Climate Bill's Renewable Electricity Standard Severely Weakened; May Have Little to No Impact

Originally posted at the Breakthrough Institute

Advocates of the Waxman-Markey American Clean Energy and Security Act (H.R. 2454, or "ACES" for short) argue that the bill is far more than just a climate bill. It's a comprehensive piece of clean energy, efficiency and climate legislation, and taken as a whole, they argue, it should be considered transformational -- even if the cap and trade portion of the bill may have been significantly weakened (see Breakthrough's detailed analysis of the ACES cap and trade program here).

The ACES bill does indeed include many provisions to set a new course for our nation's energy policy, including efficiency standards and regulations, authorization for new programs aimed at modernizing the nation's electricity infrastructure and paving the way for plug-in hybrid and electric vehicles, and a national renewable electricity standard. Many of these will move America in the right direction.

But the question remains: will ACES really be transformational? And will it propel American quickly away from business as usual and towards the prosperous clean energy economy and dramatic emissions reductions we need?

Breakthrough's team has taken a close look at the bill's cap and trade provision, and discovered that the combination of offset provisions and a little-known provision called the "strategic reserve pool" could allow U.S. emissions to greatly exceed the supposed emissions "cap" set by the legislation.

Here we examine one of the other major provisions of the ACES bill, the national renewable electricity standard (RES) established by Title I of the bill. Unfortunately, our analysis concludes that the RES has been severely weakened since initially proposed in the discussion draft version of the ACES bill; as it now stands, the RES may barely increase U.S. renewable electricity generation compared to business as usual projections.

The discussion draft version of ACES, originally circulated on March 31st, contained a renewable electricity standard with a nominal target of 25% of U.S. electricity generation from qualifying renewable sources by 2025.

I say nominal target, because several exemptions and specifications mean the 25% standard does not apply to all U.S. electricity generation. An April 2009 U.S. Energy Information Administration (EIA) analysis of the originally 25% by 2025 standard concluded that it would really only require 21% of U.S. electricity generation from renewable sources in 2025, after excluding the small utilities exempted from the requirement (any utility that provides less than 1 billion kWh of electricity sales in a given year) and after excluding electricity served by existing hydropower (as the bill specifies).

Furthermore, the original standard allowed a governor of any state to petition the federal government to reduce the renewable electricity requirement for utilities serving their state by 1/5th (to 20% by 2025) if they instead require utilities to achieve 5% energy efficiency savings as a substitute. If this provision were fully utilized, the renewable electricity requirement could have fallen to 16.8% of total U.S. electricity sales in 2025.

That's where things stood at the end of March. But as the ACES bill moved through backroom negotiations and the Energy and Commerce (E&C) Committee markup process, the renewable electricity standard was severely weakened.

As passed by the E&C Committee, ACES (H.R. 2454) replaces the 25% by 2025 renewable electricity requirement with a combined 20% renewable electricity (RE) and energy efficiency (EE) requirement by 2020 (continuing each year thereafter).

Again, this 20% target is nominal though, and after exempting small utilities and hydropower again, it really applies to just 16.8% of total U.S. electricity sales in 2020. (Actually the exemption is worse than that, since the threshold at which small utilities are exempted was expanded to exempt utilities selling less than 4 billion kWh of electricity each year vs 1 billion kWh in the discussion draft. I am unable to calculate the effect of this expanded small utility exemption however, and continue to rely on the EIA analysis as the basis of my calculations, which factors in the lower 1 billion kWh exemption figure. In short: this is a slightly optimistic analysis when it comes to exemptions.)

Since this is a combined RE and EE standard, up to one quarter of the requirement (i.e. 5 percentage points in 2020) can be met with certified energy efficiency savings instead of renewable electricity generation. This means the renewable electricity requirement is really just 15% by 2020 nominally, and applies to just 12.6% of U.S. electricity sales in 2020 after exemptions.

Furthermore, like the discussion draft version, the new standard allows governors to petition to allow further energy efficiency savings to be substituted for the renewable electricity requirements. If utilized, the renewable electricity requirement would be cut back to 12% by 2020 with an 8% energy efficiency requirement. After again excluding exemptions, the renewable electricity requirement would apply to as little as 10.1% of U.S. electricity generation in that scenario.

The following table summarizes and compares the nominal and real targets of the ACES discussion draft version and the H.R. 2454 version as passed by the House E&E Committee (click to enlarge)...

