by Ari Peskoe
Senator Jeff Bingaman of New Mexico, Chairman of the Energy and Natural Resource Committee, introduced the Clean Energy Standard Act of 2012 on March 1. If passed by Congress, the legislation would require electric utilities to procure an escalating percentage of the electricity that they sell to consumers from “clean energy” sources beginning with24 percent in 2015 and rising to 84 percent by 2035. The legislation would also establish a national trading program for clean energy credits that could be used by utilities to demonstrate compliance.
Clean energy, as defined by the Act, can come from a range of sources. Clean energy includes electricity generated by a source placed in service after December 31, 1991, that uses natural gas, hydro, nuclear, qualified waste-to-energy, qualified biomass or renewables (solar, wind, geothermal, current, wave, tidal or ocean). Clean energy also includes any generation source placed in service after the enactment of the Act whose carbon intensity is less than .82 metric tons of CO2 equivalent per megawatt-hour, or that is qualified combined heat and power. Nearly all currently operating nuclear plants would not generate clean energy under the Act because they were placed in service prior to 1992.
A generation source with zero carbon emissions would earn one credit for each megawatt-hour generated. A generation source with a carbon intensity greater than zero but less than .82 would earn credits at a rate proportional to its intensity divided by .82. Electricity generated by nuclear or hydro sources put in service prior to 1992 is not included in the quantity to which the percentage requirement applies. As an example, if an electric utility sells 10 million megawatt-hours of electricity in 2015, 4 million of which is generated by nuclear reactors placed in service prior to 1992, that utility would be required to hold 1.44 million clean energy credits (6 million x .24).
Bingaman’s previous national energy standard legislation introduced in 2010 focused exclusively on renewables and would have required all utilities to procure 11 percent of their electricity from renewable sources. Bingaman’s 2012 legislation tracks a proposal President Obama made in his 2011 State of the Union address when he said, “[b]y 2035, 80 percent of America’s electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need them all…” Although neither the President nor Senator Bingaman said so explicitly, both proposals effectively mandate a reduction in coal-fired generation. Nearly all non-coal generation sources qualify as “clean” with the caveats that under Bingaman’s 2012 proposal a source qualifies as clean only if it was placed in service after 1991, and Obama did not define whether “clean coal” requires carbon capture technology, which does not currently exist commercially in the U.S.
Applying the legislation’s requirements to current state-by-state data on electricity generation shows that 19 states would currently fall short of the 24 percent requirement. It is likely that many utilities in these states will have difficulty meeting the minimum percentage by 2015 without purchasing credits on the national market. Bingaman’s legislation would, in the short-term, require utilities in these 19 states either to buy credits from generators in the other 31 states or pay the federal government an alternative compliance payment. These payments may lead to slightly higher electricity rates in these nineteen states, but the price of electricity is below the national average in 16 of these states.
Given the current hostility in Congress to regulations on carbon emissions and the fact that it is an election year, Bingaman’s legislation is unlikely to become law in 2012. The legislation is relevant nonetheless as a reflection of the latest shift in tactics by clean energy advocates in Washington.