials of current investments are maximised. One way of providing these is through cap-and-trade type systems, such as those being considered or developed in China, India and Korea. This will also require the phase-out of subsidies that artificially decrease energy prices and encourage consumption rather than conservation. Though progress is slow, several Asian countries have taken or are taking steps in this direction as well.
Limiting the growth of or reducing energy consumption is, of course, essential. However, shifting to less carbon-intensive sources of energy is equally important in the medium to long term. As such, many Asian countries should also be commended for investing in developing less GHG-intensive energy sources.
The Pew Center's September 2011 newsletter highlights a new intiative focused on expanding carbon dioxide enhanced oil recovery, a new brief on international climate assistance, the lessons we can learn from Hurrican Irene, and more.