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The Art of the Plausible

Prospects for clean energy legislation in 2011.

Fortnightly Magazine - April 2011

extra credits for specified sources. However, tiers usually set up broad categories of qualifying sources— i.e., all qualifying sources are placed into one of three tiers—whereas kickers tend to be more surgical and source specific.

Based on state experience with RES requirements, a federal CES will likely include a lively debate on appropriate kickers, incentives, carve outs, and set-asides. To some degree, use of these mechanisms explicitly picks winners and losers within the universe of qualifying resources. However, it’s arguably better to use incentive and disincentive mechanisms to adjust the value of various technologies than it is to exclude technologies altogether. In other words, the selection of what qualifies as “clean” in the first place is far more disruptive in picking winners and losers than is allowing more technologies to qualify, and adjusting their value. Thus, if qualifying a broad range of technologies might allow one ( e.g., gas) to dominate, or ensure others don’t get built ( e.g., nuclear or CCS), it might be less disruptive and more market-oriented to include all of them, and address diversity priorities in set-asides or kickers.

Note that tiers or kickers provide economic incentives for particular sources, but guarantee no particular result, while set-asides, carve outs and caps ensure particular results.

Credit Market Design: Generally a CES will establish a national market in CLECs to ensure, in the words of the Graham bill, “a transparent national market for the sale or trade of clean energy credit and energy efficiency credits.” Both Lugar and Graham direct the establishment of a national CLEC market, and authorized the DOE to delegate administration to a market making or regional entity, such as a regional transmission organization like the PJM Interconnection.

How regional or existing state renewable programs and their credits are treated is also an issue for debate. CES proposals have attempted to coordinate the federal CES with, and not preempt, state RES requirements that allow for the same types of clean energy resources for compliance. For example, the Lugar bill doesn’t preempt state RES programs, but rather provides each utility subject to a state RES with an equal number of federal CLECs, to the extent it complies with state RES standards using the same types of qualifying energy as are allowed under the federal CES.

However, the result of non-preemption of state RES programs can require utilities to comply with two different standards, when the time frames, percentages or allowable energy sources in the federal CES and state RES programs don’t sufficiently overlap. Non-preemption would also allow states to effectively dictate, if they chose, the sources of clean energy that will actually be used in the state to comply with the federal CES. For example, if a 10 percent state RES only allows compliance by using traditional renewables, then compliance with a 10 percent federal CES also allowing use of traditional renewables as well as other sources would be met in that state only with traditional renewables. Consequently, the issue of federal preemption of, or coordination with, state renewable programs is expected to be a hotly debated