Friday, June 05, 2009

Southern Alliance for Clean Energy Confirms: ACES Renewable Electricity Standard Will Have "Effectively Zero" Impact

With most DC-based environmental organizations at least grudgingly supporting the Waxman-Markey American Clean Energy and Security Act, and official government analysis of the latest version of the bill still pending, it has been largely up to independent think tanks, advocates and bloggers to take a critical look at the major provisions in the nearly 1,000-page climate and clean energy bill. I've spent most of the past two weeks doing just that with my team at the Breakthrough Institute, and we have released some of the first analysis of the bill's cap and trade provision, allowance allocations, and renewable electricity standard.

Yesterday, the Southern Alliance for Clean Energy (SACE), a Knoxville, Tennessee-based non-profit organization advocating clean energy solutions throughout the southeastern United States, released their own analysis of the Waxman-Markey renewable electricity standard. SACE's independent analysis confirms Breakthrough's own earlier look at the now severely-weakened renewable electricity standard, concluding as we did, that the impact of the renewable electricity standard on U.S. renewable electricity generation will be "effectively zero."

SACE also looks at the likely impact of the efficiency requirements in the now combined efficiency and renewable electricity standard (which the Alliance refers to using yet another new acronym: "CERES") and concludes it falls far short of President Obama's campaign pledge to reduce U.S. electricity consumption 15% by 2020 (below business as usual projections).

John Wilson, the Alliance's director of research, writes:

Our organization and other advocates are becoming increasingly concerned about the House Waxman-Markey energy and climate bill and its companion in the Senate for a host of reasons. Among the most dramatic changes made by the House Committee on Energy and Commerce is the "Combined Efficiency and Renewable Energy Standard," or "CERES" as people are starting to call it.

It is clear that President Obama's campaign pledge to "create millions of new green jobs" by ensuring that 25 percent of our electricity comes from renewable sources by 2025 is not being realized in this legislation. Our analysis suggests that this bill would not help America make any progress towards that goal, at least through 2020. Furthermore, this bill falls far short of President Obama's pledge "to reduce electricity demand 15 percent from projected levels by 2020."

Let's be clear, in addition to creating a healthier economy and global environment, these provisions are essential to the long-term jobs strategy that we desperately need. Prior to combining energy efficiency and renewable energy, the Waxman-Markey bill promised 297,000 new renewable energy jobs by 2025 and 222,000 new energy efficiency jobs by 2020. With more than half a million jobs at stake, the CERES compromise barely opens the hiring office. The lower energy efficiency targets may be strong enough to create 60,000 jobs. And with the renewable electricity standard almost completely gutted, it looks like all the new renewable energy jobs will be in the credit trading business.

One of the unfortunate conclusions that I draw from analysis of the CERES is that in an effort to add "flexibility" by coupling the renewable energy and energy efficiency portions of the bill, the potential impact of the bill has been diluted to the point where it would actually be better to have just a standalone energy efficiency standard than the CERES. If that were to happen, the bill would at least represent a more sure-footed path towards achieving the green jobs goal for energy efficiency.

The CERES would result in no new renewable energy development according to our analysis, which considers three basic components. First, the utility qualification threshold and various factors that diminish the effective requirements of the CERES. Second, the existing state renewable electricity standards (state RES) and existing generation. Third, the interaction with the opportunity to use energy efficiency to partially comply with the CERES.

In 2020, about 8% renewable energy will be generated simply from compliance with existing state standards and continued operation of existing renewable energy facilities. This 8% floor is derived from data assembled by Union of Concerned Scientists, Lawrence Berkeley National Laboratory (pdf), and Energy Information Administration. Although the CERES is set at 12-15% for qualified utilities, after taking into consideration the qualification threshold and several other factors, the CERES would at most require an 1.4% increase in renewable energy above the 8% floor. However, additional exemptions that cannot be quantified (for reasons discussed below) are very likely to reduce the impact of CERES to effectively zero.


The CERES would mandate more energy efficiency, as much as 4-8% in 16 states and the District of Columbia. A similar number of states already have a state energy efficiency resource standard (EERS), but 17 states would remain without a substantial energy efficiency mandate. Across the Southeast, and in a few other states, the CERES mandate would lift the energy efficiency programs from insignificant levels to mid-level efforts.

