U.S. States & Regions
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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)
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).
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.
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.
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.
Key Insights From Stakeholders on the Clean Energy Incentive Program
Recommendations for Maryland's
By Todd McGarvey, Timothy Markle, and Doug Vine
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.
With negotiators about to start international climate talks, you might have missed a notable climate effort at the state level: A new report from Maryland’s Department of the Environment shows the state is on track to beat its goal of reducing its emissions 25 percent below 2006 levels by the year 2020.
Since that goal was set in 2009, Maryland has implemented a range of programs to reduce emissions from the energy sector, transportation, agriculture and buildings. The state also benefitted from changes in energy markets as power generators moved from coal to natural gas, and changes in driving behavior, with Marylanders driving fewer miles than forecast.
Additionally, Maryland participates in the nine-state Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program that has generated revenues the state has used to help thousands of low- and moderate-income families and hundreds of farms improve efficiency and save money on their energy bills.
Maryland isn’t the only state that has set ambitious targets to curb greenhouse gases. According to our research, 18 other states have set targets over the past 15 years. Eight states, Maryland among them, stand out as leaders for setting targets by legislative action or executive order, requiring progress reports and updates of original climate plans, and aggressively pursuing initiatives to achieve the targets.
Why are states acting?
Already, Maryland and other states are experiencing the types of impacts -- excessive heat, droughts, heavy downpours -- expected to become more frequent and intense as a result of climate change. No one individual weather event can be attributed directly to climate change; climate is a pattern of events over time. However, it is clear that the costs to property, crops, and public health from impacts consistent with climate change are already significant.
A series of C2ES briefs explores key climate impacts and estimates how they might affect Maryland’s heat-related mortality, coastal property, labor productivity, energy expenditures, and agricultural output as well as its infrastructure, tourism, ecosystems, water resources and human health beyond heat-related mortality.
Climate scientists tell us that even deeper emissions reductions are necessary in the coming decades to avoid more serious and costly impacts. Recently, the Maryland Climate Change Commission, a government advisory board, unanimously recommended that the state set a new goal to cut its emissions 40 percent by 2030. The recommendation, supported by additional C2ES analysis, is likely to be taken up in the General Assembly next year.
Maryland cannot tackle climate change alone. But by working to reduce emissions today, setting strong reduction targets for the future, and growing a clean energy economy, Maryland is creating a powerful example other states will want to follow.
Maryland's Post-2020 Greenhouse Gas Reduction Target Setting
by Doug Vine
Maryland’s target to reduce greenhouse gas emissions 25 percent from 2006 levels by 2020 is ambitious and has put it in the company of leading states. As 2020 nears, it
is becoming increasingly clear that Maryland will likely achieve this goal. However, the challenges associated with climate change extend well beyond 2020, and with the target date fast approaching, the question arises of what the state’s post-2020 goals should be.
A Summary of American Climate Prospectus: Impacts for Maryland
By Joe Casola and Timothy Markle
In this paper, we summarize the information about the costs of climate impacts in the American Climate Prospectus that are specific to the state of Maryland. The impacts examined include: increases in heatrelated mortality, increases in the amount of coastal property exposed to flooding, declines in labor productivity, increases in energy expenditures, and declines in agricultural output.
Climate Change: The Cost of Inaction for Maryland's Economy
By Timothy Markle
The American Climate Prospectus addressed several key climate impacts over the coming century, including increases in heat-related mortality, increases in the amount of coastal property exposed to flooding, declines in labor productivity, increases in energy expenditures, and declines in agricultural output. In this paper, we explore impacts not explicitly presented by the American Climate Prospectus, which include estimates of how climate change might affect infrastructure, tourism, ecosystems, agriculture, water resources, or aspects of human health beyond heat-related mortality (e.g., respiratory ailments associated with lower air quality, and changes in the range of disease vectors). Additionally, we provide an update to the costs of inaction previously listed in Chapter 4 and Appendix F of the 2011 Maryland Plan to Reduce Greenhouse Gas Emissions (Appendix A; Table 1).
Key Insights on Business State and City Collaboration for Climate Resilience
C2ES held a Solutions Forum workshop focusing on opportunities for collaboration on climate resilience in November 2015 in Detroit, Michigan. More than 40 business leaders, state and city officials, non-profit organizations, and other experts shared their experiences addressing climate change impacts and enhancing resilience. Discussion focused on the role each stakeholder group can play in planning for climate change. This paper summarizes the key insights of the meeting and areas of focus moving forward.
The Clean Power Plan and
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.
Cities and counties are increasingly emerging as climate leaders, becoming laboratories and incubators for climate solutions. These solutions take a fresh approach to emerging local challenges, and could drive progress at a larger scale.
Here are two key ways cities are stepping up:
· Local governments are creating an invaluable knowledge base for efficiency and sustainability efforts.
To reach your destination, you have to know where you are starting from. That’s why it’s so important that cities are taking advantage of ever-improving data collection and analytical capabilities to become the providers of rich databases of energy and water use in their jurisdictions.
Philadelphia's Energy Benchmarking program requires large commercial buildings to disclose their energy use. As a result, the city has a baseline of energy usage by nearly 2,000 buildings across multiple sectors. By sharing this data with building owners and energy managers, the city is focusing more attention on saving energy. And by sharing building data online with potential tenants, the city hopes to create a market for efficient buildings.
A similar program in New York City has had promising results. The disclosure policy corresponded with energy savings of nearly 6 percent - worth more than $260 million.