Would a CES Raise Electricity Prices?
At the request of House Science and Technology Committee Chair Ralph Hall (R-TX), the Energy Information Administration (“EIA”) released a study this week on the potential impacts of a clean energy standard (“CES”). In January’s State of the Union address, President Obama called for Congress to pass legislation creating a CES, which would require that utilities generate 80% of their electricity from “clean” sources by 2035. “Clean” sources would include not only renewables but also nuclear, natural gas and coal-fired power plants employing carbon capture and sequestration technology.
The EIA report analyzed a potential CES based on several assumptions provided by Representative Hall. Under these assumptions, he report found that a CES would increase electricity bills $115 annually by 2025 and $211 by 2035. Additionally, a CES would reduce the gross domestic product by $127 billion from 2025 to 2035.
Undoubtedly, the report will be used by critics of a CES to argue that the costs of such a standard outweigh any environmental or health benefits. It should be noted that EIA’s report is based on a number of assumptions requested by Representative Hall that could contribute to the cost projections described above. Arguably most importantly, the report assumes that CES credits earned in one year cannot be banked, or used, in subsequent years, and that utilities would be prohibited from selling excess credits to other utilities. Advocates for allowing utilities to bank credits contend that it would reduce compliance costs by allowing utilities to save money by storing up credits during the early years when the clean energy generation requirements are still low. Additionally, credit trading could provide flexibility for utilities to comply with a CES.
While President Obama’s proposal didn’t specify as to whether credit banking and trading would be permitted, previous CES proposals from the last Congress did allow for credit banking and trading in some form. Notably, these proposals came from two Republican Senators – Lindsay Graham (SC) and Richard Lugar (IN). Moreover, the Senate Energy and Natural Resources Committee passed legislation in 2009 that would have established a renewable energy standard with support of both the Chairman Jeff Bingaman (D-NM) and the Ranking Member Lisa Murkowski (R-AK). Under this legislation, utilities would have been permitted to bank and trade credits for renewable energy generation. Thus, Representative Hall’s assumption that trading of CES credits would be prohibited is dubious given previous bipartisan support for this concept in the debate over both a clean and renewable energy standard.
Senator Jeff Bingaman has requested another EIA analysis of a CES. This analysis is expected to be released next month and could be based on the assumption that utilities would be permitted to bank and trade CES credits. If this assumption is included in EIA’s analysis, then this analysis could provide a better outlook of the cost implications of a CES.
A Challenging Legislative Environment - Democratic and Republican Staff Directors Provide Legislative Outlook for Energy Policy
In a Politico sponsored event this morning, the Republican and Democratic Staff Directors for the Senate Energy and Natural Resources (SENR) Committee both called this current Congress “the most difficult legislative environment” since either one of them has worked on Capitol Hill. This sentiment is common on the Hill with a divided Congress and deep ideological and partisan divides.
Yet, the SENR Committee historically has worked well together on a bipartisan basis. For instance, Chairman Jeff Bingaman (D-NM) and Ranking Member Lisa Murkowski (R-AK) worked together last year to pass through committee the American Clean Energy Leadership Act, which would have established a renewable energy standard, authorized additional offshore development and created a Clean Energy Deployment Administration (CEDA). The full Senate, however, never considered this bill.
As discussed at today’s breakfast, Chairman Bingaman and Ranking Member Murkowski are again working together on attempting to pass bipartisan legislation. The SENR Committee will hold a markup on Thursday where it could consider a number of bills related to energy efficiency, alternative vehicles, and small modular nuclear reactors. Additionally, Bingaman and Murkowski have worked to address concerns regarding legislation that would establish a CEDA. As noted by Democratic Staff Director Bob Simon, this legislation can spur clean energy development and create jobs by providing needed capital to some clean energy projects.
There are, however, some issues that the committee will likely be unable to find consensus on this year. At the breakfast, Simon indicated that committee Democrats and Republicans are unlikely to find a compromise on a clean energy standard (CES). Republicans are arguing that any standard should also preempt EPA’s GHG rules. Nonetheless, Simon stated that Senator Bingaman will likely float a CES bill later this year, and the Committee could hold hearings.
Despite the impasse on a CES, the Committee will likely act on a number of bills at Thursday’s hearing. It is unclear, however, whether the Senate can find time in its schedule to take up these measures. Even if these bills were to pass the Senate, the ideological opposition by many House Republicans to any enhanced role for the government in energy markets would make it difficult for these measures to pass. As the Staff Directors stated, a challenging legislative environment indeed.
Support for nuclear persists but will the Japanese crisis instead kill negotiations over a clean energy standard?
