[Senate Hearing 112-466]
[From the U.S. Government Printing Office]
S. Hrg. 112-466
CLEAN ENERGY
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
TO
RECEIVE TESTIMONY ON S. 2146, THE CLEAN ENERGY STANDARD ACT OF 2012
__________
MAY 17, 2012
Printed for the use of the
Committee on Energy and Natural Resources
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington MIKE LEE, Utah
BERNARD SANDERS, Vermont RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan DANIEL COATS, Indiana
MARK UDALL, Colorado ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Dickenson, James A., Managing Director and Chief Executive
Officer of JEA................................................. 60
Gibson, Thomas J., President and CEO, American Iron and Steel
Institute...................................................... 52
Greenwald, Judi, Vice President, Technology and Innovation,
Center For Climate and Energy Solutions, Arlington, VA......... 39
Gruenspecht, Howard, Acting Administrator, U.S. Energy
Information Administration, Department of Energy,.............. 9
Murkowski, Hon. Lisa U.S. Senator From Alaska.................... 3
O'Mara, Collin, Secretary, Delaware Department of Natural
Resources and Environmental Control, Dover, DE................. 47
Palmer, Karen, Research Director and Senior Fellow, Resources for
the future..................................................... 33
Sandalow, David B., Acting Under Secretary of Energy and
Assistant Secretary for Policy & International Affairs,
Department of Energy........................................... 4
Trent, Keith, Group Executive and President, Duke Energy
Commercial Businesses.......................................... 57
APPENDIXES
Appendix I
Responses to additional questions................................ 77
Appendix II
Additional material submitted for the record..................... 95
CLEAN ENERGY
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THURSDAY, MAY 17, 2012
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:33 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. OK, why don't we get started? Thank you all
for coming.
Today our hearing is on S. 2146, the Clean Energy Standard
Act of 2012. This is a bill I introduced with a number of our
colleagues. I think there are 11 of us on the bill. Its co-
sponsors: Senators Wyden, Sanders, Mark Udall, Franken, Coons.
Several who are not on our committee are also co-sponsoring the
bill, Senators Kerry, Whitehouse, Tom Udall and Senators
Feinstein and Merkley.
So the purpose of the Clean Energy Standard is to establish
a national standard for electricity that would make sure that
we leverage the clean resources that we have today and would
also provide a continuing incentive to develop cheaper and
cleaner energy technologies in the future. By design it would
drive continued diversity in our sources of energy. It would
also allow each region to deploy clean energy using resources
appropriate to that region. The Clean Energy Standard does this
in a way that is intended to support homegrown innovation and
manufacturing and keep America competitive in the global clean
energy economy.
This is not the first Clean Energy Standard to be proposed.
It's certainly not intended as a partisan proposal. In the last
Congress during the discussion of a renewable electricity
standard, in fact we had a lot of discussion about that in this
committee, several members on the Republican side publicly
voiced their support for a more inclusive standard, not just
focused on renewable energy, but on other types of energy as
well including nuclear power and hydro power and a variety of
other options.
At the beginning of this Congress President Obama moved in
that direction by calling for a Clean Energy Standard in his
2011 State of the Union speech. He also addressed the proposal
again and urged Congress to move ahead on something of this
type in his 2012 State of the Union speech.
As part of the development process for the legislation we
received input from hundreds of stakeholder groups and
citizens. The Energy Information Administration conducted a
comprehensive set of policy analyses. The Clean Energy Standard
design was the topic of several academic workshops and industry
meetings.
We tried to take all of that feedback and incorporate it in
what we have proposed.
The Clean Energy Standard will take all electricity
generating technologies that exceed the carbon efficiency of
the current state-of-the-art, super critical coal generation
and award them credits scaled to their relative improvement in
carbon intensity over that baseline.
Zero carbon sources such as nuclear and renewables will get
a full credit per kilowatt hour produced.
Advanced coal technologies such as oxy fuel combustion will
get partial credit.
Natural gas will get about a half a credit and so on.
Utilities that sell electricity at retail will acquire and
turn those credits in to meet a standard that overall will
start off being fairly easy to meet. The standard though, will
become cleaner and more stringent over time. The result is
intended to be a realistic and a predictable market pull on
advanced energy technologies. By having a long term,
predictable market for advanced electricity generation the
legislation is intended to provide innovators with confidence
and the ability to make their best case to investors and
project financiers.
This proposal is only 25 pages in length. It is, we
believe, simple and straight forward. We think it would also,
though, have a transformative effect in the power sector.
The Energy Information Administration projects that
adopting the CES would drive substantial amounts of clean
energy production across a diverse set of sources including
wind, solar, nuclear, biomass and natural gas. It would also
drive enhanced energy efficiency in particular in the
industrial sector.
EIA projects that it would reduce emissions from the power
sector by 20 percent below their reference case in 2025 and by
44 percent in 2035.
This mix of benefits has led to support for the legislation
from a diverse group of stakeholders. We will hear from some of
those today.
The discussion that we're having today on this policy
proposal is an important one to have. Even though we are in a
difficult political environment the challenges that the Clean
Energy Standard seeks to address and the ambitious goals that
it is intended to achieve are important ones for the country.
If we really want energy innovation to flourish here at home we
really need more predictable, long term policy signals. If
there are better ideas for how we should do that then what
we've proposed in this Clean Energy Standard, I hope we can
hear something about those today at the hearing.
Before I introduce the witnesses, let me call on Senator
Murkowski for any opening remarks she'd like to make.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. Appreciate you
scheduling the hearing, your focus on this as an issue.
Welcome to the witnesses. Thank you for being here.
I think one of the good things about this committee is the
quality of feedback that we receive here, the role that it
plays in informing our decisionmaking. Some of the issues that
we consider are, of course, pretty complicated. They require
considerable thought. A Clean Energy Standard, the subject of
this morning, is certainly one of those.
You've noted that the President's role in proposed a CES
when he mentioned this in his State of the Union address back
in January 2011. At that time I joined the Chairman in
releasing a White Paper, asking for feedback on it. I was
really, very impressed and appreciative with the responses we
received.
How adept the stakeholders were at exploring the very
specific challenges and opportunities associated with what was
a pretty general proposal. From threshold questions of what
resources should count as clean to who should be regulated
under a CES. We received a great deal of information. I truly
thank those who participated in that effort and the information
that they provided to us.
There was a lot of inquiry, work and patience. I think that
the Chairman has clearly benefited from that in getting to this
point with a bill now written, introduced, analyzed. While some
are fully convinced a Federal CES is the way to go, there are
quite a few others that disagree with that approach.
To me, the biggest question and the one that I hope we'll
have an opportunity to talk about this morning is whether the
American people really want a CES. Whether it's appropriate in
light of what States are already doing.
Now Mr. Chairman, you've mentioned that there have been
those that in the past have suggested that incorporating a
Clean Energy Standard, one that expands beyond the renewable
energy is something that others on both sides of the aisle have
mentioned and have encouraged. I acknowledge that I have been
one that says we need to look broader. But I ultimately decided
not to co-sponsor the bill for a couple different reasons.
The responses to the White Paper while again, very detailed
in their analysis and consideration, clearly lack sufficient
consensus. I think there's reasonable disagreement about
whether or not this type of mandate is appropriate at the
Federal level. There's some other things, other events.
First and foremost, we've been reminded of the importance
of affordable energy. Most of the focus lately has been on
gasoline prices, but electricity costs are also going up.
Bringing energy prices down, I think, should be our objective,
not driving them up today or in the future as some analysis
have projected that a CES would do.
I recognize that affordability is not the only goal. We all
want to have cleaner energy sources. Federal mandates, though,
are just one of the tools at our disposal. As it turns out I
think we recognize that they can be pretty blunt instruments.
In the energy space, in particular, Federal mandates make it
difficult to account for regional differences, consumer
preferences and international competitiveness.
Hanging over all of this is our more recent experience in
health care which shows just how unpopular mandates can be.
What we should remember is that we're not necessarily limited
to one policy or one option for addressing our energy
challenges. My preference would be to increase funding for
energy innovation with the revenues that we generate from
increased domestic production of oil, gas, coal, other
resources.
If we plan ahead, we could develop a long term policy that
allows those resources to work themselves out of a job by
paying for the commercialization of newer, cleaner
alternatives. In the meantime, we protect families, businesses
from added costs and burdens.
Finally I don't think we can have an honest conversation
about new energy policies without acknowledging, evaluating and
accounting for the slew of new, stringent regulations that are
being imposed under existing statutes. I think we need to
really critically assess this habit that we seem to have of
piling one policy on top of another. We need to kind of sort
through all that so that it's clear where the priorities are.
Mr. Chairman, I am happy to be here this morning. I hope
the conversation is merely a small part of a much larger one
about our Nation's energy goals and the most appropriate tools
for achieving them.
I thank you for your efforts in this area.
The Chairman. Thank you very much.
We have 2 panels of witnesses, the first 2 witnesses from
the Administration.
The Honorable David Sandalow, who is the Acting Under
Secretary of Energy and Assistant Secretary for Policy and
International Affairs in the Department of Energy.
Also Dr. Howard Gruenspecht, who is the Acting
Administrator and the Deputy Administrator with the Energy
Information Administration.
We will give them whatever time they need to make their
points. Then we will have some questions of them. Then we will
go onto the second panel.
So Mr. Sandalow, thank you for being here. Go right ahead.
STATEMENT OF DAVID B. SANDALOW, ACTING UNDER SECRETARY OF
ENERGY AND ASSISTANT SECRETARY FOR POLICY & INTERNATIONAL
AFFAIRS, DEPARTMENT OF ENERGY
Mr. Sandalow. Thank you, Chairman Bingaman and Ranking
Member Murkowski and all the members of the committee for the
opportunity to speak to you today about S. 2146, the Clean
Energy Standard Act of 2012 and the President's goal of
generating 80 percent of our electricity from clean sources by
2035.
Let me start by apologizing for my voice. If it cracks,
it's not due to emotion as strongly as I support the Clean
Energy Standard. But it's a persistent cold which is going
around, not just the Forrestal Building. But I understand from
somebody yesterday the Hill as well.
Members of the committee, we're currently engaged in a
global race to develop, manufacture and deploy clean energy
technologies. China, Germany, and many other countries are
investing heavily in clean energy. We can't risk falling
behind.
With American ingenuity and manufacturing know how we can
lead the world in clean energy. Let me repeat that. With
American ingenuity and manufacturing know how we can lead the
world in clean energy.
The President set forth an all of the above energy strategy
for the 21st century that develops every source of domestic
energy including clean energy. A core part of the President's
vision is his call for the U.S. to generate 80 percent of our
electricity from clean sources by 2035. A Clean Energy Standard
is a technology neutral approach to achieving that goal. It
works by setting a target and letting investors and
entrepreneurs determine the best and most effective
technologies to deploy to meet it. These include nuclear power,
clean coal, efficient natural gas generation and renewable
sources such as wind, solar, geothermal, hydropower and
biomass.
There are many ways to define a Clean Energy Standard to
meet the President's goal. There are many possible energy mixes
that could realize it. My colleague, Dr. Gruenspecht, from the
Energy Information Administration has shared with you some
modeling of Senator Bingaman's proposed approach.
I want to emphasize Dr. Gruenspecht's statement in his
testimony that EIA's modeling results represent one potential
future, but not the only one. Because the Clean Energy Standard
lets the market drive the outcome the evolution of clean energy
technologies over time will determine what our energy mix will
look like in 2035. As a result, the policies we put in place
and the investments we make now will play a large part in
determining that future energy mix. The President and the
Administration remain committed to making the investments in
innovation that will ensure abundant and affordable, American
made clean energy.
Mr. Chairman, the administration welcomes your leadership
in proposing the Clean Energy Standard Act of 2012 which is an
important step toward achieving the President's vision. We look
forward to working with the Chairman and with Congress on the
critical work of ensuring American leadership in the clean
energy economy.
So for my part I want to spend the balance of my time today
talking about the 5 principles which the President laid out in
the State of the--when he called for a Clean Energy Standard.
He's called for it twice, as you mentioned, Mr. Chairman, in 2
State of the Union addresses. He set forth 5 principles in his
blueprint for a secure energy future.
Those 5 principles are crediting a broad range of clean
energy sources, doubling the share of clean electricity over
the next 25 years, protecting consumers from rising energy
bills, ensuring fairness among regions and promoting new and
emerging clean energy technologies. So let me discuss each of
these principles in turn.
First, the President proposed including electricity
generated from a diverse range of clean energy sources
including renewable sources, nuclear power, efficient natural
gas plants and clean coal technologies that capture and store
carbon dioxide. In addition any clean generation technologies
developed in the future should be eligible for credit to
provide an incentive for innovators and entrepreneurs.
Second, the President proposed to double the share of clean
electricity over the next 25 years. He's proposed the goal of
generating 80 percent of our electricity from clean sources by
2035. That's a bold, but achievable goal that would roughly
double the share of electricity we get from clean sources. It
provides a critically, long term price signal to investors that
will reduce uncertainty and draw capital off the sidelines into
investments in the electric power sector creating jobs,
enhancing our national security and helping protect public
health.
The President's third principle is protecting consumers
from rising energy bills. In part this can be achieved by
drawing on a diverse range of energy sources and using a
steadily rising target that gives the market time to invest in
the most cost effective clean energy sources available. In
addition, key point energy efficiency plays a key role here.
The Administration supports a variety of complementary policies
and measures to accompany a Clean Energy Standard each tailored
to the unique challenges of the sector.
The President's fourth principle is ensuring fairness among
regions. Different regions of the country have relied on
different energy resources. The President's principles state
that any Clean Energy Standard should take these differences
into account, both regionally and across rural and urban areas.
The President's fifth principle is promoting new and
emerging clean energy technologies. Over the past 3 years the
United States has made substantial progress in clean energy.
We've nearly doubled the amount of electricity generated from
renewable sources such as wind, solar and geothermal. We've
enabled the world's largest wind farms and several of the
largest solar projects.
We're making good progress. But more needs to be done.
Government has an important role to play. But a market based
mechanism is the best tool to harness the ingenuity of the
American people and build our clean energy future.
That's why we need the Clean Energy Standard. By
establishing a market for domestic clean energy technologies
and providing a long term price signal, the private investors
need, we can move billions of dollars of capital off the
sidelines and into investments in the electric power sector
that will drive innovation and create jobs throughout the
economy.
Thank you, Mr. Chairman. I look forward to taking your
questions.
[The prepared statement of Mr. Sandalow follows:]
Prepared Statement of David B. Sandalow, Acting Under Secretary of
Energy and Assistant Secretary for Policy & International Affairs,
Department of Energy
Chairman Bingaman, Ranking Member Murkowski, and Members of this
Committee: Thank you for theopportunity to speak about S. 2146, the
Clean Energy Standard Act of 2012 (CESA), and how this relatesto the
President's goal of generating 80% of our electricity from clean
sources by 2035.
We are currently engaged in a global race to develop, manufacture,
and deploy clean energytechnologies. Countries like China and Germany
are investing heavily in clean energy, and we can't riskfalling behind.
With American ingenuity and American manufacturing know-how, we can
lead the worldin clean energy. The President has set forth an all-of-
the-above energy strategy for the 21st century thatdevelops every
source of domestic energy, including clean energy.
A core part of the President's vision is his call for the nation to
generate 80 percent of our electricity from clean sources by 2035. A
Clean Energy Standard (CES) is a technology-neutral approach
toachieving that goal. It works by setting a target and letting
investors and entrepreneurs determine thebest and most-effective
technologies to deploy to meet it. These include nuclear power, clean
coal,efficient natural gas generation, and renewable sources like wind,
solar, geothermal, hydropower andbiomass.
Of course, there are many ways to design a Clean Energy Standard to
meet the President's goal, andthere are many possible energy mixes that
could realize it. My colleague, Dr. Howard Gruenspecht fromthe Energy
Information Administration (EIA), has shared with you some modeling of
Senator Bingaman'sproposed approach. I want to emphasize his statement
that EIA's modeling results represent onepotential future, but not the
only one. Because a CES lets the market drive the outcome, the
evolutionof clean energy technologies over time will determine what our
energy mix will look like in 2035. As aresult, the policies we put in
place and the investments we make now will play a large part
indetermining that future energy mix. The Administration remains
committed to making the investmentsin innovation that will ensure
abundant and affordable American-made clean energy.
The Administration welcomes Chairman Bingaman's leadership in
proposing CESA, and looks forward toworking with the Chairman and with
Congress on the critical work of ensuring American leadership inthe
clean energy economy. For my part, I want to spend the rest of my time
today talking about thePresident's vision for a Clean Energy Standard,
which he first called for in last year's State of the Unionaddress and
proposed in more detail in the Blueprint for a Secure Energy Future,
released in March2011. In the Blueprint, President Obama set forth five
principles for a Clean Energy Standard. They are:
Credit a broad range of clean energy sources
Double the share of clean electricity over the next 25 years
Protect consumers from rising energy bills
Ensure fairness among regions, and
Promote new and emerging clean energy technologies
Let me discuss each of these principles in turn.
1. Credit a broad range of clean energy sources
In the Blueprint, the President proposed including electricity
generated from a diverse range of cleanenergy sources, including
renewable sources, nuclear power, efficient natural gas plants and
clean coaltechnologies that capture and store carbon dioxide. In
addition, any new clean generation technologiesdeveloped in the future
should be eligible for credit to provide an incentive for innovators
andentrepreneurs.
One way to achieve this principle of drawing on a diverse range of
energy sources is to assign full orpartial credit to generation
technologies based on a simple metric, such as emissions per unit of
output.As one example of how this can be done, CESA gives credit to all
the technologies I just mentionedbased on their carbon intensity
relative to a benchmark of 0.82 metric tons per megawatt-hour,
orroughly the same emissions rate as a modern supercritical coal plant.
2. Double the share of clean electricity over the next 25 years
The President has proposed a goal of generating 80% of our
electricity from clean sources by 2035. Thisis a bold but achievable
goal that would roughly double the share of electricity we get from
clean energysources. A Clean Energy Standard will provide a long-term
price signal to investors that will reduceuncertainty and draw capital
off the sidelines into investments in the electric power sector that
willcreate jobs, enhance our national security, and help protect public
health.
3. Protect consumers from rising energy bills
The President has also said that any CES should be tailored to
protect consumers from rising energy bills. In part this can be
achieved by drawing on a diverse range of energy sources and using a
steadily rising target that gives the market time to invest in the most
cost-effective clean energy sources available. In addition, energy
efficiency plays a key role here. The Administration supports a variety
ofcomplementary policies and measures to accompany a Clean Energy
Standard, each tailored to the unique challenges of a given sector.
These include energy efficiency standards; the ENERGY STARprogram;
appliance labeling; weatherization; tax credits, grants, and loans for
efficiency upgrades andenergy efficiency technologies; the proposed
Home Star rebate program; and partnerships with theprivate sector and
states and localities to improve building and industrial energy
efficiency.
The savings from these energy efficiency policies translate into
lower projected household energy bills in the future. In fact, EIA's
modeling projects that the average household will pay five dollars less
permonth for energy in 2035 than in 2011 under CESA, largely thanks to
our current energy efficiencypolicies. We can do even better by
realizing the full energy efficiency savings opportunity
throughsustained effort at the federal, state, and local levels.
While many of the energy efficiency opportunities can be tapped by
complementary policies, I want tocall out one important example of
clean generation that can also improve energy efficiency: combinedheat
and power (or CHP). CHP can lead to significant cost savings for
industrial energy consumers, helprevitalize America's manufacturing
base and reduce greenhouse gas emissions. That's why theAdministration
supports issuing clean energy credits to CHP generation, which is
something that CESAalso does.
Finally, there are additional CES design options that could further
reduce electricity prices forconsumers. In CESA, excluding older
generators from both crediting and obligation leads to a transfer of
money from consumers to these generators that increases over time. Such
transfers could be mitigatedby including these older clean sources in
utility obligations and giving them a partial credit that is smaller
than the rising implicit credit they receive under the approach taken
in CESA. Another option is toinclude an alternative compliance payment
(or ACP) that acts as a safety valve if costs rise unexpectedly.CESA
provides one example of how an ACP can be designed.
4. Ensure fairness among regions
Turning to the principle of fairness among regions, different
regions of the country have relied ondifferent energy resources. The
President's principles state that any CES should take these
differencesinto account, both regionally and across rural and urban
areas. Again, ensuring a diverse set of energysources is an important
part of meeting this principle, since it gives all regions of the
country theopportunity to tap their own sources of clean energy.
Another way to promote regional equity is byfocusing on new clean
generation, in order to give every region a similar starting point--
while at thesame time crediting states that have been early movers.
5. Promote new and emerging clean energy technologies
Over the past three years, the United States has made substantial
progress in clean energy. We'venearly doubled the amount of electricity
generated from renewable sources like wind, solar, andgeothermal, and
we've enabled one of the world's largest wind farms and several of the
largest solarpower projects. Through the Title XVII and Advanced
Technology Vehicle Manufacturing loan programs,the Department of Energy
is supporting over 30 clean energy and advanced vehicle
technologydeployment projects that are expected to employ nearly 60,000
Americans. It has issued conditional commitments for loan guarantees to
support the first new commercial nuclear power plant constructionin
decades. With $3.25 billion in research, development, and demonstration
investments since 2010,DOE has been working with industry to keep the
United States at the forefront of carbon capture,utilization and
storage technologies.
We're making good progress, but more needs to be done. Government
has an important role to play,but a market-based mechanism is the best
tool to harness the ingenuity of the American people andbuild our clean
energy future. This is why we need a Clean Energy Standard. By
establishing a market fordomestic clean energy technologies and
providing the long term price signal that private investors need,we can
move billions of dollars of capital off the sidelines and into
investments in the electric powersector that will drive innovation and
create jobs throughout the economy. Creating a market here athome for
the clean energy technologies of the future will help ensure that these
technologies aredeveloped and manufactured in America instead of being
imported from abroad. As Secretary Chu hassaid: America is the most
innovative country in the world, but ``invented in America is not good
enough.We need to ensure that clean energy technologies are invented in
America, made in America and soldaround the world.'' A Clean Energy
Standard is part of an all-of-the-above strategy that will tap
intodiverse sources of energy here at home, keeping our energy supply
clean, affordable and secure.
The Administration thanks Chairman Bingaman for his leadership in
this vital issue. We look forward toworking with members of this
Committee to further develop this proposal, and I look forward
toresponding to your questions.
The Chairman. Thank you very much.
Dr. Gruenspecht, you folks have done a lot of analysis of
this proposal. We appreciate all the hard work that's gone into
that. If you could highlight what you've concluded and anything
else you think we need to know, we'd appreciate it.
STATEMENT OF HOWARD GRUENSPECHT, ACTING ADMINISTRATOR, U.S.
ENERGY INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY
Mr. Gruenspecht. Mr. Chairman, Ranking Member Murkowski,
members of the committee, certainly appreciate the opportunity
to appear before you today. As you well know, the Energy
Information Administration does not promote or take positions
on policy issues. We have independence with respect to the
information we provide.
So our views should not be construed as representing those
of the Department or other Federal agencies. But my colleague
and friend, David Sandalow, has that well covered and is here
to answer all your difficult questions.
At the Chairman's request EIA recently analyzed the
potential impact of the Clean Energy Standard Act on the
development of future electricity markets and protected and
sorry, projected, carbon dioxide emissions from electricity
generation. EIA's full report is attached to my testimony and
detailed results are available on the EIA website. Let me
briefly summarize some of our main findings.
As expected given its underlying structure, the proposal
leads to a substantial decline in coal fired generation. While
generation fueled by nuclear energy, natural gas and non hydro
renewable sources all increase as shown in Figure one of our
report. This result reflects the ability of nuclear and
renewable generation to earn credits toward meeting the target
and the partial crediting of natural gas generation.
In contrast, most coal generation and really all existing
coal generation is not able to earn credits. Our results
suggest a modest increase in combined heat and power in the
industrial and the commercial sector. But we find that carbon
capture and sequestration technology does not appear to play a
significant role in compliance.
As you mentioned in your opening statement, projected
carbon dioxide emissions in the electric power sector are
reduced substantially by the proposal. 44 percent below the
projected reference case level in 2035 which also happens to be
about 44 percent below their level in 2005, as shown in Figure
3 of our report. Overall, carbon dioxide emissions related to
energy in 2035 are about 18 percent lower than in the reference
case.
Impacts on electricity prices over the next decade are
minimal. But the price impacts then rise as shown in Figure 4
of our report. National average electricity prices to all users
are less than 5 percent above those in the Annual Energy
Outlook 2012 early release reference case through 2025. But by
2035, they are about 18 percent above the reference case level.
Impacts on natural gas prices are greatest in the early
years then fall over time. The value of natural gas as a
compliance option falls significantly as the clean energy
target share eventually exceeds the credit value for natural
gas fired generation.
You know, we often focus on national measures. But it's
important to recognize that impacts and particularly, impacts
on electricity prices differ across States and regions
reflecting variation in clean energy opportunities. Even within
a given State or region, price impacts may vary substantially
between customers served by covered retailers and those served
by small retailers that are exempt from the requirements of the
legislation.
The general price impact contours of the exemption which
are examined in our report, vary depending on the State level
regulatory structure in place, regulator discretion, the clean
energy target level that applies at any point in time and the
relative shares of load that are served by covered verses
exempt sellers in each State or region.
As with all projections there's considerable uncertainty
about how market conditions and technology cost and performance
will evolve over time. I think we're relatively confident based
on this and previous analyses that a CES along the lines
outlined in your legislation would lead to increased reliance
on generation from natural gas, nuclear and renewables. But the
exact mix of technologies could vary significantly under
alternative assumptions.
I think 2 factors stand out as key uncertainties.
One is the uncertainty about the ability of the nuclear
industry to ramp up quickly even with the incentives that would
be provided by the Clean Energy Standard. We did do sensitivity
analysis of the scenario with no additional nuclear plants
built beyond what we have in the reference case. That
sensitivity suggests that a mix of natural gas, wind and solar
generation would largely compensate for the lack of additional
qualifying nuclear generation.
Second, although many agree that the use of sustainable
biomass fuels should result in net zero carbon emissions over a
long period of time, there is disagreement in the literature
about the impact, you know, and importance of near term carbon
emissions from these resources and some of the long term
indirect effects. For this study we did assume that biomass
would earn a full credit for each megawatt hour of generation
consistent with current EIA and EPA accounting practices. But
the legislation does leave to the Secretary of Energy a
determination about the ultimate crediting of biomass.
We did do a little bit of sensitivity analysis. What if it
did not get a full credit? What if it got a half credit? What
if it got zero credit? That suggested, again, a shift toward
natural gas and other renewable resources.
So in conclusion, while we don't take policy positions,
EIA's data analysis and projections are certainly meant to
assist you and other policymakers in their energy
deliberations. We've often responded to requests from this
committee for data and special analyses. I want to assure you
that we stand ready to do over the coming weeks and months.
As always, I'd be happy to answer any questions you might
have. Thank you very much.
[The prepared statement of Mr. Gruenspecht follows:]
Statement of Howard Gruenspecht, Acting Administrator, U.S. Energy
Information Administration, Department of Energy
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to appear before you today to discuss recent analysis of
the proposed Clean Energy Standard Act of 2012 (CESA) by the U.S.
Energy Information Administration (EIA).
EIA is the statistical and analytical agency within the U.S.
Department of Energy. It collects, analyzes, and disseminates
independent and impartial energy information to promote sound
policymaking, efficient markets, and public understanding regarding
energy and its interaction with the economy and the environment. EIA is
the Nation's premier source of energy information and, by law, its
data, analyses, and forecasts are independent of approval by any other
officer or employee of the United States Government. Therefore, our
views should not be construed as representing those of the Department
of Energy or other federal agencies.
Projected Impacts of the CESA
At the request of Chairman Bingaman, EIA analyzed the potential
impact of the proposed CESA legislation on the development of future
electricity markets and projected carbon dioxide (CO2)
emissions from electricity generation. Our report, issued earlier this
month, is provided as an attachment to this testimony. The CESA
analysis scenario is referred to in the report as the BCES12 case, to
distinguish these results from those we reported on in November of 2011
regarding a closely-related set of proposals. Please note, however,
that the details of CESA vary significantly from the details of the
clean energy standard (CES) policies that EIA has previously reported
on, including the treatment of small utilities, credit banking,
excluded generation, and alternative compliance payments. This report
is based on EIA's Annual Energy Outlook 2012 Early Release Reference
case.
As might be expected from the underlying structure of the proposal,
generation fueled by nuclear energy, natural gas, and non-hydro
renewable sources all increase, as shown in Figure 1 of the attached
report. This is a direct result of the ability of nuclear and renewable
generation to earn credits toward meeting the target, and the partial
crediting of natural gas generation toward meeting the target. In
contrast, most coal generation is not able to earn credits, so its use
declines. Although the CESA proposal has specific language allocating
credits for both combined heat and power (CHP) and carbon capture and
sequestration (CCS) technologies, neither plays a significant role in
compliance. CHP generation does increase moderately, but growth is
limited by a number of factors, including the limited period in which
CHP facilities can earn their full, net value for each qualifying
credit, as well as the small size of the CHP market relative to the
bulk electricity supply market.\1\ CCS technologies are projected to
remain less competitive than other qualifying sources.
---------------------------------------------------------------------------
\1\ CESA also includes a provision that provides additional CES
credits to CHP facilities for displaced heat load under procedures to
be established by the Secretary at a later date. That provision was not
modeled.
---------------------------------------------------------------------------
The approach to awarding credits to generation in the proposal is
directly tied to the carbon intensity of each technology, or the tons
of carbon emitted per kilowatthour generated. As a result, projected
CO2 emissions in the electric power sector in 2035 are 44
percent below the projected Reference case level and 44 percent below
their level as of 2005, as shown in Figure 3 of the attached report.
Although impacts of the proposal are largely felt within the electric
power sector, there are opportunities for certain combined heat and
power projects in other sectors to contribute to overall CO2
emissions reductions. Projected energy-related emissions for all
sectors in 2035 are about 18 percent lower than in the Reference case.
Nearly all of these overall reductions occur in the electric power
sector.
The CESA proposal allows affected electricity retailers to bank any
excess credits earned in a given year, and use them toward compliance
indefinitely into the future. This banking option encourages early
compliance efforts and provides for relatively stable growth in the
credit price. In addition, affected companies may pay an ``alternative
compliance payment'' (ACP) at any time in lieu of procuring qualifying
generation. However, use of the ACP is projected to be limited, absent
constraints on the rapid expansion of nuclear power. The projected
credit price starts at around $20 per megawatt-hour (MWh) in 2015,
rising to almost $80 per MWh by 2035 (both in real 2010 dollars).
Impacts on electricity prices over the next decade are minimal, but
price impacts then rise, as shown in Figure 4 of the attached report.
Projected national average electricity prices start to rise after 2020.
National average electricity prices are less than 5 percent above those
in the AEO 2012 Early Release Reference case through 2025, but by 2035
they are 18 percent above the Reference case level. Impacts on natural
gas prices are felt the most in the early years, and are gradually
ameliorated over time. Increasing the dispatch of existing natural gas
plants provides a quick, low-cost route for early compliance efforts,
but the value of natural gas as a compliance option is significantly
reduced as the clean energy target share starts to exceed the credit
value for this resource. That is, a resource that can only earn 50
percent of a credit is less valuable at achieving an 80 percent target
than a resource earning more than 80 percent of a credit.
Variability of Regional Impacts
Impacts on electricity prices are not the same everywhere in the
country, as the stock of existing clean energy capacity and
opportunities for additions to clean energy capacity vary across states
and regions. In addition, even within a given state or region,
electricity price impacts may vary substantially between customers
served by covered and exempt retailers. ``Small'' electricity
retailers, as defined in the proposal, are exempt from requirements to
purchase credits, and thus do not have to recover direct compliance
costs in their rates. Covered retailers, however, may have to pass-on
these direct compliance costs.
Full analysis of the impacts of the small retailer exemption is
beyond the resolution of this analysis. However, we were able to assess
the general price impact contours, which vary depending on the State-
level regulatory structure in place, regulator discretion, the clean
energy target level, and the relative share of the load that is served
by covered versus exempt retail utilities. In addition, net compliance
costs are affected by whether or not a given retail utility, exempt or
covered, owns qualifying resources and has excess credits to sell into
the market. EIA's results suggest that there is a potential for a large
divergence in prices paid by customers of covered and exempt sellers as
the target increases. By 2030, CES-induced compliance costs could
result in electricity price levels that are about 3 percent to 30
percent higher for covered retailers than for exempt retailers in the
same region.
Other Uncertainties in the Analysis
As with all projections, there is considerable uncertainty about
how market conditions and technology cost and performance will evolve
over time. This analysis only looked at the potential impacts of a CES
under one set of assumptions. While we are relatively confident, based
on this and previous EIA analyses, that a CES will lead to increased
reliance on generation from natural gas, nuclear, renewables and,
potentially, fossil plants with CCS, the exact mix of technologies
chosen could vary significantly under alternative assumptions.
While projecting the future of national energy markets is
inherently uncertain, two factors stand out as key uncertainties in
this analysis. First, there is uncertainty about the ability of the
nuclear industry to ramp up quickly even with the incentives that will
be provided by CESA. While new nuclear capacity is once again under
construction in the United States, a very rapid ramp-up could prove to
be challenging, especially if problems affecting the operation of the
existing fleet of nuclear plants or cost overruns and/or schedule
delays in the building of new plants occur and result in reduced
generating company or public support for nuclear power. Sensitivity
analyses of a scenario with no additional nuclear plants built beyond
the Reference case capacity indicate that a mix of natural gas, wind,
and solar generation would largely compensate for the lack of
qualifying nuclear generation. Such a scenario would also result in use
of the ACP for compliance in lieu of qualifying generation.
Second, the proposal does not specify a credit value for generation
from biomass resources. While many analysts take the view that the use
of sustainable biomass fuels should result in net zero carbon emissions
over a long period of time, there is disagreement in the literature
about the impact and importance of near-term carbon emissions from
these resources and the possibility that sustainable biomass fuels
could have adverse indirect effects even over an extended time period.
CESA requires the Secretary of Energy to determine appropriate credit
values for biomass feedstocks based on a proposed study from the
National Academy of Sciences (NAS). Absent a ruling from the Secretary
or the results of the NAS study, EIA assumed that biomass would earn a
full CES credit for each MWh of generation. This assumption is
consistent with prior EIA reports and analysis that assumes biomass to
be a net-zero carbon resource. Sensitivity analysis of scenarios with a
half or zero credit for biomass indicate that biomass-based compliance
would shift to natural gas and other renewable resources, with little
impact on credit prices.
Conclusion
As I noted at the outset, while EIA does not take policy positions,
its data, analyses, and projections are meant to assist policymakers in
their energy deliberations. EIA has often responded to requests from
this Committee and others for data and special analyses, and I want to
assure you that we stand ready to do so over the coming weeks and
months.
