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As regular readers of ClimateIntel are aware, the Waxman-Markey draft bill—the American Clean Energy and Security Act of 2009 (ACESA)—contains sweeping provisions to reshape the domestic energy landscape.  ACESA would establish an economy-wide greenhouse gas (GHG) cap-and-trade program to reduce GHG emissions 20 percent from 2005 levels by 2020 and 83 percent by 2050. The bill contains a host of other provisions, such as a low-carbon fuel standard, funding for carbon capture and sequestration technologies and a federal renewable electricity standard (RES). While the bill is expected to change in form in the coming months as it goes through the markup process, there is a growing consensus that certain energy provisions, including the RES, could well become law in this Congress.

That an RES is contained in ACESA highlights the central role renewable energy will play in a low-carbon future. Currently, half of U.S. states mandate that utilities and retail electricity providers procure annually increasing percentages of renewable energy. State programs vary substantially with respect to the percentage of renewable energy required, the definition of eligible renewable energy resources and the ability to use out-of-state resources, or credits, to fulfill compliance obligations.

The RES proposed in ACESA would require renewable electricity in amounts exceeding most state requirements, beginning at 6 percent in 2012 and incrementally increasing to 25 percent by 2025. Retail electricity suppliers with annual sales in excess of 1 million megawatt hours (MWh) would be subject to the federal requirements. Eligible renewable energy resources exclude certain resources qualifying under state programs; specifically, low-carbon fossil fuels and nuclear energy are ineligible. For states disadvantaged in meeting the RES, a governor of any state is allowed to meet one-fifth of the renewable goal through energy efficiency measures. All eligible renewable resources, new or existing, are eligible to meet the utility’s compliance obligation.

To track and verify compliance, the Waxman-Markey legislation would create a federal tradeable renewable electricity certificate (REC) program. Utilities would be required to submit RECs for each MWh of their renewable energy obligation. If covered utilities do not meet their compliance obligation, alternative compliance payments are required. These payments are capped at $50/MWh, effectively serving as a ceiling on the price of RECs. Civil penalties equivalent to double the federal alternative compliance payment apply to entities failing to comply with the RES for each deficient MWh.

While most renewable energy projects would receive 1 REC per MWh of production, the Waxman-Markey legislation incentivizes small distributed renewable energy projects under 2 MW through triple bonus RECs. The bill would also allocate RECs between a renewable energy generator and retail supplier, where renewable energy generator receives financial support from a retail electric supplier pursuant to a state renewable electricity program. Unlike the Senate Energy and Commerce majority draft RES legislation, the House version proposes no bonus RECs for renewable generation from facilities on Indian land.

The Senate majority’s draft RES legislation generally requires all electric retailers in the continental US  to participate in the RES. The Senate version has a lower renewable electricity target: 4 percent in 2011, increasing to 20 percent in 2021. Utilities may meet their compliance obligation with new and existing renewable energy.  Unlike the Waxman-Markey legislation, however, tradable RECs would be issued only for renewable energy facilities placed into service after January 1, 2006. The Senate discussion draft proposes double RECs for generation from facilities on Indian land and triple credits for generation from small renewable distributed generators. Through a compliance penalty ceiling, RECs under the Senate version are effectively capped at $30/MWh. The Senate version provides an expanded role for energy efficiency programs, allowing utilities to meet up to a quarter of renewable energy compliance obligations through efficiency

The RES has raised controversy among the Southeast Congressional delegation, who generally contend that their region lacks the sufficient renewable energy resource to comply with an RES.  Others question the wisdom of adopting an RES if utilities are also required to adopt binding carbon targets.  As the legislation moves through the houses of Congress, ClimateIntel will be analyzing these issues.

This entry was posted on Thursday, May 7th, 2009 at 10:42 AM and is filed under Energy, GHG Regulation, US Law and Policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.