Amidst the unfolding nuclear crisis in Japan, the Obama Administration and key Congressional leaders continue to express their support for nuclear energy. Energy Secretary Steven Chu testified this week that the Administration opposes a halt in licensing for nuclear plants, and he also reiterated support for the White House’s budget request of $36 billion in loan guarantees for new nuclear plants. At a National Energy Resources Organization luncheon, Senator Lisa Murkowski (R-AK), the Ranking Member on the Senate Energy and Natural Resources Committee, stated that it is “too premature to suggest the nuclear renaissance is dead.” Other key Congressional leaders, including House Energy and Natural Resources Chair Fred Upton (R-MI) and Senate Energy and Natural Resources Chair Jeff Bingaman (D-NM), have issued statements over the past several days signaling their continuing support for nuclear energy.
These statements suggest that the political support on Capitol Hill is unlikely to erode for nuclear. That being said, opposition among environmentalists to nuclear expansion will undoubtedly increase over the coming weeks and months. Such opposition poses significant political hurdles for any chance that the Senate could pass legislation establishing a clean energy standard (CES). This proposal also faces political challenges due to concerns regarding the standard’s potential effect of electricity rates and ideological opposition among conservatives to anything resembling a federal mandate. Support among even moderate Senate Republicans for a CES remains questionable with key Republicans, such as Murkowski and Senator Richard Lugar (IN), declining thus far to support President Obama’s proposal. Environmental groups were already less than thrilled by President Obama’s inclusion of nuclear, along with clean coal, as part of eligible resources in a CES, and the Japan crisis would seem to confirm to them the danger of promoting nuclear energy.
In her remarks yesterday, Senator Murkowski stated that it is hard to see a CES moving that does not include nuclear. Senator Murkowski’s comments likely reflect what will be necessary to get a least several Republicans signed on. Without environmentalists onboard, it is difficult, however, to see how a CES gains support among Senate Democrats necessary to pass.
Clean Energy Standard Update
Since President Obama’s State of the Union address announcing the Administration goal of setting a Clean Energy Standard (CES) deliberations have shifted to Congress. The President has called for utilities to meet a target of 80 percent of their electricity from sources such as solar, wind, natural gas, nuclear and so-called clean coal by 2035 but the real work now begins in moving this through the legislative process. Bipartisan congressional leadership is where this will have to begin and end if the President’s goal is to become a reality.
In the Senate, most of the anticipated action will take place in the Senate Energy & Natural Resources Committee (SENR) where the bipartisan leadership of Chairman Bingaman and Ranking Member Murkowski are essential for success. Senator Bingaman met with President Obama at the White House shortly after the State of the Union to discuss the CES but has remained guardedly supportive of the President’s proposal. Senator Murkowski remains in a listening mode but open to the discussion.
Today, Majority Leader Harry Reid indicated that Murkowski and Bingaman “have an agreement on the standard.” However, within hours of that statement Murkowski stated that the Majority Leader had “jumped the gun.”
Reaching bipartisan agreement will come down to definitions of what is “clean.” “Clean” in the White House agenda focuses on air emissions, primarily greenhouse gas emissions. However, opponents of that approach are more focused on the broader lifecycle of environmental impacts associated with any given energy source. Some don’t consider coal even with carbon capture & storage to be clean noting coal ash and other challenges to the sector. Others don’t consider nuclear “clean” citing waste issues in particular. Secretary Chu during testimony today before SENR on the DOE budget was specific in describing eligible clean energy sources as including nuclear as noted here in a section of his written testimony:
"A Clean Energy Standard will provide a clear, long-term signal to industry to bring capital off the sidelines and into the clean energy sector. It will grow the domestic market for clean sources of energy – creating jobs, driving innovation and enhancing national security. And by drawing on a wide range of energy sources including renewables, nuclear, clean coal and natural gas, it will give utilities the flexibility they need to meet our clean energy goal while protecting consumers in every region of the country."
In the Senate, feasibility of a CES will largely come down to how many votes will be gained by broadening the definition of “Clean” as envisioned by the Obama Administration versus the number of votes that will be turned off by such an approach. One can expect Senate hearings and negotiations to begin in earnest on a CES in mid-to-late March at the earliest.
Feasibility of the Clean Energy Standard in the House of Representatives appears to be more a matter of overcoming distaste by Republican leadership for perceived government mandates of such a legislative approach. House Energy and Power subpanel chairman Ed Whitfield, speaking this morning to National Electricity Forum made his view known on a CES: "My preference is that we not try to establish a federal standard. Now there are some on my committee that disagree with that, I know that some in the Senate disagree with that. So that’s another issue that we’ll be looking at as we move forward.”