This concludes my testimony, Mr. Chairman and Members of the
Committee. I would be happy to answer any questions you may have.
The Chairman. Thank you both very much.
Let me start with 5 minutes of questions.
First, let me ask Mr. Sandalow: The EIA analysis that Dr.
Gruenspecht just summarized indicates that there would be,
under this proposal, an increase of a few percent in
electricity rates nationally by 2025 and the increase would be
up to 18 percent by 2035. I guess one obvious question is would
that increase in electricity rates that he's talking about
there be expected to translate into increased bills to
consumers directly or is there any way to calculate what the
actual impact would be on consumers?
Mr. Sandalow. It's a very important point, Chairman
Bingaman. So thank you for your question.
The answer is no. Under the EIA analysis, as I understand
it, in 2035 household energy bills would actually be lower than
they are today by about $5 per household. That's the result of
the combination of energy efficiency policies in the Clean
Energy Standard working together.
We can achieve significant savings in the future, as we
have in the past, for Americans by promoting these
complementary energy efficiency policies.
The Chairman. Dr. Gruenspecht, is that an accurate
description of what your analysis shows or does your analysis
lead to that conclusion?
Mr. Gruenspecht. I would say it's accurate. In our
reference case we did have a projection of falling residential
electricity bills relative to the 2010 level. Some of those
bills have already started to fall a little bit with the
decline in the natural gas prices and the like.
So yes, the increases that we talk about.
First of all the 18 percent is for all consumers and
residential rates would go up less than that.
Second of all, there is lower consumption of electricity
which figures into bills as well.
Households are getting a little bit smaller which again,
figures into bills.
So it's really a combination of factors. But what David
says is exactly right.
The Chairman. Let me ask Dr. Gruenspecht, you did a couple
of different analyses. An early analysis you did showed that
the result of this proposal would be to encourage more CCS
deployment, as I understood it. I think the final analysis that
you've given us shows that there will be very little CCS
deployed.
What changed between those 2 analyses, if anything? Was it
some facts that changed or some change in the policy that we
were talking about proposing?
Mr. Gruenspecht. Yes, thank you. I think it's really a
variety of factors that are going on.
First of all, in the study we did for you late last year, I
think we looked at a wide range of different policies. It was
only in some specific cases that you saw significant amounts of
CCS. So there were many of the cases we looked at you did not
see a lot of CCS.
In this particular legislative proposal you have an
alternative compliance payment. You have--trying to think of
the different key factors. There's an alternative compliance
payment which limits costs to, you know, rate payers. You have
the small utility or small retailer exemption which, again,
tends to relax the impact of the program a little bit.
So part of it is, sort of, the specifics of the policy that
we're looking at in this analysis. Some of it is also the fact
that as we move forward with our Annual Energy Outlook
reference cases.
For instance we have higher coal prices projected in this
year's baseline than we had in last year's baseline.
We have lower natural gas prices projected in this year's
baseline than in last year's baseline.
So I would say it's a combination of factors that are
driving this result. Some related to policy. Some related to
the underlying, you know, features of the baseline case.
The Chairman. Thank you very much.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
I want to continue on the questioning of the cost and how
this all works out because I think this is where the consuming
public is coming from. If this is going to save me money, let's
talk about it. If it's not, let's not talk about it.
Last month the DOE Inspector General released this audit.
This is directed to you, Secretary Sandalow. The audit was
designed to look at the efforts to comply with the RES that was
contained in EPACT 2005.
As we look at those requirements there's some analogy there
with the CES that we're considering today. But I think clearly
less demanding than what we have in Senator Bingaman's bill.
The EPACT requires the Federal Government purchase only 7 \1/2\
percent of its electricity from renewable resources by 2013,
allowed for 8 years of full compliance.
By contrast the proposed CES we're looking at now requires
24 percent by 2015, so essentially 3 years from now. What this
audit showed is somewhat interesting that in order to meet the
EPACT requirements the Department of Energy paid some pretty
exorbitant prices, premiums for the electricity. In one case,
this is at Oak Ridge National Lab. It's my understanding that
the cost per megawatt hour was $26.67 per megawatt hour, more
than 20 times more than what other DOE installations were
paying.
So I guess the question is is given what we know, given
what this audit has demonstrated, with a compliance that is or
requirements that are less rigorous than is proposed in Senator
Bingaman's legislation here, shouldn't we expect the utilities
to pay much higher prices for a requirement that is 3 times
higher with only 3 years to comply?
If that's the case, aren't we going to then see those costs
passed on to the consumer?
Mr. Sandalow. Thank you for the question, Senator
Murkowski.
It's important when that highlights a very fundamental
aspect of the Clean Energy Standard that we're here to talk
about today. As you say the requirements at issue in the report
that you cited is the requirement in the 2005 Energy Policy Act
that Federal agencies buy 7 and a half percent of their energy
from renewable sources by 2013. The Department of Energy takes
that obligation extremely seriously, working, obviously, very
hard to meet it and in fact met it ahead of schedule.
That legislation which was signed by President Bush in 2005
includes a specific requirement to buy renewable energy. The
Clean Energy Standard before us today imposes a requirement to
buy energy from any type of clean source, not just renewable
sources, but also nuclear or efficient natural gas or clean
coal. So it broadens the opportunities for any regulated entity
to buy clean power. It's that technology neutral aspect of the
Clean Energy Standard which is, in the eyes of many observers,
I think and certainly in ours, it's that aspect that's so
compelling.
The Clean Energy Standard is technology neutral. It gives a
price signal to the market. Then let's the market decide how
best to meet it.
Senator Murkowski. Then let me ask the question.
Because Dr. Gruenspecht, you've indicated that there's a
couple complicating factors here, the nuclear portion of the
CES requirement and the fact that you rely so much on nuclear
as part of this portfolio and a recognition there that that
might not be achievable. On the coal side that too, may not be
achievable. You've indicated that you're going to--you
anticipate a substantial decline.
So for instance, just on the nuclear alone according to
your analysis, we're going to need 82 gigawatts of new, nuclear
capacity would be needed by 2035 and this is compared to just
the ten gigawatts in the reference case. That's an 82,000
megawatt differential there.
So I understand what you're saying, Mr. Secretary. But I
also appreciate that what we're talking about might not be
achievable. So it might look good on paper, but how do we get
there from here?
I'll throw it out to both of you.
I'm assuming Dr. Gruenspecht, that with the nuclear you've
indicated that this could be a complicating factor.
Mr. Gruenspecht. I mean, and that's why we ran--although
again, one thing we tried to do is make our report shorter and
not as encyclopedic as it might have been in the past. But we
did run this, you know, what we call a sensitivity case without
nuclear above the reference case. You know, there we got a lot
more, significantly less nuclear obviously, without, you know,
72 less gigawatts of new construction.
But we got a lot more non-hydro renewables coming in backed
by gas because clearly nuclear is a base load technology and
the renewables, many of them are intermittent technologies. So,
you know, we lost something like 580 billion kilowatt hours of
nuclear generation in 2035 relative to, again, this, you know,
rapid nuclear broad case. But we gained 300 billion kilowatt
hours of non hydro renewables, 160 billion kilowatt hours of
gas and 100 billion kilowatt hours of coal to kind of make it
up. The costs were a little bit higher, but not much higher.
So you know, again, we don't take a policy position. But
the point is yes, this kind of program does raise the cost of
electricity. Obviously you're taking your existing plants that
are already paid for and, you know, causing them, in some
sense, forcing them out of the market to a significant extent.
That's reality of what this proposal does. That's what it's
intended to do and replacing it with something else. You know,
we think that nuclear is the cheapest something else, but not
by a very large margin.
So if the nuclear something else doesn't come to fruition
there are other something elses that come into play to, you
know, to meet the standard. Now if all of the something elses
can't come to fruition then you really do have a major problem.
Mr. Sandalow. If I might just briefly add, Mr. Chairman.
Senator, you asked how do we make this happen? How do we
bring these clean energy technologies online? I say let's work
together to make it happen.
I know that the President believes in the innovative spirit
of the American people and American know how, ingenuity,
manufacturing capabilities. Working together there is no
challenge that we can't meet. These are exactly the type of
challenges we've met in the past. We can do this.
Senator Murkowski. My time is expired.
But I will just point out that since 1977 we've only added
5,000 megawatts of nuclear capacity in this country. If we're
looking to CCS, you've already indicated that we're not going
to be seeing that happen. It would appear to me that it's all
on the back of natural gas cause we're not moving the solar and
the wind dial up that rapidly.
My time is well over, Mr. Chairman. I'm sorry.
The Chairman. Not a problem.
Senator Udall.
Senator Udall. Thank you, Mr. Chairman.
Thank you to the Ranking Member and yourself for holding
this important hearing.
Gentlemen, good morning.
I think Senator Murkowski is asking some very important
questions. I would add that I believe it's important we I look
at the short term costs of transitioning to a clean energy
economy, bt also the medium and the long term costs if we
don't.
There are, the direct costs that we're talking about here
today. but there are indirect costs. There are also
externalities that you can link to our national security
efforts, whether it's protecting oil supply lines all over the
world or the effect of carbon pollution on our climate.
With that let me just say that I think this bill would be a
step in the right direction. I also want to emphasize that I
still support, as I know many of my colleagues do, a renewable
electricity standard nationally. We've had great success in the
State of Colorado with the renewable electricity standard.
I would argue in fact we felt less the effect of this great
recession because of our energy sector's capacity to innovate,
create jobs and provide power that's less and less expensive.
We all know for example, wind now competes directly with coal.
Some would argue it's actually cheaper than coal.
I hope we can take a close look at this legislation because
it would provide market signals and certainty to businesses,
innovators and consumers directed at new and clean energy
technologies. I don't want to be too much of a booster for my
home State. But I really do believe Colorado presents a great
example of what could be if we, nationally, embraced something
like a Clean Energy Standard.
Let me turn to the 2 of you and ask you how you would
foresee a national CES helping American businesses compete and
lead in the clean energy sector. Why do we need a CES? Maybe
I'll start with you, Mr. Secretary and then turn to the good
Doctor.
Mr. Sandalow. Thank you, Senator Udall.
The point you make is really fundamental here that a Clean
Energy Standard provides the long term signals that businesses
tell us they need to bring capital off the sidelines. As I go
talk to the business community I know one of the comments that
I hear more often than any other is if government would just
give us the clear signals over the long term. That's what we
need.
A Clean Energy Standard, one that sets a clear pathway for
several decades, would bring not just capital, but American
ingenuity, American know how to the table. It would allow us to
succeed in the global race for clean energy.
I tell you I've traveled a lot in the last couple of years
talking to other countries about what they're doing in clean
energy. The race is on. There's a lot of investment going
around the world on this. I think we need and the President and
Secretary, too believe, we need a long term framework. That's
what the Clean Energy Standard provides.
Senator Udall. Could you make the case that Europe, China,
India, all in effect have their own Clean Energy Standards?
Mr. Sandalow. Different countries have different policies,
Senator. There's a range of different approaches around the
world. But, you know, in China, in Germany, in other countries,
the investment in this area is considerable. Government is
partnering with businesses in those countries making sure that
their businesses succeed in this global race.
It's a challenge to us. It's one I know we can meet. A tool
like the Clean Energy Standard will let us do it.
Senator Udall. Doctor.
Mr. Gruenspecht. Yes, I don't have that much to add on
that. I would say one thing. You know, in the United States the
rate of growth of electricity demand, you know, has come down a
great deal. So like, when I was a child, you know, the demand
was growing 8, 9 percent a year which meant that load was
doubling every 8 or 9 years.
So you needed a lot of new generation of some type to meet
growing demand. You know, in part because of our maturity, in
part because of some of the policies that have been enacted,
you know, we are not looking to very rapid demand growth in the
United States. So in the United States a lot of these
technologies, if they're going to be used here, will have to--
will be replacing existing technology.
In China, in India, that's much more like the United States
was when I was a kid. You know, electricity demand growing ten,
twelve percent a year. So they need new capacity of one kind or
another to meet growing demand.
I think in general some of these, you know, if you need new
something then I think the clean energy technologies, you know,
have much more potential to be competitive with old
technologies than they have with the situation where the new
clean energy technologies are competing with old technologies
that are already in place. You know, whose capital cost has
already been incurred.
So again, the issues of the externalities raise, I
certainly understand that issue. But on a straight, you know,
sort of economic cost of electricity basis. I'm not saying that
those policy considerations should be ignored. That's up to,
you know, my friend, David and you, not me.
But I can tell you that the opportunity for clean energy is
inherently going to be much greater in an environment where
there's a tremendous growth in load than in an environment like
we have where there's very modest growth in the load.
Senator Udall. I note the clock has given me more time than
I think was my due. So let me end with a comment.
I want to thank the Chairman for including a study on
biomass. I know my colleague from New Hampshire sitting to my
right, Senator Shaheen, is very interested in biomass. For the
record I would welcome your comments on how we might include
biomass in a Clean Energy Standard.
Then also we have considered how you measure efficiency
gains which speaks, Doctor, to what you were just talking about
as well and if it's possible to put efficiency into a Clean
Energy Standard or are there other mechanisms to drive signals
into the market.
But again, thank you for your thoughts on this and Mr.
Chairman, thank you for holding this hearing.
The Chairman. Thank you very much.
Senator Barrasso.
Senator Barrasso. Thank you very much, Mr. Chairman.
I noted in the Chairman's opening remarks he commented that
one of the goals here is to keep America competitive in the
global clean energy economy. Those of us from the Rocky
Mountain West have concerns. We want to just keep America
competitive in the world. We think that's not happening under
this Administration in many of the regulations and rules and
burdensome and expensive and time consuming red tape that is
being applied by this Administration to the real job creators
in this country.
Now, Mr. Secretary, when I take a look at this legislation,
the purpose of which is to reduce carbon emissions from
electric utilities, but the Administration has already issued
regulations designed to reduce carbon emissions from utilities.
So the question is if Congress adopts this legislation
would the Administration then turn around and repeal the
regulations that were designed to reduce carbon emissions from
utilities?
Mr. Sandalow. Senator, thank you for the question.
I think you're referring to Clean Air Act regulations. The
Clean Air Act has a 40 year history of protecting public health
in this country, of keeping the air clean, improving the
quality of life and I would add of increasing GDP in this
country.
Senator Barrasso. The question, I mean the question gets
down to the Administration repeatedly in 2009, 2010 and you're
part of the Administration, said that Congress had to pass a
cap and trade bill so that the EPA wouldn't have to issue
regulations to reduce carbon emissions. To pass this where
we're going to do that?
So if I'm looking for one question today from this
Administration, this is the question. You know, is the
Administration willing to repeal these regulations instead of
just wrapping the country up in additional red tape by this
piece of legislation?
Mr. Sandalow. Senator, the Clean Air Act has delivered
enormous benefits to the American people over 40 years. We
are----
Senator Barrasso. So the answer yes or no?
Mr. Sandalow. We're not looking to amend the Clean Air Act.
Senator Barrasso. So your goal is if you would put this on
top of all the excessive regulations and we can use whether the
phrase excessive is the right or wrong one. I believe it is the
right one. So this would be on top, piled on top, of what the
job creators are facing today?
Thank you.
Scientific American ran a study Monday entitled, ``Asian
Demand Forecast Boom for Coal.'' You keep talking about and the
Administration talks about what's going on around the world and
China leading the way. They're going to widen the gap with the
United States as the world's largest coal producing country by
the end of the decade. By 2020 China will produce 4 and a half
billion metric tons of coal annually, it says, reflecting a 3.5
percent compound annual growth rate over the next 8 years.
It goes on to say that Asian forecasts contrast sharply to
projections for the United States which is expected to see
sagging demand as power plants undergo fuel switching. The
article explains that China's coal will be used to meet demand
in its electric power and steel making sectors. So if Congress
adopts legislation which increases electricity costs by as much
as 30 percent how are we going to be able to compete
economically with China?
Mr. Sandalow. That wouldn't be legislation on the Clean
Energy Standard, Senator. This is legislation that we can enact
while keeping prices low while ensuring equity among regions
and while promoting technological innovation.
I'm not familiar with the article that you just cited. But
it may be that in part the numbers that you're repeating have
something to do with what Dr. Gruenspecht was talking about,
the growth in the Chinese economy.
Senator Barrasso. The additional expense of energy in the
United States under additional rules and regulations.
Mr. Secretary, EPA's endangerment findings says 6
greenhouse gases endanger both the public health and the public
welfare of current and future generations. Now I assume you
agree with that statement. Going through your book and other
things.
I'd like to share with you what are the health impacts of
unemployment cause we're considering legislation that will
effectively shut down American coal plants, coal mines,
increase electricity rates an average of 18 percent, as much as
30 percent. With higher electricity rates businesses will have
less money to invest and to create jobs. So on Sunday the New
York Times ran an Op Ed. It is called the ``Human Disaster of
Unemployment.''
The ``Human Disaster of Unemployment'' and we have long
term, chronic unemployment in this country now that's impacting
families all across the country. The article says that the
unemployment, that unemployment, chronic unemployment causes a
50 to 100 percent increase in the death rate for older male
workers in the years following loss of a job.
The reasons for this include increase in suicide rate by
actually by 4 additional suicides a day in the United States as
a result of this.
Twenty-five percent increase, higher risk of dying from
cancer.
It also explains that unemployment leads to a higher
probability of divorce. Eighteen percent increase when a
husband loses his job. A 13 percent increase when a wife loses
her job.
I mean, it is an article that I would recommend that the
White House takes seriously into consideration and have
thoughts about the impact of the regulations as well as
legislation when they lose jobs in the effort to, I think as
you've said, lead the world in clean energy.
So thank you, Mr. Chairman. My time is expired.
The Chairman. Did either of the witnesses want to respond?
If not, we'll go to the next question.
Mr. Sandalow. Thank you, Mr. Chairman.
Let me just say that, Senator Barrasso, I grew up in the
great State of Michigan. That's a State that's been plagued by
unemployment over a number of decades. So the human toll of
unemployment is terrible, as you say.
Let's make sure that we are bringing capital off the
sidelines for investing in our energy economy.
Let's position the United States to win the energy race of
the future.
That's exactly what a Clean Energy Standard can do.
Thank you.
The Chairman. Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman.
I want to thank both our witnesses who've come this
morning.
Gentlemen, I support the basic proposition of Senator
Bingaman's legislation. I think it's going to give new momentum
to the effort to promote clean energy in this country. I'm a
co-sponsor of the bill.
At the same time I think my colleagues have raised some
important issues on the proposition of does all the wisdom come
from Washington, DC through various edicts? I share the concern
with respect to energy pricing.
Secretary Sandalow, you, to your credit, make an important
point with respect to regional differences. It's on page 5 of
your testimony which is why I want to ask you about another
idea. Since I haven't talked to the President about it or the
Secretary, I just want you to use it for purposes this morning
of something that you all would think about.
If you want to make some preliminary remarks, you can. Then
perhaps get back to me.
My sense is that there would be an opportunity, for
example, to create a State waiver kind of process. So that you
could say that if a State hit the target they would have
freedom, in effect, at the State level to go out and pursue
approaches that would make sense for them. If they, for
example, could offset utility emissions with reductions and
emissions from say, steel mills or emissions from oil
refineries, they would be in a position to do it.
In other words, we know that we have the assurance with
respect to making national progress with respect to clean
energy. But we'd also, to some extent, liberate the States and
address this question that you have on page 5 with respect to
the regional differences.
So, as I said, I haven't talked about it with the
Administration. You're getting this cold. I did speak to the
State utility regulators recently. The reaction was pretty
positive.
My sense is we're moving in this direction, with your
comments. Chairman Bingaman makes an important contribution
with respect to trying to deal with small utilities. I think
everybody is trying to find a way to promote clean energy,
nationally. At the same time address some of these flexibility
issues.
Do you have any, kind of, preliminary thoughts recognizing
you're getting it cold? There's no Administration, you know,
position on it. I think for all practical purposes the
Administration is hearing about it for the, you know, first
time.
But I can tell you in my State where we, as you know,
really have green energy in our chromosomes. We would like to
find ways to have this kind of flexibility. So any preliminary
thoughts on this?
Mr. Sandalow. Thank you, Senator.
I'm hearing about it for the first time. I've learned as a
job preservation technique never to comment right off the bat
on something like this.
Senator Wyden. Always wise.
Mr. Sandalow. But I thank you very much for the suggestion.
It's one we'll look at very closely.
But it raises the broader issue of regional fairness and
ensuring that all regions participate in this. As we've been
looking at this Clean Energy Standard one of the conclusions
that leaps out for me is how clean energy resources are
distributed across our country, that every region of the
country has different ways that they can participate in a Clean
Energy Standard like this.
So, you know, obviously in your region there's hydro power.
There's biomass. There's more.
It's just striking how every region of the country can
participate in different ways in this. So your proposal is one
that we'll look at very closely as we move forward.
Senator Wyden. Understand this is not something I've even
crystallized in terms of something I would even offer as an
amendment, you know, tomorrow. What I know is is particularly
in the West and a lot of parts of the country that are a long
way from, you know, Washington, DC. I think this is reflected
in some of my colleagues, you know, questions this morning.
You know, the concern about pricing. People think that
they're getting, you know, hit over the head with a 2 by 4 on
energy prices today is a hugely important issue. You've
acknowledged that. I mean, in effect, economic growth and
affordable energy are 2 sides of the same coin.
It would just seem to me that if we can find a way to
advance a national agenda for clean energy. Chairman Bingaman
has put a lot of work into this and a lot of good work. At the
same time find a way to acknowledge these, you know, regional,
you know, differences.
People aren't going to be given a free ride to go do
whatever they want. They would have to, in effect, show that
they're hitting these targets. But we recognize that perhaps
what works in Coos Bay, Oregon and a small utility wouldn't
necessarily be the same sort of thing you'd do in Miami.
So I look forward to continuing this discussion. I
appreciate the good work and Chairman Bingaman for all the
leadership you've put into this issue. I want you to know I'm
going to continue working with you on this.
The Chairman. Thank you very much.
Senator Corker.
Senator Corker. Mr. Chairman, good to be back.
The Chairman. We're glad to have you back.
Senator Corker. You continue to nibble at this. I
appreciate--I respect your tenacity. I appreciate the testimony
of the witnesses.
Dr. Gruenspecht, I noticed you didn't think there was much
uptake in the future on carbon capture and sequestration. I've
always thought it was a pretty hokey idea. It was kind of one
of those things when donkeys fly we'll have pipes running
everywhere, piping excess carbon. It seems to me that you share
the same thoughts.
Mr. Gruenspecht. I don't think I shared that exact same
thought.
[Laughter.]
Mr. Gruenspecht. Maybe we got to the same point by
different means or something.
Senator Corker. So the point is that CCS, I know we've had
a lot of evolutions here. This is really a pipe dream unless
you have a coal facility right beside an oil well, which
they're usually not located next to each other. It's probably
not that useful.
So it looks to me like a more transparent way of talking
about coal when we start looking at Clean Energy Standards
would be to say that by a certain date coal is just not going
to be a part of our energy mix in this country if you look at
these formulas. We might as well say that to the places in
Appalachia and Wyoming and other parts of this country, you
need to be planning on a very different future.
Would you respond?
Mr. Gruenspecht. Me?
Senator Corker. Yes.
Mr. Gruenspecht. You know, I think the modeling results,
which again, you know, as the first Administrator of the EIA
said something like there are no facts about the future which
is certainly true. But in our modeling results the use of coal,
you know, is reduced pretty significantly.
Senator Corker. Yes.
Mr. Gruenspecht. I mean and that's--I don't think anyone
looking at the legislation not running a model would have
expected anything else.
Senator Corker. No, I agree with that.
So let me ask you this question. The energy policy is
actually pretty interesting to me. I look at our country and
then I look at the way sort of companies operate and companies
look at the strengths that they have. They try to build upon
those.
We continually have this phobia about China because for
some reason they continue to focus on their strengths and the
weaknesses that they have they try to overcome by creating
alliances in other parts of the world. To build a little bit on
Senator Wyden's comments I mean, we have tremendous strengths
in this Nation that allow us to be competitive over the long
haul and instead of just focusing on one industry which would
be clean energy as is discussed today.
Do you think when we look at these kind of policies that we
are taking a proper inventory of our country's strengths as it
relates to energy and deploying them fully to make sure that
everything in America is competitive or do you think when we
look at policies like this we end up really moving away from
the great strengths this Nation has as it relates to its
resources?
Yes, sir.
Mr. Gruenspecht. Me, again?
Senator Corker. Yes and that's all you this time.
Mr. Gruenspecht. How unfortunate for me.
[Laughter.]
Mr. Gruenspecht. Yes, you know, those are very broad
questions that go beyond, in some sense, what my role is, you
know, at the--although I am an economist. I do have views.
But----
Senator Corker. You're welcome to share your views.
Mr. Gruenspecht. Yes, I know I'm welcome to, but I'm an
older--it was one of the, I think, Senator Barrasso said
something about older male workers and unemployment. So I want
to be very careful.
[Laughter.]
Senator Corker. I think in essence the witness agrees with
me. Let me, since he does.
[Laughter.]
Mr. Gruenspecht. I did not. I did not say that. What a
minute. Come on.
[Laughter.]
Senator Corker. I think he is saying that.
So let me just move to my final point. Look, you know, we
really it seems like here we want to be like some other place.
We talk about Germany and other places.
Yet, it seems to me that as a Nation for us to be
competitive what we would do is focus on the resources and
strengths that we have and fully deploy those because we have
advantages over other Nations. Some other Nations, maybe if
they're by the North Sea or something like that, they have
advantages over us. It just seems that Washington is constantly
trying to move away from the great strengths this Nation has
just in order to be like somebody else in some European place.
It just doesn't seem a natural or very wise thing for us to do.
I would ask that if we're going to do studies like this
where we say the energy prices are going to be up 18 percent
but we create this formula where that's actually going to save
taxpayers money in energy which is pretty interesting to me.
Because we're going to invest in energy efficiency that we
might look also that if we invested in energy efficiency but
yet we use the abundant energy resources we had today and
didn't close existing facilities where energy prices would be
for Americans.
It seems to me that that would be a fair thing to look at.
So let's invest in efficiencies. But let's also use these
tremendous resources that we have in the Nation. My guess is
the formula would come out in a very positive way for
Americans, very different than what I think this is ultimately
going to lead to in 2035.
But this has been great. I thank you for being here. I love
my seat down here.
[Laughter.]
The Chairman. Senator Franken.
Senator Franken. First of all I'd like to stipulate that
both the witnesses agree with me.
[Laughter.]
Senator Franken. Thank you.
[Laughter.]
Senator Franken. I think our strength in this country. I
think one of the strengths that we sometimes ignore is our
innovation and our spirit of entrepreneurship. There are
countless innovative ideas and approaches to clean energy
technologies that are brewing around the country and many of
them are in Minnesota.
If American entrepreneurs and inventors are to lead the
world in this area we have to, as we have in the past in so
many other technologies, we must bring these ideas from the
laboratory to the marketplace. This is one reason why the Clean
Energy Standard, I think, is an important piece of legislation.
It sends a powerful signal through our country and to use our
strength of innovation. Gives clean energy entrepreneurs and
developers long term business certainty.
Mr. Sandalow, and I know you'll agree with me.
[Laughter.]
Senator Franken. Can you describe what some of our
competitors are doing in this area? Can you give us your
recommendations on how we can stay competitive as a Nation and
build on our strengths?
Mr. Sandalow. I agree with you, Senator.
Senator Franken. Thank you. That's enough.
[Laughter.]
Senator Franken. Please answer the question.
Mr. Sandalow. Senator, let me start by quoting my boss,
Secretary Chu, who says, that we need to ensure that our
technologies are invented in America, made in America and sold
around the world. That's a goal here. That's what a Clean
Energy Standard can help us do.
I visited China a number of times in my current position.
On one of those trips I went--I was in Shanghai. I went to a
2.2 gigawatt coal plant that was using ultra super critical
turbines and had pilot carbon capture onsite.
We went from there to one of the largest, if not the
largest, solar manufacturing facilities in the world and from
there to a state-of-the-art automotive engineering facility. In
China they are investing heavily in energy technologies and in
the clean energy future.
The same is true in Europe where the deployment and the
innovation actually is quite significant.
The United States, for more than 2 centuries, has been a
leader in technologies. It is--this is a race that we can win.
It's a race that we will win with policies like the Clean
Energy Standard.
Senator Franken. OK, thank you.
I'm a strong supporter of a Clean Energy Standard. I do
believe, however, it needs to do a better job of incorporating
renewables. You know, about 90 percent of our electricity today
is used generating coal, natural gas and nuclear energy and
obviously natural gas, nuclear energy and coal with the donkey
flying, carbon sequestration could be part of a Clean Energy
Standard.
But I think it's clear that renewable energy needs to be a
bigger part of this mix. In Minnesota we were the--we had the
most aggressive renewable energy standard at a certain point to
do 25 percent renewable energy in our utilities by 2025. We're
exceeding it. We're ahead of it.
I believe that we should carve out a renewable energy
standard within the Clean Energy Standard. I was wondering what
your feelings are about this. This could be with either Dr.
Gruenspecht or with Mr. Sandalow.
Mr. Gruenspecht. Senator, there's no question there's been
extraordinary progress in renewable energy technologies over
the course of the past several years.
We've seen wind power prices come down in the past decade
or 2 to levels that it's now competitive with other, you know,
generation sources.
In many parts of the country solar PV prices have dropped
dramatically in the course of just the past couple of years.
State RPS policies or the type that you cite have been an
important factor and very successful in a number of instances.
This proposal for a Clean Energy Standard is designed to be
technology neutral to give utilities and other entities the
choice between different types of clean energy technologies in
meeting their obligations. That's one of the President's
principles under the Clean Energy Standard is a technology
neutral choice between different energy technologies.
Senator Franken. I would suggest that a renewable energy
standard could be carved out in this and be a piece of it. That
that would be something that we, as a committee, should
consider in ways that Congress should consider.
Thank you, gentlemen for agreeing with everything I said.
[Laughter.]
The Chairman. Senator Risch.
Senator Risch. Thank you, Mr. Chairman. I appreciate that.
Appreciate you holding the hearing.
I have to say I'm shocked this morning to hear what the
recommendations from my seat mate, Senator Barrasso. He's never
before recommended that I read the New York Times. So I don't
know, maybe he's becoming more enlightened.
[Laughter.]
Senator Risch. Dr. Gruenspecht, since you're in charge of
the Energy Information Administration you talked about these
models. Have you run a model on this particular piece of
legislation? How much more and I gather you've already told us
it's going to cost the American consumer more.
How much more in direct costs and indirect costs is this
going to cost the American consumer?
Mr. Gruenspecht. Thank you for the question.
I don't think I have that on the top of my head. To be
honest with you, I think that, you know, electricity bills will
be higher.
Senator Risch. Not only the direct costs, but also the
indirect costs that American consumers pay in every service and
every commodity that they buy. It's got to be higher. Am I
right on that?
Mr. Gruenspecht. Again, I think electricity in all sectors
is--the 18 percent is average across all users. Electricity is
about, the last time I looked, is about a third, a third, a
third, industrial, residential and commercial.
Senator Risch. But the number you gave was without this
piece of legislation.
Mr. Gruenspecht. Actually what I--the 18 percent is this
piece of legislation in 2035. So there's very little effect on
prices over the next decade. Then in the middle of the next
decade you start to see a divergence between the baseline
without this legislation and the case with this legislation.
Senator Risch. Mr. Sandalow, let me turn to you for a
minute. First of all let me say that I share with you the
absolute optimism that the American people can do this.
Let me tell you where we part ways. I have absolute
confidence in the American people. I have zero confidence in
the government.
This Administration, a Republican Administration, or any
Administration to make these innovations work to encourage the
American people to be innovators. You noted, correctly, that
for 2 centuries America has led in technology innovation. You
also observed that we're falling behind.
I would point out and I would urge that the reason we're
falling behind is just what Senator Barrasso so eloquently
pointed out. That is the heavy, heavy, hand of the government
and the shackles of government regulation that hold innovators
back, who want to produce, who want to create, who want to
increase our quality of life.
This government and if you look around you, almost every
enterprise of this government, doesn't meet the standards,
doesn't meet the dream of the American people. The more the
government gets involved and they get involved every day more
and more. It seems like the further backward we go.
If you don't believe that just look at these statistics
about what the American people think of its government.
Thank you very much, Mr. Chairman.
Mr. Sandalow. Mr.?
The Chairman. Did you want any response from that?
Senator Risch. I did not.
The Chairman. You do not want a response?
Alright.
[Laughter.]
The Chairman. I guess that's a fair question. We will
assume that they disagree with whatever you said.
[Laughter.]
The Chairman. Next----
Senator Risch. Mr. Chairman, I think that's a fair
assumption.
[Laughter.]
The Chairman. Our next witness--our next questioner is
Senator Coons.
Senator Coons. Thank you, Chairman Bingaman.
Thank you for convening this hearing and thank you for your
leadership and for the way you've conducted this committee. To
you and to Senator Murkowski for continuing to work forward on
these important issues.
Senator Risch and I have a slightly different view of the,
I think you characterized it as shackles and heavy handedness
of the Federal Government. I can see how some can disagree over
the impact of regulations. But I'll simply point to over 2
centuries of American experience where there are many different
examples where Federal investment helped drive forward the
adoption of new technologies, the creation of new markets and
our leading global position. From intellectual property
protection to tax trade, immigration, research and development,
Federal investment, Federal supports, Federal standards have
played a critical role.
So, let me get to the question if I can at hand, sir.
Looking for something that might be helpful. There are, of
course, critics, both here and nationally who have some real
issues with a Clean Energy Standard calling it another
unnecessary Federal Government intrusion and a drag on the
economy. CAFE Standards for automobiles, fuel efficiency
standards for car and truck fleets were debated vigorously for
more than 20 years before there was any real progress to
increase minimum vehicle standards starting with model year
2011.
Phase 2 requirements are now being developed for the next
round, 2017-2025. I think there have been clear benefits for
innovation, jobs, economic transformation because of a long
term market signal.
Is it valuable to look at CAFE Standards as another place
where a clear market signal made a fundamental difference?
I see an American auto economy today where employment has
stabilized.
Where they've had record years.
Where they're selling models that are competitive,
domestically and globally.
I'd be interested in both of your comments, but
particularly if I might, Mr. Sandalow, on whether or not CAFE
Standards have demonstrated recently the impact, the positive
impact, of a Federal regulatory standard?
Mr. Sandalow. Yes, they are, Senator Coons. Thank you for
your question. Your question is particularly meaningful to me
because, as I said earlier, I grew up in the great State of
Michigan. That's the State that's been plagued by unemployment
over the years.
When I go back today I see a sense of optimism and hope
there that's the result of the President's policies to save the
auto industry. It's the result of the clear, long term signals
that new fuel efficiency standards provide starting to
transition the American auto industry toward technologies of
the future. It's exactly the type of clear, long term signals
like that that make a big difference.
If I could just add, thank you for your eloquent statement
about the Federal Government and the Federal role. I would just
add.
