Backstop plans for states that don’t draft their own plans for compliance with the Environmental Protection Agency’s proposed Clean Power Plan can utilize renewable energy and energy efficiency to keep costs associated with reducing carbon emissions down, based on a new report from Advanced Energy Economy (AEE).
In the new paper from AEE, detailed design principles are outlined for creating an implementation plan for states without their own compliance plans. The new paper is titled “Design Principles for a Rate Based Federal Plan Under EPA’s Clean Power Plan” and can be found here.
“EPA is required under the Clean Air Act to draft a Federal Plan for states that choose not to participate with their own compliance strategies. This Federal Plan can also provide guidance for states in developing their own,” stated Malcolm Woolf, Senior Vice President of Policy at AEE. “Our paper shows that a Federal Plan can reduce costs for states by making full use of energy efficiency and demand response, renewable energy, and other advanced energy technologies. Utilities, independent power producers, and their parent companies are already investing in these and similar resources. Even in states that decline to develop their own implementation plans, EPA can slash compliance costs by allowing voluntary trading of emission reduction credits generated by these resources, a practice very familiar to the agency and industry.”
As per the draft of the Clean Power Plan that’s out there now, states are allowed to use a “portfolio approach” for compliance — via the institution of state policies supporting energy efficiency, renewable energy, etc, to reduce emissions.
This has invited some critics (mostly from the Chamber of Commerce and some congressmen), who have claimed that the plan should not be allowed to mandate state policies relating to renewables or energy efficiency — rather that only specific measures taken at power plants should be allowed.
A recent press release provides more:
AEE does not suggest that a draft Federal Rule could impose state policy, but rather that it does not need to. This paper shows how a Federal Plan could help the electric power sector capture the value of advanced energy resources, many of which are “beyond the fence line,” through its traditional jurisdiction over EGUs. In the process, the outlined approach would reduce the cost for states that do not submit their own plans. Utilizing this marketplace would be fully optional and would be a decision made by Electric Generating Unit (EGU) owners.
As AEE described in comments submitted to EPA, current electric sector practices demonstrate that owners of EGUs have ample ability to directly invest in advanced energy or to procure credits associated with advanced energy investments as a means of offsetting their units’ output and associated emissions. To use this approach in a Federal Plan, EPA need only allow for market-based trading of credits, which would enable EGUs to capture the emission reduction benefits of these investments, as the agency has done for Federal Plans in prior Clean Air Act regulations, such as the Clean Air Interstate Rule and Cross State Air Pollution Rule.
The exact recommendations from AEE concerning the Federal Plan:
- Utilize the market-based mechanism of rate-based trading, allowing interstate credit trading among states under the Federal Plan and with any state under a state plan that includes appropriate links to the Federal Plan;
- Allow EGUs to comply, in part, through purchase of emission reduction credits generated by a wide array of advanced energy providers – including zero- and low-emission generation resources and demand-side resources – in an amount based on the contribution to the state’s emission reductions;
- Require verification and participation in a tracking registry for any resource seeking to generate tradable credits; and
- Phase in the emission limitation for each unit to provide both a clear market signal and sufficient flexibility for appropriate planning through the use of emission reduction milestones coupled with flexibility mechanisms such as multi-year compliance periods and banking of emission credits (including credits generated before the 2020 mandatory compliance start-date).
“A trading system would allow utilities and other power producers to obtain credits from renewable energy generation and demand reduction efforts sufficient to meet their EPA emission targets,” noted Woolf. “Credit trading would also create market demand for advanced energy companies. The result will be lower emissions at lower cost, and further acceleration of this fast growing sector of the nation’s economy.”
Image Credit: AEE
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