The Nickel Report

Since retaking control of the House following the 2018 midterm elections, Democrats have introduced a flurry of climate change-related legislation. While the ambitious Green New Deal resolution grabbed much of the headlines earlier this year, Democrats have continued to roll out various other measures aimed at addressing climate change.

What’s Old is New Again

One policy that has recently garnered renewed focus is a national clean energy standard (CES). A CES is a legal mandate that compels utilities to supply a portion of their power from non- or low-emitting sources. In contrast to renewable portfolio standards (RPSs), CESs allow utilities to meet their obligation through low-carbon technologies beyond renewables, like nuclear power or coal with carbon capture and storage (CCS). Under a CES, regulated entities demonstrate compliance with targets by amassing tradable credits, which they either can earn through their own generation of clean power or purchase from other energy providers. Under many CES designs, energy derived from purely renewable sources is eligible for more credits than energy from sources that emit low amounts of carbon.

Different iterations of a CES have been floated in Congress for over a decade. Notable proposals over the years include the 2010 proposals from Senators Lindsey Graham (R-SC) and Dick Lugar (R-IN). Senator Graham’s stand-alone CES legislation would have required electric utilities to obtain an increasing amount of their power from clean sources starting at 13% in 2013 and capping out at 50% by 2050. Senator Lugar included a similar CES provision in his larger energy bill, which he dubbed the Practical Energy and Climate Plan. Both bills also would have created an energy credit trading program to allow individual generators to trade or sell credits to meet their compliance requirements.

The next year, President Obama advocated for a CES in his 2011 State of the Union address. His CES plan set a more aggressive target, requiring 80% of US electricity to come from clean energy sources by 2035. Under President Obama’s proposal, clean energy would have included nuclear power, efficient natural gas generation and coal with CCS.

The Clean Energy Standard Act of 2019

Last month, Representative Ben Ray Luján (D-NM) and Senator Tina Smith (D-MN) introduced companion CES bills in the House and Senate. Unlike previous legislation that set uniform clean energy thresholds for power providers, the Clean Energy Standard Act of 2019 would base each utility’s clean energy obligation on its 2019 clean energy output. A power producer that had “little deployment” of clean technology would be forced to produce a 2.75% increase of clean energy annually under the legislation. Once 60% of a utility’s power supply is from clean sources, the annual increase required is reduced to 1.75%. The bill would establish a maximum federal obligation of 90% clean energy output by 2040. After that year, utilities would be required to increase their clean energy output 1% per year until they reach 100%. According to Senate staff, the measure would reduce greenhouse gas emissions from electricity generation by nearly 80% by 2035, compared to 2005 levels, and create a net-zero emissions power sector by 2050.

The legislation also would task the Department of Energy with establishing a federal clean energy credit trading program within one year of the bill’s enactment. Under the program, net-zero emission sources would receive one full credit for every megawatt-hour (MWh) of energy sold, while low-carbon sources that emit less than 0.4 metric tons of carbon dioxide per MWh would be eligible for a partial credit.

State Action

Generation decisions historically have been made at the state level. More than half the states have developed generation portfolio standards, most often in the form of a RPS. In 1983, Iowa became the first state to implement a RPS with the passage of its Alternative Energy Law. Today, 29 states, Washington DC and three territories have established standards, each with different targets, qualifying energy sources, and credit systems. These standards have played a crucial role in the development of the nation’s renewable energy market. According to a 2018 study released by the Lawrence Berkley National Laboratory, at least half of the growth in US renewable energy generation since 2000 is attributable to state RPSs.

Initially, RPS targets were fairly modest, but in recent years several states have aggressively updated their standards. In 2015, Hawaii became the first state to commit to obtaining all of its electricity from entirely renewable sources by 2045. Three years later, California passed similar legislation that requires the state to obtain 100% zero-carbon electricity in the same year as Hawaii. The District of Columbia passed a bill that obligates the city to gather all its power from renewable sources by 2032.

The wave of state-level clean energy policies has shown little sign of slowing down. In the first half of 2019, New Mexico, Nevada and Washington all passed laws that establish 100% clean energy goals. Additionally, Colorado, Florida, Maine, Massachusetts and New York are considering legislation that would decarbonize their power sectors before 2050. Notably, even states that historically have depended heavily on fossil fuels to meet power demands are considering strict renewable standards. For instance, Wisconsin Governor Tony Evers released a proposed budget in March that would require all the state’s power to be carbon-free by 2050, despite the fact that the state obtained 55% of its power from coal in 2017. Governors of other Midwestern states, like Illinois and Minnesota, have also recently expressed their support for decarbonizing their power sectors by midcentury.

At the federal or state level, government efforts to promote clean energy are accelerating, with significant implications for power supply and the nation’s utility industry.