Senator Coons. Feel free to expand.
Mr. Sandalow. Thank you, Senator.
I would just add it is the American system of government is
one of the great contributions of our people to mankind.
It is the American government that funded the research that
led to the Internet.
It's the Federal Government that funded the research that
led to GPS systems.
The Federal Government that funded the large scale
deployment that led to commercial aviation.
Just in my Department, long before I arrived, we started
administering a program for appliance efficiency standards.
Those standards are saving American families and businesses $15
billion a year.
So the Federal Government plays a central role in promoting
innovation and in saving American families money, in particular
in the area of energy.
Senator Coons. Thank you, Mr. Sandalow.
I do think there are legitimate questions and concerns
raised about regulatory impact. We do owe it to our
constituents to make sure that regulations, when imposed, are
reasonably targeted, achieve the affect that they are designed
to achieve and that they are efficient. They need to be
reconsidered at times, but I do think that's another good case.
Energy efficiency standards, we've demonstrated in previous
hearings and discussions on this committee have actually
incentivized new plants, new investment, new R and D, new
products, new hiring rather than the counter case which has
been made by many others.
Dr. Gruenspecht, would you like to add to this
conversation?
Mr. Gruenspecht. Yes. I'm not from Michigan. But I did
write a thesis that had something to do with the automobile
industry.
I would say one difference, you know, again, it doesn't
make it good or bad because we don't take positions on policy.
But CAF, you know, has to do with, sort of, what an appliance
standards have to do with what the new vehicle, you know, what
would be the characteristics of new vehicles. There's nothing
in the CAF program or in the appliance efficiency program that
says effectively we're going to set up a program where you must
get rid of your existing vehicle or you must get rid of your
old refrigerator.
It might be a very good idea. You might save a lot of money
by getting rid of your old refrigerator.
This Clean Energy Standard, I think, I mean, it's not about
what the new build is going to be because we have very little
coal frankly in our new build anyway given gas prices and a
host of other things. The Clean Energy Standard would
essentially, works by displacing, you know, the existing
capacity that doesn't meet its standard. So in that sense it is
somewhat different than appliance efficiency standards or
CAFstandards that focus on, you know, if you're going to buy a
new car, a new refrigerator, this is how it needs to be.
So that's just to make a fair observation. You know, there
are some similarities, but there are some pretty significant
differences.
Senator Coons. But wouldn't you agree a critical difference
is that this is not--this is providing market based incentives
over the long term for that future mix of energy generation
rather than mandating that any new generation capacity hit
certain targets.
Mr. Gruenspecht. I think what it's saying is it's a, I
mean, indirectly I think it is a mandate to displace existing
generating capacity that meets a lot of the Nation's
electricity load. I mean the coal share of generation has
fallen from 50 percent right now to well below 40 percent.
Because with natural gas prices low as they are you find that
in many cases it's cheaper to dispatch, again without regard to
emissions or anything else, just in the straight dollars and
cents, many areas of the country the gas plants will run ahead
of the coal plants.
But it is, you know, it is a little bit of a different
thing to say you must stop using, you know, some of the
capacity that you're using today. I mean, it's not the same
thing in my mind as the CAF standard or the Appliance
Efficiency Standard. But that's just an observation. That's not
saying it's a good thing to do or a bad thing to do. It's
saying that it's just inherently a different kind of proposal.
Senator Coons. I see I've exceeded my time. Thank you.
The Chairman. Thank you.
Senator Manchin. Thank you, Mr. Chairman. Thank you all for
being here today.
We've heard a lot of discussion back and forth. I think
what we're trying to find is a balance. I think the frustration
that Senator Risch is that basically it's hard for government
to find that balance sometime. I mean, you start moving the
market in a way the market is not ready to go.
My concern would be this in competing with our economic
challengers from China and industrial worlds that are--
countries that are developing and that we're competing with on
daily. They have an all in policy that they don't really try to
move the market or change the market because of policy. They
basically believe that clean energy and if they're going to
invest in that. But they don't basically decimate their base
load.
They're still using their coal. They're still using their
natural gases. They're still trying to develop the energy for
the future.
We seem to be automatically picking one over the other.
When I say that I know what is in my State of West Virginia. We
have as much wind, if not more wind than most anybody east of
the Mississippi. People don't know that. They think we're all a
fossil State.
We do everything we can with hydro. We have given the
energy of this Nation has needed to defend itself, to build the
industrial might and defend itself in every war we've been in
with coal, the natural gas and oil. Now we have the Marcellus
shale.
We have a chance for a Renaissance, a Renaissance of
manufacturing again because of the wetness of the Marcellus
shale. We have a chance to change in transportation fuel. But
we're not dismantling our coal.
But yet this government seems to be, our own government, is
something that we're fighting with continuously trying to find
a balance. I think that's the frustration that the Senator
showed. It's the balance my good Senator here wants to find.
But that's all we're saying is that coal--what you've done
and what you're planning to do. If you look at China, China is
going to triple. They will triple in the next 3 decades their
demand for coal.
Unless we believe the world is flat. That we quit burning
any fossil in the United States of America. That's going to
clean up the atmosphere. Then we would believe the world is
flat.
It seems to me to find the technology that really helps,
that we can go out and clean up the atmosphere around the world
would be the way to do it. But not--we don't see it. We have
the FutureGen in the present State of Illinois. It's still
moving forward. He wants that very much.
But yet in West Virginia we've already done
commercialization. We could have done a total Mountaineer power
plant. Couldn't get the Department of Energy to buy into it.
They made other investments elsewhere that didn't work out
as well. We could have had a total commercialization. Proving
it could be done.
We're just saying take an all in policy because if you go
down the road, we've been down the road. We have natural gas
and coal. So we've been blessed. We have wind. We've got it
all.
We know when the prices were at $2 an MCF, two fifty and
MCF, right now as they are, low prices of gas. People are going
back to the peaking, their net peaking stations before gas
jumped to $10 and $12 and $13 an MCF. They shut them all down.
But we had competition back and forth. If we take an all in
policy and we discard whether it be coal or gas or whatever.
You're putting all your eggs in one basket. I think that is a
formula for disaster.
Until we develop the fuels of the future you've got to use
what you have. What I'm saying is we'll be the first Nation in
history not to use its resources to its own benefit, to all of
its resources. I've tried to explain this to people.
Do you know that most of our coal is being bought by
foreign countries?
Do you know that our coal mines, the ownership of this
resource is being bought by foreign countries? They're not
using it here. They're mining it because it's here. But they're
taking it elsewhere. That's not going to stop.
All I'm saying is we've got to find the balance. In West
Virginia we're asking for you all in these polices here. You're
rooting out the one abundant energy that you have.
You've had. It's been stable in pricing. It's affordable,
dependable and reliable.
We're happy to supply the gas and God bless us we have it.
But we have the coal too. That's what we're asking. Can you all
find that balance?
Mr. Sandalow. Thank you for that, Senator. Two points in
response.
First, a Clean Energy Standard is designed, precisely, to
bring in the diverse energy sources that you just pointed to in
West Virginia. It's designed to bring in coal with clean coal
technology.
It's designed to bring in----
Senator Manchin. It's not in this energy--this bill.
Mr. Sandalow. Senator, a Clean Energy Standard is
technology neutral.
So West Virginia wind.
West Virginia hydro.
West Virginia natural gas.
West Virginia coal.
Can all come in under a Clean Energy Standard.
I'm going to respectfully disagree with Senator Corker,
with his points about carbon capture and storage technologies.
I think there's tremendous potential there. That's why the
Department of Energy is investing in that technology. It's
why----
Senator Manchin. Where.
Mr. Sandalow. Around the country, Senator.
Senator Manchin. Not around our country. Not around our
State. We've got more than anybody. We begged you all to
complete--commercialize Mountaineer plant and we couldn't get
it.
Mr. Sandalow. I don't want to comment on that particular
project, which you know, Senator.
Senator Manchin. We'll talk about it in private
conversation.
Mr. Sandalow. It implies a lot of ins and outs. But I--
clean coal is a fundamental part of how to meet a Clean Energy
Standard.
Related to that let me highlight a second point broadly
about coal. Because, as you emphasized, coal is a central part
of our energy mix today. Coal is going to be a central part of
our energy mix in the future.
That's one reason that this Administration has invested
more money than any is promoting clean coal technologies.
Senator Manchin. If you don't use all of your resources.
Try to keep your prices competitive with the world energy
prices then we're going to be in a tremendous disadvantage.
China, who is our greatest economic challenge right now, is
using everything.
They're going to have an advantage we don't have.
Mr. Sandalow. Thank you, Senator.
I actually think we're agreeing. So maybe we could pursue
this because the Clean Energy Standard is technology neutral.
It's designed to bring capital off the sidelines and make sure
that the United States competes with a broad range of energy
sources that we have.
As you say, your State alone has this incredible range of
energy sources. It's true around the country. A Clean Energy
Standard would allow all those to come in and provide long term
signals to the market. It would bring capital off the
sidelines. Bring talent off the sidelines and promote American
competitiveness.
Senator Manchin. My time is up. So I'd love to follow up
with you on this. Maybe we'll schedule a meeting with you, OK?
Mr. Sandalow. Look forward to that.
Thank you, sir.
The Chairman. Senator Shaheen.
Senator Shaheen. Thank you, Mr. Chairman. Thank you to you
and Senator Murkowski for holding the hearing and for your
leadership on the Clean Energy Standard.
Mr. Sandalow, I was really pleased to hear your comments
just now about carbon capture because I share your enthusiasm.
At the risk of weighing in on the donkeys flying debate, I
think technology offers tremendous opportunities in this area.
We have a company in New Hampshire called Power Span, that's
been working on this for a very long time. I'm very
enthusiastic about their potential.
In fact, there's a long time before we got scrubbers on our
coal burning power plants in New Hampshire where people thought
that wasn't going to make any difference on pollution. Now we
have scrubbers and it's helping with a lot of the pollution
that's been emitted. We also have created jobs in doing that.
We have a number of companies that have created jobs and
developed new technologies to address that. Companies like
Thermo Fisher, again, that's making gauges to measure emissions
at power plants. So I think the technology offers us tremendous
opportunities in these areas.
I do want to go to an area that has been touched on. But I
think really deserves more exploration. That's energy
efficiency.
As I looked at the 5, sort of, President's principles for a
Clean Energy Standard, I think there are at least 3, possibly
4, that energy efficiency actually covers. I was concerned that
the bill, as it's written, looks at energy efficiency as an
opportunity for the future.
There's a non binding report that the Secretary of Energy
is asked to write. He has 3 years to do that.
But it seems to me, given what we know about energy
efficiency, it's the fastest, cheapest way to address our
energy needs that there is an opportunity here in the Clean
Energy Standard to elevate the importance of energy efficiency.
I wonder what you think if the bill language were amended to
include energy efficiency technologies and the Secretary were
charged with establishing national guidelines to evaluate
energy efficiency savings what difference you think it might
make in terms of the opportunities to move us toward cleaner
energy in this country.
Mr. Sandalow. Senator, it's certainly strongly agree about
the importance of energy efficiency and the enormous
opportunities that's often called the first fuel. There are
remarkable opportunities to save money, for families and
businesses to promote American competitiveness by cutting down
energy waste, which is really what promoting energy efficiency
is. Your leadership on this has really been striking, Senator.
We're all grateful for that.
Senator Shaheen. Thank you.
Mr. Sandalow. So thank you.
There is one way that the bill before us includes energy
efficiency that's fairly important which is combined heat and
power and recognizing the role of combined heat and power which
is a way of producing both heat and electricity at the same
time. An important opportunity for American business that could
be much better tapped then it is today. This bill would help to
promote it.
There are a range of complementary policies that can work
very closely with the Clean Electricity Standard, Clean Energy
Standard. In tandem they can achieve the results we've been
talking about.
I just, in particular, I just want to highlight in this is
such an important point, particularly growing out of Dr.
Gruenspecht's analysis that when we look at these policies
energy prices in 2035 for American households will be $5 lower
than they are today because we've been hearing talk about
raising energy prices. But under the EIA analysis energy prices
will be, for American households, will be, household energy
costs will be $5 lower than they are today.
Thank you.
Senator Shaheen. I'm really glad you mentioned combined
heat and power because I think, again, this is another area
where there is tremendous opportunity and untapped potential
usage that we really need to focus on and explore.
The other place that I would like to see--the other fuel
that I would like to see included in this bill is thermal
biomass because, again, another place that I think there is an
opportunity to really improve. By improve I mean reduce our
energy consumption.
So my time is up, but we'll explore with the next panel.
The Chairman. We do have a second panel and 6 witnesses
there who have been very patient in waiting. I thank Mr.
Sandalow, Dr. Gruenspecht, very much for your testimony. We
will continue to consult with you as we move forward on these
issues.
Let me call the second panel forward. I'll introduce them
as they're coming forward.
First would be Dr. Karen Palmer, who is the Research
Director and Senior Fellow with the Resources for the Future.
Second would be Ms. Judi Greenwald, who is Vice President
of Technology and Innovation with the Center for Climate and
Energy Solutions in Arlington, Virginia.
Third, Mr. Collin O'Mara, who is the Secretary of the
Delaware Department of Natural Resources and Environmental
Control in Dover, Delaware.
Next, Mr. Thomas Gibson, President and CEO of the American
Iron and Steel Institute.
Next is Mr. Keith Trent, who is the Group Executive and
President of Commercial Businesses with Duke Energy.
Finally, Mr. James Dickenson is the Managing Director and
Chief Executive Officer with Jacksonville Electric Authority in
Jacksonville, Florida.
I thank you all for being here. If we could have each of
you take 5 minutes and summarize the main points you think we
need to understand. We will include everyone's full statement
in the record as if read. Then we will have some questions.
Dr. Palmer, why don't you start?
STATEMENT OF KAREN PALMER, RESEARCH DIRECTOR AND SENIOR FELLOW,
RESOURCES FOR THE FUTURE
Ms. Palmer. Thank you, Chairman Bingaman and Senator
Murkowski, members of the committee, for the opportunity to
testify today. I am a Research Director and Senior Fellow at
Resources for the Future, otherwise known as RFF. RFF neither
lobbies nor takes positions on specific proposals. The views I
present today are my own.
As a researcher I've studied the performance of policies
and regulations to reduce emissions of greenhouse gases from
the electricity sector including policies to promote renewable
sources of electricity and energy efficiency. I've conducted
analyses of the regional greenhouse gas initiative and
California's AB32 policy. Currently I serve on the New York ISO
Advisory Council and the U.S. EPA Science Advisory Board's
Environment Economics Advisory Committee.
My testimony today is based on results of modeling analysis
of S. 2146 that I conducted with colleagues at RFF. I want to
make 3 main points pertaining to the findings of that analysis.
First, the Clean Energy Standard leads to substantial
reductions in emissions of carbon dioxide from the electricity
sector with very little impact on national electricity prices
for the first 10 years of the policy. Prices in some regions
actually fall below baseline levels in the early years.
Second, our modeling indicates that the alternative
compliance payment or ACP mechanism of the bill will be
triggered in all years generating substantial revenue for
States to invest in energy efficiency while at the same time
reducing the share of clean energy and the carbon dioxide
emission reductions from the policy.
Third, the small utilities exemption which applies to
roughly 17 percent of national electricity sales initially and
roughly 13 percent from 2025 on, creates a large difference in
electricity price between exempt and non exempt utilities. This
potential large price savings provides an incentive for groups
of electricity consumers to create their own small utility an
unintended consequence of the bill.
Now I want to explore each of these 3 points in a bit more
detail.
First, like the modeling work done by EIA, our analysis
finds that the CES leads to a 21 percent reduction in
cumulative emissions of carbon dioxide from the electricity
sector over the time horizon to 2035. In 2035 alone, the CES
would reduce CO2 emissions by 1.1 billion tons which
is 41 percent of emissions in that year without the policy.
This amounts to about 27 percent of the necessary
CO2 reductions in 2035 to be on a linear path to
meeting the U.S. pledges made at Copenhagen and Cancun.
We also find that the policy has a moderate effect on
average retail electricity prices during the first decade
followed by a period of substantial price increases as the CES
target and the ACP levels both ramp up. The lack of a
noticeable initial price effect masks important differences
across regions. As might be expected the regions that rely
mostly on coal fired generation experience small retail price
increases in the early years of the policy. While the
Northeast, the Western States and Texas actually pay less for
electricity with the CES than without it in the early years.
Second, the ACP provision of the bill is triggered in every
year in our analysis which means that some retail utilities
will make that payment instead of purchasing clean energy
credits. When we analyzed a version of the policy without
restricting--including an ACP we find that the clean energy
credit price would be a penny higher than the ACP in 2015 and
2.4 cents higher in 2035. This means that the ACP lowers the
national electricity price by 4 percent in 2035 but at the same
time it reduces the environmental efficacy of the policy.
The binding ACP will prevent the share of electricity
supply by clean sources from reaching the minimum requirements
specified in the bill. As a result cumulative CO2
emissions are 12 percent higher than they would be without the
ACP.
In addition to helping to reduce electricity price impacts
the ACP provision does create some money, 75 percent of which
is slated to be transferred back to the States for investment
in energy efficiency. Over the 21 year period from 2015 through
2035, this policy generates roughly $7.1 billion per year for
energy efficiency programs. This represents a substantial
increase over to the $8.5 billion that the Consortium for
Energy Efficiency estimates was budgeted for expenditures on
energy efficiency programs across the U.S. and Canada in 2011.
Third, the small utility exemption means that customers of
exempt utilities pay an average electricity retail price of
only 5.2 cents in 2035 with the CES. While customers of non
exempt utilities pay 11.6 percent--6 cents. Eliminating the
small utility exemption would raise the average retail price at
exempt utilities to 10.9 cents per kilowatt hour with no affect
on prices to customers of non exempt utilities which represent
roughly 87 percent of sales.
One potential unintended consequence of this substantial
gap is that the policy creates an incentive for new small
utilities to emerge. For example, groups of geographically
proximate customers such as small cities or towns could decide
to break away from their local utility and form their own small
utility to take advantage of the lower electricity prices.
Thank you for the opportunity to testify today. I look
forward to the discussion.
[The prepared statement of Ms. Palmer follows:]
Prepared Statement of Karen Palmer, Research Directorn and Senior
Fellow, Resources for the Future
summary of testimony
This testimony discusses the effects of the Clean Energy Standard
Act of 2012 on electricity prices and on carbon dioxide
(CO2) emissions from the electricity sector. Our modeling
suggests that the act will result in substantial reductions in
emissions from the electricity sector, resulting in 21 percent fewer
cumulative emissions by 2035. The policy has very little effect on
national average electricity price for the first decade and leads to
lower prices in the near term in some regions of the country. However,
after 2025, national average electricity prices will increase as a
result of the policy, rising to 18 percent above baseline levels by
2035. The alternative compliance payment (ACP) mechanism will be
triggered in all years, generating substantial revenue for states to
invest in energy efficiency, while reducing the share of clean energy
and the amount of CO2 emissions reductions compared to a CES
policy without an ACP. The small utility exemption, which applies to
roughly 17 percent of electricity sales initially and roughly 12.5
percent after 2025, creates a difference in electricity prices between
exempt and non-exempt utilities under the policy that grows to roughly
50 percent on average by 2035. The exemption results in electricity
prices at exempt utilities that are lower with the CES policy than
without it for the life of the policy. This large price savings
provides an incentive for groups of electricity consumers to create
their own small utility, an unintended consequence of the bill.
Mr. Chairman, thank you for the opportunity to testify before the
Senate Committee on Energy and Natural Resources. My name is Karen
Palmer, and I am a senior fellow and research director at Resources for
the Future (RFF), a 60-year-old research institution based in
Washington, DC, that focuses on the economic dimensions of energy,
environmental, and natural resource issues. RFF is independent and
nonpartisan, and shares the results of its economic and policy analyses
with environmental and business advocates, academics, government
agencies and legislative staff, members of the press, and interested
citizens. RFF neither lobbies nor takes positions on specific
legislative or regulatory proposals. I emphasize that the views I
present today are my own.
From both scholarly and practical perspectives, I have studied the
performance of policies and regulations to reduce emissions of
greenhouse gases from the electricity sector, including policies to
promote renewable sources of electricity and energy efficiency. I have
conducted analysis and modeling to support both state and regional
efforts to design climate policy, including the Regional Greenhouse Gas
Initiative in the Northeast and the California carbon dioxide
(CO2) regulations under AB32. Currently, I serve on the New
York State RGGI Advisory Committee, advising the New York State Energy
Research and Development Authority on how to use the RGGI allowance
auction revenue, and on the New York State Independent System Operator
Environmental Advisory Council. Additionally, I serve on the EPA
Science Advisory Board's Environmental Economics Advisory Council.
Recently, with colleagues at RFF, I have conducted economic analysis of
different Clean Energy Standards policy designs, including the one
specified in the Clean Energy Standard Act of 2012, S. 2146.
Today I will focus on the effects of a Clean Energy Standard (CES)
proposal embodied in S. 2146 on greenhouse gas emissions and
electricity prices and the implications of two key features of the
policy: the alternative compliance payment (ACP) and the small utility
exemption.
I want to highlight four main points about the CES proposal:
The CES as proposed in the bill will yield a substantial
reduction in CO2 emissions from the electricity
sector, resulting in 21 percent fewer cumulative emissions by
2035 and 41 percent fewer emissions in 2035 alone.
The CES will have very modest effects on national average
electricity price through 2025 and lead to lower prices in the
near term in some regions of the country. However, after 2025,
national average electricity prices will increase as a result
of the CES policy, rising to 18 percent above baseline levels
by 2035.
The alternative compliance payment mechanism will be
triggered in all years, generating substantial revenue for
states to invest in energy efficiency, while reducing the share
of clean energy and the amount of CO2 emissions
reductions compared to a CES policy without an alternative
compliance payment.
The small utility exemption, which applies to roughly 17
percent of electricity sales initially and roughly 12.5 percent
after 2025, creates a difference in electricity prices between
exempt and non-exempt utilities under the policy that grows to
close to 50 percent on average by 2035. And, the exemption
results in electricity prices at exempt utilities that are
lower with the CES policy than without it for the life of the
policy. This large price savings provides an incentive for
groups of electricity consumers to create their own small
utility, an unintended consequence of the bill.
A Summary of the Bill
A clean energy standard is similar to a renewable portfolio
standard in that it sets a floor on the share of electricity sales that
must come from clean sources of generation, and then raises the floor
over time as a way to squeeze CO2 emissions out of the
electricity sector. S. 2146 sets the clean energy requirement at 24
percent in 2015, rising by 3 percent per year to 84 percent in 2035.
The CES obliges any nonexempt retail utility to hold clean energy
credits equal to the required clean energy share multiplied by total
retail electricity sales.
Generators designated as clean, and therefore qualified to receive
clean energy credits for electricity production, are those that are
renewable, natural gas, hydro, nuclear, or qualified waste-to-energy
facilities that were placed in service after 1991. (This provision
effectively excludes all existing nuclear and hydroelectric capacity
from earning credits.) Coal units retrofitted with carbon capture and
storage may also receive credits. To receive credits, a generator must
have a carbon intensity of less than 0.82 metric tons of CO2
per MWh. Credits may be banked for use in future years.
Retail utilities have the option of paying an alternative
compliance payment (ACP) of $0.03/kWh in 2015, rising by 5 percent per
year in real dollars, in lieu of purchasing clean energy credits, Thus,
the ACP imposes a ceiling on the price of credits.
Small utilities are exempt from compliance obligation, and the
threshold defining small utilities is 2 million MWh of sales per year
in 2015, falling by 100,000 MWh per year to 1 million MWh of sales per
year in 2025 and beyond. Any electricity sales generated by a nuclear
or hydro facility placed in service before 1992 (almost all of them)
are also exempted from the standard, meaning they neither generate nor
are required to hold credits.
Modeling Approach to Analysis of S. 2146
To gain insights into how the CES specified in S. 2146 would impact
the U.S. electricity markets and associated emissions of
CO2, my colleagues at Resources for the Future and I used
our electricity sector market model, known as Haiku. Outputs from the
model include investment in new generating capacity, generation by fuel
and technology, and CO2 emissions and electricity prices by
region of the country as well as for the nation as a whole. In addition
to analyzing the policy as specified, we also looked at the effects of
different features of the policy, including the alternative compliance
payment and the small utility exemption as well as other features.
Like all models, Haiku is an imperfect but useful tool for gaining
insights into how policies like a CES affect the electricity sector.
Specific model results will depend on particular assumptions about a
variety of factors, including technology and fuel costs and the set of
technologies included in the model.
The next several sections of this testimony discuss what we learned
from this analysis about the likely effects of S. 2146 on greenhouse
gas emissions and on electricity markets. Please note that all dollar
amounts are expressed in real 2009 dollars.
CO2 Emissions
The proposed CES legislation would reduce emissions of
CO2 from the electricity sector substantially. The CES would
achieve 11.4 billion tons of cumulative CO2 emissions
reductions from electricity by 2035, or 21 percent of cumulative
baseline emissions. In 2035 alone, the CES would achieve 1.1 billion
tons of emissions reductions, or 41 percent of annual emissions in 2035
without the policy.
The United States has pledged, as part of the United Nations
climate change conferences in Copenhagen and Cancun, to reduce economy-
wide CO2 emissions to 83 percent below 2005 levels by 2050.
To be on a linear path to meet this goal, the United States would have
to reduce total CO2 emissions in 2035 by roughly 4.1 billion
tons from 2005 levels, and the CES would contribute 27 percent of the
United States' pledged CO2 emissions reductions in 2035.
Electricity Generation by Technology and Fuel
The proposed CES legislation would bring about important changes in
the composition of electricity supply that evolves over time. In the
short run, by 2020, the CES will effect a swap of generation from coal
to natural gas of almost 600 terawatt-hours TWh. By 2035, the policy
will result in a substantial decline in coal-fired generation. The
roughly 1,200 TWh decline in coal generation would be offset partially
by about a 330 TWh reduction in consumption. Offsetting the remainder
of the lost coal generation would be a variety of new generation
sources. Large growth in natural gas generation (about 600 TWh) would
be accompanied by more moderate growth in wind and nuclear generation
(about 100 and 140 TWh, respectively). The mix of generation under the
baseline and different specifications of the CES policy are displayed
in Exhibit 1.*
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* Exhibits 1-4 have been retained in committee files.
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National Average Retail Electricity Price
The CES in S. 2146 will have a moderate effect on average retail
electricity prices during the first decade of the policy, followed by a
period of substantial increases as the target and the alternative
compliance payment levels both ramp up. Exhibit 2 shows national
average retail electricity prices under the CES (red line) and the
baseline (blue line) over time.
What explains the delayed price impact of the CES policy? Under a
CES, retail electricity prices have two important components: the
wholesale price of electric energy and the price of a CES credit, the
latter of which is multiplied by the minimum clean energy share in each
year. Because the CES leads to greater investment in clean technologies
with low operating costs, such as wind or efficient natural gas, it
will tend to increase the supply of electric energy and lead to lower
wholesale energy prices, particularly in those regions with competitive
wholesale electricity markets.
A CES policy also creates a new market for clean energy credits.
The requirement for retail electricity suppliers to hold those credits
in increasingly greater proportion over time as the clean energy
standard rises means that the price of credits plays an increasingly
bigger role in the determination of electricity prices over time. In
the initial years of the program, the CES credit prices and credit
requirements will be relatively low, with the small positive impacts on
electricity prices typically offset by lower prices in wholesale energy
markets. In cost-of-service regions, where prices are governed by
average (or total) costs, the small short-run increase in prices
resulting from credit requirements is offset by small reductions in
costs resulting from a net export of credits to competitive regions.
These countervailing effects of the CES yield approximately no short-
run electricity price impacts for the nation as a whole. In the long
run, the cost of the credit obligation increases as both the credit
price and requirement rise, and it trumps all other factors affecting
electricity prices. By 2035, the national average retail electricity
price under the CES would exceed that in the absence of the policy by
$0.016/kWh (18 percent).
Regional Retail Electricity Prices
The lack of a noticeable initial effect of the CES policy on
national average electricity prices masks important differences across
regions of the country. Exhibit 3 shows the effects of the policy on
retail electricity price by region in 2020. This map reveals that the
regions of the country that rely most on coal-fired generation stand to
experience small retail price increases, while the Northeast and Texas
stand to pay substantially less for electricity with the CES than
without it. Retail prices are also lower throughout much of the western
part of the country in 2020 with the CES. By 2025, more regions
experience price increases, as shown in Exhibit 4, but electricity
prices are still lower with the policy than without it in the
Northeast, the Northwest, and Texas.
After 2025 the policy tends to result in price increases in all
regions, although the regions with a relatively clean mix of generators
or a relatively high proportion of small utilities would experience a
relatively small average retail price increase due to the CES, while
regions that rely heavily on coal or that have very few small utilities
would experience relatively larger retail price increases.
The Alternative Compliance Payment
The ACP provision of the bill is triggered in every year, which
means that some portion of the retail utilities required to comply with
the legislation will pay the ACP instead of purchasing clean energy
credits and that in each year the clean energy credit price will equal
the ACP. Expressed in 2009 dollars, the ACP starts out at $0.026/kWh in
2015 and rises by 5 percent per year in real dollars to $0.068/kWh in
2035. Without an ACP, the clean energy credit price would reach $0.036/
kWh in 2015 and $0.092/kWh in 2035.
The ACP provision of the bill results in slightly lower costs to
electricity consumers but it comes at a cost of reduced environmental
efficacy. Without the ACP, electricity prices would be higher from 2025
on (as shown by comparing the red and purple lines in Exhibit 2), and
would be roughly 4 percent higher in 2035. The binding ACP will prevent
the fraction of power supplied by clean sources under the CES policy
from reaching the minimum requirements specified in the bill. The
elevated credit prices in a version of the CES without an ACP would
engender more generation from clean sources and greater emissions
reductions, amounting to an additional 12 percent of cumulative
CO2 emissions reductions by 2035 beyond those reductions
projected under the CES policy specified in the bill.
The ACP provision also creates a pot of revenue, 75 percent of
which is to be transferred back to the states for investment in energy
efficiency initiatives. Over the 21-year period from 2015 through 2035,
the CES policy in S. 2146 generates roughly $9.5 billion dollars per
year in annuitized ACP revenue. Adding 75 percent of this amount, or
$7.1 billion, to state energy efficiency budgets would represent a
substantial increase to the $8.5 billion (adjusted to 2009 dollars)
that the Consortium for Energy Efficiency estimates was budgeted for
expenditure on energy efficiency programs for both electricity and
natural gas across the United States and Canada in 2011.
The Small Utility Exemption
Like the ACP, the small utility exemption provision of the bill
also serves to dampen electricity price increases resulting from the
CES. Without the exemption, the national average retail electricity
price in 2035 would be 25 percent higher than baseline levels, compared
to only 18 percent higher with the exemption in place. If both the ACP
and the small utility exemption were struck from the policy, the
national average retail electricity price would reach $0.13/kWh by
2035, or 42 percent above baseline levels.
The benefits to consumers of a lower electricity price due to the
small utility exemption accrue exclusively to the customers of the
exempt utilities. Based on the 2009 distribution of utility sizes, we
estimate the fraction of regional consumption that would be exempted
under each level of the threshold and find that in 2015, roughly 17
percent of regional consumption is exempt from compliance. By 2025 and
thereafter, the small utility exemption is projected to exempt roughly
12.5 percent of national electricity consumption from having to comply
with the standard.
As a result of the small utility exemption, consumers served by the
exempt utilities pay an average retail electricity price of only
$0.052/kWh in 2035 with the CES (assuming these utilities have the
regional average mix of generating technologies), while the consumers
of non-exempt utilities pay an average price of $0.116/kWh. This
average difference will be even greater when comparing prices across
different regions. For example, customers of exempt utilities in the
Northwest pay only $0.012/kWh in 2035, while consumers on Long Island,
where no consumers are exempt, pay $0.175/kWh. Eliminating the small
utility exemption raises the average retail price at utilities that
would have been exempted to $0.109/kWh, while customers of non-exempt
utilities pay the same average price of $0.116/kWh. In other words, the
small utility exemption allows consumers of 12.5 percent of total sales
to enjoy an average retail electricity price reduction of $0.057/kWh,
while consumers of the remaining 87.5 percent see no benefit at all.
Removing the small utility exemption also has no effect on the mix
of technologies and fuels used to produce electricity or on the
CO2 emissions reductions resulting from the policy. The
reason removing the exemption has virtually no effect on the
performance of the policy outside of the price impact on consumers of
exempt utilities is because the ACP is binding and thus the price of
clean energy credits is equal to the ACP. If there were no ACP, the
small utility exemption would reduce the electricity consumption basis
to which the CES is applied, which would in turn reduce the total
amount of clean energy required by the policy, the credit price, and
electricity prices for all consumers. However, with and without the
small utility exemption, the ACP is binding, so clean energy generation
is unchanged by removing the exemption. Instead, the main effect of the
small utility exemption is to reduce the ACP revenues available to be
disbursed to the states to fund end-use energy efficiency programs. Our
results suggest that for a CES with no small utility exemption, the
annuitized value of ACP revenue for each year between 2015 and 2035
increases by roughly $10 billion per year to $19.5 billion, 75 percent
of which would be allocated to states for investment in energy
efficiency under the provisions of the bill.
One potential unintended consequence of the small utility exemption
is that by creating a substantial gap between retail prices for exempt
and non-exempt utilities, the policy also creates an incentive for new
small utilities to emerge. For example, groups of geographically
proximate customers, such as small cities or towns, could decide to
break away from their local utility and form their own small municipal
utility to take advantage of the lower electricity prices.
The Existing Nuclear and Hydro Exclusion
The exclusion of generation from existing nuclear and hydroelectric
capacity from compliance responsibility is another aspect of the bill
with evident consequences for ratepayers. If certain nuclear or hydro
facilities would reduce their production under the CES policy because
they do not earn clean energy credits, excluding generation from those
units from compliance obligation will reverse this effect, keeping that
clean production online. Our modeling suggests that the CO2
emissions consequences of the exclusion for existing nuclear and
hydroelectric capacity are virtually zero because the 17 TWh of nuclear
generation from existing facilities that would be lost without the
exclusion are made up by additional generation at new nuclear
facilities.
The implications of the existing nuclear and hydro exclusion for
electricity consumers varies across regions depending on how
electricity prices are set. In cost-of-service regulated regions of the
country, the exclusion has virtually no effect on electricity prices.
In regions where electricity is priced in competitive markets, the
exclusion amounts to a wealth transfer from consumers to the owners of
existing nuclear and hydroelectric generators. In some states, like New
York, where some hydroelectric capacity is publicly owned, the
ratepayers presumably will recapture part of the wealth transfer. In
other cases, especially with respect to nuclear capacity, the transfer
will remain with utility shareholders.
The Chairman. Thank you very much.
Ms. Greenwald, go ahead.
