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The Art of the Plausible

Prospects for clean energy legislation in 2011.

Fortnightly Magazine - April 2011


Energy Efficiency: CES proposals can treat energy efficiency in different ways. Some include a minimum energy efficiency carve-out within the CES, effectively establishing a nested energy efficiency program, where energy efficiency credits can be used for both mandates, while others simply allow, sometimes with caps, CES requirements to be met with energy efficiency credits.

Both Lugar and Graham allowed energy efficiency simply to be a compliance option of the overall CES, rather than a parallel portfolio mandate. Lugar’s bill restricted energy efficiency trading, by stipulating that a utility with excess energy efficiency credits could only sell or transfer those credits to entities in-state. In turn, the Graham bill capped use of energy efficiency credits, by allocating them separately from clean energy credits and limiting their use to 25 percent of a utility’s compliance obligation.

ACP and Cost Recovery: An ACP fills several roles. It provides a price ceiling for a command-and-control program to address regional resource differences and mitigate ratepayer exposure, and it provides a long-term price signal for clean energy developers. The ACP in Lugar’s bill was 5 cents per kilowatt hour, while the Graham ACP was set at 3.5 cents/kWh, with both adjusted for inflation.

A key issue with the ACP is deciding how ACP payments are to be used. In order to ensure cost neutrality, one approach is to send some or all of that revenue to the federal government, although that would inevitably result in a large wealth transfer from, primarily, resource-poor states that find the ACP option to be most cost effective. However, the seemingly more popular approach is to return all or most revenues to the state whose ratepayers incurred the ACP costs. For example, under Lugar, the ACP monies would be paid to the power company’s states, and states were directed to use such funds to increase clean energy production and offset ratepayer impacts.

Environmental Options

Republicans and a number of Democrats are interested in addressing EPA’s authority to regulate GHG emissions under the CAA. EPA’s permitting program for new and modified sources emitting GHGs above certain thresholds, and requiring application of still-undefined Best Available Control Technology, began on Jan. 2, 2011. EPA has also announced plans to begin issuing GHG performance standards under Section 111 of the Clean Air Act for new and existing stationary source categories such as power plants this summer, with final regulations expected beginning in 2012.

There are only a few issues associated with potential legislation to address EPA’s authority to regulate GHGs under the CAA. Republicans are seeking to permanently bar EPA from regulating GHGs under the CAA, and some are also seeking to bar GHG issues from entering federal policymaking through other mechanisms such as the National Environmental Policy Act. In turn, many of the Democrats supporting such legislation are seeking only a two-year stay of EPA’s GHG regulatory authority under the CAA. However, delay doesn’t really resolve the underlying issues.

Industry, environmental groups, members of Congress and the past two administrations have all said over the years that addressing power plant emissions with a