by Jamie Van Nostrand
Given the current political environment, there is virtually no chance of enacting any sort of comprehensive federal energy and climate legislation that would put a price on carbon, either through a cap and trade program for CO2 emissions or a carbon tax. That doesn’t mean the White House and federal policymakers are powerless to take significant action to promote the development of a clean (i.e., de-carbonized) energy supply in the United States. The most pressing need in promoting a clean energy supply in the U.S. is CERTAINTY: an express, binding commitment by the White House (followed by confirmation through a federal statute) that the United States places a value on a cleaner energy supply. This commitment can take the form of a national renewable portfolio standard (or its more recent iteration, a “clean energy standard” that includes coal with carbon capture and sequestration (CCS) and nuclear) that creates a procurement obligation imposed on all electric utilities to clean up their energy supply over time through procurement of carbon-free energy resources. (In the NYS Climate Action Planning process, we are referring to this mechanism as a Low Carbon Portfolio Standard. The concept is the same; New York is starting out with a roughly 60% “clean” energy supply, with its hydro and nuclear resources. Maybe that number goes to 80% by 2030, and then 100% by 2050.)
The bottom line is that utilities have an obligation through whatever means (build their own resources, enter into long-term contracts, purchase Renewable Energy Certificate (REC)-equivalents through the REC markets) to gradually de-carbonize their electricity supply. In doing so, utilities would be expected to move up the cost curve, starting with the most cost-effective clean resources available today (probably wind), and continuing to move up the curve as necessary to meet the procurement obligation. The measure is fuel neutral as among the carbon-free sources and, as technology improves and CCS becomes commercially available and nuclear plants become more cost-competitive, these measures would assume a greater role (in addition to the traditional renewable resources such as wind, solar and biomass).
The attraction for the President and policymakers is that there is no fiscal impact on the federal budget; the measure would exert some upward pressure on electricity rates over time. (In this regard, the patchwork of state RPSs have NOT been shown to have caused much upward pressure on electricity rates.) But the measure would provide certainty to the financial community—which provides the capital to the developers of clean energy resources—that there is a FIRM COMMITMENT to a clean energy supply, and a predictable increase in the demand for clean energy resources as the clean energy requirement becomes more rigorous over time. It is the next best thing to putting a price on carbon through a cap and trade or carbon tax regime (which is the preferred solution, in my view, but politically unrealistic); it PUTS A PREMIUM ON A CLEAN ELECTRICITY SUPPLY. It provides a price signal, it is certain (and thereby reduces the perceived risk), and will lead to a flow of reasonably priced capital into the clean energy sector. (This capital is currently migrating to other nations, where the perceived risk is much lower due to the expressed political commitment to clean energy.)