January 01, 2015

Tipping Points: Carbon Rule Can Spur Clean Energy

Jim Murphy

In June, the Obama administration proposed the first-ever rules to govern carbon emissions from electric generating units, the largest carbon-polluting sector for the U.S. economy. These rules are occurring pursuant to the Clean Air Act and the result of key cases brought before the Supreme Court that clearly established that carbon is an air pollutant that requires regulatory action from the Environmental Protection Agency (EPA). If done right, these rules will stand as a strong force to change the trajectory of our country’s carbon emissions and greatly accelerate the transition to a clean energy economy.

These rules come in the wake of serious failures on the part of Congress to address the increasingly dire climate crisis that is already bringing more destructive storms, droughts, wildfires, and costs to communities and natural systems. Despite Congress’s failure, market breakthroughs, spurred in large part by regional and international efforts to spur renewable energy, and successful efforts to oppose fossil fuels like coal have started to show that renewables can out-compete dirty sources of energy and come online much more rapidly than previously thought.

Wind and solar are the fastest growing sources of energy generation, far surpassing what was thought possible just a few years ago. Conservation efforts continue to reduce demand. In contrast, coal use in the country is declining, coal plants are shuttering, and new plants are not being built.

EPA’s rulemaking, labeled the Clean Power Plan, presents a critical opportunity to rapidly speed this ongoing transition by reducing emissions and spurring investment in renewable energy sources that will remake the grid. The rules are being promulgated pursuant to the Clean Air Act, one of the nation’s most successful statutes, protecting Americans and wildlife from dirty air, smog, and acid rain, spurring innovation, and saving countless dollars from pollution-related problems, including serious health conditions.

While Congress was stalling, states and advocacy groups believed EPA had substantial existing power to address carbon emissions. They were right. In a landmark Supreme Court case seven years ago, Massachusetts v. EPA, 549 U.S. 497 (2007), the Justices found that greenhouse gases were pollutants regulated under the Act. This ruling meant that if EPA found that carbon pollution endangers public health and welfare, EPA must limit their emissions from new cars and trucks.

In 2009, based on the overwhelming evidence, EPA found that carbon pollution does endanger public health and welfare. As a result, in 2010 and 2012, EPA set tough new standards to reduce carbon pollution from new cars and SUVs, as well as from trucks and buses.

In 2011, the Supreme Court ruled in American Electric Power v. Connecticut, 131 S. Ct. 2527 (2011) that EPA must also cut carbon pollution from the nation’s power plants. This authority comes under section 111 of the Clean Air Act, which directs EPA to set performance standards for power plants and other stationary sources. Section 111 has two primary parts. Section 111(b) governs new facilities that have not been built (EPA has already put forth proposed rules to reduce emissions from new plants). Section 111(d) covers existing power plants.

For existing power plants, EPA issues guidelines setting forth the “best system for emissions reductions.” States then have to adopt and submit a plan to achieve these reductions. EPA must approve the plan, and a state’s failure to submit an acceptable plan results in EPA putting a plan in place for the state.

EPA’s proposal builds on the flexibility that the Clean Air Act allows different states and regions maximum flexibility to reduce emissions using an array of options. States will be responsible for meeting an overall reduction goal, which will vary state to state depending largely on the fuel mix of the state. In short, the rule will allow states to achieve cuts by: (1) improving the performance of existing plants; (2) shifting to increased reliance on cleaner plants; (3) promoting increased use of nonemitting renewable energy sources; and (4) efficiency measures that reduce energy demand. The rule also encourages states to achieve emissions reduction goals by creating regional cap-and-trade, like the existing Northeast’s Regional Greenhouse Gas Initiative (RGGI). RGGI has been very successful and recently tightened target goals because of its success in well exceeding the original goals.

The rules are notable to allowing an “outside the fence” approach, or one that promotes systemswide solutions to achieve emissions reductions rather than only regulating the end-of-the-stack. This approach gives incentives for states to rapidly develop renewable energy sources and promote energy efficiency to reduce their overall carbon pollution emissions.

