The House Climate Bill: Details on the Energy Provisions

 As we have already noted, Representatives Waxman and Markey released a 648-page discussion draft energy bill last week that provides the first comprehensive look at how Congress may approach the nexus of energy, job creation, and the environment. Although this bill is only being released in discussion draft form, as the first major energy volley by Congressional Democrats, it will undoubtedly have a major influence on the debate in Washington. 

In addition to the global warming provisions that we posted about last week, clean and renewable energy occupies a significant place in the draft bill.  The first 157 pages are dedicated to energy, with additional provisions scattered throughout. 

Title I, the clean energy section, addresses four broad policy areas: (1) creation of a national renewable energy standard, (2) carbon capture and geologic sequestration (“CCS”), (3) low-carbon vehicles and transportation fuels, and (4) electricity transmission including smart grid technologies. In addition, the draft creates a State Energy and Environment Development Fund ("SEED Fund") to act as a repository for monies received through federal energy programs.  Each of these provisions is an example of how policy leaders are beginning to see synergies between job creation and environmental stewardship. 

We take a deeper dive into the energy provisions after the jump.

National Renewable Energy Standard

The centerpiece of the renewable energy provisions is the creation of a new renewable energy standard ("RES"). The RES would operate like a national version of the renewable energy portfolio standards already in place in many states. Load-serving entities such as utilities would be required to purchase an escalating minimum percentage of their load from qualified renewable resources. Compliance is demonstrated through the buying and selling of renewable energy certificates ("RECs"), where each certificate represents 1 MW of renewable power. If an entity fails to buy enough RECs to meet its compliance obligation, it may make alternative compliance payments on a dollar-per-MWh basis. Banking RECs for up to three years is allowed. 

State-run renewable portfolio standards have been a major driver of growth in the renewables space, but whether a federal RES can be as successful on a national scale is a hotly-debated question. 

Although the mechanics of the RES may sound familiar, several details are particularly noteworthy:

·         The draft establishes an aggressive RES goal, beginning with 6% of load in 2012 and 2013 and increasing to 25% of load by 2025. By way of comparison, the Energy Information Administration reports that renewable energy represented approximately 3% of electricity sales in 2007.

·         State governors may elect to meet one fifth of the RES goal though energy efficiency measures if the compliance entities within the state are subject to the Federal Energy Efficiency Resource Standard (established by Title II of the draft)

·         The price at which federal RECs will trade is unknowable at this point, but the alternative compliance payment provisions at least provide a sense of what the price cap is. The RES sets the alternative compliance payment at the lesser of 200% of the average price of a federal REC or $50 per MWh (adjusted annually for inflation).

·         Distributed generation facilities may benefit from a 3x REC multiplier, meaning they receive 3 RECs for each MWh generated.

·         The draft creates a Renewable Energy Deployment Fund to receive alternative compliance payments and distribute the proceeds back to retail electric suppliers that met – at least in part – their RES obligations through the purchase of RECs. A supplier would receive these funds in proportion to number of RECs it purchased.

·         Judicial review includes a citizen suit provision, which gives standing to "any person who will be adversely affected by a final action taken by the Secretary [of Energy]".

·         If a renewable generator has an existing power sales contract with a retail supplier that does not specify which party owns any RECs that may be created, the draft provides that all RECs will be issued to the supplier and not the generator.

Carbon Capture and Geologic Sequestration

·         The Secretary of Energy, Administrator of the Environmental Protection Agency, and other agency heads, are directed to prepare a report that details the legal and regulatory barriers to wide-scale deployment of CCS. 

·         Creates the Carbon Storage Research Corporation, which would operate within the Electric Power Research Institute and be lead by a board of directors that is comprised of representatives from utility companies, consumer groups, generators, fossil fuel producers, and environmental organizations. The Corporation would be allowed to collect between $1.0 and 1.1 billion annually through utility assessments, and the funds would be used to provide grants and other assistance to projects that promote CCS commercialization.

Transportation: Biofuels and Electric Vehicles

·         A new low-carbon fuel standard for transportation fuels, emphasizing advanced bio-fuels.

·         Requirements that state regulators and utility companies develop plans to better accommodate hybrid-electric vehicles, with special emphasis on the development of a charging or batter-exchange infrastructure and integrating hybrid vehicles into the distribution system.

·         Financial support for car companies retooling their manufacturing lines to build plug-in electric vehicles and purchase domestically-produced vehicle batteries.

Smart Grid and Transmission

·         The draft requires the EPA and DOE to evaluate the cost-effectiveness of integrating smart-grid technologies into Energy Star products.

·         Requires the development of peak demand reduction goals for load-serving entities beginning in 2012. Although the draft allows states or utilities to establish the percentage reduction goals, it specifies that the goal should be that which is “realistically achievable with an aggressive effort to deploy Smart Grid and peak demand reduction technologies and methods”.

·         Directs FERC to adopt comprehensive planning principles for a national electric grid and coordinate with regional transmission organizations such as ISO-NE.

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