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The Green Controversy

Who should have "green tag" ownership under power purchase agreements, the buyers or the sellers?
Fortnightly Magazine - November 1 2002

certain environmental benefits belong to the generator because without these tax statutes, green attributes flow with the energy and the capacity to the purchasing entity.

Similar arguments could be made with respect to emission credits produced by renewable generating resources. The 1990 Amendments to the Clean Air Act, 32 which created the allowance and trading program for sulfur dioxide, allocate allowance credits to the unit that generated the emissions. One side would argue that this allocation reflects the notion that the generators, being the entities that produce the emissions, are the entities whose behavior is to be affected by awarding the credits to them. Allocating green attributes to purchasing utilities under pre-existing power purchase agreements would not impact the behavior of the generators, eviscerating the purpose and goals of the program. The proponents of transferring the green attributes to the purchasers of power would again argue that because the generators are permitted to retain the emission credits, fairness dictates that the remaining environmental characteristics should be assigned to them.

A Question of Balance

As the courts and legislatures attempt to sort out this issue, the resolution likely will become a matter of public policy. Permitting the owners of renewable generating units to retain the environmental attributes of their power and the associated financial benefits will provide them with another source of revenue that will permit some otherwise uneconomic units to continue to operate, perhaps displacing some existing or to-be-built fossil fuel units. In addition, if the sellers under existing power purchase contracts are deemed to own the green characteristics of their power, that could become the default for new power contracts, making the development of new renewable resources more economic and therefore more probable.

Conversely, if the purchasers of green power under existing agreements are found to own the environmental characteristics of that power, they are relieved of the burden of having to purchase those characteristics to comply with state renewable portfolio standards, or to offer them in retail green power programs. And, they have a product they can sell for a profit. This reduced expense and added revenue source could help to subsidize their operations, thereby permitting them to charge less to their retail customers. Therefore, as courts and legislatures consider this issue, they are faced with balancing the societal interest in promoting cleaner power sources against the political interest of lowering electric rates.

  1. 16 U.S.C.S. § 824a-3.
  2. See, e.g., Mass. Ann. Laws ch. 25A, § 11F (2002) (defining "renewable energy generating source" as including generators which use, among other fuels, solar energy, wind energy, tidal energy, fuel cells utilizing renewable fuels, landfill gas, waste-to-energy, hydroelectric and certain types of biomass conversion technologies); Conn. Agencies Regs. § 16-245-5 (2002) (requiring demonstration of percentage of total electricity output from Class I and Class II renewable energy sources). Conn. Gen. Stat. § 16-1 (26) and (27) (2001) define Class I renewable energy source as energy derived from solar power, wind power, a fuel cell, methane gas from landfills or from certain types of biomass facilities and Class II renewable energy source as including