But this is also where EPA must pay more attention to what the market is increasingly telling us is possible. Overall, when implemented, EPA estimates that its current proposed standards will reduce carbon pollution 26 percent below 2005 levels by 2020 and 30 percent by 2030. A closer look shows that the formula EPA has employed for determining potential reductions from increased use of renewable energy leaves an enormous amount of affordable and achievable carbon pollution reduction on the shelf.

In creating each state’s emission target, EPA made assumptions about what is reasonably achievable in terms of deployment of renewable energy, which are unnecessarily conservative and in some cases put artificial constraints on the growth rate for states that may have much more growth potential.

EPA grouped states into six regions and then assumed that each state would only increase renewable energy at a level based on the average Renewable Portfolio Standard requirements currently in place in that region. Renewable Portfolio Standards are policies many states have in place that set goals for a certain percentage of the state’s energy mix to come from renewable sources. EPA’s averaging underestimates the potential to achieve deep and fast reductions in emissions through rapid growth of renewable energy sources. In fact, the formula EPA uses is so tepid that it results in setting potential rates for renewable generation in Iowa, Maine, Minnesota, North Dakota, and South Dakota that those states have already exceeded.

Even where such conservative math does result in reductions, setting more ambitious goals is completely reasonable and sensible given demonstrated trends. This is evident in places such as in Germany, which now generates more than 30 percent of its power from renewables, showing that once renewable generation starts coming on line, it can quickly become cost competitive and achieve an accelerating portion of market share. See Caroline Winter, Germany Reaches New Levels of Greendom, Gets 31 Percent of Its Electricity From Renewables, Business Week (Aug. 14, 2014). Here, thirty-eight states already have renewable energy standards or goals—which mandate that a certain portion of the state’s energy mix come from renewable sources—and seventeen of those states require that 20 percent or more of the state’s energy come from renewables. These efforts have already led to dramatic cost reductions.

While renewable energy sources like wind and solar make up an increasing share of the U.S. power sector, they still only provide a relatively small fraction of the total. Meanwhile, highly polluting coal provides 37 percent of our power. But a shift is clearly occurring as market forces and more competitive prices are leading to a rapid increase in renewable energy growth. The price of solar panels has dropped 70 percent in the last five years and solar is now seen as an economical way to power houses and businesses and one that can protect people from the vulnerabilities of the grid. As a result, solar was the fastest growing new source of electrical generation in 2012. Solar Energy Industries Association, U.S. Solar Market Grows 76% in 2012: Now an Increasingly-Competitive Energy Source for Millions of Americans Today (Mar. 13, 2014).

Yet, EPA does not fully account for the possibility of rapidly expanding distributed solar or promising renewable sources like offshore wind that could prove to be quick game-changers. For instance, the National Renewable Energy Laboratory estimated that untapped offshore wind resources in this country are so abundant they could power the entire country. NREL, Large-Scale Offshore Wind Power in the United States: Assessment of Opportunities and Barriers (Sept. 2010). However, not a single turbine spins off our coasts, though progress is being made with projects off New England nearing construction phases.

Worldwide, one of the biggest challenges—the intermittent nature of renewables—is being addressed through advances in battery storage, development of sources like offshore wind where the wind is more constant, and the possibility of transmission from multiple sources. As with the price of solar panels, it is almost certain that these technologies will hit a point where they will quickly become cost competitive once enough investments are made and market demands them.

The twenty-first century energy structure is upon us and taking shape. It will bring jobs, reduce pollution, and create real energy security by freeing us from the many downsides of fossil fuels. And all signs indicate this future will come quickly once we hit a certain tipping point of demand.

The question is whether we can create this future in time to avert another tipping point, that of runaway climate change. This is where policy levers can make a difference. By expecting more of states and regions in advancing renewable energy as a compliance tool for the carbon rule, EPA can do a lot to make sure we cross the tipping point to a renewable energy future in time to steer clear of the tipping point on climate we cannot afford to hit.

Jim Murphy

Mr. Murphy is senior counsel for National Wildlife Federation and a member of the editorial board of Natural Resources & Environment.