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.
Potential Battles Ahead on Energy and Climate Policy if the Republicans Win the House
The prospects of a Republican-led House have been increasing as the U.S. nears the November mid-term elections. If Republicans do win back control of the House, it will dramatically reshape the contours of the national debate on energy and climate policy. The discussion would shift from a discussion over legislation to cap greenhouse gas emissions to the following issues.
Climate Regulations
The controversies regarding EPA’s climate regulations, particularly the Agency’s “tailoring” rule, have been ongoing for the past year. These controversies, however, would be amplified with a Republican majority, especially with large emitters becoming subject to the regulations in January 2011. A Republican-led House would likely target the rule by considering legislation to block the “tailoring” rule or strip funding for its implementation. If the House were to pass this type of legislation, and assuming that it could also pass through the Senate, then it would spark a veto battle with the Obama Administration. Republicans could also target other climate regulations, including a draft guidance proposed by the Council of Environmental Quality earlier this year that would require that federal agencies consider climate change in conducting environmental reviews under the National Environmental Policy Act.
Funding for Clean Energy Programs
The Administration has made the transition to a clean energy economy a priority, evidenced by increased funding for clean energy programs. Republicans have criticized these programs for failing to create the jobs promised by the Administration. Campaigning on the need to reduce federal spending and the government’s role in the economy, a Republican-led House could propose reducing or eliminating funding for some of these programs. The Administration will likely oppose efforts to reduce funding for these programs. At the same time, the Administration will be under pressure to also reduce federal spending, and it will be interesting to see how hard the Administration is willing to fight to sustain funding for some of these programs. Additionally, with subpoena power, Republicans could hold Committee investigations and hearings into alleged mismanagement by the Department of Energy into stimulus funding.
Nuclear Incentives
The Obama Administration and Congressional Republicans generally agree in the importance of nuclear energy to our nation’s energy future, one of the few issues where there is at least some consensus. A Republican-led House could work with the Obama Administration on incentives and other regulatory reforms to spur growth in the nuclear industry. That being said, the Administration’s support for closing Yucca Mountain as permanent storage site for nuclear waste could become a major issue in a potential debate over nuclear energy.
As this blog outlines, House Republicans and the Obama Administration have starkly different views over energy and climate policy. If Republicans win the House in November, one can expect some bitter battles to occur over these and other energy and climate issues.