STATEMENT OF JUDI GREENWALD, VICE PRESIDENT FOR TECHNOLOGY AND
INNOVATION, CENTER FOR CLIMATE AND ENERGY SOLUTIONS, ARLINGTON,
VA
Ms. Greenwald. Mr. Chairman, Senator Murkowski and members
of the committee, thank you for the opportunity to testify. I'm
Judi Greenwald, Vice President for Technology and Innovation at
the Center for Climate and Energy Solutions.
C2ES is an independent, non-profit, non-partisan
organization advancing practical and effective policies and
actions to address our climate and energy challenges. Our work
is informed by the 36 mostly Fortune 500 companies in our
Business Environmental Leadership Council. The views I'm
expressing are those of C2ES alone.
C2ES recently published 2 papers examining issues and
options in designing a Clean Energy Standard. They ask that
they be entered into the record.
The Chairman. We will include those. Thanks.
Ms. Greenwald. Thanks.
A Clean Energy Standard is a market based approach that can
achieve 3 objectives cost effectively.
Environmental and Public Health Protection.
The growth of new clean energy industries.
Diversification of electricity supply.
Thirty-one States and DC have adopted some form of Clean
Energy Standards. These differ in a number of critical elements
providing a wealth of State experience to draw from in
designing a Federal program. State Clean Energy Standards
accelerate the deployment of renewables with generally modest
impacts on electricity rates.
They tend to favor the cheapest available renewable
options. Although a number of States have driven innovation in
less mature technologies. For example, by requiring that a
certain fraction of the overall target be met using solar
energy.
While most of the State standards focus on renewables, 4
States, Michigan, Ohio, Pennsylvania and West Virginia give
credit to some non renewable generation as well. But they favor
renewables compared to the other qualifying sources either by
requiring that some portion of the clean energy targets be met
with renewables or by giving renewables extra credit.
Senator Bingaman's bill embodies a number of innovative
design features that reasonably balance the multiple objectives
of a Clean Energy Standard.
These include a broad, all of the above definition of clean
energy, maximizing flexibility and minimizing costs.
A target that starts off modestly but increases over time
balancing effectiveness in cost and driving innovation.
Credits calculated based on carbon intensity appropriately
rewarding environmental performance.
Some crediting for existing nuclear and hydro power
balancing the goal of fairly sharing costs with the goal of
recognizing clean energy investment.
Allowing utilities to pay an alternative compliance payment
if clean energy credit prices get too high.
Advancing energy efficiency by providing credit for
combined heat and power.
Using alternative compliance payments to fund State
efficiency programs.
EIA's analysis indicates that the bill takes advantage of
natural gas's near term price and availability while still
driving innovation in much cleaner technologies. However, it's
uncertain how each clean energy option will fare in the real
world.
If policymakers want to ensure innovation in zero emitting
technologies and avoid too much reliance on natural gas, they
have a number of options.
They could exclude natural gas from the definition of clean
energy.
They could draw from State experience and design the
standard so that it favors or limits specific types of clean
energy. I believe Senator Franken mentioned that option this
morning.
Or they could put in place complimentary policies such as
loan guarantees for nuclear power plants, tax credits for wind
and solar power and subsidies for carbon capture and storage.
On the last point C2ES co-convened a coalition of industry,
State, environmental and labor leaders. The National Enhanced
Oil Recovery Initiative, neori.org, calling for a Federal tax
credit for capturing and transporting CO2 from
industrial sources and power plants for use in enhanced oil
recovery. This would expand domestic oil production and drive
innovation in carbon capture and storage enabling coal to have
a bigger role in a clean energy future.
EIA also projects that under the Bingaman proposal
electricity prices would be largely unchanged until the mid
2020s giving people and companies both an incentive to increase
their energy efficiency and potentially reduce their energy
bills even as prices rise and ample time to do so.
The bill's alternative compliance payment would protect
against unforeseen impacts.
Senator Bingaman, thank you for introducing this bill and
beginning the public debate on this promising approach to
protecting the environment, public health and diversifying
energy supply. We look forward to working with you and your
colleagues on the committee to analyze, refine and advance this
proposal.
[The prepared statement of Ms. Greenwald follows:]
Prepared Statement of Judi Greenwald, Vice President for Technology and
Innovation, Center for Climate and Energy Solutions, Arlington, VA
Mr. Chairman, Senator Murkowski, and members of the Committee,
thank you for the opportunity to testify on the Clean Energy Standard.
My name is Judi Greenwald, and I am Vice President for Technology and
Innovation at the Center for Climate and Energy Solutions (C2ES-
formerly known as the Pew Center on Global Climate Change).
C2ES is an independent nonprofit, nonpartisan organization
dedicated to advancing practical and effective policies and actions to
address our global climate change and energy challenges. Our work is
informed by our Business Environmental Leadership Council (BELC), a
group of 36 major companies, most in the Fortune 500, that work with
C2ES on climate change and energy risks, challenges, and solutions.
C2ES recently published two papers on the topic of this hearing,
Clean Energy Standards: State and Federal Policy Options and
Implications (jointly with the Regulatory Assistance Project),\1\ and
An Illustrative Framework for a Clean Energy Standard for the Power
Sector.\2\ I'd like to ask that they be entered into the record.
---------------------------------------------------------------------------
\1\ Regulatory Assistance Project and Center for Climate and Energy
Solutions, Clean Energy Standards: State and Federal Policy Options and
Implications (2011), http://www.c2es.org/docUploads/Clean-Energy-
Standards-State-and-Federal-Policy-Options-and-Implications.pdf.
\2\ Center for Climate and Energy Solutions, An Illustrative
Framework for a Clean Energy Standard for the Power Sector, (2011),
http://www.c2es.org/docUploads/CES--Framework.pdf.
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To summarize my testimony, C2ES applauds Senator Bingaman's
leadership in introducing this bill. It begins the public debate on
this promising approach to protecting the environment, diversifying
energy supply, and promoting clean energy industries. C2ES believes
that Senator Bingaman's proposal embodies a number of design features
that are innovative and reasonably balance the multiple objectives of a
Clean Energy Standard. In particular, we would highlight the following:
a flexible, market-based approach including clean energy credit trading
and banking; a target that starts off modestly but increases over time;
a broad ``all-of-the above'' definition of clean energy; and a
crediting system that rewards environmental performance based on carbon
intensity.
My testimony will focus first on the general concept of a Clean
Energy Standard, then on lessons from the state experience with such
standards, and finally more specifically on Sen. Bingaman's proposed
Clean Energy Standard Act of 2012.
Balancing our objectives with a Clean Energy Standard
I'd like to begin with a note on use of the word ``clean.'' There
is no commonly accepted definition of ``clean'' energy. Indeed, one
person's definition of ``clean'' can differ dramatically from another's
if their objectives for energy policy differ. Renewable energy, nuclear
power, natural gas, coal with carbon capture and sequestration, energy
efficiency, and emission offsets all have their advocates as falling
under the definition of clean. Unless otherwise noted, in my testimony
I will use the word ``clean'' to refer to these options generally and
``conventional'' to refer to all other forms of electricity generation.
Moving from conventional electricity generation to clean energy
offers three types of possible benefit: the reduction of the
environmental and public health damages associated with conventional
electricity generation, the growth of new clean energy industries, and
diversification of energy supply. A clean energy standard usually
refers to a market-based approach that can achieve all of these
objectives cost-effectively: it requires an increasing amount of clean
electricity, but gives utilities the flexibility to comply by
generating or buying clean power, or purchasing tradable clean energy
``credits'' (CECs), typically denominated in megawatt-hours.
One objective is the protection of public health and the
environment. Electric power plants are the leading U.S. source of
emissions of sulfur dioxide, mercury and many other metals, and acid
gases.\3\ The electricity sector also ranks third among all U.S.
sources of nitrogen oxide emissions and fourth in emissions of fine
particulates.\4\ The vast majority of the emissions in this sector are
associated with coal-fired power plants.\5\ Clean energy sources emit
zero or very low levels of these pollutants.\6\
---------------------------------------------------------------------------
\3\ Joe Bryson, ``Reducing Pollution from Power Plants''
(presentation, National Association of State Utility Consumer Advocates
Annual Meeting, Atlanta, GA, November 16, 2010).
\4\ Ibid.
\5\ Ibid.
\6\ ``Clean Energy: Non-Hydroelectric Renewable Energy,'' U.S.
Environmental Protection Agency, last modified August 5, 2010, http://
www.epa.gov/cleanenergy/energy-and-you/affect/non-hydro.html.
---------------------------------------------------------------------------
Today, the power sector is the source of about a third of U.S.
greenhouse gas emissions.\7\ As we heard during the hearing the
committee held on sea level rise a few weeks ago, recent findings in
the peer-reviewed science provide only more cause for concern about the
impacts of climate change. A properly designed clean energy standard
would lead to the reduction of these emissions from power plants.
---------------------------------------------------------------------------
\7\ ``Energy in Brief: What are greenhouse gases and how much are
emitted by the United States?,'' U.S. Energy Information
Administration, last modified May 9, 2011, http://www.eia.gov/
energy__in__brief/greenhouse_gas.cfm.
---------------------------------------------------------------------------
A second objective is to advance the position of the United States
in the global competition to deliver the next generation of energy
technologies. In a world hungry for energy services, we can be
confident that modern energy technologies, especially those with a
smaller environmental footprint than those we have today, will be a
global growth area for decades to come. A recent report finds that
global renewable energy finance and investment grew significantly in
2011 to $263 billion, a 6.5 percent increase from the previous year.
The renewable energy sector is emerging as one of the most dynamic and
competitive in the world, witnessing 600 percent growth in finance and
investments since 2004.\8\ A clean energy standard would spur
technology and economic development in the United States, allowing the
market to determine the winners among clean technologies.
---------------------------------------------------------------------------
\8\ The Pew Charitable Trusts, Who's Winning the Clean Energy Race
2011 Edition (Washington, DC: The Pew Charitable Trusts, 2012), http://
www.pewenvironment.org/uploadedFiles/PEG/Publications/Report/
FINAL__forweb__WhoIsWinningTheCleanEnergyRace-REPORT-2012.pdf.
---------------------------------------------------------------------------
A third objective is to ensure a diverse energy supply. Currently
we obtain 42 percent of our electricity from coal, 25 percent from
natural gas, 19 percent from nuclear, and 13 percent from
renewables.\9\ Under business as usual, this energy mix is not expected
to change significantly over the next two decades; while new builds are
expected to be primarily natural gas, overall electric generation is
growing fairly slowly.
---------------------------------------------------------------------------
\9\ ``Total Energy Data: Table 7.2a Electricity Net Generation
2011,'' U.S. Energy Information Administration, April 2012, http://
www.eia.gov/totalenergy/data/monthly/pdf/sec7__5.pdf
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In many respects, a properly designed clean energy standard would
advance all three objectives. There are a few aspects in the design of
a clean energy standard, however, that require one to choose between
the objectives, or at least to strike a balance between them. Design
choices may be evaluated in light of additional criteria, including:
Effectiveness--what is the magnitude of the policy's desired
impacts?
Affordability--does the policy balance the benefits
associated with increased clean power generation against the
cost impacts of the policy?
Cost-effectiveness--how efficiently does the policy achieve
its intended aims?
Fairness--does the policy unfairly burden particular groups
or regions or lead to any undue burdens or unearned windfalls
for particular utilities, power generators, or customers?
Innovation--does the policy drive innovation in the lowest-
emitting and/or least mature technologies with the greatest
potential long-term benefits?
I'll elaborate on a few examples of how design choices can involve
tradeoffs and affect costs.
Targets, coverage, and alternative compliance payments--More
ambitious clean energy targets will achieve greater benefits and drive
greater innovation in the lowest-emitting technologies, but at higher
cost. Broader inclusion of electric utility companies will increase the
effectiveness of the standard and more broadly share the costs, but
could impose greater administrative burdens. Allowing utilities to pay
an alternative compliance payment if clean energy credit prices get too
high limits the rate impacts but can also reduce the effectiveness of
the targets.
Definition of clean energy--In general, a broader definition of
clean energy will lower the cost because it allows greater scope for
identifying the least expensive solutions. It also makes the standard
more equitable across regions, because different regions have different
natural endowments of different types of clean energy. Supply diversity
is also a hedge against price volatility. However, because different
types of clean energy have different characteristics, policy-makers
might not be neutral with respect to the role each type plays. There
are many possible compromises on this issue, depending on the attribute
of concern.
As an illustration, natural gas is lower-emitting than coal but
higher-emitting than nuclear or renewables. A compromise is to award
natural gas partial credit. In addition, advances in shale gas
production have increased the availability of inexpensive natural gas.
Thus, providing credit for natural gas reduces the cost of achieving
the CES target. However, since natural gas is already the dominant
choice for new power plant builds, there is a risk that the power
sector will become too reliant on natural gas, crowding out other
options.
Inherently, a clean energy standard will favor the lowest-cost
clean energy source. But policy-makers may want to drive innovation and
cost reduction in less mature, advanced clean energy technologies. A
compromise might be to place a limit on how many credits can be
distributed to the lowest-cost clean energy source. Another option is
to provide additional favorable treatment to the lowest-emitting or
least mature technologies (e.g., by granting certain subcategories of
technologies additional credits, or guaranteeing them a role by
establishing ``tiers'' with separate targets). Finally, policy-makers
can design the CES to be technology-neutral, and rely on complementary
policies (such as loan guarantees or other financial assistance for
nuclear power plants, subsidies for carbon capture and storage, and tax
credits for wind and solar power) to drive innovation in less mature
and lower-emitting technologies.
The role of energy efficiency--Energy efficiency is cleaner than
any of the energy supply options. Providing credit for energy
efficiency can lower cost, but increase the complexity of the standard
and potentially diminish its effectiveness. Measuring electricity
savings from energy efficiency is more challenging than measuring
generation from qualified clean energy sources, and it is especially
difficult to distinguish energy savings driven by the standard from
business as usual.
Crediting existing clean generation--On the one hand, it is fair to
reward early clean energy investment. On the other hand, such crediting
could result in windfall profits and reduce new clean energy
production.
State experience with renewable and alternative energy standards
We have substantial experience with renewable and alternative
energy standards at the state level. At this point, 31 states and the
District of Columbia have adopted some form of mandatory electricity
portfolio standards through legislation, regulation, or public utility
commission order. Another eight states have adopted non-mandatory
renewable portfolio goals.\10\ These policies differ in a number of the
design elements described above.\11\ Thus we have a wealth of state
experience to draw from in designing a federal program. In addition, 22
states have established mandatory long-term electricity savings targets
through an Energy Efficiency Resource Standard (EERS), with five other
states having a non-mandatory electricity savings goal.\12\ In some of
these cases, the state electricity portfolio standard is combined with
or linked to the EERS policy.
---------------------------------------------------------------------------
\10\ ``Renewable & Alternative Energy Portfolio Standards,'' Center
for Climate and Energy Solutions, last modified January 20, 2012,
http://www.c2es.org/what__s__being__done/in__the__states/rps.cfm.
\11\ Ryan Wiser and Galen Barbose, ``The State of the States:
Updated on the Implementation of U.S. Renewable Portfolio Standards,''
(presentation, 2011 National Summit on RPS, Washington, DC, October 26,
2011) http://www.cleanenergystates.org/assets/Uploads/2011-RPS-Summit-
Combined-Presentations-File.pdf.
\12\ ``Energy Efficiency Resource Standard,'' Database of State
Incentives for Renewables & Efficiency, http://www.dsireusa.org/.
---------------------------------------------------------------------------
Perhaps the most important lesson to be learned from state
portfolio standards is that they succeed in accelerating the deployment
of renewable resources.\13\ Ninety percent of the nonhydro renewable
capacity added in the United States between 2004 and 2010 was built in
states with a mandatory renewable portfolio standard.\14\ Another clear
(and expected) lesson is that state portfolio standards tend to result
in the deployment of the cheapest available renewable energy options.
In most states, this means utility-scale wind power projects.\15\ State
portfolio standards are given a good deal of credit for establishing a
viable wind turbine supply chain in the United States, along with
training and credential programs and some domestic manufacturing
facilities.\16\ A number of states have driven some innovation in less
mature technologies, for example by establishing ``carve-outs''
requiring that a certain fraction of the requirement be met using solar
energy.
---------------------------------------------------------------------------
\13\ Ryan Wiser and Galen Barbose, ``The State of the States:
Updated on the Implementation of U.S. Renewable Portfolio Standards,
(presentation, 2011 National Summit on RPS, Washington, DC, October 26,
2011), http://www.cleanenergystates.org/assets/Uploads/2011-RPS-Summit-
Combined-Presentations-File.pdf.
\14\ Regulatory Assistance Project and Center for Climate and
Energy Solutions, Clean Energy Standards: State and Federal Policy
Options and Implications (2011), http://www.c2es.org/docUploads/Clean-
Energy-Standards-State-and-Federal-Policy-Options-and-Implications.pdf.
\15\ Chen et al., Weighing the Costs and Benefits of State
Renewables Portfolio Standards: A Comparative Analysis of State-Level
Policy Impact Projections (Berkeley, CA: Lawrence Berkeley National
Laboratory, 2007), http://eetd.lbl.gov/ea/EMP/reports/61580.pdf.
\16\ Ibid.
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A third key lesson is that the impact of portfolio standards on
electricity rates has been generally modest, though it is difficult to
isolate this impact from other factors that influence prices.\17\ Of14
states where compliance cost data are available, Arizona had the
highest impact in 2010 of nearly 4 percent.\18\ No other of these
states saw a rate impact above 2 percent.\19\ As a typical example, the
Maine Public Utilities Commission estimates a 0.6 percent increase in
rates in 2010 caused by its portfolio standard of 40 percent renewable
energy by 2017, and expects a 1.9 percent increase by 2017.\20\ Due to
the price stability of long-term renewable energy contracts, the
portfolio standard may even help reduce rates in some states.\21\
---------------------------------------------------------------------------
\17\ Ibid.
\18\ Ryan Wiser and Galen Barbose, ``The State of the States:
Updated on the Implementation of U.S. Renewable Portfolio Standards,''
(presentation, 2011 National Summit on RPS, Washington, DC, October 26,
2011), http://www.cleanenergystates.org/assets/Uploads/2011-RPS-Summit-
Combined-Presentations-File.pdf.
\19\ Ibid.
\20\ London Economics International LLC for the Maine Public
Utilities Commission, MPUC RPS Report 2011-Review of RPS Requirements
and Compliance in Maine (Boston, MA: London Economics International
LLC, 2012), http://www.maine.gov/tools/whatsnew/
attach.php?id=349454&an=1.
\21\ Ibid.
---------------------------------------------------------------------------
While most of the state portfolio standards focus on energy sources
that are renewable, nonrenewable electric generation technologies are
given credit in the programs of four states--Michigan, Ohio,
Pennsylvania and West Virginia. Natural gas, coal with carbon capture
and storage (CCS), coal gasification and liquefaction, coal bed
methane, nuclear power, industrial combined heat and power, and
greenhouse gas offset projects are given credit under one or more of
these programs, in addition, of course, to the traditional renewable
energy sources. All of these states have taken an approach that favors
renewable sources compared to the other qualifying sources, either by
establishing ``tiers'' that define some fraction of the clean energy
targets that must be achieved by renewable sources, or by giving
renewable sources extra credits.
The proposed Clean Energy Standard Act of 2012
Let us now turn to Sen. Bingaman's bill, the Clean Energy Standard
Act of 2012. The bill would, beginning in 2015, require covered
electric utilities to supply an increasing share of their electricity
sales from qualifying clean energy sources. Utilities could comply by
building their own clean power plants, buying clean power from others,
or buying tradable clean energy credits.
Senator Bingaman's CES proposal embodies a number of design
features, including the following, that are innovative and reasonably
balance the multiple objectives I described earlier:
A target that starts off modestly but increases over time,
balancing effectiveness and cost, and driving innovation;
A broad, ``all-of-the above'' definition of clean energy,
maximizing flexibility and minimizing cost;
Appropriately rewarding environmental performance by
calculating credits based on carbon intensity;
Providing some credit for existing nuclear and hydropower,
balancing the goal of fairly sharing costs with the goal of
recognizing clean energy investment;
Allowing banking of clean energy credits, affording
additional compliance flexibility;
Allowing utilities to pay an alternative compliance payment
if clean energy credit prices get too high, but escalating the
payment over time; and
Advancing energy efficiency by providing credit for combined
heat and power, and using alternate compliance payments to fund
state efficiency programs.
At Sen. Bingaman's request the Energy Information Administration
has analyzed the implications of the bill using the National Energy
Modeling System. As with all economic modeling, we should look at the
EIA's work for insights, rather than for hard and fast predictions
about the future. In that spirit, we offer the following additional
observations about the bill.
The Act and natural gas
Pertaining to the balancing of natural gas against the other clean
energy technologies, the EIA projects that under the proposed standard,
in 2035, natural gas will be 31 percent, nuclear power will be 30
percent, and renewables will be 20 percent of the total generation
mix.\22\ According to EIA's scenario, the bill drives the largest
increase in natural gas use in the early years, but as the standard
becomes more ambitious, we see an increase in lower-emitting
technologies. In 2020, natural gas-fired generation under the proposed
standard is 13 percent higher than in the reference scenario; by 2035
it is 8 percent higher.\23\ Thus the bill takes advantage of natural
gas's near-term price and availability while still driving innovation
in much cleaner technologies. Additionally, the investment in a range
of low emitting technologies in response to the CES provides supply
diversity, and a hedge against potential volatility in the price of
natural gas.
---------------------------------------------------------------------------
\22\ ``Analysis of the Clean Energy Standard Act of 2012: Scenario
Case Data,'' U.S. Energy Information Administration, last accessed May
11, 2012, http://www.eia.gov/analysis/requests/bces12/.
\23\ Ibid.
---------------------------------------------------------------------------
Moreover, the EIA projects only a modest natural gas price
increase, as increased consumption from the electric power sector leads
to prices around 10 percent higher than the reference case from 2015-
2018. Then, the price converges to reference case levels over the
following five years.\24\ Given the very low projected price of natural
gas, in absolute terms, this is actually a small increase. This is good
news, considering the current investments being made by manufacturers
on the basis of projected low natural gas prices.
---------------------------------------------------------------------------
\24\ Ibid.
---------------------------------------------------------------------------
The Act and very low-emitting technologies
This modestly increased role for gas, however, depends on a
significant increase in one or more very low-emitting technologies. EIA
projects especially large growth in nuclear power that may or may not
come to pass. EIA also projects some increase in biomass, wind and
solar power, but no increase in coal (or gas) with carbon capture and
storage. In EIA's analysis of a case in which new nuclear plant builds
were constrained, and other assumptions were held constant, natural gas
played a more significant role, and this uniformly raised the projected
price of natural gas. One could still project a more modest role for
natural gas with less growth in nuclear power but with more optimistic
assumptions for renewables and/or carbon capture and storage.
If policy-makers are interested in ensuring innovation in zero-
emitting technologies, policy options are available, as discussed
earlier. In any event, C2ES would strongly recommend making a Clean
Energy Standard just one component of a comprehensive strategy to
advance the very low-emitting technologies - nuclear power, renewable
energy, and carbon capture and storage--a strategy that includes
support for R&D, as well as subsidies to allow power companies and
others to deploy the technologies.
Nuclear power plants face a number of major hurdles. One hurdle
that policy-makers could address is obtaining financing, for example by
continuing and potentially expanding the current loan guarantee program
and/or providing other forms of financial assistance to a few ``first
mover'' next-generation nuclear plants. This could demonstrate to
potential investors that these plants can indeed be built with lower
cost and improved safety features, setting the stage for second, third,
and nth movers to obtain private financing. This would increase the
likelihood of nuclear power playing a significant role in achieving a
clean energy standard.
For wind and solar power, EIA projects increases that are
significant but not nearly as large as for nuclear power, relative to
the reference case. Also, EIA assumes that the production tax credit
(PTC) for wind expires in 2012, and the investment tax credit (ITC) for
solar expires in 2016. Extending the PTC and ITC could incentivize
additional solar and wind investment beyond what would be built solely
to comply with the CES.
EIA projects that additional coal (or gas) with CCS will not be
deployed under this bill because it is not cost-competitive with other
clean energy options. It is technically feasible today to build a
commercial-scale CCS operation, which several power companies are
doing.\25\ However, CCS is very expensive due to its current stage of
development,\26\ and planned projects are limited primarily because of
uncertainty with respect to the regulation of CO2 emissions.
Coal--and natural gas-fired generation will likely be significant
sources of electricity in the United States, and indeed in most of
world's major economies, for decades to come. Thus, ultimately, in
order to deeply reduce U.S. and global GHG emissions, we need CCS.\27\
---------------------------------------------------------------------------
\25\ ``Projects,'' Global CCS Institute, last accessed May 10,
2012, http://www.globalccsinstitute.com/projects/browse.
\26\ ``Levelized Cost of New Generation Resources in the Annual
Energy Outlook 2011,'' U.S. Energy Information Administration, last
accessed May 11, 2012, http://www.eia.gov/forecasts/archive/aeo11/
electricity__generation.cfm#1.
\27\ Naomi Pena and Edward S. Rubin, A Trust Fund Approach to
Accelerating Deployment of CCS: Options and Considerations, (Center for
Climate and Energy Solutions, 2008), http://www.c2es.org/docUploads/
Trust-Fund-FINAL.pdf.
---------------------------------------------------------------------------
One approach for advancing CCS would involve utilizing the
CO2 as a resource, rather than treating it as a waste
product. C2ES is a co-convener of a coalition of industry, state,
environmental and labor leaders, known as the National Enhanced Oil
Recovery Initiative (www.neori.org), which has called for a federal tax
credit for capturing and transporting CO2 from industrial
sources and power plants for use in enhanced oil recovery.\28\ In
addition to driving a lot of domestic oil production, a benefit of such
a program would be to generate an additional revenue stream to cover
the cost of CCS. We would expect that as CCS costs come down, it would
enable coal to have a bigger role.\29\
---------------------------------------------------------------------------
\28\ National Enhanced Oil Recovery Initiative, Carbon Dioxide
Enhanced Oil Recovery: A Critical Domestic Energy, Economic, and
Environmental Opportunity (Washington, DC: 2012), http://www.neori.org/
NEORI__Report.pdf.
\29\ National Energy Technology Lab, Carbon Dioxide Enhanced Oil
Recovery (U.S. Department of Energy, 2010), http://www.netl.doe.gov/
technologies/oil-gas/publications/EP/
small__CO2__eor__primer.pdf.
---------------------------------------------------------------------------
Other Impacts of the Act
EIA projects that under the CES, electricity prices would not
experience a significant impact until the mid 2020s. The projected
average end-use electricity price under Senator Bingaman's bill exceeds
the Reference case by only 1.5 percent in 2023, but that grows to more
than 18 percent by 2035. There would be almost no impact for the first
ten years, with a gradual increase over the next dozen years, giving
people and companies both an incentive to increase their energy
efficiency (and potentially reduce their energy bills even as prices
increase) and ample time to do so.
Also, total combined heat and power (CHP) generation would benefit
from the policy provision that allows qualified CHP generators to earn
and sell clean energy credits. According to the EIA, CHP generation
fired by natural gas under the bill exceeds the Reference case by 8
percent in 2025 and by 21 percent in 2035. CHP saves energy and
promotes industrial competitiveness.\30\
---------------------------------------------------------------------------
\30\ ``Cogeneration / Combined Heat and Power (CHP),'' Center for
Climate and Energy Solutions, last modified March 2011, http://
www.c2es.org/technology/factsheet/CogenerationCHP.
---------------------------------------------------------------------------
Conclusion
Senator Bingaman, thank you for introducing this bill and beginning
the public debate on this promising approach to protecting the
environment, diversifying energy supply, and promoting clean energy
industries. C2ES is grateful for your leadership, and we look forward
to working with you and your colleagues on the Committee to analyze,
refine and advance this proposal.
The Chairman. Thank you very much.
Mr. O'Mara.
STATEMENT OF COLLIN O'MARA, SECRETARY, DELAWARE DEPARTMENT OF
NATURAL RESOURCES AND ENVIRONMENTAL CONTROL, DOVER, DE
Mr. O'Mara. Chairman Bingaman, Ranking Member Murkowski,
members of the committee, thank you for having us today. On
behalf of the Governor of the great State of Delaware, Jack
Markell, we appreciate the opportunity.
My name is Collin O'Mara and I serve as the Secretary of
Energy and Environment. For the past 3 years we've been working
hard to modernize Delaware's entire energy fleet in an effort
to improve reliability, reduce and stabilize costs, spur local
job creation, improve air quality, reduce greenhouse gas
emissions and obviously improve public health. To achieve these
outcomes we've worked on a lot of different fronts many of
which are contained within this bill.
We've worked to in spur additional local generation from
natural gas, from combined cycle, co-gen and combined heat and
power to transform our largest coal unit into one of the
Nation's cleanest, 2 fuel switch or phaseout, legacy units, to
invest in energy efficiency and demand response, to support
transmission and distribution upgrades and to deploy clean,
renewable energy.
All these things together are resulting in significant
private investment and new local jobs in manufacturing,
construction and facility operations. Since 2009 Delaware has
benefited from more than $2 billion of investment in energy
facility modernization and thousands of jobs being created in
energy related industries. Delaware companies like NRG,
Calpine, PBF, DuPont, Perdue, Mountaire, Ervaz Steel and Croda
have all made significant upgrades to their energy facilities.
At the same time we're experiencing declining energy bills
and dramatic reductions of both carbon emissions and
traditional pollutants. It's the equivalent of taking nearly
half a million cars off the road. So, if you've ever been stuck
in Delaware and see a lot of cars that will get you through 95
a little quicker.
We believe that Delaware's experience demonstrates that the
conversion to a cleaner energy system, as proposed through
Senator Bingaman's 2146, is not only technically feasible, but
it also advances numerous polar policy goals ranging from
enhancing American competitiveness and supporting job creation
to improving air quality and public health. The predictability
alone created by a national and technology agnostic Clean
Energy Standard will drive private investment in innovation,
manufacturing facilities and deployment of scales of a range of
clean technologies.
Based upon our experience in Delaware we offer 3
recommendations to strengthen the proposed legislation.
The first one is to please ensure complimentarity with the
State standards. 40 States have either a renewable portfolio
standard or a goal or an energy efficiency resource standard.
In Delaware we've seen our energy standards drive manufacturing
and construction and construction jobs.
Recently with the help of Senator Carper and Senator Coons,
Governor Markell was able to announce the decision of Bloom
Energy, an innovative fuel cell company. That they were going
to locate their manufacturing plant in Delaware on the site of
a former Chrysler facility. They're going to be creating about
1,000 jobs manufacturing this technology of the future.
We've also seen significant private investment in energy
efficiency, solar, geothermal and hopefully 1 day, offshore
wind, as that becomes more financeable.
We greatly appreciate Section L in the legislation and
recommend its inclusion to preclude any kind of State exemption
or State pre-emption. To the point of Senator Wyden, we do
believe that the suggestion of providing some kind of authority
for the Secretary of Energy in Section L, Subsection 2, to
establish some form of alternative compliance pathway through
which States that have these policies in place can demonstrate
that they meet or exceed CES requirements and be exempted or
get a waiver for having already achieved the outcome intended
by the legislation.
No. 2 is the importance of energy efficiency. There's been
a lot of debate today about cost. This committee has championed
in the importance of advancing energy efficiency including the
strong bipartisan passage of the Shaheen-Portman S. 1000 last
year.
Investments in energy efficiency and other electricity
demand reducing technologies including geothermal, solar
thermal, district heating, co-gen, CHP and more have
significant potential to reduce emissions in the most cost
effective manner. Energy efficiency is our Nation's greatest
energy supply resource. It represents the greatest opportunity
we have to reduce energy costs for everyone and reduce
emissions at the same time. It will spur investments in every
single State in the Union.
For these reasons, as Senator Shaheen mentioned just a few
minutes ago, we encourage the inclusion in the CES of energy
efficiency from the onset. This will ensure that CES actually
reduces overall energy costs even well below the EIA reference
case that we discussed in the last panel.
To accomplish this we believe that we recommend that the
Secretary of Energy be directed to establish a national
evaluation measurement and verification standard. Many States
have good models that could be built upon. This standard would
then define how energy efficiency investments would count
toward the CES requirements. Once completed would allow these
technologies to be eligible under the CES. We believe that it's
critical to do this from the beginning because it is the best
way to reduce energy prices across the entire country.
In addition we support the language in Section J which
directs the alternative compliance payments to be provided to
the States many of which have a very strong track records and
years of experience implementing energy efficiency programs.
Delaware, for example, has worked with many different
utilities and many different companies to support a wide range
of efficiency programs to help local governments, homeowners,
businesses, heavy industry, agriculture and low income
families. We believe these successes can be replicated across
the country.
My third point is that on the evaluation of emissions. The
CES does present an incredible opportunity to have a technology
agnostic approach to have all technologies compete fairly in
the marketplace in a manner that actually aligns environmental
incentives and economic interests in the same way. To ensure
that the projected overall emission reductions are actually
achieved we do suggest that the Secretary of Energy is directed
in Section G of the legislation to incorporate life cycle
emissions into the carbon intensity calculations, at least
going forward to make sure that we're actually reducing overall
aggregate emissions to the best of our ability.
In summary, we commend the leadership of the entire
committee. Senator Bingaman in particular, for his years of
leadership on this issue and the co-sponsors for introducing
this legislation which we believe carefully balances the goal
of expanding the generation of a clean, domestic energy in a
way that meets our long term and economic goals.
I'm very grateful again for the opportunity to represent
Delaware today and look forward to your questions. So, thank
you.
[The prepared statement of Mr. O'Mara follows:]
Prepared Statement of Collin O'Mara, Secretary, Delaware Department of
Natural Resources and Environmental Control, Dover, DE
Chairman Bingaman, Ranking Member Murkowski, and members of the
Committee, on behalf of Delaware Governor Jack Markell, thank you for
the opportunity to testify today.
For the past three years, we have been working to modernize
Delaware's electric power generation fleet in an effort to improve
reliability, reduce and stabilize both short-term and long-term energy
costs, spur local job creation, improve air quality, reduce greenhouse
gas emissions, and improve public health. To achieve these outcomes, we
have worked on several initiatives: to spur additional local generation
from natural gas combined-cycle, co-generation, and combined heat and
power units\1\; to transform our largest coal plant into one of the
nation's cleanest; to fuel switch or phase-out legacy units; to invest
in energy efficiency and demand response; to support transmission and
distribution upgrades; and to deploy clean renewable sources of energy
(solar, fuel cells, geothermal, and eventually offshore wind when
financeable/cost-effective)\2\.
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\1\ Delaware is working to take advantage of low priced natural gas
for in-state generation and also are working with our neighboring
states to ensure that additional natural gas from hydraulic fracturing
is extracted safely to ensure that current and future generations can
benefit from this cleaner source of domestic energy.
