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The Art of the Plausible

Prospects for clean energy legislation in 2011.

Fortnightly Magazine - April 2011

that a big tent will include so many easier technologies that the capital-intensive technologies will never get built.

Preferences & Disincentives: Once qualifying technologies are selected, the real debate will be over incentives and disincentives within the selected technologies. Historically, using state RPS legislation as a guide, political or policy preferences between competing eligible or qualifying technologies generally haven’t been handled with outright exclusion, but by a series of economic kickers or set-aside minimum mandates within the overall scheme. Under this approach, everything plausibly clean can qualify, but preferences or disincentives for particular sources are added to address favored outcomes.

Based on state RPS experience, a few key program design issues have tended to emerge: tiered classification; set-asides and carve-outs; and kickers, adders and multipliers.

With tiered classification, eligible resources can be placed into different tiers that provide differing economic incentives, different time frames, or minimum or maximum requirements for different tiers. Thus, an economic tier system would place all resources into one of three tiers, and provide a different amount of credit or compliance mandate for each tier. For example, tier 1 may be worth 1.5 credits, tier 2 worth 1 credit and tier 3 worth 0.5 credits. By way of example, Graham’s bill used a tiered system for allocating credits to biomass, with three increasing levels of output efficiency providing three different amounts of credits.

Set-asides and carve-outs identify one or more qualifying resources for separate treatment. The separate treatment is either an incentive or a disincentive. It might be a minimum requirement (a set aside) of the overall mandate as having to come from such set-aside resources. Some states require a certain percentage of the overall state RES goal to come from solar. Or it could be a carve out, that limits the amount of a particular technology that can be used— e.g., lawmakers could address a restriction on gas by placing a 50 percent cap on natural gas usage, which would be a carve out that ensures natural gas generation is never more than 50 percent of the overall CES portfolio. By contrast, set-asides mandate a minimum percentage of certain technologies. These can be particularly useful for high-cost or high-uncertainty technologies such as CCS. Thus, if 10 percent of the overall CES mandate had to come from CCS by 2025, for example, the result would be the construction of a few CCS facilities (equal to at least 10 percent of the CES mandate), and the purchase of CLECs generated by these facilities from complying entities across the county. Similarly, a set-aside for traditional renewables would ensure some minimum amount of the CES comes from those resources.

Credit kickers and adders provide another way to place a premium value on one or more types of qualifying resources. A kicker would establish, for example, that for every 1 kWh of energy produced by a qualifying kicker source, the developer receives 1+ credit to use or sell. The Graham CES included kickers for advanced coal generation and efficient biomass. Kickers are similar to economic incentive-based tiers, in that both provide