The original stand-alone national EERS would have required cumulative energy savings of 15% from qualified utilities, taking into consideration building codes, etc. Because building codes accounted for about 4% of the 15%, allowing utilities to meet either 5 or 8% of the CERES standard with energy efficiency represents a reduction in the EERS of at least 3 to 6% on paper. But the same qualification threshold and other factors that diminish the renewable energy impact of the CERES also diminish the energy efficiency impact.

In 2020, the proposed CERES would drive a national reduction of 2.5% in electricity use (somewhat less, actually, due to the same unquantified exemptions mentioned above). In contrast, ACEEE data indicate that electricity use would be reduced by about 5% nationwide from the EERS obligations in 21 states. Even though the CERES would have an important impact, it is clear that a minority of states are still setting the pace on energy efficiency and that the CERES would be a least-common-denominator approach.

A glance at the state map indicates that the CERES would have highly irregular impacts from state to state. The renewable-energy oriented qualification and exclusion factors create large differences in the effective statewide standard. (Since utilities have the opportunity to meet energy efficiency targets anywhere in their state, this is the appropriate region of analysis.)

Alaska has no energy efficiency mandate because none of its utilities qualify to be regulated under the CERES. The CERES has little or no impact on North Carolina and several other states due to the combined effects of weak state RES and EERS requirements, existing renewable energy generation, qualification limits, and other factors.

This analysis probably overstates the impact of the CERES for several reasons. Although we've got a very good idea of which utilities qualify under the CERES, the base amount against which the 20% mandate is assessed is impossible to anticipate using available data sources. The base amount is reduced by three factors: existing hydroelectric generation, new nuclear generation, and new coal generation with carbon capture and storage (CCS). Another way of looking at it is that utilities get 20% credit towards the CERES for these energy resources.

We aren't able to anticipate which utilities will have new nuclear or coal with CCS by 2020, so we don't adjust for these base amount reductions. However, 35 GW of new nuclear or coal with CCS would be enough (if strategically located) to eliminate the 1.4% renewable energy requirement. That's probably a stretch goal for 2020, but certainly some qualifying power plants will be complete by then.

Our data on existing hydroelectric generation are from the Energy Information Administration. We assume that all of this generation would be used by qualified utilities to reduce their base amount. Although a small amount of this generation probably cannot be effectively transferred from non-qualified utilities, the major problem with this assumption is that some of this generation is considered "new" and thus does not reduce the base amount. Instead, it may be used by the utility to meet its federal CERES obligation. This unknown amount of hydroelectric is effectively undercounted by 80% in our analysis. If just 10% of existing hydroelectric production is "new," then that would reduce the 1.4% renewable energy requirement to 0.9%.

Another source of under counting the utilities' existing resources to comply with the CERES is the distributed generation credit. Existing and early developers of distributed generation will receive triple credit for their projects. We assumed that solar energy projects specifically mandated in state EERS rules would receive this triple credit, but in reality there would be other qualifying energy projects. This would effectively increase the number of RECs generated as a result of compliance with state EERS deadlines. However, considering that distributed generation has been slow to take hold, this should be on the order of a 0.1-0.3% reduction.

Finally, we did not take into consideration banking (or retirement) of federal RECs. To the extent that early state RES deadlines create a surplus of federal RECs, federal RECs can be banked for three years, pushing out the date at which the CERES might actually require some renewable energy development. This could be in excess of 1% per year for several years until the backlog is cleared.

If these factors together aren't enough to erase the 1.4% renewable energy requirement, then we just have to look at the growth rates from EIA that we used and wonder if they might be a little too optimistic. If actual energy demand in 2020 is 2% lower than the forecast we developed based on the Annual Energy Outlook, then the CERES mandate would be reduced by approximately 0.4% (depending on which states have the lower growth). And since we used 2020 forecast electricity sales as our baseline (rather than 2019), we've probably overestimated the impact of the AEO2009 forecast anyway.

I'll again note that analysis from the National Renewable Energy Laboratory (pdf) of the broadly consistent 20% by 2021 Senate combined efficiency and renewable electricity standard also corroborates the conclusions reached by Breakthrough and the Southern Alliance for Clean Energy's respective analysis of the Waxman-Markey combined standard.

See Breakthrough Institute's additional analysis of Waxman-Markey ACES climate bill collected here

Originally posted at the Breakthrough Institute

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