\2\ Delaware currently has 1,171 solar photovoltatic systems in
operation comprising 28 megawatts of installed capacity. The State
Green Energy Program also has enabled the installation of 77 solar
thermal water heaters (capacity: 4,712 square feet) and 1,011
geothermal heat pumps (capacity: 5,232.5 tons). Also, Bloom Energy is
in the process of installing 30 MW of fuel cell capacity in Delaware.
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This strategy is resulting in significant private investment and
new local jobs in manufacturing, construction, and facility operations.
Since 2009, Delaware has enjoyed more than $2 billion of private
investment in energy facility modernization and thousands of jobs
created in energy-related industries. Delaware companies, including
NRG, Calpine, PBF, DuPont, Perdue, Mountaire, Evraz Steel, and Croda,
have all made significant upgrades to their energy facilities. Most of
these projects have been true public-private partnerships with state
providing assistance either with the financing or expedited permitting
to ensure completion. At the same time, we are experiencing declining
energy bills and dramatic reductions in carbon emissions and
traditional pollutants from our power generation sector\3\. These
ongoing efforts have reduced air pollution by the equivalent of taking
almost half a million cars off the road.
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\3\ However, Delaware receives more than 90% of its air pollution
from upwind sources, and thus our ability to ensure clean air depends
on similar actions by upwind states.
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We believe that Delaware's experience is a success, but not unique.
It demonstrates that the conversion to a cleaner energy system, as
proposed through S. 2146, is not only technically feasible, but also
advances numerous policy goals, ranging from enhancing American
competitiveness and supporting job creation to improving air quality. A
national Clean Energy Standard (CES) provides predictability for
consumers and manufacturers alike and encourages private investment in
innovation, manufacturing facilities, and deployment at scale-all of
which ultimately drive down consumer costs, support job creation, and
improve environmental outcomes.
Based upon our experience, here are a few recommendations which
could strengthen the proposed legislation:
1. Complementarity with State Standards--Forty states,
including Delaware, have adopted some form of a Renewable
Portfolio Standard/Goal and/or an Energy Efficiency Resource
Standard.\4\ In Delaware, we have seen our energy standard
drive manufacturing and construction jobs. Recently, with the
help of Senators Carper and Coons, Governor Markell announced
the decision of Bloom Energy to manufacture their next
generation solid oxide fuel cell in Delaware, creating nearly
1000 jobs on the site of a former Chrysler auto plant which is
being transformed into the University of Delaware's Science
Technology and Advanced Research (STAR) Park. DuPont is
building its North American Photovoltaic Research Center in
Delaware and local solar manufacturers, including Motech
Americas (photovoltaic) and SolarDock (racking), just received
record orders for their products. Hundreds of construction jobs
have been supported by the deployment of more than 28 megawatts
of solar photovoltaic, more than 5200 tons of geothermal heat
pumps, and 30 megawatts of fuel cells.
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\4\ Delaware's Renewable Portfolio Standard is 25% by 2025 and the
state's Energy Efficiency Resource Standard is 15% by 2015. Thirty-one
states have Renewable Portfolio Standard or Alternative Energy and
Renewable Portfolio Standard policies: AZ, CA, CO, CT, DE, HI, IL, IA,
KS, MA, ME, MD, MI, MN, MS, MO NV, NH, NJ, NM, NY, NC, OH, OR, PA, RI,
TX, VT, WA, WI, WV, as do DC and PR. Eight additional states have
renewable portfolio goals: AK, FL, IN, OK, ND, SD, UT, VA. Twenty-six
states have Energy Efficiency, Resource Standard policies currently in
place: AZ, AK, CA, CO, DE, HI, IL, IN, IA, MA, ME, MD, MI, MN, NC, NM,
NV, NY, OH, OR, PA, RI, TX, VT, WA, WI (www.c2es.org; www.aceee.org).
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On behalf of the states with existing standards, we
appreciate Section (l) and recommend its continued inclusion to
avoid any form of state pre-emption. In addition, we suggest
providing authority for the Secretary of Energy in Section (l)
subsection (2) to establish an alternative compliance pathway
through which states can demonstrate that their policies meet
or exceed emission reductions required under the national
standard to avoid creation of multiple regulatory regimes.
2. Importance of Energy Efficiency--This Committee has
clearly understood the importance of advancing innovative, non-
generation energy opportunities, among them recognizing the
power of energy efficiency. This is embodied in the strong,
bipartisan passage of the Shaheen/Portman bill (S. 1000) last
year. While challenging to integrate into an energy standard
primarily established for power generation, investments in
technologies that reduce or displace energy consumption,
including energy efficiency, geothermal, solar thermal,
district heating, and more, have significant potential to
reduce emissions in a cost-effective manner.
In particular, energy efficiency is our nation's greatest
energy supply resource and represents the greatest potential to
reduce energy costs compared to any other supply
alternative.\5\ Allowing energy efficiency technologies into
the CES from the beginning will ensure that the standard
reduces overall implementation costs, even below the status quo
reference case projected by the Energy Information
Administration (EIA).\6\ Significant efficiency opportunities
exist in every state that are achievable and easy to implement
in the near-term-and several states have repeatedly
demonstrated the numerous benefits of energy efficiency
investments, including local job creation, increased disposable
income to support local economies, healthier buildings, and
more productive employees.
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\5\ ACEEE has estimated that 16-30% of all energy consumption could
be reduced through cost-effective efficiency measures by 2035. Cost-
effective energy efficiency means that by definition these activities
would reduce energy costs from the reference case and thus would
significantly reduce the price impact of the CES.
\6\ Delaware, like several other states, is working to determine
the best way to integrate established, but separate, RPS and EERS
statutes--a challenge which an integrated CES could avoid from the
onset.
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While Section (n) recognizes the importance of energy
efficiency and other electricity demand reducing technologies,
we encourage the inclusion of these technologies in the initial
standard, possibly in a manner similar to the treatment of heat
from a CHP unit, rather than waiting for a report from the
Secretary of Energy. Specifically, we suggest that S. 2146
include these technologies as eligible resources and direct the
Secretary of Energy to establish a national Evaluation,
Measurement, and Verification (EM&V) standard, which would
define how efficiency investments would be counted towards the
CES requirements.\7\
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\7\ The states would be required to implement EM&V standards
established by the Secretary of Energy.
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Alternatively, Section (n) could give the Secretary of Energy
the ability to incorporate the findings of the required report
directly into the standard, rather than as recommendations, if
they are demonstrated to reduce compliance costs. Ideally, the
report would be required much earlier than the currently
drafted three year timeframe, which would have the unfortunate
and unintended consequence of unnecessarily delaying cost-
savings and creation of local jobs for multiple years.
Either approach would drive additional near-term investment,
significantly reduce compliance costs (below the EIA reference case),
spur greater job creation,\8\ and unleash opportunities to reduce
emissions well-below the projected 40 percent reduction by 2035 at the
lowest possible cost.\9\
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\8\ Numerous studies, including recent analysis by ACEEE, have
shown that 17-20 jobs are created for every $1 million invested in
energy efficiency compared to less than 10 jobs for traditional energy
generation projects.
\9\ If the concern exists that the allowance of energy efficiency
could crowd out other technologies, possible remedies include
increasing annual CES requirements, including energy displaced by
energy efficiency in a ultilities' total sales calculation, or allowing
unlimited energy efficiency to be credited only during a defined period
of time.
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In addition, we support the language in Section (j), which directs
that alternative compliance payments be provided to the states, many of
which have a strong track record of implementing energy efficiency
programs. Delaware, for example, has worked with the Delaware
Sustainable Energy Utility and local electric and gas utilities,
including the Delaware Electric Cooperative, Delmarva Power and Light,
the Delaware Municipal Electric Corporation, and Chesapeake Utilities,
to support a wide range of efficiency programs to help local
governments, homeowners, businesses, heavy industry, agriculture, and
low-income families.\10\
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\10\ Delaware participates in the Regional Greenhouse Gas
Initiative and uses the proceeds for efficiency programs.
3. Evaluation of emissions--The proposed CES presents an
opportunity to have all technologies compete fairly and in a
manner that aligns economic and environmental interests.
However, to ensure that the anticipated reduction in aggregate
greenhouse gas emissions are realized, we suggest directing the
Secretary of Energy in Section (g) to incorporate lifecycle
emissions into the carbon-intensity calculation to allow
apples-to-apples comparisons among technologies and to ensure
than projected overall emission reductions are achieved.\11\
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\11\ While a full lifecycle analysis is preferable, the carbon
intensity calculation should be calculated from the gross emissions
necessary for generating electricity, rather than the net emissions
after deducting any electricity consumed for plant operations.
In summary, we commend the leadership of Senator Bingaman and other
cosponsors for having the foresight to introduce this legislation. We
believe that S. 2146 carefully balances the goal of expanding the
generation of a diversity of domestically available clean energy
sources in a way that meets our long-term economic goals and reduces
greenhouse gas emissions and other pollutants. We believe that
legislation of this nature can and should be implemented on a federal
level, which would provide multiple benefits nationwide and support
clean energy initiatives already underway in more than half of the
states.
Again, thank you for the opportunity to testify before you today on
this important legislation. I look forward to answering any questions.
The Chairman. Thank you very much.
Mr. Gibson.
STATEMENT OF THOMAS J. GIBSON, PRESIDENT AND CEO, AMERICAN IRON
AND STEEL INSTITUTE
Mr. Gibson. Chairman Bingaman, Ranking Member Murkowski,
members of the committee, thank you for the invitation to
appear today. I am Tom Gibson, President and CEO of the
American Iron and Steel Institute. AISI is comprised of 25
member companies producing 3-quarters of U.S. and North
American steel.
AISI is concerned about electricity costs and reliability
issues that may result from additional regulation of the
electricity sector. The simple fact is that compliance costs
will ultimately be passed on to us, the consumers. Excuse me.
Like the rest of our economy, the steel industry is
recovering from the depths of the recession but it's far from
fully recovered. There are positive signs that the economy
continues on a slow, but steady recovery although subject to
volatility, particularly related to the downturn in Europe and
the slowdown of the Chinese economy. Our latest 2012 estimate
is for domestic steel shipments of 97 million tons which would
be an increase of roughly 5 percent over 2011.
But this amount only matches our shipments in 1995. Only
represents 90 percent of our 5 year pre-recession average. The
production of steel is inherently energy intensive and the
industry consumes substantial amounts of electricity, natural
gas, coal and coke.
In 2010, the steel industry consumed 45 billion kilowatt
hours of electricity. Overall, energy is typically 20 percent
or more of the cost of making steel. So reducing energy use is
critical to profitability. It's critical to competitiveness and
it's a core value for our members.
The United States industry has effectively set the bar for
steel energy efficiency worldwide reducing its energy intensity
by 27 percent since 1990 or reducing its greenhouse gas
emissions by 33 percent over the same period. DOE data confirms
that our steel industry has the lowest energy intensity and
second lowest CO2 emissions intensity of any major
steel producing country. The U.S. is winning the race for clean
steel.
The EIA analysis of S. 2146 highlights our key concerns
that a CES will raise the price of electricity to customers and
to large industrial facilities in particular. EIA projects that
by 2035 national electricity prices will be 18 percent higher
than the reference case. But for industrial consumers the
report concludes electricity will cost 25 percent more.
The economic impact will be exacerbated for the steel
industry due to the so called regional differences in the fuel
mix and the cost to switch to other fuels. A national CES will
have a disproportionate impact on coal fired utilities. There's
a high correlation between the service areas of those utilities
and the location of steel and iron production facilities such
as the 2 States that lead the Nation in steel production,
Indiana and Ohio.
The domestic steel industry is subject to substantial
international competition. In particular this competition comes
from Nations such as China where the industry is largely State
owned, controlled, supported and subsidized. In just 2 recent
trade cases the Commerce Department determined that Chinese
steel pipe producers were benefiting from below market
subsidized electricity. Increasing electricity rates would put
U.S. producers at an even greater disadvantage.
Additionally, the EIA analysis does not take the entire
suite of proposed or pending EPA regulations of the utility
sector into account. Compliance with some of these regulations
will work across purposes to a CES by requiring technologies
that reduce energy efficiency. If a CES moves forward better
regulatory coordination and a rationalization of the multiple
requirements, multiple regulatory requirements is something
that should be examined.
AISI also believes that the benefits of domestic shale gas
should be fully recognized in the CES program. Our industry
consumes large amounts of natural gas. Will benefit from
increased supply resulting from shale production which keeps
gas both reliable and affordable.
Affordable natural gas is also allowing the industry to
implement even more efficient and less carbon intensive steel
making methods and processes.
Finally, we appreciate the recognition of industrial energy
efficiency in the legislation. However, a CES should be broader
and should recognize the energy efficiency investments made at
facilities in recent years in addition to those improvements
made prospectively.
In conclusion, AISI does not support the creation of a
Federal standard for electricity producers because of the
impacts on energy intensive, trade exposed manufacturers like
steel. While the largest cost increases may appear far off in
the future steel plants have long life capital assets. A steel
plant cannot simply move to an area with an easier compliance
burden and lower costs under a CES. A new facility built today
will still be in service in 2035 and for decades beyond as will
many existing facilities.
Further, market forces and other EPA regulations are
already moving electricity generation away from coal and toward
lower carbon fuels. AISI would support a comprehensive and
market driven energy policy built around promoting greater
development of all domestic energy sources, incentives for
efficiency improvements and additional support for
manufacturing industry efforts to develop breakthrough
technologies. These polices would serve to meet shared national
clean energy goals while avoiding the negative impact a CES
would have on the manufacturing sector.
Thank you for your time today. Thank you for allowing me to
testify. I look forward to your questions.
[The prepared statement of Mr. Gibson follows:]
Prepared Statement of Thomas J. Gibson, President and CEO, American
Iron and Steel Institute
Introduction & Industry Background
Chairman Bingaman, Ranking Member Murkowski, and members of the
Committee, thank you for your invitation to appear today. I am Tom
Gibson, President and CEO of the American Iron and Steel Institute.
AISI serves as the voice of the North American steel industry and is
comprised of 25 member companies, including both integrated and
electric arc furnace steelmakers. Our member companies represent over
three quarters of both U.S. and North American steel capacity.
Steel and other manufacturing industries are the backbone of the
U.S. economy. A strong manufacturing sector creates significant
benefits for society, including good-paying jobs, investment in
research and development, essential materials for our national defense,
and highvalue exports. A robust American steel industry is critical to
leading the domestic economy into recovery.
AISI is concerned about increased electricity costs and reliability
issues that may result from additional regulation of the utility
sector, including a national Clean Energy Standard (CES). The consumers
of electricity will ultimately have the compliance costs and
reliability risks passed on to them.
AISI recently commissioned a report by Professor Timothy J.
Considine of the University of Wyoming on the industry's impact on the
U.S. economy. Professor Considine found that the steel industry's
purchases of materials, energy, and supplies for the production of
steel stimulate economic output and employment in a range of sectors
across the economy. Steel's economic contributions are multiplied many
times over, with Professor Considine finding that every $1 increase in
sales by our sector increases total output in the U.S. economy by
$2.66. Additionally, he found that every individual job in the steel
industry supports seven additional jobs in other sectors of the
economy. In aggregate, the steel industry accounts for over $101
billion in economic activity and supports more than 1 million jobs
across the country. A copy of that study is attached to my testimony
and I request that it be made part of the hearing record.
Like the rest of our economy, the steel industry is recovering from
the depths of the recession but far from fully recovered. As we near
the midpoint of 2012, there are positive signs that the economy
continues on a slow but steady recovery, although subject to
volatility--particularly related to the downturn in Europe's economy
and the slowdown of the Chinese economy. AISI's latest estimate is for
shipments of 97 million tons for 2012, which would be an increase of
roughly 5 percent over the 92 million tons the industry shipped in
2011. Shipments of 97 million tons are only equivalent to our shipments
in 1995, and represent only 90 percent of our five-year prerecession
average shipments of 108 million tons.
Domestic capacity utilization rose to 79 percent in the first
quarter, a 6 percent improvement from the previous quarter. Total
finished steel import market share year-to-date is at 23 percent, and
imports are increasing at a faster rate than our domestic steel market
is recovering. The most recent Department of Commerce Steel Import
Monitoring and Analysis data for the month of April recorded another
sharp rise in finished imports to the highest level since October of
2008. We are very concerned about this trend and sensitive to policy
changes that could make production here more expensive and less
internationally competitive.
Steel & Energy
The production of steel is inherently energy intensive, and the
industry consumes substantial amounts of electricity, natural gas, and
coal and coke to make our products. In 2010 our domestic industry
consumed 45.7 billion kWh of electricity. Energy is typically 20
percent or more of the cost of making steel and, as such, energy
efficiency is key to our industry's competitiveness.
AISI members are doing everything they can to increase energy
efficiency, and we are leading the way by effectively setting the bar
for steel industry efficiency worldwide. AISI members have made
substantial gains in reducing their energy usage, as well as their
environmental footprint, over the last two decades. The domestic steel
industry has voluntarily reduced its energy intensity by 27 percent
since 1990, while reducing its greenhouse gas (GHG) emissions by 33
percent over the same time period. In fact, data presented by the U.S.
Department of Energy at a recent meeting of Global Superior Energy
Partnership's Steel Task Group showed that the steel industry in the
U.S. has the lowest energy intensity and second-lowest CO2
emissions intensity of any major steel producing country.
While we approach the practical limits for efficiency using today's
processes and continue to pursue incremental gains, AISI members are
not resting on their laurels. We recognized in 2003 that in order to
make any further significant improvement in energy use, new
breakthrough technologies would be needed. It was at that time the
industry began investing, often in partnership with DOE, in the
CO2 Breakthrough Program, a suite of research projects
designed to develop new ironmaking technologies that emit little or no
CO2 while conserving energy. We have developed two key
technologies to achieve those goals since that time, and they are now
ready for pilot scale testing. The research is being done at MIT and
University of Utah and both projects are the subject of proposals
currently under consideration for DOE cost-sharing. This successful
partnership with DOE, along with the continued support of Congress,
will accelerate the development and deployment of critical technologies
such as these.
Concerns with S. 2146
A national CES imposes its direct requirements on the utility
sector, not on its customers, but it is the customers that will bear
the costs associated with compliance. Our principal concern is that
this will inevitably raise the costs of electricity to large industrial
customers like steel, while potentially lessening the quality and
reliability of electricity supply. The analysis of S. 2146 performed by
the Energy Information Administration (EIA) highlights key concerns
about a CES raising the price of electricity to customers, and to large
industrial facilities in particular. EIA projects that by 2035,
national electricity prices will be 18 percent higher than the
reference case. For industrial customers, the report concludes that
electricity will cost 25 percent more under a CES than it otherwise
would.
This economic impact will be exacerbated for the steel industry due
to the regional differences in current fuel mix and the cost to switch
to other fuels for the generation of electricity. EIA projects that S.
2146 will substantially reduce coal-fired generation. Compared with a
reference case, coal generation would decline by 25 percent in 2025 and
by over half--54 percent--in 2035. Thus, within two decades, the
electricity generation infrastructure of the United States would
radically shift from the fuel mix that has been in place since the
advent of significant nuclear power generation around 1970.
Certain areas of the country are better suited for renewable
production from wind and solar sources, while others have an abundance
of coal sources. As noted above, creating a national CES will have a
disproportionate impact on coal-fired utilities, and there is a high
correlation between the service areas of those utilities and the
location of steel production facilities. Industrial customers,
especially steel producers, will be charged to offset the cost of
replacing coal capacity with other sources, including the cost of new
transmission infrastructure.
The two leading states in terms of iron and steel production in the
U.S. are Indiana and Ohio, while other important states for the
industry are Alabama, Pennsylvania, Kentucky, and Michigan. All of
these states are heavily dependent on coal for electricity production,
and in turn, so is our industry. EIA projects in its Annual Energy
Outlook 2012 Early Release that by 2035, 39 percent of electricity
generation will be from coal. In its analysis of S. 2146, it projects
this percentage to drop to 18.7 percent in 2035, a result that will
disproportionately impact the steel industry.
Legislative and regulatory policy measures that impact energy
availability and reliability influence each company's competitive
situation in a unique way. And, as also noted above, the domestic steel
industry is subject to substantial international competition. In
particular, this competition comes from nations such as China, where
the industry is largely state owned, controlled, and subsidized. In two
recent countervailing duty cases, the Department of Commerce determined
that Chinese steel pipe producers were receiving below market rates for
electricity, which constitutes a subsidy. For the steel industry,
operating in the U.S. under tight margins with substantial subsidized
competition from overseas, policies that raise energy costs on domestic
companies threaten our ability to remain competitive.
Additionally, while the EIA does factor the Cross-State Air
Pollution Rule (``CSAPR'') into its analysis, it does not quantify the
impact of other proposed or pending EPA regulations of the utility
sector. These regulations, including the Mercury and Air Toxics
Standards Rule, or ``Utility MACT,'' greenhouse gas utility
regulations, coal combustion residuals, and Clean Water Act section
316(b) cooling water intake structures, will all have an impact on
coal-fired utilities, and therefore threaten the availability and
reliability of electricity to large industrial customers.
If a CES were to move forward, EPA regulatory policies could act at
cross-purposes. Some clean air technologies result in the consumption
of additional energy and thus might act contrary to the purposes of a
CES. Otherwise, existing electricity-generating infrastructure will
face multiple retrofit requirements that are presently scheduled to
occur at virtually the same time. For example, the second, more
stringent phase of CSAPR is scheduled to be implemented in 2014. This
rule affects 28 states overall and the second phase of the rule is
targeted on 16 states in the Northeast and Midwest, the industrial
heartland of the United States. Beyond that, the Utility MACT rule
imposes new controls on existing powerplants in 2015 and 2016. These
requirements are mandatory; a facility cannot operate unless it
complies. Finally, newly proposed greenhouse gas rules for powerplants
would effectively require that natural gas be used for all new
generation. This requirement will further shift our nation's generation
from coal to natural gas and other power sources.
This situation, at minimum, requires better regulatory coordination
and a rationalization of multiple, new requirements. It could also,
under certain circumstances, justify preemption for overlapping
requirements. While some emission control requirements are
complimentary--for example, improved or additional fabric filters can
help reduce particulate matter emissions and mercury--this is not
always the case. We may therefore need to determine in different
situations whether renewable energy policy should take precedence over
certain Clean Air Act goals or vice versa.
AISI also believes that the benefits of domestic shale natural gas
production should be fully recognized in a CES program. We are
encouraged by the discovery and production from shale formations.
Affordable natural gas is presenting both integrated and electric arc
steelmakers with new options for how to make their products more
efficiently. As a significant consumer of natural gas, it is important
to have gas supply be both affordable and reliable. And it provides
expanded markets for steel pipe and tube products that are essential to
the production and transmission of natural gas and oil. The advent of
shale gas production in the U.S. has the potential to be a ``game
changer'' for domestic manufacturing, and should not be ignored when
creating a low-carbon energy policy.
Finally, we appreciate the recognition of the importance of energy
efficiency in the legislation and believe that efficiency measures from
manufacturing industry facilities should be fully qualified in a CES
program if the bill were to move forward. There is potential for steel
production facilities to qualify as energy efficiency producers, either
through new CHP capacity, wasted heat and byproduct gas recovery and
conversion, or demand response mechanisms, such as reductions in
peaking. All of these efficiency opportunities hold great potential for
industry, and should be fully included in CES legislation that provides
incentives for renewable energy production. However, a CES should
recognize the efficiency investments made at industrial facilities in
recent years in addition to those improvements made moving forward. As
noted above, the steel industry has improved its efficiency by 27
percent over the last two decades. Legislation that does not provide
credit for recent efficiency projects ignores the energy and
environmental benefits realized from these investments.
Conclusion
AISI does not support the creation of a federal standard for
electricity producers, because of the disruptive economic impact to the
energy-intensive, trade-exposed manufacturing sector that will occur to
satisfy CES requirements. While the largest cost increases may appear
far off in the future under EIA's analysis, steel plants are long-lived
capital assets. A steel plant serviced by a utility that is
disadvantaged by the bill cannot simply move to an area with an easier
compliance burden and lower costs. A new facility built today will
still be in service in 2035 and for decades beyond, as will many
existing facilities.
It is also essential to recognize that EPA's regulatory agenda for
the utility sector, coupled with relatively affordable natural gas
supply, is causing numerous utilities to take steps that will
ultimately reduce their emissions levels without a CES mandate. In the
recently proposed greenhouse gas requirements for new powerplants, EPA
bluntly declared that the rule would not impose costs on the utility
sector since the agency saw little or no coal generation being built
for the next two decades. While this prediction has been strongly
criticized as being self-fulfilling, it is clear that EPA anticipates
the proposed greenhouse gas rules and other Clean Air Act rules will
result in both near-term and longer-term reductions in emissions from
the electricity sector. EPA regulations, along with market forces from
affordable natural gas, are already causing a shift from coal- to
natural gas-based electricity generation. Coal was last above 50
percent of U.S. electricity generation in 2008. It is now at 45
percent, and projected to continue to decline to 39 percent by 2035
even without a CES in place.
AISI does believe that Congress should craft a comprehensive and
market-driven energy policy built around promoting greater development
of domestic energy sources, incentives for efficiency improvements, and
additional support for industry efforts to develop breakthrough
technologies. These policy measures will serve to meet shared national
clean energy goals, while avoiding the negative impact a CES would have
on the industrial sector. In particular, such an agenda should create
an abundant and affordable energy supply by developing domestic oil,
natural gas, nuclear power, and clean coal resources and fully make all
these sources of energy part of the nation's energy independence
strategy moving forward.
Thank you very much for your time today, and I stand ready to
answer any questions the Committee may have.
The Chairman. Thank you very much.
Mr. Trent.
STATEMENT OF KEITH TRENT, GROUP EXECUTIVE AND PRESIDENT, DUKE
ENERGY COMMERCIAL BUSINESSES
Mr. Trent. Good morning, Chairman Bingaman, Ranking Member
Murkowski and members of the committee.
The Chairman. You might be sure that microphone is
operating.
Mr. Trent. Thank you. Got it, thank you very much. Sorry
about that.
I do have my thanks for the opportunity to testify on S.
2146. I'm Keith Trent and as Chairman Bingaman mentioned, I
lead Duke Energy's commercial businesses. Those businesses
include a mixture of around 12,000 megawatts of coal, hydro,
natural gas, wind and solar energy.
In addition to the commercial businesses, Duke Energy has a
whole, operates around 35,000 megawatts of generation. We are
also the third largest nuclear operator in the United States.
So we have a very broad and diverse portfolio of generation
assets.
That diverse portfolio gives us an insight into the
economics and competitiveness of each of these technologies and
fuels. S. 2146 is important because it advances a dialog that
we need to have about our Nation's future energy mix. We
support the committee's efforts to establish a policy that
encourages the most promising energy technologies, promotes
fuel diversity and sparks job creation.
I would say that this discussion could not come at a more
opportune time.
Our industry is on the cusp of a massive investment cycle.
Aging plants, some of which are more than 50 years old are
retiring as tighter environmental regulations go into effect.
Very low natural gas prices are making many of these plants
less economically viable even today.
I'll give you an example. In the Carolinas our natural gas
plants are dispatching right after our nuclear plants today and
before even our most efficient coal plants. That's something
that we would not have even imagined a couple of years ago.
So older coal plants are clearly struggling today.
While low natural gas prices may sound like very good news
for the economy, we know that historically natural gas prices
have been very, very volatile. We fully expect that that
volatility is going to continue in the future. For example,
just as recently from April to today, natural gas prices have
gone up 30 percent.
A well crafted clean energy standard can and should
accomplish several goals.
First, it should encourage the development of a diverse
mixture of fuel sources and technologies.
It should fuel job growth and the wind and solar sectors
helping to address the uneven Federal support that has
contributed to the spasmodic growth for those industries.
A Clean Energy Standard should give emerging clean coal
technologies an ability to move forward. We know that clean
coal technology is the key to the future viability of this
fuel.
A Clean Energy Standard should be supportive of our only
zero emission base load technology and that's nuclear power.
With expanded Federal support the nuclear industry can be a
major economic growth engine while supplying emissions free
generation.
So what I'm describing here is the need for a diverse
portfolio of clean energy, fuels and technologies, that can
power America for decades. I believe that S. 2146 is aligned
with those goals and does so without picking winners or losers.
There is one specific point of concern and it's a concern
that I have not heard so far that I do want to raise to the
committee's attention. The bill, as currently structured, gives
new gas plants partial energy credit. I do have some concern
about this, especially given the fact that gas already enjoys a
very significant market advantage today.
To layer on an additional advantage it seems to us,
encourages even more over reliance on a single fuel and very
well could stymie investments in other fuels, in particularly
in nuclear and coal.
Finally, I want to say something about cost. It's very
important to Duke Energy that the cost to all of our customers
be taken into consideration. We need to be especially mindful
of the impact on those that are least able to pay.
Mr. Chairman, members of the committee, I commend your
efforts to develop a long term, market based, energy strategy.
America needs such a policy to drive innovation, fuel diversity
and job creation. Thank you again for the opportunity to
testify.
[The prepared statement of Mr. Trent follows:]
Prepared Statement of Keith Trent, Group Executive and President, Duke
Energy Commercial Businesses
Thank you, Chairman Bingaman, Ranking Member Murkowski, and the
rest of the Committee for the opportunity to testify today regarding S
2146.
My name is Keith Trent and I'm Group Executive and President of
Duke Energy's commercial businesses. Most people know Duke Energy as a
service provider of electricity to more than 4 million customers in
North and South Carolina, Indiana, Ohio and Kentucky. Through our
commercial businesses, Duke Energy is also a large independent power
producer that generates and delivers electric power and related
services in deregulated energy markets.
Our domestic commercial businesses include more than 3,500
megawatts of coal-fueled generation in Ohio; more than 3,000 megawatts
of natural gas-fueled generation in the Midwest; almost 70 megawatts of
solar generation in Arizona, California, Florida, New Jersey, North
Carolina, Pennsylvania and Texas; and by the end of this year, more
than 1,600 megawatts of wind-powered generation in Colorado, Kansas,
Pennsylvania, Texas, Wisconsin and Wyoming.
Duke Energy is the third-largest operator of coal-fueled and
nuclear-powered generation in the country. Over the last five years,
Duke Energy has invested approximately $10 billion to build new cleaner
coal, natural gas, wind and solar power plants. In addition, we are
pursuing a license with the Nuclear Regulatory Commission to build a
new nuclear power plant in South Carolina. Building and operating such
a diverse portfolio of power generation assets affords us valuable
insight into the economics and relative advantages, drawbacks and
competitiveness of each of these important energy technologies and
fuels.
We are pleased to testify today on this important proposal to spur
clean energy in the United States. It advances the dialogue about how
to create jobs and power our nation throughout the 21st century and
beyond. The challenge we face every day at Duke Energy involves
balancing the need for affordable, reliable and clean electricity. The
bill addresses this imperative. We are supportive of the Committee's
efforts to establish a policy that supports the most promising energy
technologies, values a diverse mix of power generation fuels, and
enables sustained job creation.
The electricity sector is on the cusp of a massive, new investment
cycle. Out of approximately 300,000 megawatts of coal fueled electric
generation in this country, about 100,000 MW is as old or older than
most of us in this room. Compared to newer power plants, these older
units--predominantly coal-fueled--are generally smaller, less efficient
and more expensive to run. They typically have higher emission rates of
sulfur dioxide, nitrogen oxides and mercury, and are therefore most
vulnerable to stricter environmental regulations. It is projected that
between 30,000 and 60,000 megawatts of the country's aging coal-fueled
generation fleet will be retired by 2015 or shortly thereafter to meet
existing and new environmental regulations.
Plummeting natural gas prices are also clearly threatening the
viability of these plants. Natural gas prices have not been this low
since the mid-1990s, although the 30 percent increase we've witnessed
over the last month serves as a reminder of the fuel's historic
volatility. Still, at around $2.50 per thousand cubic feet, and with
prices predicted by many experts to remain low, it is reasonable to
expect that most of the coal-fueled units to be retired will be
replaced with gas-fueled units. Gas producers tell us not to worry.
There's plenty of gas, they say, and prices will stay low.
Electric generating plants are built with the expectation they will
operate for over 40 years. Given this long term investment horizon, I
believe putting all of our eggs into one basket--one that is very
attractive today but has a history of volatility--would be imprudent
and short-sighted. Moreover, this path would result in a massive
appetite for natural gas from the power industry, putting upward
pressure on natural gas prices. Understandably, this makes other
natural gas users--like chemical manufacturers, fertilizer producers,
and in the Carolinas, textile companies--very nervous. There are also
serious proposals to shift heavy-duty trucking from diesel to natural
gas. Gas is currently cheaper than diesel and, using analysis from the
EIA and RFF, this shift could reduce our oil dependence by up to about
800 million barrels per year, or roughly 25 percent of our oil imports.
S 2146 as currently structured gives new gas generation partial
clean energy credit. We have concerns with the concept of including
natural gas in the program since it could lead to an overreliance on
this single fuel. This is counter to policy goals supporting a diverse
generation mix and, more importantly, investments in other proven and
promising clean energy technologies. For example, construction of new
nuclear units--which we know are highly competitive in the long run--
and zero-emission wind and solar power plants will suffer if Congress
gives natural gas another leg up. Important work on technologies like
carbon capture and sequestration will also grind to a halt barring
government support for particular projects. This technology is vital to
coal's future.
It is essential to remember that power producers cannot start and
stop construction of energy projects as public opinion fluctuates with
the price of natural gas. A well-structured Clean Energy Standard can
help achieve critical economic and environmental goals while enabling
investment in a diverse set of energy technologies. These technologies
will serve as an economic hedge that better positions the U.S. to
remain competitive when--not just if--market conditions change again.
A new Clean Energy Standard for our country should focus on zero-
emission nuclear power, renewables and technologies like carbon capture
and sequestration that ensures the continued use of one of our most
abundant resources--coal. In addition to the long-term benefits of
diversification, investments in these diverse energy technologies will
spur continued job creation across many segments of our industry,
rather than just one.
The reemerging nuclear technology and construction industries serve
as my first example. As we all know, component manufacturing and
nuclear plant construction in the U.S. all but disappeared in the
1980s. Today new nuclear construction is putting thousands of Americans
to work in building a single plant in Georgia. Technology companies are
working to design new nuclear technologies in anticipation of a future
boom in new nuclear demand. With expanded support at the federal level,
the nuclear industry can continue fulfilling its potential as a major
engine for economic growth.
A viable Clean Energy Standard would also fuel job growth in
renewable energy sectors like wind and solar power. Uneven federal
support has contributed to spasmodic growth in these technologies in
recent years. Take Duke Energy's wind power business, for instance.
This year we will install nearly 800 megawatts of new wind-powered
generation--enough capacity to power nearly a quarter-million U.S.
homes. But like virtually every other project developer, we have not
yet announced a new wind project for 2013. Consistent policy support
encourages sustained investment in zero-emission energy technologies
like wind power, keeping skilled workers gainfully employed.
