State Initiatives to Reduce Carbon Emissions
This is a series on state policy instruments for clean energy, where we detail unknown industry subsidies and the Regional Greenhouse Gas Initiative (RGGI). These posts are designed to be learner centric, and to equip readers with starting points for mastering the legislative structures defining the alternative energy industry today.
State Initiatives to Reduce Carbon Emissions Part 1: Exploring Renewable Portfolio Standards
The majority of U.S. states have a Renewable Portfolio Standard.
Renewable Portfolio Standards are individual state laws that mandate a certain portion of electricity generation comes from renewable sources. The requirements are set and enforced by separate offices within existing, state regulatory authorities (a Board of Public Utilities, Department of Public Service, etc.). Specialized offices center entirely around ensuring compliance with these electricity grid requirements.
Individual states employ a range of policy instruments to achieve their RPS goals. Investor-owned utilities, electricity suppliers, and, in some states, cooperative or municipal utilities are required to procure a portion of their energy portfolio from renewables when providing retail customers with electricity. To keep track, market mechanisms, like renewable energy/electricity certificates, are created and monitored through an attribute tracking system. For example, a single certificate might be issued each time 1 Megawatt hour, or 1000 Kilowatt hours, of verifiable renewable electricity is generated, and the reporting of electricity generation rests on generators, who own the certificates. If uncooperative with the standard, these investor-owned utilities or suppliers (who buy from generators) will face an Alternative Compliance Payment; a penalty for non-compliance. The ACP is more expensive than the Renewable Energy Certificate, making the purchase of electricity from renewable generators, or the purchase of RECs the more rational option. It’s important to remember, a REC may only be retired when renewable electricity generators sell their certificates on the tradable market, often to suppliers in need of meeting the requirement.
Some states do not have percentage requirements with RECs at all, opting to instead include capacity requirements for specific renewable sources (examples include Texas and Iowa). Even in states with Renewable Energy Certificate programs, there can be percentage carve-outs or capacity requirements in Mega/Gigawatts for specific renewable generation, including solar or wind. It is also possible for average homeowners to get a share of the REC pie. Within roof-top, or distributive solar markets for example, homeowners who buy solar arrays outright become generators themselves, and are able to report, track and trade SRECs through revenue grade SREC meters (installed close to upgraded residential net meters) with optional help from aggregator firms. A recent form of wealth management, SREC advising has emerged as a service, both internally for large energy companies and for outside consultations. Mandated percentages vary by state, but the pricing mechanisms generally follow a supply curve, whereby the greater the demand for renewables (the further a state program is from meeting it’s RPS target) and fewer the supply of renewable generators, the more valuable the Renewable Energy/Electricity Certificate. Since the establishment of RPS standards within the last few decades, renewable electricity production has grown incrementally. Many speculate that future growth of the renewable energy sector is contingent upon policy instruments like the Renewable Portfolio Standard, alongside technological advancements in the push for resilient renewable electricity portfolios.
State initiatives to addressing Carbon Emissions Part two; Rethinking Fossil Fuel Subsidies
When the topic of energy subsidies arises, most people think of funding renewables; conjuring up a divergence of opinion between concerned renewable energy advocates and fiscal hawks. But what if a crucial piece of the picture is being left unexamined? Namely, that the fossil fuel industry has been granted numerous government subsidies for operations, at the expense of taxpayers. Let’s explore these lesser known subsidies, and the idea of eliminating them to partially even the playing field and favor cleaner types of energy.
The energy industry is a contested one, and for renewable sources and advanced atomic reactors, capital construction and project costs can be the deciding factor for gaining investors. Recently published joint researching efforts by Earth Track and Oil Change International uncovered comprehensive data on subsidies at various levels of government, and the result is fiscally substantive. To briefly cover the federal level; subsides include tax deductions for oil spills, tax exemption for firms under the Master Limited Partnership, royalty- free drilling along federal lands, reduced prices on land leases, and the omission of tar sands from the Oil Spill Liability Trust Fund. These basic subsidies total around 15 Billion. On the state level, the most conservative estimated yearly average for 2015 and 2016 (meaning estimates that do not include any indirect subsidies or externalities) reach 5.8 billion dollars.
