Will Federal Cap-and-Trade Preempt State Renewable Portfolio Standards?

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gridHeading into the new year, we are left wondering what impact Copenhagen’s legacy (a nonbinding Accord) will have on the US Senate’s cap-and-trade bill.  With the House “ACES” bill passed, the attention is now squarely focused on the Senate as it reconvenes and takes another crack at legislation regulating greenhouse gas emissions.

Cap-and-trade legislation from Washington may include a federal renewable electricity standard (Washington’s version of a renewable portfolio standard).  How this standard would be integrated into existing state standards or vice versa will remain a hot topic throughout 2010.

To date, Congress has been sluggish to move on cap-and-trade, which prompted the EPA to apply pressure on the Senate by issuing a ruling that enables the agency to regulate greenhouse gases under the Clean Air Act (Biomass Intel’s analysis of the EPA’s tailoring rule decision is available here) in the absence of legislation.

Meanwhile, over the past decade, twenty-nine state governments have enacted renewable portfolio standards (RPS) aimed at increasing the percentage of renewable generation capacity sold by utilities to end consumers.  Some more aggressive than others, an RPS is a legal requirement that electric utilities and other electricity providers obtain a minimum percentage — typically increasing over time — of their total electricity supply from qualifying renewable sources.  In short, they offer a means by which states can authorize and stimulate investment in renewable energy technologies that can indirectly reduce greenhouse gas emissions.

While these efforts have remained moderately successful to date, the next decade will prove to be a challenging one for utilities and state governments as requirements for renewable power increase more dramatically.  States like California, which is committed to 33 percent renewables by 2020, must continue to secure adequate funding and maintain grid reliability while integrating renewable generation capacity.

Given significant variability among current portfolio requirements among states, pressure to enact a federal standard has increased in recent years.  Accordingly, if the Senate moves on a cap-and-trade bill prompting Congress to enact legislation, we should expect at least a moderate federal renewable electricity standard out of Washington.

President Obama’s call for a 10% RPS by the year 2012 suggests that a federal bill will most likely provide at least a minimum RPS percentage that all states will be required to meet rather than preempt existing state programs already on the books.

A benchmark standard applicable in all states has many benefits including reducing discrepancies among clean energy programs around the country and enabling the growth of national biomass trading programs critical for sustaining industry growth throughout the country.

But predicting the outcome of a cap-and-trade bill and the corresponding legislation around renewable energy standards is fraught with difficulty as many changes are likely to be made in the coming year.

The House’s American Clean Energy and Security Act (H.R. 2454) “ACES” bill offers some indication of where federal legislation is moving.  Approved in the middle of 2009, ACES includes a combined efficiency and renewable electricity standard.  The bill mandates that electricity suppliers must meet 20 percent of their customers’ demand by 2020 through a combination of renewable power and energy savings.  The inclusion of energy efficiency differs from many state RPS programs.  The Senate version of the cap-and-trade bill, as it stands now, does not include a federal RPS.

A federal standard would have a dramatic impact on national demand for renewable sources of energy and boost investments in biomass-related projects.  At the heart of most state RPS programs around the country is the use of biomass-fueled generators and biofuel generators (except Kansas) as renewable resources; some also include municipal solid waste.  A federal RPS-type requirement that includes similar technologies would stimulate increased demand for biomass feedstocks and technologies throughout the country.  Accordingly, policy developments around cap-and-trade should be monitored closely heading into 2010.

Mackinnon Lawrence is an attorney, principal consultant with Biomass Advisors, and editor & publisher of Biomass Intel

[photo credit: erikadotnet]

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