Finally, a Clean Energy Standard could help unlock billions of
investment dollars that are poised to transform coal to a fuel that can
be used far more efficiently and cleanly in the decades to come.
Domestic and foreign investors are ready to make big investments in
emerging technologies like carbon capture and sequestration. They just
need an appropriate incentive to lower the technology's investment
risks. A well designed Clean Energy Standard can provide that
incentive.
I have heard the concern that a Clean Energy Standard is the wrong
policy because it picks winners and losers. I believe this claim is a
fallacy. A standard does two things. It sets a target for how much
power must be derived from a basket of clean energy technologies. It
also specifies qualifying criteria for those technologies. If it is
structured correctly, the utilities, working with the states will
decide how best to meet their obligations under a federal Clean Energy
Standard, using the resources that are most appropriate. In deregulated
states, technologies would be selected based solely on their relative
competitiveness. In Arizona, solar power likely fits the bill. South
Carolina could satisfy requirements by continuing to invest in nuclear
power. The winners or losers allegation is only accurate if the Clean
Energy Standard determines carve-outs for each technology, or it
selects which company will supply the technology.
Duke Energy judges Clean Energy Standard proposals against the
following criteria:
1. Affordability: How will it impact our rate payers? In
these tough economic times, we need to be acutely sensitive to
the impact of our policy on those least able to pay.
2. Are they market based--and do they allow the market to
decide how much of what type of technologies to deploy?
3. Does the policy only incentivize technologies which are
otherwise not being adopted by the market? Natural gas
technologies are already preferred by the market--they don't
need additional incentives. Including them weakens the policy's
ability to advance and deploy alternative technologies and
creates disparate regional cost impacts. Both of these
unintended consequences are very problematic but easily
resolved. Lower the targets and remove natural gas from the
list of technologies that qualify for the incentive.
4. Does the policy keep alive and advance the deployment of
technologies which the electricity sector broadly agrees are
needed to lower future risks of fuel price volatility and new
environmental regulations? We find the incentive too weak to
advance carbon capture technologies, which most energy experts,
including engineers and economists at the Electric Power
Research Institute, MIT and other institutions agree is a vital
technology. Without carbon capture technologies, there will be
no new coal investments.
5. Nothing is free. Is the cost of the policy broadly shared
by everyone, or do some states pay significantly more than
others? Keeping these technologies alive is in the interest of
the entire U.S. economy, yet the EIA analysis indicates wide
cost differences throughout the country. Besides being unfair,
this hurts the possibility the bill will be passed, increasing
the chance our future goes entirely to natural gas.
The policy can be made even more affordable with the addition of
supporting policies targeted to remove non-economic barriers to
nuclear, CCS and energy efficiency deployment. Duke Energy would
welcome the opportunity to participate in this process.
In summary, I commend the Committee for pursuing a Clean Energy
Standard that strives to put the U.S. on a coherent path to investment
and job creation. Spurring investment in a diverse mix of clean energy
sources and technologies--including nuclear, renewables and cleaner
coal--will go a long way toward improving our economic and
environmental outlook.
I thank you once again, Chairman Bingaman, for your efforts to
develop a long-term domestic energy strategy that creates a market-
based incentive to deploy new technologies with minimal future fuel
price risks and maximum job creation potential. I see a great deal in
the legislation that benefits consumers, communities and the American
economy.
The Chairman. Thank you very much.
Mr. Dickenson, you're our final witness. Go right
ahead.Prepared Statement of James A. Dickenson, Managing
Director and Chief Executive Officer of JEA, Jacksonville
Electric Authority, Jacksonville, FL
STATEMENT OF JAMES A. DICKENSON, MANAGING DIRECTOR, AND CHIEF
EXECUTIVE OFFICER OF JEA
Mr. Dickenson. Thank you for allowing me to testify today
on behalf of JEA and its customers. JEA is a member of a large
public power council, American Public Power Association, the
Florida Municipal Electric Association and our commitment is to
provide highly reliable, reasonably priced and environmentally
responsible electric service to our citizen customers. So thank
you for giving them a voice today.
We are concerned that any national CES will create
substantial competitive impacts between regions favoring those
that are situated to take advantage of geographic assets that
more readily support development of solar, wind and hydro
power. Using national average cost impacts can disguise
significant electric rate differences among regions. While
applauding the inclusion of nuclear energy and partial credits
for natural gas technologies in the proposed bill, the move
away from existing coal generation, including JEA's will strand
not only large capital investments but the Nation's abundant
supply of a secure, domestic fuel that will instead be exported
to other countries.
We're also concerned that the proposed CES is too
aggressive. Most large scale electric generation projects take
years to design, finance, permit and construct. Utilities
throughout the country will likely be vying for the same
resources and materials, manpower, financing and regulatory
review time.
National energy polices should balance multiple goals
including energy security, economic growth, electric rate cost
considerations and the environment.
JEA's existing non-renewable generation capacity totals
over 3,700 megawatts with 38 percent of that being coal and pet
coke.
Fifty-two percent is combined natural gas and diesel.
JEA has continued to diversify and move toward closer,
cleaner generation technologies by adding more natural gas and
small scale renewables. JEA has also made significant capital
investment to modernize environmental controls at its existing
coal plants. We have reviewed and developed an additional
analysis of the impact of the CES on our generation sources and
on electricity cost implications for our customers.
We commend the basic framework of the proposed CES that
will allow utilities to meet the requirement through the best
possible combination of energy sources for each utility, in
each region of the country. We have concerns that because of
the limited resources in our particular region the cost to meet
the CES would be higher for JEA and other Southeast utilities.
We're not blessed with the substantial wind resources,
elevation changes for hydropower options or intense sun and
expansive open lands for high intensity solar installations.
To meet a CES in Northeast Florida we have access to
limited biomass, solar and landfill gas capabilities. All of
which we currently use. The potential for nuclear development
and the opportunity to consume energy more efficiently is also
available.
But JEA's approach to renewables has been cautious because
of the comparatively high costs. We anticipate that the
combination of proposed CES targets on our customer demand for
energy would require significant additional nuclear and
renewable generation resources. JEA would be unable to meet the
requirements of the CES beginning in 2015 through its own
resources and would have to rely on a combination of clean
energy credit purchases and alternative capacity payments while
working to replace the majority of our current generation
capacity with other sources.
JEA customers are concerned about their utility costs.
These concerns are amplified by the current economic
environment. While our overall rates remain average for Florida
utilities, our customers expressed concern about the absolute
cost of energy and are often not understanding of the relative
comparisons.
The total costs to JEA customers to meet the CES over the
20 years is estimated at an additional $14 billion in combined
energy replacement and alternative compliance payments, an
increase over base costs of about 64 percent. The cumulative
alternative compliance payments necessary to meet the CES would
be an additional cost burden to JEA customers, who will be
funding the development or purchase of replacement energy
sources to meet the CES at the same time.
We urge reconsideration also of the method of distribution
of the ACPs to return them directly to any contributing utility
for restrictive investment in qualifying clean energy or energy
efficiency projects.
JEA also recommends allowing utility sponsored customer
energy efficiency programs and improvements to count toward
qualified clean energy credits.
In summary, JEA is very concerned that the CES in Senate
bill 2146 is too aggressive and too costly to electric
consumers across the country, especially in our service
territory.
Thank you.
[The prepared statement of Mr. Dickenson follows:]
Prepared Statement of James A. Dickenson, Managing Director and Chief
Executive Officer of JEA
My name is James A. Dickenson. I serve as Managing Director & CEO
of JEA, a municipally owned electric, water and sewer utility located
in Jacksonville, Florida. JEA is a not-for-profit, community-owned
utility with an electric system that serves more than 400,000 northeast
Florida customers in Duval and three adjacent counties. Thank you for
allowing me to testify today on behalf of JEA and its customers. JEA is
also a member of the Large Public Power Council (``LPPC''), an
association of 23 of the nation's largest municipal and state-owned
utilities, American Public Power Association (``APPA''), a service
association for the nation's more than 2,000 community-owned electric
utilities, and Florida Municipal Electric Association (``FMEA''), an
association of 34 public power communities in the state of Florida. Our
commitment is to provide highly reliable, reasonably priced and
environmentally responsible electric service to our citizen-customers.
We are concerned that any national clean energy standard will
create substantial competitive impacts between regions, favoring those
that are situated to take advantage of geographic assets that more
readily support development of solar, wind and hydropower. Using
national average cost impacts can disguise significant electric rate
differences among regions. While applauding the inclusion of nuclear
energy and the partial credits for natural gas technologies in the
Clean Energy Standard Act of 2012 (``CES''), the move away from
existing coal generation, including JEA's, will strand not only large
capital investments but the nation's abundant supply of a secure
domestic fuel that will be exported to other countries.
We are also concerned that the proposed CES requiring large-scale
phasing in over a short 20-year time frame is too aggressive. Most
large-scale electric generation projects take years to design, finance,
permit and construct and utilities throughout the country will likely
be vying for the same resources in materials, manpower, financing and
regulatory review time.
National energy policy should balance multiple goals including
energy security, economic growth, electric rate/cost considerations and
the environment. These factors should all be considered with no one
goal being weighted too heavily, thereby creating an imbalance for
energy production to U.S. consumers.
As background, JEA's existing non-renewable generation capacity
totals over 3700 megawatts (MW) with 38 percent coal or coal/petcoke
units, 16 percent combined-cycle natural gas turbines, 32 percent
simple-cycle natural gas turbines and 14 percent natural gas/diesel
turbines. JEA's resource mix is constantly evolving. JEA was heavily
reliant on residual oil generation until the 1980s when it diversified
its fuel mix to include natural gas and coal in order to reduce both
energy costs and fuel supply risks for our customers. JEA has continued
to diversify and move to cleaner generation technologies by adding
natural gas simple- and combined-cycle turbines and small-scale
renewables. We have constructed seven modern natural gas turbines since
2000. In the early 2000s, JEA was the recipient of a Department of
Energy grant of over $70 million dollars to build two innovative 300 MW
circulating fluidized bed (``CFB'') coal/petcoke units, the leading
clean-coal, fuel-efficient technology just a decade ago. Those CFB
units now represent 15 percent of JEA's generation fleet and we have
been able to use them with coal, petcoke and biomass fuels. JEA has
made significant capital investments to modernize environmental
controls at its existing coal plants. JEA carefully balances the
generation and dispatch of electricity based on the most cost-effective
use of fuels while meeting environmental standards.
JEA has reviewed and developed an initial analysis of the impact of
the CES on JEA's generation sources and on the electricity cost
implications for JEA customers. JEA continues to model the CES and its
impact on generation dispatch and associated costs.
My testimony today addresses our initial analysis of the effects of
the CES on JEA and ultimately on our customers. I will focus on five
areas: 1) CES qualifying clean energy resources that are practical
options for northeast Florida, 2) modifications to JEA's generation mix
and energy sources to meet the CES over time, 3) projected electricity
cost impacts to JEA customers, 4) Alternative Compliance Payments
(``ACP'') and return to contributing utilities for designated
construction of further CES qualifying resources, and 5) CES credit for
energy efficiency programs. JEA supports clean energy generation that
protects and enhances the environment while remaining cost effective on
our consumers' monthly energy bills.
1) CES Qualifying Clean Energy Resource Options for JEA
We commend the basic framework of the proposed CES that would allow
utilities to meet the requirement through the best possible combination
of energy sources for each utility in each region of the country.
However, we have concerns that because of the limited resources in our
particular region, the costs to meet the CES are higher for JEA and
other Southeast utilities. As I stated in written testimony in March
2009 to this Committee, when considering renewable energy from
Florida's standpoint, as well as the entire Southeast, the available
options depend very much on geography. In the Southeast, unlike the
West, Pacific Northwest and Midwest, we are not blessed with
substantial wind resources, elevation changes for hydropower options,
or intense sun and expansive open lands for high-intensity solar
installations. For example, the Department of Energy's (``DOE'')
nationwide study of wind resources shows that there are no significant
on-shore wind resources in the Southeast, and only limited off-shore
capability.\1\
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\1\ See http://www.windpoweringamerica.gov/windmaps/offshore.asp
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What we do have in Northeast Florida are limited biomass, solar and
landfill gas capabilities, the potential for nuclear development and
the opportunity to consume energy more efficiently. JEA has cautiously
approached adding renewables to its generation fleet out of concern for
the comparatively high cost, small production amounts and low capacity
factors of the available options. JEA has had 10 MW of purchased power
wind energy in Nebraska since 2005. That facility runs at a capacity
factor of about 38 percent. JEA sells the energy on the grid and
retains the renewable credits. JEA also purchases all of the output
from a 15 MW (direct current) solar installation built in 2010 on 100
acres of JEA-owned land in Jacksonville. This modern solar farm
operates at a capacity factor of 17 percent. JEA has a net metering
policy to purchase excess power from certain customer-owned solar
installations and has small-scale photovoltaic solar applications
scattered throughout Duval County. JEA also produces or purchases 16 MW
of landfill gas from Jacksonville's three local landfills and biogas
from a JEA-owned wastewater treatment facility. Combined, these
renewable energy resources represent roughly one percent of JEA's
retail sales. As mentioned, JEA has been co-firing our CFB units with
biomass material from tree trimming. JEA also continues to evaluate
biomass ownership or purchase power options considering the
availability of biomass fuel supplies, yet-to-be-determined carbon
classification impacts and relative cost comparisons.
JEA has a contractual commitment with the Municipal Electric
Association of Georgia (``MEAG'') for 200 MW of purchase power in the
new Plant Vogtle nuclear units 3 and 4 that should be available in
2017. JEA also has an option for an ownership interest of between 5
percent and 20 percent in the proposed Duke Energy William States Lee
III Nuclear Station currently scheduled to be available in 2021-2022.
JEA continues to evaluate other nuclear options.
2) Modifications to JEA's generation mix and energy sources to meet
the CES
JEA has continued to transition its resource mix toward natural gas
baseload generation, to expand its access to intermittent renewable
resources, and to diversify with new nuclear options. However, we
anticipate that the combination of the CES proposed targets and our
customer demand for energy would require significant additional nuclear
and renewable generation resources above what is projected in our
current long-range plans.
We have prepared a comparison between a base case projection to
meet JEA's energy demands over the proposed time frame (without CES)
with a modified case to meet the CES (shown in Exhibit A). The results
of this analysis were produced by a preliminary study and not by a
full-blown integrated resource planning study (``IRP''). However, the
results are a reasonable analysis of the choices we would likely make
to meet the proposed CES.
Substantial additional nuclear generation would be the primary
means to meet the CES. JEA would also add additional solar
installations in 15 MW increments over an eight-year period early in
the 20-year time frame and would build or purchase additional solar,
wind and biomass energy. Even with an aggressive program of renewable
and nuclear generation development, JEA would be unable to meet the
requirements of the CES beginning in 2015 through its own resources and
would have to rely on a combination of clean energy credit purchases
and Alternative Capacity Payments while working to replace the majority
of our current generation capacity with other sources.
Because of the large-scale output and high capital development
costs of current nuclear design technology, JEA finds its only economic
option for nuclear is to purchase power or to acquire partial ownership
interest in nuclear projects. We remain interested in the ongoing
development of Small Modular Reactor (``SMR'') designs and believe the
commercial demonstration of SMR might make a local nuclear option more
viable for JEA in the future. The SMR design is being incentivized by
DOE at present through proposed funding agreements. Because nuclear
plants would comprise a great percent of total capacity under the CES,
new large-scale nuclear plant design and the developing SMR designs
must allow for flexibility to lower the energy output of nuclear units
during off-peak demand periods in order to avoid energy dumping.
JEA has not included new coal capacity with carbon capture and
sequestration (``CCS'') in either our base case or the CES case.
Although it has not yet been adequately demonstrated on a utility
scale, we believe the technical and engineering obstacles to CCS may be
solved with enough investment in research and development. Of course,
the high costs and substantial energy penalties of CCS will continue to
discourage investment by electric utilities. However, solving the
engineering issues will not be enough.
The legal and regulatory barriers to sequestration of hundreds of
millions of tons of CO2 effectively forestall any serious
consideration of CCS on a widespread basis by electric utilities.
Although there may be adequate geological formations capable of
accepting CO2, we see no credible path to licensing large
scale CO2 sequestration. In Florida, there are no
significant formations capable of sequestering utility CO2.
This means that an interstate network of CO2 pipelines would
need to be sited, licensed, financed and built. The siting alone would
offer hundreds of miles of opportunities for obstruction. Those
obstructions would likely include additional environmental concerns,
permitting difficulties, and lack of confidence in protective,
effective technologies.
JEA is also concerned that the CES, as written, will further drive
our nation away from the economic use of our abundant coal resources.
Today coal powers more than 40 percent of all electric generation in
the United States. If coal is removed from our energy mix, the U.S.
energy position will be both higher cost and less secure.
3) Projected electricity cost impacts to JEA customers
JEA customers, like those across the country, are concerned about
their utility costs. These concerns are amplified by the current
economic environment. JEA has had a series of rate increases over a
seven year period to pay for capital construction financing and high
coal and natural gas fuel costs. Due to the recent drop in natural gas
prices, we plan to reduce our pass through fuel cost to customers in
July 2012 for the first significant decrease in overall rates since
2004. While our overall rates remain about average for Florida
utilities, our customers express concern about the absolute cost of
energy and are often not understanding of the relative comparisons.
Renewable and nuclear energy options are expensive, especially
compared with the alternatives available today. As discussed earlier,
renewables in Northeast Florida are limited in terms of output and
availability and are far from sufficient to meet our customers'
electric demands even with the addition of new projects.
Based on the CES case projected in Exhibit A, JEA would be able to
meet the CES through a combination of resource development, credit
purchasing and alternative compliance payments with an average annual
energy cost increase of 4.6 percent above our base case over the first
six years of the mandate. The cost premium is so low primarily because
JEA has already committed to the new Plant Vogtle nuclear units. While
a 4.6 percent cost differential seems relatively reasonable, our
customers already protest any increases in costs. Neither our
residential nor our commercial customers will readily accept the CES
mandate as a good reason to raise rates. Even more troubling are the
significant annual cost differentials (20 percent to over 100 percent)
JEA customers will be asked to endure to meet the CES beginning in
2021. The total cost to JEA customers to meet the CES over the 20 years
to 2035 is an estimated additional $14 billion in combined energy
replacement and alternative compliance payments, an increase over base
case costs of about 64 percent.
4) Alternative Compliance Payments (``ACP'') and return to
contributing utilities
The cumulative alternative compliance payments necessary to meet
the CES would be an additional cost burden on JEA customers who will be
funding the development or purchase of replacement energy sources to
meet the CES while also making the compliance payments. JEA is
concerned that the ACP structure contained in the proposed CES would
keep 25 percent of the payments in Washington, D.C. and return 75
percent of the ACPs to the states for distribution restricted to energy
efficiency projects as the language is currently worded. This plan
would likely penalize public power customers unless there was a formula
directing the payments back to the contributing communities. The
rationale for keeping 25 percent of the ACPs at the federal level
appears intended to have the program remain revenue neutral to the
federal government. However, JEA and other municipal utilities do not
pay corporate income tax, and would receive no benefit from an expense
deduction for ACPs. Thus the federal budget would not be harmed if 100
percent of ACPs paid by public power utilities were returned to the
public power utilities.
Additionally, the ACPs may result in substantial sums of dollars
directed solely to energy efficiency projects when for some utilities
the development of additional clean or renewable resources might
provide a greater benefit toward achieving the CES's stated goal of
reducing carbon emissions. Flexibility to direct the dollars to
qualified clean energy projects or energy efficiency upgrades would be
a great improvement.
Rather than pay the ACP to the federal government, JEA proposes
that each affected public power utility make this significant
investment in qualified CES resources that directly benefit their
communities. This would allow our customers, who are making the
investment as a portion of their electric rate, to directly benefit
from the payments. Thus, public power utilities would be provided the
flexibility to develop more clean or renewable energy projects and
energy efficiency upgrades, based on cost-benefit analyses. This method
would result in a large investment in qualified clean energy and energy
efficiency projects. In Florida, where renewable energy at reasonable
costs is severely limited, such projects could include rebates for
customer-owned energy efficiency and photovoltaic energy, as well as
development of biomass projects.
We urge reconsideration of the method of distribution of ACPs to
return them directly to any contributing utility, regardless of
ownership structure, or in the alternative, return the payments to the
contributing community-owned utilities, for restricted investment in
qualifying clean energy or energy efficiency projects. We underscore
the recommendation to allow the returned payments to be used with
flexibility by the utilities and communities making the payments and to
send the full amounts back to public power utilities or allow them to
track the payments and qualifying expenditures, rather than remitting
them to the government.
5) CES credit for energy efficiency programs
The ACP structure favors energy efficiency programs as currently
proposed. JEA recommends allowing utility-sponsored customer energy
efficiency programs and improvements to count toward qualified clean
energy credits. An exception or deduction could be made for 10 those
energy efficiency programs that are funded with returned ACPs as
suggested in item 4 above.
Conclusion
In summary, JEA is very concerned that the Clean Energy Standard,
as described in S. 2146, is too aggressive and too costly to electric
consumers across the country, especially in our service area. The CES
further isolates our country's abundant coal resources from being a
viable source of energy production. It would require that large capital
assets not only be scaled in over a mere 20-year period but would also
require existing capital assets to be retired or abandoned before the
end of their useful economic lives. All this cost would be borne by
electric consumers--our customers, your constituents--in uncertain
economic times. The ever-changing focus of environmental concerns and
the long-term uncertainty of fuel availability and pricing impact a
basic life resource that in part defines our quality standard of
living.
The Chairman. Thank you very much.
Let me start with a few questions to the panel.
I guess one question occurred to me from your testimony Mr.
Gibson. In your conclusion of your testimony you say it's
essential to recognize that EPA's regulatory agenda for the
utility sector coupled with relatively affordable natural gas
supply is causing numerous utilities to take steps that will
ultimately reduce emissions. Then essentially you say that
this, in your view, is adequate, that it's clear that EPA
anticipates the proposed greenhouse gas rules and other Clean
Air Act rules will EPA anticipate--will result in both near
term and longer term reductions.
One of the impetuses or a major impetus for trying to
develop a clean energy standard was that a lot of economists
have testified to us that they thought we should try to have a
market based mechanism for improving the environmental
performance of our generating capacity. That it should not be
driven by Washington through EPA regulation.
Mr. Gibson. Right.
The Chairman. You seem to be saying that you think we
should go ahead and back off and let EPA do this. Am I reading
that correctly?
Mr. Gibson. No, I don't think I'm saying that EPA should.
I'm saying EPA is. Even the EIA analysis that was the subject
of the first panel does not include utility MACT.
It does not include the EPA utility greenhouse gas
regulations. It doesn't include 316B, the cooling water
regulation. So we're going down now a parallel track of EPA
regulating using its authority under the Clean Air Act for
carbon and for other things. Maybe the utilities would be in a
better position to talk about that. But I can talk about it
from my industry because we're subject to the same type of
regulations.
Then we're going to add on yet another layer of the market
based system. Sometimes, as I noted, they can work across
purposes. Some of the technologies you might have to install to
comply with the mercury rule, to put on a scrubber of some
kind, would have a parasitic load associated with it. That will
reduce your energy efficiency.
So everybody is, you know, kind of looking at their own
piece of the problem. There is not an overall approach to it.
That's the concern.
Then the comment about with natural gas suddenly being a
lot more affordable over the past 5 or 6 years since when we
started this effort, that is already sending signals to the
market. So that was what I meant. I think I was really just
trying to point out that we do have almost a parallel structure
going on if you were to proceed with this and not take a look
at the full suite of EPA regulations to decide which ones,
which policy goals, are going to be achieved through regulation
and which policy goals are going to be achieved through the
market mechanism.
Right now you would have both if you passed the bill as it
is now.
The Chairman. As I understand it, as far as greenhouse gas
emissions go, EPA's actions so far, only relate to new coal
plants going forward. They are not directly dealing with
greenhouse gas emissions from existing coal plants.
I don't know if you have an expectation that they will
continue to decline action in that area or whether in the
future if we don't do something like a Clean Energy Standard
they would determine that they should go ahead and act to deal
with the problem themselves.
Do you have a view on that?
Mr. Gibson. I have a view that EPA is going to continue to
use its regulatory authority both on--first on existing
facilities but I think the Administrator has testified that
they will be looking into turn--excuse me, at new facilities.
In due course they'll be looking at existing facilities as
well.
The Chairman. I guess my point is if something like a Clean
Energy Standard were enacted.
Mr. Gibson. Right.
The Chairman. Signed by the President. It would be a pretty
good argument at least, for why they do not need to regulate in
the area of existing plants.
Mr. Gibson. But, you know, respectfully I'd say a lot of
the uncertainty that's going on right now is whether or not the
Congress, the previous Congress, ever intended EPA to regulate
using greenhouse gases using the Clean Air Act at all. You
would have, if you were to pass this bill, you would have the
opportunity to speak to that.
You would have the opportunity to rationalize and say no.
This is going to be the primary method by which greenhouse
gases are going to be regulated from utilities or possibly
other stationary sources. So.
The Chairman. Mr. Trent, did you have any thoughts on any
of this?
Mr. Trent. Yes, first of all, I definitely agree with the
premise that a market based approach is much better for us and
the economy than a command and control or EPA regulation type
of mandate. So I agree most definitely with that premise.
I also agree that I would encourage Congress to take an
opportunity if they're passing a Clean Energy Standard to also
send signals as to what we're going to have in terms of future
regulations. I would urge you to pre-empt that field.
The Chairman. Alright. My time is up.
Senator Murkowski.
Senator Murkowski. I'm going to follow on that line of
questioning because what I was hoping from the panel was really
pretty much a straight up yes or down answer in terms of
whether or not you think it makes sense to pre-empt duplicative
or potentially contradictory Federal greenhouse gas emissions
under the Clean Air Act.
As Senator Barrasso was trying to drill down with the
Secretary Sandalow. I mentioned it in my opening comments.
About the fact that we've got kind of this series of overlap in
terms of the regulations that are out there.
That my hope would be that we can figure out how we
prioritize. So in the event that a CES similar to what Senator
Bingaman has advanced or something else were to move forward,
were to become law, do you think it makes good sense to allow
for a pre-emption of those Federal regulations that relate to
the emissions?
We'll just start with you, Mr. Dickenson. Mr. Trent, Mr.
Gibson, you should be quick and easy on this.
Mr. Dickenson. Thank you. I do believe that, you know, the
compounding really creates an effect that we're all trying to
keep up with. You know, right now we are responding to the NSPS
rule that's come out on greenhouse gases.
On one of those I do believe that it's very unusual for EPA
to commit with that and say they're only going to do it for new
plants because the history has always been it includes that.
Then there's also the legal issue, I believe, that's involved
when you get into PSD permits that I think, once that rule came
out I think they'll be sued, you know, by the environmental
agencies or the environmental people. They will--and when that
gets to court they'll find out that they have to go back and
include, you know, existing plants in that regulation.
So I think that's what we'll see happening.
Senator Murkowski. Mr. Trent? Pre-emption?
Mr. Trent. Yes, I think that there are different
legislative models to achieve our goals but I think the
legislative vehicle is the right vehicle. I would say that the
legislation should pre-empt.
Senator Murkowski. Mr. Gibson.
Mr. Gibson. Yes, I think it should pre-empt. You know, when
I said in answer to your previous question about whether EPA is
indicated. I'm not sure on that. I probably should have put
words in Lisa Jackson's mouth.
But my expectation is eventually EPA will get to the
existing sources. So I think your question was do I expect
existing sources to be brought into the system. It's my
expectation that existing sources will be brought into the
system.
Senator Murkowski. Mr. O'Mara.
Mr. O'Mara. I don't believe that it should pre-empt. I
think the reason is that the Tailoring Rule, in particular is
much broader than just energy generating units. So unless we're
going to have a legislative solution that's economy wide, which
I don't think is likely in the near term, allowing EPA to
continue in, I think, the broader part of the economy I think
is critical to meet the reduction targets that we've all
established.
Senator Murkowski. I'm going to come back to you on the
State regulation side.
Ms. Greenwald.
Ms. Greenwald. Yes, I mean, I don't have a yes or no for
you. I do think that there are--a lot of us would be open to
that conversation. I think it depends on the environmental
effectiveness of the ultimate outcome of this process. If you
had a very strong CES that was very environmentally strong and
you could be confident that the outcome from that would be
better than what EPA could do under specific authorities that
might be a conversation to have.
One would have to be very cautious. We certainly would be
because as my colleague here said, EPA has a broad authority
under the Clean Air Act for greenhouse gases. This is a
proposal just about the power sector. So you would have to be
very careful and targeted and thoughtful to make sure that in
the end the environmental outcome would be superior. That that
would be the nature of the kind of conversation I think people
might want to have.
Senator Murkowski. Dr. Palmer.
Ms. Palmer. I want to echo what Mr. O'Mara said in that if
you're going to--and Judi as well, that if you're going to pre-
empt in this respect, the Clean Air Act, you need to just focus
on the electricity part because of course, this is only
addressing the electricity side of things.
I also think that just with respect to the Clean Air Act
that there are a number of different ways that things could
proceed with respect to regulating existing sources some of
which might be more efficient than others. Might be able to
grab some reductions in early years while this policy kind of
ramps up. Because in the early years the Clean Energy Standard
is easily met by the current, existing fleet because it's
substantially below what the Clean Energy share is currently.
So there might be some timing issues here related to pre-
emption.
Senator Murkowski. Let me, I'm not going to go back to you,
Mr. O'Mara. Instead I'm going to ask Mr. Trent and Mr.
Dickenson here.
We're all concerned about the ultimate cost to the consumer
here. You represent utilities there with Duke Energy and there
in down in Florida. What--how do we protect the consumers from
any significant rate increases here?
In the last Congress when we moved out a 15 percent
renewable electricity standard that gave the Secretary of
Energy some discretion to waive certain requirements if the
incremental cost of compliance was in excess of 4 percent. I
think ultimately this is what we need to be looking to. This is
what folks around the country are going to say is what does
this mean to me and my family?
So how do you deal with that aspect of this legislation and
the fact that it's going to increase your costs?
Mr. Dickenson. I'll say, I think it will. We've looked at--
we've done an analysis on this in the brief time that we had.
It wasn't a full IRP or integrated resource plan to look at the
total cost to us, but we did, kind of, compare a base case
generation verses what we would have to do under this act. It
is a significant cost increase.
I mentioned over that period of time it's a 64 percent.
Senator Murkowski. Sixty-four percent.
Mr. Dickenson. Against our base case. That's our generation
costs, not our rates. Generation today makes up about 70 to 75
percent of all of our cost. So it would be roughly, maybe, you
know, 70 percent of that 64 percent, maybe somewhere around 40
percent or 45 percent.
Senator Murkowski. If I'm down in Jacksonville and I hear
you say that you're going to see a 64 percent increase. Again,
I'm wondering well, what does that mean to me?
What's your answer to me?
Mr. Dickenson. Right now they don't want any increase
because I've already increased it quite a bit over the last 8
years because of fuel volatility and, you know, the piece is
so--but it would be an increase.
I believe that one thing would be that you could look at a
longer timeframe. 20 years is just a short timeframe in this
industry. So a longer timeframe would allow more time to comply
which would spread the cost out over a longer period of time,
but.
Senator Murkowski. Mr. Trent, real quickly.
Mr. Trent. Yes. So we've constantly balanced 3 things,
affordable, reliable and clean. We do that all the time.
The reality is prices are going up regardless of what we do
because we're replacing a lot of old assets. But it's a very,
very important issue. I think there are a few things here that
help.
One, a market based strategy I think, reduces pricing
giving the industry a long term certainty in terms of what
we're supposed to be thinking about gives an ability to, I
think, keep prices lower.
The alternative compliance payment that's embedded in here,
I think, can serve, I think, to have some impact on pricing.
Then one thing that we've supported in the past in the
Carolinas, for example, we have a renewable energy standard.
There we actually put in an economic out that basically if the
cost of compliance reached a certain amount for a customer
class that the compliance would be suspended until those go
down.
So I use that not as to say that ought to be inserted, but
as an example of tools that I think can be used to mitigate
costs. But at the end of the day I think we also have to
recognize that if you're going to have clean as a goal, you're
going to have some costs associated with that.
Senator Murkowski. Have you done the internal review? I
mean, Mr. Dickenson has mentioned that their study indicates a
64 percent increase. I'm assuming Duke is looking at similar
cost runs?
Mr. Trent. Yes. I have not done--we have not modeled this
recently. We did model it many months ago. But the reality is
the market has changed so dramatically that I really can't tell
you what cost impacts, specifically, we would have in our
jurisdiction.
What I can tell you is that that is something we absolutely
would want to do and would do and would want to have further
conversation with the committee on that point.
Senator Murkowski. Thank you, Mr. Chairman.
Thank you, all.
The Chairman. Senator Franken.
Senator Franken. I want to agree with Senator Coons and
Senator Shaheen about energy efficiency.
Obviously the cheapest unit of energy is the unit of energy
we don't use. We did something in Minnesota when we did our
renewable energy standard 25 by 25. We established in an energy
efficiency resource standard. What it basically said was the
utilities had to--were responsible for decreasing the
efficiency of their users by 1.5 percent per year.
What that ended up doing was it had the utilities encourage
their users to be more energy efficient and in some cases even
incentivized the utilities to finance retrofits of some of
their users. It was kind of, everybody likes it in Minnesota,
it turns out. I think, I'm not--there might be some utilities
that don't. But the utilities that I have talked to seemed to
do that.
So I believe that an energy efficiency standard does, in
part, modeled after some State programs is something that the
committee ought to explore.
I think energy efficiency is a fairly bipartisan issue. I
invite my, ah well, my colleagues on the other side of the
aisle to consider this.
[Laughter.]
Senator Franken. Can either Dr. Palmer or Ms. Greenwald
talk about the potential energy savings that could be derived
if the country moved toward a unified energy efficiency goal?
Ms. Palmer. I agree that an energy efficiency resource
standard has some valuable provisions because it's creating a
standard and it's making use of the market. I think that's
important. There have been a lot of experiences from around the
country that we can learn from in that regard.
I think that keeping the energy efficiency piece separate
from the Clean Energy Standard would probably be preferable.
Because whereas we can pretty effectively meter generated
electricity, it's difficult always to measure exactly what the
savings are from particular investments. There's a lot of
differences across the States with respect to how they do that
even for a common sort of investment.
So I think there's a lot of--that work that needs to be
done there with respect to understanding that better.
I also think though that the use of the ACP revenue to fund
energy efficiency while as an economist I should say there may
be better uses for that revenue. If you were going to use it to
fund energy efficiency there are big opportunities here. I mean
in our modeling we find substantial amounts of money might be
raised through ACP payments.
The type of opportunities I'm talking about is
experimentation with particular types of policies and
opportunities to really do real controlled experiments where
you can effectively measure the affect of the policy verses the
affect of folk's proclivity to adopt energy efficiency.