It is also worth noting that the cost containment provision in the renewable electricity standard have also been weakened/lowered (yes, like all cap and trade regulations, renewable electricity requirements always contain some form of cost containment). The provision, known as an "alternative compliance payment", allows utilities to pay a per megawatt-hour (MWh) fee instead of providing proof of qualifying renewable electricity generation. The alternative compliance payment was cut in half from $50 per MWh in the discussion draft version to $25 per MWh in the new version. That means that if complying with the standard is more expensive than simply generating dirty or non-qualifying electricity and paying the $25 per MWh (2.5 cents per kilowatt-hour) alternative compliance payment, utilities will choose to generate less renewable electricity than the supposedly required by the standard.

We've updated the April EIA analysis of the discussion draft version of the ACES renewable electricity standard to reflect all of the above changes and calculate the effects of the standard now contained in H.R. 2454. We also compare these results with EIA's business as usual estimates of qualifying renewable electricity generation (recently updated to reflect the impacts of the recession and stimulus) to estimate the real impact of the new ACES renewable electricity requirements. As with all of our ACES analysis, all our calculations and assumptions are available for download as a spreadsheet (.xlsx) here, and our results are shown in the graphics below.

We conclude that as it now stands, business as usual renewable electricity generation may exceed the renewable electricity requirement if the discretionary efficiency waivers are fully utilized, and will boost qualifying renewable electricity generation to just 2 percentage points higher than business as usual in 2025 if the efficiency waivers aren't utilized at all. In short, the ACES RES will have between little to no impact on renewable electricity generation through 2025 (little impact in a normal scenario and no impact in the worst-case scenario permitted by the legislation; note that this doesn't even factor in the potential use of alternative compliance payments to further reduce renewable electricity requirements...) See graphics below (and click any to enlarge)...

We also compared the amount of qualifying renewable electricity required by the two version of the renewable electricity standards, and conclude that the H.R. 2454 version of the renewable electricity requirement, as passed by the E&C Committee, is 14% weaker than the originally proposed discussion draft standard in 2020 and 40% weaker in 2025, as illustrated in the graphics below...

It's no wonder neither the American Wind Energy Association or VoteSolar are particularly exuberant about the passage of the ACES bill through the Energy and Commerce Committee.

Here's AWEA's remarks on the renewable electricity standard:

The bill passed by the Committee includes an RES of 20% by 2020, permitting states to allow up to 8% of the standard to be met through energy efficiency improvements. AWEA has indicated that while it hails the recognition of the importance of a national RES, such a low level - less than one-half the level originally proposed by President Obama and in Chairman Markey's original discussion draft -- could severely blunt the signal to the private sector to invest billions of dollars and expand production, manufacturing, and job creation.

And here's VoteSolar:

Nearly any policy action that encourages more renewable energy is A-OK with us. ... However, as currently written, none of the pending RES policies will deploy significant amounts of solar. According to the Department of Energy's analysis of that 25 percent RES by 2025, which again is much stronger than the compromise goals emerging from Committees, the federal RES structure could lead to a 35 percent increase in solar compared to a 678 percent increase in wind. When you're starting at 0.001 percent, 35 percent growth doesn't amount to much.

[Update 5/29/09]: The National Renewable Energy Laboratory completed an analysis [pdf] of the renewable electricity standard being considered in the Senate's Energy and Natural Resources Committee. The provision, sponsored by Senator Jeff Bingaman, Chairman of the ENR Committee, is largely consistent with the provisions in the ACES RES.

Like the ACES RES, the Bingaman RES would implement a 20% nominal renewable electricity requirement, but in 2021 instead of 2020. Other provisions, including exemptions for utilities serving less than 4 billion kWh of load each year and for load served by hydroelectric power, are consistent between the two versions of standards. Also like ACES, up to 25% of the requirement could be met with efficiency savings instead of with renewable electricity. After all of these exemptions, NREL concludes that the Bingaman RES would implement a real effective renewable electricity requirement applying to just 12.1% of total U.S. electricity sales in 2030.

NREL analyzed the effect of the Bingaman RES and ran their own baseline assumptions for business-as-usual estimate of qualifying renewable electricity growth due to existing state renewable electricity standards and federal and state renewable energy deployment incentives. NREL concludes, as our independent analysis of the ACES RES does, that the Bingaman RES would require less renewable electricity generation in 2030 than their business-as-usual forecast - 638 terawatt-hours of qualifying renewables in 2030, vs 699 terawatt-hours in the BAU scenario.