Tom Burton, Chair of Mintz Levin’s Energy Technology Practice, will publish a weekly installment providing insight into the challenges and possible solutions that, if implemented, promise a bright future as clean energy moves America forward. In this series, Tom will include one challenge per week and the potential solution(s). This is the third installment of the series. Click to read Part I and Part II.
On August 3, the Obama Administration released the much anticipated final Clean Power Plan (CPP). The nation’s first ever standard to address power plan pollution has an ambitious overall goal of reducing CO2 emissions by 32% from 2005 levels by 2030. The plan’s third building block specifically calls for increasing generation from renewable energy sources. States are expected to develop and implement their own plans. They are to choose from either an emissions standards model, based on direct emissions requirements, or a state measures model, which employs a mix of measures, that incorporates the three building blocks.
States that do not file a plan with EPA by their September 2018 deadline will face a federally imposed model called the Federal Implementation Plan (FIP). The FIP the Administration currently proposes would realize similar emissions reductions through cap and trade. EPA would either assign an emissions cap or require states to meet a rate across their power plant fleet. Currently, EPA is accepting comments on the FIP and will decide on an approach next summer. It’s been characterized as both a guide path as states craft plans and also a warning for non-compliers.
The Clean Power Plan comes with some intimidating issues, but offers several attractive opportunities for states, businesses, and consumers.
Problems: Increased Generation Costs and an Infrastructure Gap
One often cited concern with the CPP is that the plan will cause generation costs to skyrocket both on the producer and consumer side. While EPA estimates power prices will only rise 3% until 2020 and then fall 9% by 2030 due to increased efficiency, National Economic Research Associates (NERA) estimates a 12% retail power increase from 2020-2030, and the Clean Air Task Force estimates an almost 7% increase over the same time period.
Fueling these cost anxieties are shifts in the types of generation. As old forms of energy generation give way to new, states must invest in adequate infrastructure. EPA projects coal unit retirements to double by 2030 as states make way for gas and renewables. Generators will rely on greater gas pipelines, wind turbines, and distributed generation.
Opportunities: Regional Partnerships and Corporate Leadership
To meet CPP goals, states will have to price carbon through market based programs. EPA gives states the option to collaborate with other states on multi-state approaches, including emissions trading to address CO2 emissions. This follows the agency’s long-running contention that perhaps the most cost-effective way states can meet their goals is via emissions trading. The Northeast’s own Regional Greenhouse Gas Initiative (RGGI) provides a great example. Formed in 2003, the program is a collaborative effort between nine states to reduce emission through cap and trade. Since the first three year compliance period began in 2009, RGGI has had much success, including:
- Over $1 billion in RGGI investments that are expected to return more than $2.9 billion in energy bill savings to 3.7 million households and almost 18,000 businesses.
- A 40% reduction in power sector emissions for participating states since 2005, with 8% regional economic growth.
Corporations also have an opportunity to benefit from the CPP. As states search for emissions reductions to meet the 32% goal, companies can take credit for projects undertaken since June 2014 that have or will reduce CO2. Government will increasingly look to both companies producing technologies that have widespread emissions reduction potential and corporations who are leading the way in energy efficient practices. Before the CPP announcement, 43% of Fortune 500 companies had set emissions reduction targets, with more expected to follow.