Ms. Greenwald. Yes, I agree that we have a lot of
experience at the State level to look to. About 19 States have
an EERS that is separate. Another 8, include energy efficiency
as part of their alternative energy portfolio standard or
renewable portfolio standard.
So States have taken a variety of approaches to this. So we
can look at that to get experience. Experience has been good.
They've achieved savings and energy efficiencies. Generally
your first choice because of all the energy options it's the
cleanest. It involves the least trouble in terms of citing. You
know, any decision that you have to make on the supply side
energy efficiency is helpful.
A couple of other points I want to make on energy
efficiency. I think it relates to the cost issue that's come up
a few times. We're guilty of this too.
We can't just focus on rate impacts. We have to focus on
what happens to people's bills. People pay rates times how much
they use and that's how you get a bill.
So if we can get enough efficiency and that can offset the
rate increases. So that in the end the impacts can be much
less.
Senator Franken. Oh, yes.
Ms. Greenwald. Sometimes even be positive. So I hope that
as we go forward in this discussion we make sure to look at the
actual bill impacts and not just focus on the rates.
I also think it's important and I'll echo what Karen was
saying about Senator Bingaman and your proposal that there are
a lot of incentives already in for efficiency which we think
are very positive, the incentive for CHP, the using the ACP
payments to fund energy efficiency programs. Also energy
efficiency inherently will help you comply because it will
reduce the overall amount of electricity that's needed. This is
calculated as a percentage of that.
So you will need to do less to meet the standard if we do
more energy efficiency.
So there are already incentives built in. So I think you
can think about them separately. You can combine them if you
want. There is experience to draw on.
But you can keep them separate. Then you can avoid this
problem where they're a little bit hard to make equivalent
because a savings in one part of the country could be very
different from another. The baseline issue, establishing
baselines around the country is tricky.
So having a different approach for each type, for
efficiency on the one hand and renewables and other supply side
options that are clean makes sense to us.
Senator Franken. The energy savings from these retrofits
can be startlingly high and bring down usage by the same kind
of percentage.
I realize I've run out of my time. I just want to put a
word in for combined heat and power which again, Senator
Shaheen was talking about and also district energy.
In St. Paul we have a combined heat and power facility that
is fueled almost by biomass and it heats downtown St. Paul.
District energy, I think, we need to be considering what piece
of all this where it might fit.
Thank you, Mr. Chairman for your work on the CES.
The Chairman. Thank you.
Senator Franken. I thank you witnesses for testifying.
The Chairman. Senator Coons.
Senator Coons. Thank you, Chairman Bingaman. I'm just going
to continue Senator Franken's dialog if I could on energy
efficiency.
Initially Senator Shaheen and Senator Franken have been
great leaders and partners on implementing energy efficiency.
Working with you, Mr. Chairman, in trying to sort of, press
forward the things that all of us in our experience prior to
our coming to the Senate, saw. So, since we got through 2 steps
down the panel.
If I could Secretary O'Mara, thank you for your testimony
about the very real success that you and Governor Markell have
had in Delaware in implementing broad changes.
If you could first just start by talking a little bit about
energy efficiency. You referenced in your opening testimony
that you wish we'd move more aggressively or actively in this
bill to incorporating energy efficiency rather than studying
it. There's a variety of different ways that measurement,
monitoring and verification, MMV are possible around energy
efficiency.
Do you see ways that MMV efforts could be put on the table
to strengthen the energy efficiency components of a CES? What
signal do you think the inclusion of energy efficiency within
the CES would send to the market more broadly in terms of
compliance costs?
Mr. O'Mara. When a lot of States were developing these
policies originally the RPS was kind of the fad at the time.
They nearly kind of ran from 10 percent or to 20 percent.
Delaware is 25 percent.
Then at the same time you have this parallel conversation
about efficiency. Tthen the efficiency standards and Delaware
is a standard of 15 percent by 2015.
The challenges that it makes us look at different supply
alternatives as separate. What it does is that you see a slight
increase in prices from the RPS because these technologies are
a little more expensive. You see a price decrease from the
efficiency side. If you net them out there's actually more of a
cost savings if you put them together.
I think the committee can actually learn from the
experience from the States. Say, you know, by putting them
together from the beginning that we're going to do everything
in our power to reduce overall costs while still achieving
pretty aggressive, environmental goals.
In Delaware under Governor Markell's leadership we have
been focused on the outcome. The outcome of these studies
everyone wants clean air, as clean as you possibly can have
within the State. It's a challenge with 90 percent of our
pollution coming from over the border, as Senator Carper has
told you both. At the same time having bills actually go down
overall.
You know, it seems like I could say it's Faustian choice,
if you will. But it's not. You can actually do both.
I think if we sent a strong signal through the legislation
that rather than studying it for years that you would like a
national EMMV standard established by the Secretary that if
they are going to be crediting immediately. I would include
anything that displaces electrical demand including CHP and co-
gen and district heat and solar thermal and biomass thermal
that that will count toward the credits. The signal that it
sends is that we are going to, as a Nation, treat energy
efficiency as a supply resource just as we would any other type
of energy.
At the same time that the Congress is sending a strong
signal that energy efficiency is going to do more to lower our
bills and estimates for it as much as 16 to 30 percent of
overall energy consumption could be reduced in this country
through energy efficiency measures. All of which are cheaper
than the least costly, traditional generation source.
So I think that overall it takes the EIA conversation we
had earlier today whether it's 18 percent and it's $5 savings
or this and that. We wouldn't be having any of that
conversation if we had it in it from the beginning because
everyone would be saving substantial amounts of money if
efficiency was a big part from day one.
Senator Coons. Thank you.
Mr. Secretary, as you well know, in the State of Delaware
we have a functioning steel mill. We have a well refinery. We
have heavy industry. We've also got cutting edge technology.
You referenced in your opening statement that we just did
the ground breaking on Bloom Energy, a solid oxide fuel cell
company headquartered in California that's going to be doing
manufacturing in Delaware. We also hope at some point to have
offshore wind have one of its first major installations off the
Atlantic Coast in Delaware.
Talk a little bit more, if you would, about how you and the
Governor created an environment in Delaware where all these
different separate and disparate interests were able to
participate and then given some of the previous testimony about
regional concerns that I think are legitimate. Some concerns
other members of the panel have about regions within the
country how this national combined approach might learn from
Delaware's experience in getting all the different stakeholders
to have some role to play in a more positive clean energy
future.
Mr. O'Mara. I think it really starts with the Governor's
commitment to focusing on the outcome and looking at facilities
as individual units. I don't think there's a single regulation
or a single policy that's going to allow this transition to
easily occur.
You know, we had legacy coal units that really needed to be
updated and needed modern controls.
We had units that really should be fuel switched to use
natural gas.
We had, you know, units that could have been co-gen or even
upgraded to combined cycle.
So we actually approached it as, even as a--I represent
part of the regulatory side, but all these products is almost
like a public/private partnerships. In some cases it was
helping in financing. In some cases it was small grants. In
some cases it was expedited permitting.
By really focusing on the outcome instead of saying, you
know, we're trying to reduce emissions of this facility by a
certain amount now let's come up with the best way to do it.
Not saying that government--I don't think government has the
best answers on the prescriptive side. I think if government
can set the standard and work with the various utilities to do
it, to achieve that outcome, you can achieve great things.
We've seen great work whether it's with the refinery or with
energy or with Calpine and the different facilities in our
States as a result.
Senator Coons. Thank you, Mr. Secretary.
If I might, Mr. Chairman, one last question?
The Chairman. Go ahead.
Senator Coons. As we discussed briefly yesterday I've
discussed with a number of members of this committee. I've been
asking my policy folks to find me some way to provide a tax
advantage financing for an all of the above, don't pick winners
and losers, path forward. We've been looking at different
existing financing vehicles.
Master limited partnerships have existed, I believe, since
the ?86 tax bill. Are a tax advantage way, largely to finance
pipelines, but they're also an extractive technologies of
different kinds, but mostly oil, gas and pipelines. I've
suggested to a number of my colleagues that we consider opening
that up which would be a fairly simple statutory matter to
other power generation and distribution technologies.
If we really mean that we want an all of the above, don't
pick winners and losers, energy strategy and one that is
demonstrated and sustained and well known in the marketplace,
this might be one way to move. I'd be interested in whether any
of the members of the panel have a brief comment in response
given that I understand we have votes on the floor beginning
any moment.
So I'd be interested in anyone's input on master limited
partnerships.
The Chairman. I think the votes began about 5 minutes ago.
But go right ahead.
Senator Coons. Sorry.
Mr. Trent. I am familiar with master limited partnerships
on the pipeline side and the midstream side. We have, at times,
struggled with the fact that we couldn't take advantage of
that, especially on the renewable side. So I think it's a good
idea.
To be honest with you I haven't studied it enough to know
if there are nuances that might impact my view on it. But my
initial reaction, I think it's a good idea.
Senator Coons. You think utilities might take advantage of
it as a financing vehicle?
Mr. Trent. I don't know if it would be utilities, per se or
people on the competitive generation side. But I think it's
possible that we could take advantage of it.
Senator Coons. Sir? Mr. Dickenson.
Mr. Dickenson. I'd just say on tax exempt issues being a
large public power company which is what we are, we don't pay
Federal taxes. But I think if you found a way there would be
ways you could find to make things comparable for public power
companies that would have some of the same incentives that
investor owned who do pay those taxes. So I believe that would
be helpful to be able to do that.
But you'd have to find a way to bridge that.
Mr. O'Mara. We think it's a fantastic idea particularly for
utility scale projects.
Senator Coons. Thank you, Mr. Secretary.
Ms. Greenwald. I don't have a particular view on that
option. But we do think that we should be thinking about
complementary policies that help all of these technologies
become more cost effective. We don't know which technology is
going to win under this proposal.
But the more that they can be incentivized to get over that
early hump where they're not quite ready for market. The more
we can get a few going. The better and then the more cost
effective the ultimate outcome is because then everyone has
more options to choose from.
Senator Coons. With that, Mr. Chairman, one of the things
I'm grateful for about how you've structured this Clean Energy
Standard and how you've led this committee is that you've been
open to an all of the above strategy and to finding ways to
achieve American energy independence in a responsible way.
Thank you for this hearing.
The Chairman. Thank you for all your help with this Clean
Energy Standard proposal.
Thank you all for your testimony. I think it has been very
useful. I think the hearing overall has been very useful.
So that will conclude our hearing.
[Whereupon, at 12:06 p.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Responses of James A. Dickenson to Questions From Senator Murkowski
Question 1. Please explain why you believe carbon capture and
sequestration is not a viable option for Jacksonville Electric
Authority (JEA).
Answer. We know of no proven carbon capture and sequestration (CCS)
system or technology that provides a viable option for underground
storage. We understand research and development in this area continues
but for CCS to be viable, a methodology/technology would have to be 1)
proven, 2) commercially available, 3) capable of large-scale
application, 4) permittable through multiple entities and
jurisdictional levels, 5) capable of surviving private environmental
interest challenges, 6) sustainable--the solution must be long term,
and 7) acceptable--the solution would survive public perception and
opinion. Currently Florida law does not permit hazardous waste
landfills. Depending on the future determination and classification of
the stored matter, storage solutions for Florida may be out of state,
offshore and therefore, more unpredictable. As an engineer, I believe
we will eventually tackle the technology to capture and transport
carbon. I have serious doubts that we will ever solve the licensing and
public perception issues for long-term storage.
Question 2. You suggest that Alternative Compliance Payments should
be returned to the contributing utility. Please explain your reasoning.
Answer. Utilities that are not able to meet customers' energy
demands from available clean sources will be working to replace
existing sources with clean sources. For JEA, that will require
additional large-scale, multiyear, capital-intense projects or
additional purchases of clean replacement power to meet a CES. Customer
rates will be funding needed clean replacement energy through direct
capital outlay or long-term financing. Additionally, while working to
replace the sources, the alternative compliance payments (ACP) will act
as a penalty on these same customers. Returning the ACPs to the
contributing utilities or requiring utilities to account and spend any
ACP amounts on qualified clean energy replacement sources will enable
utilities to reach clean energy goals faster and at the same time will
not penalize customers of those utilities working to comply with the
standard.
If ACPs were self accrued, reported, accounted and restricted to
qualified clean energy source investments for all utilities, there
would be limited oversight and compliance effort required at the
federal level. Perhaps ACP expenses could be excluded as an expense
deduction for investor-owned utilities, maintaining revenue neutrality
and eliminating the concern of revenue losses from corporate tax
deductions. JEA as a city-owned utility does not pay corporate income
taxes. The proposed 25 percent retainer of ACPs at the federal level
would further penalize customers of municipal and not-for-profit
utilities, especially if the return of ACPs to the states were not used
to directly benefit the customers who contributed the payments through
their electric bills.
Question 3. One issue that seems to be lost in the CES discussion
is the needed transmission to get these new clean energy resources to
load. In JEA's experience, how difficult is it to pay for and build new
transmission? Also, in last Congress's Renewable Electricity Standard
contained in S. 1462, we carried a provision that would allow the
Secretary to request a variance from the mandate's requirements on the
basis of transmission constraints preventing delivery of service. Is a
transmission variance something JEA would support?
Answer. JEA has historically been successful in planning, acquiring
and building new transmission corridors and transmission ties within
its service area. New transmission routes require multiyear planning,
engineering, property acquisition, various government-level approvals
and often required use of eminent domain to secure an entire route for
construction. Understandably, routes in areas with more dense existing
development are more difficult to acquire and therefore more costly.
JEA would support a transmission variance but does not support
socialized cost allocation of new transmission to reach and deliver
clean or renewable energy. JEA supports the use of clean energy credits
in lieu of direct use or availability of clean sources. Since small-
scale, energy-producing renewables are Florida's current viable option,
and with the uncertainty of biomass energy being classified as clean or
carbon neutral, most of JEA's current options would allow access to
existing transmission. Larger scale nuclear project options include
planning, provision and payment for transmission to access the energy.
Question 4. Do you believe a federal electricity mandate is
necessary if there are incentives like a Production Tax Credit (PTC) in
place? Conversely, does it make sense to have PTC treatment if there's
a federal electricity mandate?
Answer. To force reduction of greenhouse gases in the United
States, a federal mandate of some design may be required. However, the
Environmental Protection Agency is issuing several rules, including GHG
regulation of new sources and we expect regulation of existing sources
to follow. If EPA is successful in implementing the proposed and
anticipated rules, there is not likely a need for a CES. Conversely, a
CES should negate the need for the EPA to mandate through regulation,
especially with a proposed rule that shows no benefits and costs. By
the way, I strongly support legislative action to pre-empt EPA
regulation of GHGs.
More clean energy will likely be built with the availability of
incentives like the PTC. However, traditional tax credit vehicles like
the PTC are not available to JEA and other not-for-profit consumer
owned utilities. Having the PTCs without a balancing incentive for not-
for-profit utilities would continue to disadvantage public power.
Alternative incentives could include modification of the Clean
Renewable Energy Bonds (CREBs) program to remove the arbitrary volume
cap and to instead provide an unlimited volume with a sunset date for
the entire program that is the same as the PTC. To date, the CREBs
volume cap has prevented utilities from financing entire projects with
these bonds and thus public power utilities find it more economical to
purchase power or partner with a private entity that can access the
other programs. Another option is extend the currently expired section
1603 Treasury grant program and expand it to allow public power
utilities access. The program would allow developers of renewable
projects to basically convert PTCs into a direct grant payment equal to
30 percent of the project; it previously excluded public power. Use of
the PTC, CREBS and section 1603 grants could help achieve a CES goal
even earlier within an electricity mandate by offsetting some of the
cost differentials between clean and traditional sources.
Responses of James A. Dickenson to Questions From Senator Cantwell
Question 1. I believe one of the most important parts of any energy
or climate policy is protecting consumers from any energy cost
increases that result from the policy. This is especially important for
the lower and middle classes that spend a higher fraction of their
income on energy. While I'm not convinced that some of the cost
estimates accurately represent how prices of new technologies actually
behave, I'm curious what, in your opinion, is the best way (other than
energy conservation and efficiency) to protect the incomes of lower and
middle income families as we transition to a clean energy economy?
Answer. Supplement and continue to fund LIHEAP and consider
modifying the distribution formula to favor geographic regions that
have fewer options for significant energy production from renewables.
LIHEAP formulas already favor cold-weather states so there is a
precedent for consideration of other disparities.
Question 2. Studies by the Congressional Budget Office (CBO), for
example, have shown that auctioning carbon emission permits and
returning the revenue to households in the form of equal lump sum
payments is the best way to protect households from any higher prices
that will result from limiting carbon emissions. What is your view of
this approach to mitigating the impact on families, and how can we
ensure that the most vulnerable American households are kept whole?
Answer. This approach would mitigate the cost of carbon permits but
would not address the cost of non-economical investments in renewables.
Of course households in states with great existing renewable resources
would get a windfall paid for by households from other states that are
not as positively situated. In most cases those households that would
receive the windfall already have some of the lowest electric rates in
the nation.
Question 3. I appreciate how Chairman Bingaman has worked really
hard to mitigate the regional impacts in this CES proposal. But some
regional disparities are inevitable, as some regions have been early
adopters of clean energy and would start with more.
Answer. I'm wondering if we need a funding source to provide some
transition assistance to those regions and groups that will be impacted
the most. Do you think some transition assistance is necessary to
prevent an economic shock to certain regions of the country and certain
income groups?
Yes, funding to those geographic areas and utilities that are not
situated in sun, wind and hydropower rich environments would help
relieve disparities. Resources to advance nuclear construction would
also be beneficial since it is impractical with current technology to
supply all power from renewable sources in those regions, like
Northeast Florida.
Question 4. I was concerned to learn that in some cases the cost
burden for utilities regulated under the CES might result in prices
almost double those for the exempted utilities. Would regulating carbon
upstream reduce some of these problems and provide a more equitable
cost share? And would regional disparities be minimized with a more
economy wide approach to reducing carbon in our economy?
Answer. Regulating carbon upstream, at the mine and at the
wellhead, would make the cost of regulation more applicable economy
wide. However, the costs to mine or produce those fuels would still be
passed along more directly to end users in the regions that are more
heavily reliant on electricity produced from fossil fuels.
Question 5. I believe that putting a price on carbon, such as that
contained in the clean energy standard, is necessary. It will unleash
American ingenuity to diversify our energy mix and reduce our carbon
intensity. But a price on carbon is not sufficient. We must also make
critical investments--in research and development and in the grid
itself. Integrating renewables into the grid demands new investments in
the grid.
Answer. Washington state passed a renewable portfolio standard five
years ago. Since then, renewable energy has taken off faster than
anyone could have imagined. Wind, for example, now accounts for roughly
3,000 megawatts of my state's power capacity. Integrating this much
wind into the grid so fast has produced challenges. In my home state,
we have so much wind power that at certain times it has to be shut off.
Two weeks ago, many wind farms were forced to shut down simply because
we had too much cheap power. Too much cheap power that is both clean
and sustainable should be a boon for our economy--not a burden to bear.
A study by the Electric Power Research Institute estimated that the
net investment necessary to create a power delivery system of the
future would be between $17 and $24 billion dollars per year over the
next 20 years. That same study found that every dollar of investment in
the grid would return four dollars of benefits such as reduced outages,
increased efficiency, and lower demand for energy at peak times.
Washington state has been leading on realizing this smart grid of
the future that we so urgently need. The Pacific Northwest National
Laboratory, PNNL, led a study to determine how willing homeowners are
to use smart grid technologies; what benefits they found in being able
to control their energy use according to pricing; and how much money
they could save. Unfortunately, we're not making these critical
investments.
The Department of Energy's 2011 Quadrennial Technology Review
confirmed this, stating simply that we are ``underinvesting in
activities supporting modernization of the grid.'' This underinvestment
delays the nation's transition to a more resilient, reliable, and
secure electricity system that integrates renewables into the system.
Do you believe that grid modernization efforts and making the grid
smarter are important parts of bringing more clean energy online? If
so, how can we continue to make progress on modernizing our grid?
Improvements to the grid are beneficial but will still not deliver
actual power generated from renewable sources in Western or Midwestern
states to the Southeast. We believe that each region and each utility
will invest in appropriate transmission upgrades to be able to send,
move or receive needed power. In Washington and Florida utilities are
investing in modernizing the grid. Regional transmission organization
(RTO) regions seem to have more problems with the needed investments.
Responses of James A. Dickenson to Questions From Senator Barrasso
Question 1. In your written testimony, you state that your
``customers express concern about the absolute cost of energy.'' You
also say that under this legislation the total cost to your customers
over the next 20 years would be an additional $14 billion, an increase
of 64 percent over your base costs. Do you believe your customers-
American families and businesses-can afford the higher electricity
costs that this bill would bring?
Answer. No, our customers are already concerned about the cost of
electricity. Electric rates currently have the most negative impact on
JEA's favorability with customers, with favorability being one measure
in a third-party customer satisfaction industry survey. During JEA's
fiscal year 2011, 70 percent of customers surveyed said that they were
concerned about paying their bills, up from 60 percent the previous
year. The national average at that time was 51 percent concerned.
Social service agencies that provide customer bill assistance,
including LIHEAP, indicate they always have more requests for
assistance than available dollars. There will be other requirements or
constraints and economic factors that may combine to impact customer
rates over the same time period, including additional financial and
environmental regulation.
Question 2. In your written testimony, you explain that the
Jacksonville Electric Authority (JEA) has ``made significant capital
investments to modernize environmental controls at its existing coal
plants.'' You also state that ``mov[ing] away from existing coal
generation . . . will strand . . . [these] large capital investments.''
Would you please elaborate on how S. 2146 would strand JEA's large
capital investments?
Answer. Although JEA has some of the cleanest coal plants in the
nation, JEA would retire existing coal plants earlier than it otherwise
would have to meet the CES (as shown on Exhibit A of the May 17 written
testimony). Some of those plants would still have outstanding debt.
Since the CES is aggressively phased in by time (20 years) and by
target percentages (80 percent), reaching sufficient clean sources will
require replacement of coal sources earlier than intended. With most
technologies, plant life cycles are 30 to 40 years and those can be
increased by significant timeframes with ongoing maintenance and plant
upgrades, including pollution controls. There would not be incentive to
continue those upgrades, enhancements and renewals knowing that the CES
in effect sunsets current technology coal generation. Additionally,
with EPA's move toward greenhouse gas regulation for new sources, we
anticipate a similar move to regulate existing sources in the future.
That will act as another disincentive to upgrade existing coal
generation capacity.
Question 3. In your written testimony, you explain that ``the
Southeast, unlike the West, Pacific Northwest and Midwest, [is] not
blessed with substantial wind resources,. hydropower options, or
intense sun and expansive open lands for.solar installations.'' You
state that ``any national clean energy standard will create substantial
competitive impacts between regions, favoring those [with] geographic
assets that more readily support development of solar, wind and
hydropower.'' Finally, you say that the costs to meet the requirements
of S. 2146 ``are higher for . . . Southeast utilities . . . '' Would
you please elaborate on the competitive disadvantage that the Southeast
would have under any national clean energy standard?
Answer. Nuclear and biomass are the ``clean'' generation sources
that make sense geographically in much of the Southeast at present,
especially in Jacksonville. Based on current technology, there are not
good wind options for Northeast Florida. Solar does not provide
sufficient amounts of round-the-clock energy to meet our customer
demand even if it were cost effective as compared to other sources. The
treatment of biomass from a greenhouse gas standpoint is still
undetermined, which further limits the options. Natural gas will only
receive partial credit under the CES and JEA strives to avoid reliance
on a single fuel source based on past experience. Therefore,
replacement of existing fossil fuel generation, like coal and petcoke,
and the anticipated volatility of natural gas supply and pricing from
national reliance on one source will drive the need to invest in new
high-capital nuclear generation.
______
Responses of Keith B. Trent to Questions From Senator Murkowski
Question 1. What mechanisms would be in place under S. 2146 to
protect consumers against significant electricity rate increases? Last
Congress, in S. 1462, this Committee reported out a 15 percent
Renewable Electricity Standard that authorized the DOE Secretary to
waive the requirements if the incremental cost of annual compliance
exceeded 4 percent per retail customer. Would Duke Energy (``Duke'')
support this kind of additional consumer rate protection?
Answer. S. 2146 includes an Alternative Compliance Payment which is
intended to moderate cost impacts--however, rate impacts will vary
depending on the amount of natural gas fueled generating capacity, wind
and nuclear generating capacity already in place in each state. Duke
Energy would be supportive of rate protection, such as the rate
increase limit that was included in S. 1462, if necessary to protect
consumers from excessive rate increases and if constructed so that our
compliance obligation was similarly limited.
Question 2. One issue that seems to be lost in the CES discussion
is the needed transmission to get these new clean energy resources to
load. In Duke's experience, how difficult is it to pay for and build
new transmission? Also in last Congress's Renewable Electricity
Standard contained in S. 1462, we carried a provision that would allow
the Secretary to request a variance from the mandate's requirements on
the basis of transmission constraints preventing delivery of service.
Is a transmission variance something Duke would support?
Answer. This is an excellent point. New transmission projects can
take ten years or more to complete due to the time required to secure
regulatory approvals, site the line and construct it and the supporting
facilities. And the issue of paying for multi-state lines can be very
contentious.
Duke Energy would consider supporting a variance to deal with
transmission constraints if necessary and so long as it would not
provide competitive advantages or uneven implementation of the overall
program. We would note that the legislation requires that utilities
turn in clean energy certificates that they can either create through
generation of clean energy, or purchase on the market. It does not
require actual delivery of the clean energy to the utility or utility
customers.
Question 3. In a recent National Journal story, Michael Brune,
Executive Director of the Sierra Club, vowed to ``prevent new gas
plants from being built wherever we can.'' His stated goal is to ``make
sure we're not simultaneously switching to natural-gas infrastructure''
as coal plants retire. In your testimony, you note Duke's opposition to
the inclusion of natural gas into a CES mandate. Given your opposition
to natural gas as a qualifying resource in the CES, do you agree with
the Sierra Club's statement?
Answer. No. Duke Energy firmly believes that natural gas is an
important energy resource and that it can be developed and used safely
and responsibly. Duke Energy's concern with the inclusion of natural
gas as a qualifying resource in the clean energy standard is that
natural gas is already deploying very strongly because of currently low
prices for natural gas. Inclusion of natural gas in the program weakens
the incentives for other vital energy technologies, especially nuclear
and carbon capture and sequestration.
Question 4. You testified that Duke ``find[s] the incentive too
weak to advance carbon capture technologies, which most energy experts,
including engineers and economists at the Electric Power Research
Institute, MIT and other institutions agree is a vital technology.'' In
Duke's opinion, why does S. 2146 fail to incentivize CCS technologies?
Answer. Based on our review of the various analyses of S. 2146 it
appears that the price of Clean Energy Certificates will be too low to
incentivize carbon capture and sequestration. Outside of changing the
supply/demand structure of this new market the Committee might consider
other incentives within the program or complimentary incentives outside
the program such as tax incentives to make CCS more attractive.
Question 5. Duke already operates in states that have their own
renewable or clean energy mandates. How do you anticipate a federal CES
program working with existing state programs that have vastly different
qualifying resources, targets and timetables? Do you believe the
federal program will become a de facto floor? Do you believe that state
programs that are not as stringent as a federal CES will need to be
preempted?
Answer. We can imagine a program design that allows both programs
to coexist. Each qualifying resource should be allowed to generate two
certificates--a State certificate and a Federal certificate (a Megawatt
hour from a wind turbine would create a one MWh certificate for the
state and another for the federal program). Of course, our preference
would be to have only a single standard to manage as we do not believe
that separate state and federal programs create value for consumers.
Question 6. Does Duke believe a federal electricity mandate is
necessary if there are incentives like a Production Tax Credit (PTC) in
place? Conversely, does it make sense to have PTC treatment if there's
a federal electricity mandate?
Answer. If Congress were to pass significant tax incentives for CCS
and nuclear and maintain the existing PTC/ITC for renewables, the need
for a program like a Clean Energy Standard would be considerably
reduced. Conversely, if Congress adopts a workable Clean Energy
Standard, Duke could support the phase out of the existing PTC/ITC for
renewables.
Responses of Keith B. Trent to Questions From Senator Cantwell
Question 1. I believe one of the most important parts of any energy
or climate policy is protecting consumers from any energy cost
increases that result from the policy. This is especially important for
the lower and middle classes that spend a higher fraction of their
income on energy. While I'm not convinced that some of the cost
estimates accurately represent how prices of new technologies actually
behave, I'm curious what, in your opinion, is the best way (other than
energy conservation and efficiency) to protect the incomes of lower and
middle income families as we transition to a clean energy economy?
Answer. As the existing electricity system continues to age, we
face an ongoing need to retire and replace power plants. This will
result in rate increases, which will admittedly vary by state depending
on the age of the fleet serving the state and the replacement
technologies available. The economic impact of rate increases is partly
determined by the size of these increases--a series of small increases
over time is easier to digest than a large increase in a short time
which can have a more severe impact on businesses which employ people.
If increases can be kept small and spread out over time, then
businesses and households can adjust. Also energy efficiency programs
targeting both the residential and industrial consumers can negate a
portion of the rate increase.
Question 2. Studies by the Congressional Budget Office (CBO), for
example, have shown that auctioning carbon emission permits and
returning the revenue to households in the form of equal lump sum
payments is the best way to protect households from any higher prices
that will result from limiting carbon emissions. What is your view of
this approach to mitigating the impact on families, and how can we
ensure that the most vulnerable American households are kept whole?
Answer. While a revenue neutral tax which returns the income to
households may be appealing, we are concerned about the impact on
larger industrial energy consumers. The revenue neutral tax which
returns the revenue to households only would mean that these industries
would see notably large rate increases in the first year of the
program--we estimated that a twenty dollar carbon price in a coal state
like Indiana, (home to a lot of heavy manufacturing), would cause about
a 40 percent electricity price increase. If the program really returned
most of that sum back to consumers through some sort of rebate, they
may be irritated but economically undamaged. However, returning
revenues to households would not help businesses as it may be
politically difficult to include these businesses in a revenue sharing
plan). If these businesses are hit all at once by a large increase, it
would likely have an adverse impact on these companies' viability-an
unacceptable outcome.
A revenue neutral tax, should it be pursued, should also factor in
the impact of shifting revenues from carbon intensive states to low
carbon states. Coal dependent states would see the largest price
increases and pay the most into the program. If possible, revenues
should be returned to people in the state and not transferred to
households in lower carbon states that tend to already enjoy a
substantially higher standard of living.
Question 3. I appreciate how Chairman Bingaman has worked really
hard to mitigate the regional impacts in this CES proposal. But some
regional disparities are inevitable, as some regions have been early
adopters of clean energy and would start with more.
I'm wondering if we need a funding source to provide some
transition assistance to those regions and groups that will be impacted
the most. Do you think some transition assistance is necessary to
prevent an economic shock to certain regions of the country and certain
income groups?
Answer. Duke Energy shares your concern with the disparate regional
impacts. We would strongly support both ensuring that the structure,
targets and timetables of the Clean Energy Standard are as workable for
all regions as possible. In addition, we would support the Committee
considering the addition of transition assistance for regions that are
disproportionately impacted by the policy.
Question 4. I was concerned to learn that in some cases the cost
burden for utilities regulated under the CES might result in prices
almost double those for the exempted utilities. Would regulating carbon
upstream reduce some of these problems and provide a more equitable
cost share? And would regional disparities be minimized with a more
economy wide approach to reducing carbon in our economy?
Answer. Duke Energy shares your concern about the unfairness of
exempting small utilities, which we think resulted from a
misunderstanding of the compliance options available under a tradable
program--no utility would be required to build these resources, but
rather all electric consumers would help to pay for these technologies,
the development of which should be seen as vital to the future of a
reliable, affordable and clean electric system. If all electricity
consumers are required to procure clean energy certificates, thereby
helping to pay for the continued development of clean energy
technologies, the burden of this shared responsibility will be less for
everyone.
Regulating carbon upstream would not address the disparity if the
smaller utilities remained exempt from the program. If carbon were
regulated upstream, then it would be harder to define this as a clean
energy program rather than an emissions program.
Presuming all utilities were required to participate in an upstream
program, where the cost of the carbon were placed on the fuels, then
there would still be significant regional costs disparities, depending
on the carbon intensity of the existing electricity generation fleet.
This might be made more manageable through an allowance or credit
allocation program, or if via a fee or carbon tax, through managing the
price path so as to produce very small year on year changes.
Question 5. I believe that putting a price on carbon, such as that
contained in the clean energy standard, is necessary. It will unleash
American ingenuity to diversify our energy mix and reduce our carbon
intensity. But a price on carbon is not sufficient. We must also make
critical investments--in research and development and in the grid
itself. Integrating renewables into the grid demands new investments in
the grid.
Washington state passed a renewable portfolio standard five years
ago. Since then, renewable energy has taken off faster than anyone
could have imagined. Wind, for example, now accounts for roughly 3,000
megawatts of my state's power capacity. Integrating this much wind into
the grid so fast has produced challenges. In my home state, we have so
much wind power that at certain times it has to be shut off. Two weeks
ago, many wind farms were forced to shut down simply because we had too
much cheap power. Too much cheap power that is both clean and
sustainable should be a boon for our economy-- not a burden to bear.
A study by the Electric Power Research Institute estimated that the
net investment necessary to create a power delivery system of the
future would be between $17 and $24 billion dollars per year over the
next 20 years. That same study found that every dollar of investment in
the grid would return four dollars of benefits such as reduced outages,
increased efficiency, and lower demand for energy at peak times.
Washington State has been leading on realizing this smart grid of
the future that we so urgently need. The Pacific Northwest National
Laboratory, PNNL, led a study to determine how willing homeowners are
to use smart grid technologies; what benefits they found in being able
to control their energy use according to pricing; and how much money
they could save. Unfortunately, we're not making these critical
investments.
The Department of Energy's 2011 Quadrennial Technology Review
confirmed this, stating simply that we are ``underinvesting in
activities supporting modernization of the grid.'' This underinvestment
delays the nation's transition to a more resilient, reliable, and
secure electricity system that integrates renewables into the system.
Do you believe that grid modernization efforts and making the grid
smarter are important parts of bringing more clean energy online? If
so, how can we continue to make progress on modernizing our grid?
Answer. Duke Energy strongly believes that smart grid technology is
a key component of modernizing the nation's power system as it will
enable many advanced energy efficiency technologies and help with
challenges like integrating renewable resources into the grid. Another
major benefit of the smart grid is, as you noted, it can shorten or
prevent power outages by making the grid ``self-healing'' by
automatically switching relays to limit or prevent blackouts. For all
these reasons, investment in modernizing the grid is money well
invested.