"Our generation's Sputnik moment": President Obama calls for 80% "clean" electricity by 2035
In his State of the Union address, President Obama challenged Congress to pass legislation establishing a clean energy standard (CES) that would require that 80 percent of America’s electricity come from “clean” sources by 2035. President Obama signaled that a standard would recognize electricity derived from not only renewables but also nuclear, clean coal and natural gas. Calling the clean energy push “our generation’s Sputnik moment,” the President’s speech framed a CES in the larger context of improving U.S.’s competitiveness in the changing global economy. The focus on clean energy and not GHG emissions also reflects a dramatically altered political landscape than what President Obama faced over his first two years in office. With cap-and-trade legislation off the table, President Obama is reaching out to Republicans by expressing his support for clean coal and nuclear in any energy legislation.
In a conference call today, Secretary of Energy Steven Chu reiterated President Obama’s comments that the U.S. faces a “Sputnik moment” where it must make a concerted commitment in clean energy to compete with China, Europe and other countries. With regard to a CES, Secretary Chu acknowledged that the President’s proposal was “ambitious” but “not over-the-top.” Secretary Chu noted that the details of a CES proposal will be left to Congress and that any legislation will require bipartisan support.
President Obama’s State of the Union address, coupled with Secretary Chu’s press conference, could provide momentum to energy legislation. Despite environmental organizations prior opposition to nuclear, some mainstream environmental organizations like the Pew Center on Global Climate Change and the National Resource Defense Council reacted favorably to President Obama’s CES proposal. The renewable energy industry also praised the President’s comments and argued that a CES can help fuel job growth. Senator Lindsay Graham (R-SC) is planning on working with a bipartisan group of Senators on drafting a bipartisan energy bill that includes a CES. Senate Majority Leader Harry Reid (D-NV) is also indicating that energy policy will be a top legislative priority this year.
Yet prospects for passage of a CES still faces considerable challenges. Senator Richard Lugar (R-IN), a key swing vote on energy legislation, remains undecided as to whether to endorse a CES. He introduced legislation last year that included a similar “diverse energy standard,” but he noted that he is reassessing this standard in light of concerns expressed by utilities. Emboldened conservatives, particularly in the House, will likely be highly skeptical of any mandate even if it were to include nuclear, clean coal and natural gas. Notably, House Energy and Commerce Chairman Fred Upton (R-MI) released a statement after the President’s speech criticizing a call for increased federal mandates. A CES bill could also become a legislative vehicle for contentious debates on other issues like EPA’s GHG regulations and offshore drilling.
To pass a CES, President Obama will need to build and sustain a tenuous alliance of Democrats, moderate Republicans, environmentalists, and utilities, among other stakeholders. The success of the President’s push will depend on his ability to argue that clean energy is essential to “win the future,” as he stated last night, and keep America as an economic leader in innovation and competitiveness.
Clean Energy Standard and Canadian Hydro1
Senator Graham has floated a “Clean Energy Standard” in place of a national “Renewable Energy Standard,” as part of his bipartisan effort to pass comprehensive climate and energy legislation with Senators Kerry and Lieberman. The provisions would create significant demand for increased use of natural gas, nuclear and carbon capture & storage alongside renewable energy. However, forgotten in this proposed standard is the role that Canadian hydropower plays in the US transition to a low carbon economy.
Hydropower produces 90 times fewer greenhouse gases than coal-fired plants and over 40 times fewer than the least carbon intensive of the thermal generation options, the natural gas combined cycle. Electricity from the Canadian province of Québec alone has contributed to reduce emissions in the Northeast region of the US by approximately 30 Mt of CO2 equivalent, from 2001 to 2008. Canada has plans to bring on significant new sources of hydropower. This energy in large part will be exported to the US utilities. All sources of hydropower energy sold in or to the United States, where such facilities are certified by regulatory authorities to have complied stringent environmental laws should qualify for clean energy standards. There is no doubt that large hydropower has its share of risks, but so do other sources of energy proposed for a clean energy standard and without the same climate benefits and Canadian hydro should not be put at a disadvantage by pending legislation.
Below are some recent statements by public officials on the issue of Canadian hydro.
Energy Secretary Steven Chu
June 30, 2009
"There’s no one solution to the energy crisis, but hydropower is clearly part of the solution and represents a major opportunity to create more clean energy jobs."
Phillip Moeller; FERC Commissioner
July 29, 2009
"The world won’t get to where it wants to go on carbon emissions without hydropower. (…) I think this is the most exciting but also critical time in energy policy in our lifetime. (…) If hydropower isn’t recognized, we’ll regret it for decades. The time is now."
Central Vermont Power Service (CVPS) President Bob Young and Green Mountain Power (GMP) President Mary Powell
March 11, 2010
"This agreement (between CVPS, GMP and HQ Energy Services [US]) sets the stage for a new contract that will help us maintain what is arguably the cleanest power supply in the nation, while ensuring a relatively stable and affordable future for our customers."
1 McKenna Long & Aldridge LLP represents Canadian Hydropower interests.