And not all of these subsidies have gone unnoticed. Last year Alaskan citizens prompted their legislature to recognize and reverse fossil fuel subsidies. This was achieved through HB 111, which repealed cashable credits designed to facilitate oil exploration and development. However, this year, to bail out Alaskan oil companies (and following the discovery of artic field reserves), the state is buying back these outstanding oil credits for operations to the tune of 1 billion taxpayer dollars. Several critics viewed this shift as backtracking from key commitments. Of course, proponents point out that when such a familiar employer struggles, a bailout can be justified. Yet, many of these same proponents believe in non-interventionist market capitalism, especially when it come’s to the renewable energy sector.
The real problem with the persistence and scope of these benefits are that they work counter to other means of pursuing clean energy advancements at the state level, like Renewable Portfolio Standards, renewable and zero emissions credit programs, and the Regional Greenhouse Gas Initiative (which will be covered in part 3). Therefore, many argue that eliminating fossil fuel subsidies as expenditures is the clearest and most basic commitment to transitioning to a cleaner energy future.
State Initiatives to Addressing Carbon Emissions Part 3: Regional Greenhouse Gas Initiative (RGGI)
The Regional Greenhouse Gas Initiative is a multi-state agreement between governors from nine northeastern states to tackle pollution. Unlike state efforts to scale renewables, The RGGI is a direct tax on carbon dioxide emissions from electric power plants of 25 MW or more. The RGGI is also known as the “cap and trade” approach. The idea behind cap and trade is that each state limits (or caps) the total tons of carbon dioxide power plants can emit each quarter. This limit is then divided into allowances (per ton) to be purchased through industry auctions every 3 months.
Mandatory reporting takes place through CO2 Allowance Tracking System (COATS) in 3-year compliance period time-frames, whereby facilities essentially pay to hold permits. These allowances are tradable, so if compliance entities decarbonize and increase efficiency they can sell extra permits for profit (although this requires the cost of retrofitting and upgrades to be lower than the profit from selling allowances). If their emissions exceed their permits, the plant faces a fine, but allowances can be saved for future use. March 2018 prices per ton were $3.79. Since polluters bought 13,553,767 of these allowances (the total amount permitted by 9 RGGI states) the auction raised $51,368,776.93 in three months; a relatively substantial sum.
The cap is designed to decline every year, however issues with the cap have been roundly noted. Although the RGGI was established in 2005, Budget Training Program caps have only recently been placed lower than emissions. In other words, the cap on allowable carbon was way higher than what plants were actually emitting! This change was corrected in 2014. Annual reduction rates are now placed at 2.5 percent per year from 2015 to 2020.
Despite fiscal success in funding clean and affordable energy projects by auction revenue, setting high caps on already massive GHG markets has been criticized as far too lenient. This view is reflected in recent congressional data which suggests the impact of RGGI state policy in reducing carbon emissions has been “negligible”. However, analysts are somewhat split on the RGGI. This is because reductions in carbon emissions have occurred since the RGGIs inception, but it is quite tough to isolate the effect of direct RGGI influence alongside other factors, like displacement of coal for natural gas and the previously covered RPS requirements.
One of the most comprehensive studies on the RGGI impact measured emissions from 2005-2012 and isolated these individual factors. Researchers’ simulations suggest that emissions would be, “24% higher in the RGGI region if the RGGI program were not in effect; conversely, they are 19% lower due to the program*. Curiously, the timeframe of this study took place before the 45 percent reduction cap in 2014 and adjusted emissions goals, suggesting the program may have encouraged decarbonization from purchased allowances alone. By extending the RGGI agreement to other US states, analysts could gather more data, and make impact assessments more conclusive. Of course, to maintain the integrity such an initiative, auction revenues must be earmarked for bill assistance and clean energy efforts. Nevertheless, it is easy to imagine this mechanism working under the adoption of ambitious, low carbon caps, which translate into higher auction prices. A robust RGGI program may also serve as a means to reinforce Renewable Portfolio Standard requirements.
*Why have greenhouse emissions in RGGI states declined? An
econometric attribution to economic, energy market, and policy factors
Brian C. Murray a,b, Peter T. Maniloff c,Nicholas Institute for Environmental Policy Solutions, Duke University, USA, 2015