Brian George is director of policy strategy and government affairs at EPSA.
How can Congress get carbon policy right and use competition to advance a more affordable, reliable energy transition? EPSA’s Brian George breaks down the CLEAN Future Act, carbon pricing and a well-designed Clean Energy Standard.
On Tuesday, the U.S. House of Representatives Committee on Energy and Commerce introduced the CLEAN Future Act, outlining a path to a 100 percent clean economy by 2050. While we continue to review its contents, the bill includes several elements that utilize competition and market-based mechanisms, which may help facilitate a more cost-effective and reliable energy transition.1
Getting carbon policy right requires finding the most efficient path to reduce emissions, while keeping energy reliable – and as affordable as possible. Competition in the power generation sector has led to significant benefits for consumers and the grid, allowing new and cleaner resources to be built while paving the way for innovation.
As Congress develops energy legislation, any proposal must utilize competition and market-based mechanisms to encourage innovation and deployment of private capital to affordably and reliably decarbonize. This includes tools such as carbon pricing or a well-designed clean energy standard to allow all companies and resources to compete to reduce emissions at the least cost.
Carbon Pricing: A Powerful Incentive
Over a year ago, EPSA affirmed its support for market-based policies to combat climate change, arguing that when public policies price carbon, markets become powerful tools to aggressively decarbonize. Numerous studies, including one commissioned by EPSA, confirm that a price on carbon applied across all emitting sectors of the economy can yield the greatest emissions reductions for the lowest cost.
Last spring, EPSA joined a diverse coalition—including renewable and advanced energy interests—calling on the Federal Energy Regulatory Commission to hold a workshop to discuss regional carbon pricing in wholesale energy markets. Further, a recent analysis by Energy & Environmental Economics (E3) found that a modest carbon price of $10/ton applied across the PJM footprint would reduce emissions by nearly 50 percent from 2005 levels by 2030. Relative to the current patchwork of state policies, a regional carbon price would save consumers nearly $3 billion per year over the status quo.
The engine powering these policies is a robust and transparent price on carbon applied to all market participants that can facilitate affordable, reliable, and sustainable decarbonization. EPSA supports a national, economy-wide price on carbon as the optimal vehicle to achieve decarbonization goals across the economy. In the absence of a national, economy-wide carbon price, we support a regional carbon price applied in the wholesale energy markets operated by regional transmission organizations and independent system operators.
A Well-Designed Clean Energy Standard: The Next Best Thing?
Instead of a price on carbon, the CLEAN Future Act relies on a Clean Energy Standard, or CES, to facilitate decarbonization in the power sector. If designed and implemented properly, a CES can approach the efficiency of a carbon price. Analysis of a regional, technology inclusive, market based CES in PJM showed nearly identical reductions in greenhouse gas emissions as a carbon price at a similar cost.2 A well-designed CES can also lay the foundation for a transition to carbon pricing over the longer term.
In the coming weeks, EPSA will detail the policy principles we believe are necessary for a well-designed CES, including how it can interact with existing wholesale market structures—energy, capacity, and ancillary services. Above all else, competition should be foundational to an optimal CES program design. For example, credits for clean energy production should be fully tradable among market participants and program implementation overseen by an independent entity. For now, we outline a few key principles to guide policymakers in CES development:
- The Goal: Any mandate or goal associated with a CES should target carbon emissions reductions or total annual percentage of energy from qualifying resources on as technology-neutral a basis as possible, not pre-determined amounts of specific resources. Such a target must carefully define the program’s goal such that all factors, including the costs to achieve high percentages of clean energy, are considered in its establishment.
- Tying Clean Energy Credits to Electricity Production: The exchange of clean energy credits must be tied to the physical production and delivery of electricity to ensure emissions reductions goals are achieved and system reliability is maintained. As such, having a common regulator such as the Federal Energy Regulatory Commission can leverage the expertise and processes already in place to balance CES implementation with reliability goals and existing market structures.
- Partial Credit: Any CES must include a mechanism to provide partial credit to low-carbon emitting resources generators to capture addition low-cost emissions reduction opportunities. The level of partial credit should be based on the emissions intensity of an emitting resource relative to a baseline. Several existing legislative proposals recognize this element and provide workable frameworks for implementation.3
- Role of Private Entities/Bilateral Contracts: Private entities and NGOs with emissions reductions and/or clean energy goals should be eligible to participate in CES auctions to purchase clean energy credits from qualifying resources or to signal demand for new construction.
Certainty Key to Continued Innovation
EPSA’s members invest private capital at their own risk to build the resources that power America. Key to the continued investment in those assets – including cleaner technology – is regulatory certainty, which allows companies to plan financial investments and assist in the long-term transition of the generation fleet and electric grid. Congress has an opportunity to provide much needed regulatory certainty to allow investment in lower carbon energy resources to flourish. Our members stand ready to invest in America’s energy future and work with Congress to provide the regulatory certainty necessary to do so.
Stay tuned for additional details around our CES principles, including the importance of reliability and affordability in any decarbonization policy.
Get more information on effective carbon policy and our CES principles here.