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Achieving a lower-carbon economy requires effective, efficient solutions that do not unduly burden consumers or impede the reliability of our power grid, while allowing for continued competition and innovation. When it comes to decarbonizing the power sector, policies that focus on reducing emissions while ensuring reliable and least-cost solutions will yield the most effective results to meet the growing demand for electricity.
EPSA and our member companies – America’s competitive power suppliers – support efforts to address climate change through transparent, open, and nondiscriminatory competitive markets that allow all resources to compete to reduce emissions. Competitive electricity markets produce billions in consumer savings annually and have driven clean energy investment. These markets are a powerful foundation to encourage least-cost generation, integrate new technology, and foster the innovation needed to meet future energy challenges.
Economy-Wide Carbon Price
EPSA affirms its support for a national, economy-wide price on carbon as a preferred policy tool. Policies that regulate carbon directly result in the lowest-cost emissions reductions, per a recent E3 report. Top economists, policy experts, business leaders and advocates across the globe agree that carbon pricing is the most cost-effective way to swiftly reduce emissions on a wide scale. This approach is reinforced by several other E3 studies that examined decarbonization pathways in California and New England. Both concluded that an economy-wide carbon price can achieve emissions goals at the least cost.
Clean Energy Standard
Notably, a well-designed clean energy standard (CES) can achieve carbon reductions in the electricity sector at a price similar to a carbon price, E3 has found. EPSA supports a well-designed CES until national, economy-wide carbon pricing is implemented. To encourage competition, maintain reliability, and promote emissions reductions at the lowest cost, a CES should include the following elements:
- CES Goal/Target – 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 (e.g., tranching). 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. A CES goal must also be national in scope.
- Partial Credit – Any CES must include a mechanism to provide partial credit to low-carbon emitting generators to capture additional 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 award a partial Clean Energy Credit (CEC) relative to a baseline emissions intensity of 0.82 metric tons of CO2/MWh or less. See CLEAN Future Act, DeGette bill, McKinley-Schrader bill.
- Tying Clean Energy Credits to Electricity Production – The exchange of CECs must be tied to the physical production and delivery of electricity to ensure emissions reduction goals are achieved and system reliability is maintained. As such, having a common regulator such as FERC can provide leverage the expertise and processes already in place to balance CES implementation with reliability goals and existing market structures.
- Credit Trading – There should be a CES Credit trading program to encourage the market-based exchange of CECs among suppliers. Similarly, CECs should be fully tradeable among market participants and bankable; the value of CECs should be transparent and known to all participants. While the CES goal should be national in nature, independent regional entities, such as an ISO or RTO, should be utilized to facilitate the market-based exchange of CECs.
- Reliability Backstop – There should be a FERC requirement (to be carried out through NERC) to evaluate system reliability (e.g., ability to meet 1-in-10 LOLE requirements) at various percentages of CES to ensure bulk power system reliability and ancillary services are maintained as the system transitions to higher levels of clean energy.
- Upstream Emissions – The CES should not base credit allocation on the upstream emissions of fossil resources. Many of the factors contributing to those upstream emissions are dependent on unique aspects of the supply chain and are outside the control of the generation resource.
- Role of Private Entities/Bilateral Contracts – Private entities and NGOs with emissions reduction and/or clean energy goals should be eligible to participate in CEC auctions to purchase CECs from qualifying resources or to signal demand for new construction.
- Credit Allocation Process – Legislation should provide flexibility to regulators to determine certain aspects of program implementation. For example, beyond a certain point, the addition of particular technologies may not be doing as much as others to reduce carbon emissions. This flexibility can ensure that resources receive a CEC are delivering clean energy to the grid.
- Interaction with State Policies – In states with more stringent standards, Congress should allow consumers and others with an obligation to buy CECs or their state equivalent to purchase CECs out of the Credit Trading Program established by federal law once all other states have met the federally established goal to provide for economies of scale and an open and free competition. Over time, we would expect states to turn to the federal CES to meet their clean energy goals, not individual state policies.
Download our fact sheet to learn more about how an economy-wide carbon price or well-designed clean energy standard can help build the reliable, affordable grid of the future.