Congress can help create the conditions where deployment is more
likely to be efficient and effective by encouraging the development of
industry-wide standards, similar to those which apply to mundane items
like electrical plugs or light switches as easy examples. This would
help cut through the market clutter and uncertainty as each vendor
pursues tracks which do not allow the easy integration of their product
into the total system. In addition, there is a tremendous need to
educate consumers about the advantages of this new technology. In some
regions of the country, the roll out of smart meters and other
components of the smart grid have been slowed by opposition from a
minority of customers. With a smart grid enabling advanced energy
efficiency and management technologies, we would be able to tap into
new sources of zero emission energy while buffering the impacts of
higher energy bills.
Response of Keith b. Trent to Questions From Senator Manchin
Question 1. Mr. Trent, in your testimony, you said, ``A Clean
Energy Standard could help unlock billions of investment dollars that
are poised to transform coal to a fuel that can be used far more
efficiently and cleanly in the decades to come. Domestic and foreign
investors are ready to make big investments in emerging technologies
like carbon capture and sequestration. They just need an appropriate
incentive to lower the technology's investment risks. A well designed
Clean Energy Standard can provide that incentive.'' EIA projects that
under S. 2146, virtually no electricity will be generated from coal
with CCS. What changes do you think will need to be made to the Clean
Energy Standard that would encourage utilities like Duke to install
carbon capture and sequestration?
Answer. Based on our review of the various analyses of S. 2146 it
appears that the price of Clean Energy Certificates will be too low to
incentivize carbon capture and sequestration. Other ``clean''
technologies will be cheaper and will represent the least cost
compliance approach. Outside of changing the supply/demand structure of
this new market the Committee might consider other complimentary
incentives outside the program such as tax incentives to make CCS more
attractive.
______
Response of Karen Palmer to Question From Senator Bingaman
Question 1. A design goal for the CES is to minimize any regional
inequity that could result from the program. Do you have any
suggestions for improvements to the design of the proposed CES that
would help in this regard?
Answer. Our research suggests that price impacts of the CES policy
will be bigger in regions that have more coal-fired generation. The ACP
will mitigate this somewhat by limiting the cost impacts of the
program. Another approach that could help to mitigate regional prices
effects would be to credit generation from existing nuclear and hydro
facilities at 0.1 credit instead of excluding them from the
requirements of the program as the bill currently does. Another way to
look at the program is that it is undoing existing regional inequities
in the cost of electricity due to the failure to account for the
environmental costs of electricity production using high emitting
technologies. As my co-authors and I point out in our RFF discussion
paper that evaluates this CES policy (see http://www.rff.org/RFF/
Documents/RFF-DP-12-20.pdf), the policy tends to reduce the differences
in prices across regions of the country.
Responses of Karen Palmer to Questions From Senator Murkowski
Question 1. Do you believe a federal mandate should not contain any
cost-containment measures such as an Alternative Compliance Payment?
Last Congress, in S. 1462, this Committee reported out a 15 percent
Renewable Electricity Standard that authorized the DOE Secretary to
waive the requirements if the incremental cost of annual compliance
exceeded 4 percent per retail customer. Would Resources for the Future
(RFF) support this kind of additional consumer rate protection?
Answer. I think that an ACP, which essentially serves as a cap on
the price of clean energy credits, is a good idea for a CES policy.
Such a cap should be set at a level (in dollars per MWh) where it is
not expected to be binding. Because the CES policy allows for banking,
the ACP should increase at the rate of interest over time. I hasten to
add that my opinion here (and in my testimony) is my opinion alone and
should not be attributed to Resources for the Future (RFF). RFF does
not take positions on policy issues.
Question 2. Why are some existing renewable resources not eligible
for Credits? For example, why are some generation resources excluded
from the bill based solely on the date they were built? Why does it
matter when they were built as long as they meet the carbon intensity
criteria?
Answer. I believe that the logic behind giving credits to newer
vintage renewables is to avoid transfers to owners of existing
facilities that would operate with or without the credits. The point is
of the policy is to encourage investment in new low-emitting or non-
emitting sources of electricity. Renewable facilities typically have
very low operating costs and older facilities will likely operate with
or without the credit. Giving credit to facilities that will operate
anyway as a result of the policy tends to increase the costs to
consumers while not increasing the environmental and technology
deployment benefits of the policy. One way to reduce the size of these
transfer payments and provide an incentive for renewables that might
not generate or might generate less in the future to keep generating is
to give a partial credit to existing facilities (such as 0.1 of a
credit for existing hydro and nuclear facilities), as described in the
answer to the question from Senator Bingaman.
Question 3. Do you believe a federal electricity mandate is
necessary if there are incentives like a Production Tax Credit (PTC) in
place? Conversely, does it make sense to have PTC treatment if there's
a federal electricity mandate?
Answer. The CES and the PTC have different purposes and very
different goals. The PTC is targeted at renewables exclusively and is
intended to encourage the development and use of these relatively new
technologies, such as wind power, in order to help increase their use
and lower their cost. The CES is a much more ambitious policy that
attempts to encourage investment in and greater electricity generation
from both low- and non- CO2 emitting technologies. The PTC
is not a substitute for the CES. Whether a PTC is still necessary when
there is a CES in place is an open question. One reason it might be
warranted is that in the early years, the CES tends to encourage more
gas than renewables and if there is a learning curve effect of greater
renewable use, the CES alone may not provide a sufficient push to the
higher cost renewable technologies to realize those learning benefits
and thus anticipated reductions in the costs of renewables associated
with greater deployment would be slower to be realized under the CES
alone than under a CES combined with a PTC.
Question 4. You testified that the small utility exemption creates
a difference in electricity prices between exempt and non-exempt
utilities under the policy that grows to close to 50 percent on average
by 2035. Does RFF believe that no exemption is appropriate and that all
utilities should be subject to the CES mandate? What about utilities in
Alaska and Hawaii?
Answer. I believe that all utilities should be subject to the CES
mandate, much the way that all utility generators (except the very
smallest) are subject to the requirements of the Clean Air Act for
emissions of SO2 and other air pollutants. Again, this is my opinion
and should not be attributed to RFF.
Question 5. Why is there no growth in CCS technologies under a
federal CES program?
Answer. According to the assumptions about technology costs in our
modeling (which are largely consistent with assumptions used by EIA in
its AEO 2011), new IGCC capacity with CCS is not economic with the CES
policy as specified. The ACP is a contributing factor here. When we run
the CES without an ACP we get 50 TWh of generation from IGCC with CCS
by 2035. We also do not allow for CCS retrofit of existing fossil fuel
generators in our modeling so we are not able to comment on the
economics of that particular option.
Responses of Karen Palmer to Questions From Senator Cantwell
Question 1. I believe one of the most important parts of any energy
or climate policy is protecting consumers from any energy cost
increases that result from the policy. This is especially important for
the lower and middle classes that spend a higher fraction of their
income on energy. While I'm not convinced that some of the cost
estimates accurately represent how prices of new technologies actually
behave, I'm curious what, in your opinion, is the best way (other than
energy conservation and efficiency) to protect the incomes of lower and
middle income families as we transition to a clean energy economy?
Answer. From an electricity consumer perspective, one of the
attractive features of the CES policy relative to a carbon pricing
scenario that is designed to achieve the same level of emissions
reduction, is that the electricity price impacts of the CES as
specified in the bill are typically lower and happen later in time than
the price impacts of the carbon fee. This can be seen by comparing the
CES and the Carbon Tax lines in the figure* below. Including an ACP in
the CES policy will also help to mitigate the price impacts on
consumers and our analysis finds that this effect can be quite large,
particularly in regions where electricity is priced in competitive
markets, where our research suggests that the ACP cuts the impact of
the policy on electricity price in half in 2035.
---------------------------------------------------------------------------
* Figure 1 has been retained in committee files.
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Question 2. Studies by the Congressional Budget Office (CBO), for
example, have shown that auctioning carbon emission permits and
returning the revenue to households in the form of equal lump sum
payments is the best way to protect households from any higher prices
that will result from limiting carbon emissions. What is your view of
this approach to mitigating the impact on families, and how can we
ensure that the most vulnerable American households are kept whole?
Answer. This approach to mitigating the undesirable impacts of a
cap and trade climate policy on low-income households has much to
recommend it. Josh Blonz, Dallas Burtraw and Margaret Walls, colleagues
of mine at Resources for the Future, have an article in the B.E.
Journal of Economics and Policy that reaches a similar conclusion. They
analyze the use of auction revenues under a carbon cap and trade policy
that is patterned after the provisions of Waxman Markey and find that
allocating allowance revenue lump sum to households dramatically
reduces the regressive nature of the climate policy. One cautionary
note is that the redistribution of allowance auction revenues should be
done separately from household utility bills in order not to mute the
incentives to conserve electricity that come from higher electricity
bills. The goal is to protect the low income consumers from the
consequences of the policy for their income but not to mute the effects
on prices or bills which can yield desired changes in energy
consumption behavior that will help to reduce CO2 emissions.
(For more information see Blonz, Josh, Dallas Burtraw and Margaret
Walls, Climate Policy's Uncertain Outcomes for Households: The Role of
Complex Allocation Schemes in Cap-and-Trade, B.E. Journal of Economic
Analysis and Policy 10(2): article 5.)
Question 3. I appreciate how Chairman Bingaman has worked really
hard to mitigate the regional impacts in this CES proposal. But some
regional disparities are inevitable, as some regions have been early
adopters of clean energy and would start with more.
I'm wondering if we need a funding source to provide some
transition assistance to those regions and groups that will be impacted
the most. Do you think some transition assistance is necessary to
prevent an economic shock to certain regions of the country and certain
income groups?
Answer. The main source of transition assistance under the CES
policy as specified in the bill is the passage of time and the fact
that the standard and the ACP rise over time. Thus in the early years
the effects of the policy are small and regions will have time to
adjust to the expected electricity price increases in the future.
Question 4. I was concerned to learn that in some cases the cost
burden for utilities regulated under the CES might result in prices
almost double those for the exempted utilities. Would regulating carbon
upstream reduce some of these problems and provide a more equitable
cost share? And would regional disparities be minimized with a more
economy wide approach to reducing carbon in our economy?
Answer. Regulating carbon upstream at the source of the coal or
other fossil fuel would solve the exempt utilities problem, because the
cost of the carbon regulation would be reflected in the price of fuel
to all utilities, both large and small, and presumably no utilities
would be exempt. It would also make the climate policy more cost
effective as it would address emissions within the electricity sector
and beyond. The regional effects on households would depend importantly
on the mix of fuels used to generate electricity, the aggregate
stringency of the policy and how that evolves over time, and the use of
emissions revenues (assuming the upstream regulation took the form of a
cap-and-trade with an auction or an emissions fee). Any policy that
creates revenues would also create a potential source of funds to help
mitigate adverse effects on particular groups of energy consumers.
Question 5. I believe that putting a price on carbon, such as that
contained in the clean energy standard, is necessary. It will unleash
American ingenuity to diversify our energy mix and reduce our carbon
intensity. But a price on carbon is not sufficient. We must also make
critical investments--in research and development and in the grid
itself. Integrating renewables into the grid demands new investments in
the grid.
Washington state passed a renewable portfolio standard five years
ago. Since then, renewable energy has taken off faster than anyone
could have imagined. Wind, for example, now accounts for roughly 3,000
megawatts of my state's power capacity. Integrating this much wind into
the grid so fast has produced challenges. In my home state, we have so
much wind power that at certain times it has to be shut off. Two weeks
ago, many wind farms were forced to shut down simply because we had too
much cheap power. Too much cheap power that is both clean and
sustainable should be a boon for our economy--not a burden to bear.
A study by the Electric Power Research Institute estimated that the
net investment necessary to create a power delivery system of the
future would be between $17 and $24 billion dollars per year over the
next 20 years. That same study found that every dollar of investment in
the grid would return four dollars of benefits such as reduced outages,
increased efficiency, and lower demand for energy at peak times.
Washington State has been leading on realizing this smart grid of
the future that we so urgently need. The Pacific Northwest National
Laboratory, PNNL, led a study to determine how willing homeowners are
to use smart grid technologies; what benefits they found in being able
to control their energy use according to pricing; and how much money
they could save. Unfortunately, we're not making these critical
investments.
The Department of Energy's 2011 Quadrennial Technology Review
confirmed this, stating simply that we are ``underinvesting in
activities supporting modernization of the grid.'' This underinvestment
delays the nation's transition to a more resilient, reliable, and
secure electricity system that integrates renewables into the system.
Do you believe that grid modernization efforts and making the grid
smarter are important parts of bringing more clean energy online? If
so, how can we continue to make progress on modernizing our grid?
Answer. Unlike fossil fuels, which can be transported from the
point of extraction or processing to a generator, renewable resources
such as solar and wind must be used where they are found. The regions
with abundance of renewables are often not the regions where there is
an abundance of electricity demand. Thus transmission capacity is
particularly important for bringing new supplies of renewable
electricity to market. With greater transmission capacity there will be
more opportunities to sell excess wind generation in regions and times
when supply exceeds demand in a particular location and curtailments
will presumably be avoided. More transmission capacity will also enable
the grid operators to take advantage of differences in availability of
wind and solar energy across space at particular points in time. The
types of investments that are needed to facilitate getting renewable
electricity from the point of supply to where the customers are is not
necessarily modernization of the smartness of the grid but more
increases in capacity in key locations. These types of investments need
to be evaluated further to see how they compare in cost and cost
effectiveness in dealing with intermittency of renewable supply and
matching supply and demand.
The role of the smart grid (as opposed to just the grid) in
enabling the transition to more use of renewables is not something that
I have studied specifically. However, it could be particularly
important for greater integration of distributed renewables (PV on roof
tops and distributed wind) and for encouraging reductions in demand at
key periods as well as for integration of plug-in electric vehicles,
which could provide a means for storing excess electricity that is
generated from wind turbines at night.
______
Responses of Thomas J. Gibson to Questions From Senator Bingaman
In your testimony, you've raised concerns about the potential for
energy intensive manufacturing like the Iron and Steel Industry to
become uncompetitive in the global market if electricity rates rise.
Your testimony also expresses support for Congress to craft a
``comprehensive and market-driven energy policy'' that would develop
natural gas, nuclear power, and clean coal resources, and fully make
all these sources of energy part of the nation's energy independence
strategy moving forward. In many ways this, to me, describes the CES
that I have proposed here.
Question 1a. Are there ways within the CES paradigm to reduce any
adverse impacts for energy intensive manufacturing?
Answer. Although AISI is opposed to the creation of a federal CES,
there are several concepts that, if included in the program, could
mitigate some of the negative impact on energy intensive manufacturing
sectors such as steel. First, there is potential for steel production
facilities to qualify as energy efficiency producers in a CES, either
through combined heat and power (CHP) capacity or through the capture
and conversion to energy of otherwise wasted process heat and byproduct
gases created during steelmaking. Although technology for capturing and
converting wasted heat and process gases to energy is commercially
available, it is also capital intensive. Adding wasted heat and gas
recovery as a qualified source of renewable or ``clean'' electricity
generation would make the technology more cost effective, and help to
achieve the CES legislation's goals.
Second, steel facilities often have the ability to participate in
demand response mechanisms with utilities, such as programs where
manufacturing plants agree to reduce electricity consumption during
periods of peak electricity demand. Some steel producing facilities
operations take electric service from utilities under some form of
interruptible or non-firm rate service that can be curtailed during
system peaks when electricity generation costs are high and system
reliability is threatened. This arrangement benefits utilities and
other consumers as local utilities avoid having to construct additional
generation capacity to serve the non-firm load. By reducing load in
response to the utility request, steel producers lower costs for all
other system users, improve overall system reliability, and reduce peak
generation-related emissions. In providing this benefit, steel
facilities incur lost production and production inefficiencies that
increase their operating costs.
Several states have policies in place that recognize demand
response measures, including interruptible or non-firm rate measures,
as providing an energy efficiency benefit under their state renewable
electricity standards (RES). Accordingly, these states prohibit the
renewable surcharge attributable to the RES from being applied to the
portion of an electricity bill that is interruptible or non-firm rate
service. These policies incentivize efficiency from both utilities and
manufacturing customers and are often implemented to mitigate the costs
utilities--and their industrial customers--face from state RES
mandates. This concept could also be recognized in the federal CES.
Finally, changes to the proposed CES to limit the cost impact of
the mandate on energy consumers would lessen the impact on
manufacturing facilities served by utilities that rely heavily upon
coal. For example, the federal RES proposal contained in the American
Clean Energy Leadership Act (ACELA) from the 111th Congress included a
provision to permit a utility to apply to the Secretary of Energy for a
waiver to limit the incremental cost of RES compliance to not more than
4 percent per retail customer. A similar provision would potentially
reduce impacts of a CES on energy intensive manufacturers if drafted
appropriately.
Question 1b. Do you have concrete suggestions for how to accomplish
the goals that you've set out above (nuclear, CCS, even more natural
gas) that will not have the same potentially adverse effects on your
industry?
Answer. AISI believes that Congress should craft a comprehensive
and market-driven energy policy built around promoting greater
development of all domestic energy sources, incentives for efficiency
improvements, and additional support for industry efforts to develop
breakthrough technologies. These policy measures will serve to meet
shared national clean energy goals, while avoiding the negative impact
a CES would have on the industrial sector. In particular, such a policy
agenda should:
Create an abundant and affordable energy supply--by
developing domestic oil, natural gas, nuclear power, and clean
coal resources, along with competitive renewables, and fully
make all these sources of energy part of the nation's energy
independence strategy moving forward. The federal government
should not implement policies that restrict domestic resources
from being fully harnessed, especially natural gas production
from shale. Additionally, regulatory certainty for energy
producers, regardless of the types of energy they produce, is
essential. Grafting additional requirements onto the existing
Federal regulatory structure will exacerbate the uncertainty
that already exists. For instance, AISI supports Senate passage
of H R. 1229, H.R. 1230 and H.R. 1231, three bills aimed at
expanding oil and natural gas production in the Outer
Continental Shelf (OCS) that passed the House in 2011. Also,
the Department of Interior's proposed Five-Year Plan for 2012-
2017 ignores the resource potential of several key OCS areas,
depriving the nation of the energy, economic, and revenue
benefits that they hold. It should be expanded to include these
additional areas.
Maximize the energy efficiency of existing industrial
facilities in the near-term--This can be achieved in part by
recognizing the efficiency opportunities within the domestic
steel industry. Financial incentives could be provided to steel
producers to facilitate the capture and conversion to
electricity of wasted heat and byproduct gases at industrial
facilities. Also, steel facilities that participate in demand
response mechanisms with utilities that reduce electricity
usage during periods of peak demand, should receive credit for
their contribution to improved energy efficiency.
Support breakthrough research for longer-term benefits--To
further lower energy intensity and to substantially reduce
emissions, new processes must be developed that do not rely on
carbon fuels. Partnership with the Department of Energy, and
support of Congress, is essential to achieving these goals.
Many developed and developing nations with which our industry
competes fund manufacturing research for carbon reduction and
energy efficiency at higher levels than the U.S. For steel
manufacturing alone, the Japanese government has funded 100
percent of a $120 million effort to develop new steelmaking
breakthrough technology. Likewise, in Europe, the first $100
million phase of Europe's ULCOS (Ultra-Low Carbon dioxide
(CO2) Steelmaking) project has received 40 percent
government funding. South Korea's government has contributed 50
percent of the $27 million dedicated for breakthrough
technology research for the steel industry there.
For our part, AISI and its members continue to invest in the
CO2 Breakthrough Program, a suite of research projects
designed to develop new ironmaking technologies that emit little or no
CO2 while conserving energy. We have developed two key
technologies to achieve those goals, and they are now ready for pilot
scale testing. The research is being done at MIT and University of Utah
and both projects were the subject of proposals recently submitted to
the Department of Energy. We are pleased that just last week the
University of Utah project was selected by the Department of Energy's
Innovative Manufacturing Initiative for a $7.1 million award. This
successful partnership with DOE, along with the continued support of
Congress, will accelerate the development and deployment of critical
breakthrough technologies. Also, legislation that facilitates such
research with a particular focus on domestic manufacturing, like
Senator Sherrod Brown's Investments for Manufacturing Progress and
Clean Technology (IMPACT) Act of 2009, can help maintain out
competitive position in the world.
Responses of Thomas J. Gibson to Questions From Senator Murkowski
Question 1. The domestic steel industry is obviously energy-
intensive and subject to substantial international competition,
particularly from China. The EIA has determined that a CES will raise
end-use costs by 25 percent by 2035 for industrial consumers such as
AISA. How much electricity do members of the Iron and Steel Institute
purchase on an annual basis? What does an increase in electricity costs
really mean for an internationally-competitive industry such as yours?
How long-term do you need to assess pricing impacts?
Answer. In 2010, the latest year for which cumulative data is
available, our domestic steel industry consumed 45.7 billion kWh of
electricity. An increase of 1 cent per kWh in the average electricity
costs paid by steel producers has a total economic impact of $450
million in increased costs to the industry as a whole. Steel is
extensively traded internationally; in 2011, 31 percent of all steel
manufactured in the world was exported to another country. The United
States is the most open market in the world for steel, and as such
increases in costs cannot be passed on to customers who can chose to
purchase steel from foreign producers not facing such costs.
Furthermore, as I noted in my written testimony, China, the world's
largest producer of steel, subsidizes its industry in a number of ways,
including through government-subsidized energy.
Steel plants are very expensive and long-lived capital assets. A
new facility built today will be in service for decades to come, as
will many existing facilities. Companies make investment decision for
steel production facilities based on a number of factors, including
projected long-term energy prices, as steel plants cannot simply move
to an area with lower costs to remain competitive. Thus the threat of
higher energy prices is a significant deterrent to new investment in
the domestic steel industry.
Question 2. What kind of real-world impact on jobs would an
industry such as yours experience under a federal electricity mandate?
Answer. A recent report commissioned by AISI found that every
individual job in the steel industry supports seven additional jobs in
other sectors of the economy. In aggregate, the steel industry accounts
for over $101 billion in economic activity and supports more than 1
million jobs across the country. As detailed in my statement, as an
energy-intensive and trade-exposed industry, policies like a federal
CES that would raise production costs for domestic steel producers
threaten the competitiveness of steel production in the U.S., and the
jobs associated with it.
Question 3. During the hearing, the question was raised how the
suite of EPA regulations achieves policy goals for greenhouse gas (GHG)
emissions for existing facilities. It was stated that EPA regulations
are only directed at new facilities, while a CES would regulate
existing facilities. You testified that S. 2146, if signed into law,
would be the primary mechanism for regulating GHG emissions. If S. 2146
is signed into law as written, wouldn't existing facilities be subject
to retrofits necessary to comply with the suite of EPA regulations, in
addition to a CES?
Answer. Yes. As drafted, S, 2146 does not preempt EPA regulation of
stationary sources for GHGs, so facilities subject to S. 2146 remain
susceptible to EPA GHG regulations, which at this point only extend to
new facilities but are likely to be extended to existing facilities in
the future unless the Federal Courts or Congress intervene.
Earlier this year, EPA announced its New Source Performance
Standards (NSPS) proposal for the regulations of GHGs from electric
generating utilities (EGUs). EPA indicated at the time of the proposal
that the regulations would only apply to new power generating
facilities. However, based on EPA projections for future electricity
generation composition and the potential for future litigation,
expectations are that these regulations will eventually apply to
existing EGU facilities. Beyond that, existing and new power plants are
also slated to be subject to a variety of other regulations, including
the Cross State Air Pollution Rule (CSAPR), the Mercury and Air Toxics
Standards Rule, or ``Utility MACT,'' coal combustion residuals, and
Clean Water Act section 316(b) cooling water intake structures. All of
these regulations will all have an impact on coal-fired utilities.
The result of these regulations, along with market conditions
regarding natural gas, are already causing a shift from coal- to
natural gas-based electricity generation. Coal was last above 50
percent of U.S. electricity generation in 2008. It is now at 45
percent, and projected to continue to decline to 39 percent by 2035
even without a CES in place.
If the CES proposed by S. 2146 were to be enacted as written,
existing electricity-generating infrastructure would face multiple
retrofit requirements that are presently scheduled to occur at
virtually the same time to comply with the suite of Clean Air Act
regulations. Some clean air technologies result in the consumption of
additional energy and thus might act contrary to the purposes of a CES.
As I stated at the hearing in response to questions, if a CES were to
become law, preemption of EPA regulatory air requirements for the
utility sector would be necessary to avoid these consequences.
Question 4. Do you believe a federal electricity mandate is
necessary if there are incentives like a Production Tax Credit (PTC) in
place? Conversely, does it make sense to have PTC treatment if there's
a federal electricity mandate?
Answer. Currently, over 4 percent of electricity generation in the
United States comes from non-hydropower renewable sources. Generation
from non-hydro renewables has more than doubled since 1990. The
existing PTC has undoubtedly contributed to this increasing amount of
renewable power generated. A federal RES or CES would similarly be
designed to increase production from wind and solar sources, but as a
mandate rather then a tax incentive. If a CES and PTC were both part of
federal statute, the same kWh of renewable electricity could
potentially be qualified for both policies. This seems redundant and
unnecessary. Instead of creating an additional mandate for production,
maintaining the production incentive would be preferable policy.
Ideally, a comprehensive market-driven national energy policy would
be the best approach for the United States. Such a policy should
promote greater development of all domestic energy sources, as well as
efficiency improvements, and breakthrough technologies, through market-
based incentives, rather than through government mandates that would
threaten the competitiveness of key industries like steel.
Responses of Thomas J. Gibson to Questions From Senator Cantwell
Question 1. I believe one of the most important parts of any energy
or climate policy is protecting consumers from any energy cost
increases that result from the policy. This is especially important for
the lower and middle classes that spend a higher fraction of their
income on energy. While I'm not convinced that some of the cost
estimates accurately represent how prices of new technologies actually
behave, I'm curious what, in your opinion, is the best way (other than
energy conservation and efficiency) to protect the incomes of lower and
middle income families as we transition to a clean energy economy?
Answer. AISI agrees with your concerns about energy cost increases
that could result from climate or energy policy. This is especially
important for an industry, such as steel production, that is both
energy-intensive and trade-exposed. AISI comes at this question from a
job creation perspective: if you do not have a job then energy at any
price is unaffordable. Our concern is that policies that unilaterally
raise the cost of making steel in the U.S. have the potential to shift
that production overseas to places with lower energy costs (and
perversely, higher GHG emissions per ton of steel produced), resulting
in the loss of many good-paying manufacturing jobs.
Every individual job in the steel industry supports seven
additional jobs in other sectors of the economy. In aggregate, the
steel industry accounts for over $101 billion in economic activity and
supports more than 1 million jobs across the country. Without
appropriate provisions for industries like steel that cannot simply
pass increased energy costs on to its customers, these valuable
manufacturing jobs and the associated incomes for industry employees
would be put in jeopardy by a CES mandate.
Question 2. Studies by the Congressional Budget Office (CBO), for
example, have shown that auctioning carbon emission permits and
returning the revenue to households in the form of equal lump sum
payments is the best way to protect households from any higher prices
that will result from limiting carbon emissions. What is your view of
this approach to mitigating the impact on families, and how can we
ensure that the most vulnerable American households are kept whole?
Answer. AISI did not support GHG cap-and-trade proposals made in
previous Congresses because of the negative economic impact to energy-
intensive, trade-exposed manufacturing sectors--especially steel
production--that would occur as a result enactment of such proposals.
We continue to believe that such programs, without the appropriate
policy measures to address cost impacts, would threaten the ability of
energy-intensive, trade-exposed industries like steel manufacturing to
remain competitive in global markets. The struggles of European
manufacturers under the EU Emissions Trading System are a case in
point.
While these proposals were being debated, AISI emphasized the
necessity for any legislation to provide a full allocation of
allowances to energy-intensive, trade-exposed manufacturers for both
direct emissions costs and to offset the expected increases in energy
costs that manufacturers would face. It was also essential that
legislation include an automatically triggered border adjustment
measure for imports from all countries that do not have in place
comparable GHG emissions regulations. We also stated at the time that
effective national climate legislation must prevail over inconsistent
state laws and initiatives and should supersede existing federal law
and avoid overlapping regulation of greenhouse gases. Finally, we
believe that a robust federal research and development effort into
breakthrough technologies for key manufacturing sectors is essential.
Question 3. I appreciate how Chairman Bingaman has worked really
hard to mitigate the regional impacts in this CES proposal. But some
regional disparities are inevitable, as some regions have been early
adopters of clean energy and would start with more.
I'm wondering if we need a funding source to provide some
transition assistance to those regions and groups that will be impacted
the most. Do you think some transition assistance is necessary to
prevent an economic shock to certain regions of the country and certain
income groups?
Answer. AISI agrees that regional disparities are inevitable when
creating a federal CES. AISI believes that S. 2146 will have a
disproportionate negative impact on areas of the country that generate
the majority of their electricity from coal. EIA projects that S. 2146
will substantially reduce coal-fired generation. Compared with a
reference case, coal generation would decline by 25 percent in 2025 and
by over half--54 percent--in 2035. Thus, within two decades, the
electricity generation infrastructure of the United States would
radically shift from the fuel mix that has been in place since the
advent of significant nuclear power generation around 1970. States like
Ohio, Indiana, Pennsylvania, and West Virginia, which use coal as the
predominant fuel source for power, will be more affected by a CES than
other areas of the country, due to regional differences in current fuel
mix and the cost to switch to other fuels for the generation of
electricity.
Certain areas of the country are better suited for renewable
production from wind and solar sources, while others have an abundance
of coal sources. Other regions benefit from a legacy of hydro-electric
production that would be difficult to replicate under the current
environmental legal regime. As noted above, creating a national CES
will have a disproportionate impact on coal-fired utilities, and there
is a high correlation between the service areas of those utilities and
the location of steel production facilities. Industrial customers,
especially steel producers, will therefore face significant additional
charges to offset the cost of replacing coal capacity with other
sources, including the cost of new transmission infrastructure.
A preferred approach that would avoid these regional disparities is
to leave the question of electricity mandates to the states. As of
September 2011, 30 states and the District of Columbia had enforceable
RPS or other mandated renewable capacity policies. Also, seven states
had voluntary goals for renewable generation. The states are best
equipped to reflect the availability and relative reliance of each fuel
source in their geographic location, and can best craft renewable
energy policy accordingly.
Question 4. I was concerned to learn that in some cases the cost
burden for utilities regulated under the CES might result in prices
almost double those for the exempted utilities. Would regulating carbon
upstream reduce some of these problems and provide a more equitable
cost share? And would regional disparities be minimized with a more
economy wide approach to reducing carbon in our economy?
Answer. From AISI's perspective, the point of compliance is not
really the issue as an upstream approach will still result in
substantial cost impacts to energy- intensive, trade-exposed
manufacturers. Imposing such upstream carbon regulations would likely
result in both direct emissions costs for steel producers and indirect
costs passed through to us from increases in energy production costs.
We would still need to look at transition and mitigation programs
similar to those needed under a cap and trade system for energy-
intensive, trade-exposed manufacturers.
The disproportionate impact of a CES on certain areas of the
country that was discussed in Question #3 is applicable to this
question as well. The EIA analysis concedes that a CES would have
disproportionate impact on certain areas of the country, largely those
that are dependent on coal-based electricity, where a majority of steel
production facilities are located. Many of the EPA regulations
currently in place or planned for the utility sector will have a
similar disproportionate effect on the utilities that serve much of our
industry.
An economy-wide approach that does not accommodate regional
differences will have dramatic cost impacts on the two leading states
in terms of iron and steel production in the U.S., Indiana and Ohio, as
well as other leading steel producing states such as Alabama,
Pennsylvania, Kentucky, and Michigan. All of these states are heavily
dependent on coal for electricity production. EIA projects in its
Annual Energy Outlook 2012 Early Release that by 2035, 39 percent of
electricity generation will be from coal. In its analysis of S. 2146,
it projects this percentage to drop to 18.7 percent in 2035, a result
that will disproportionately impact the steel industry.
Question 5. I believe that putting a price on carbon, such as that
contained in the clean energy standard, is necessary. It will unleash
American ingenuity to diversify our energy mix and reduce our carbon
intensity. But a price on carbon is not sufficient. We must also make
critical investments--in research and development and in the grid
itself. Integrating renewables into the grid demands new investments in
the grid.
Washington state passed a renewable portfolio standard five years
ago. Since then, renewable energy has taken off faster than anyone
could have imagined. Wind, for example, now accounts for roughly 3,000
megawatts of my state's power capacity. Integrating this much wind into
the grid so fast has produced challenges. In my home state, we have so
much wind power that at certain times it has to be shut off. Two weeks
ago, many wind farms were forced to shut down simply because we had too
much cheap power. Too much cheap power that is both clean and
sustainable should be a boon for our economy--not a burden to bear.
A study by the Electric Power Research Institute estimated that the
net investment necessary to create a power delivery system of the
future would be between $17 and $24 billion dollars per year over the
next 20 years. That same study found that every dollar of investment in
the grid would return four dollars of benefits such as reduced outages,
increased efficiency, and lower demand for energy at peak times.
Washington has been leading on realizing this smart grid of the
future that we so urgently need. The Pacific Northwest National
Laboratory, PNNL, led a study to determine how willing homeowners are
to use smart grid technologies; what benefits they found in being able
to control their energy use according to pricing; and how much money
they could save. Unfortunately, we're not making these critical
investments.
The Department of Energy's 2011 Quadrennial Technology Review
confirmed this, stating simply that we are ``underinvesting in
activities supporting modernization of the grid.'' This underinvestment
delays the nation's transition to a more resilient, reliable, and
secure electricity system that integrates renewables into the system.
Do you believe that grid modernization efforts and making the grid
smarter are important parts of bringing more clean energy online? If
so, how can we continue to make progress on modernizing our grid?
Answer. As the landscape of generation, transmission, and
utilization of electricity continues to evolve and expand, the costs of
modernizing the nation's electric grid to reflect these changes will be
significant. It is essential that policies be instituted to ensure that
the grid is capable to handle increased demand and changing sources of
electricity. In doing so, it is essential to realize that many of the
costs involved in such efforts are passed on by utilities to their
large industrial customers, and ultimately borne by these sectors,
including steel producers. Policies addressing efforts to modernize the
electric grid must therefore contain adequate measures to maintain the
competitiveness of energy-intensive, trade-exposed industries, like
steel.
Responses of Thomas J. Gibson to Questions From Senator Barrasso
In your written testimony, you state that: ``[i]ndustrial
customers, especially steel producers, will be charged to offset the
cost of replacing coal capacity with other sources, including the cost
of new transmission infrastructure.''
Question 1a. Would you please expand on how S. 2146 would
disproportionately impact the steel industry?
Answer. As detailed by analyses from EIA and others, a national CES
would impose higher electricity costs on customers of coal-based
utilities than it would on customers of utilities already fueled by
nuclear or renewable sources. EIA projects that S. 2146 will
substantially reduce coal-fired generation. Compared with a reference
case, coal generation would decline by 25 percent in 2025 and by 54
percent in 2035. Thus, within two decades, the electricity generation
infrastructure of the United States would radically shift from the fuel
mix that has been in place since the advent of significant nuclear
power generation around 1970.
In areas of the country where the steel industry operates, coal is
the predominant fuel source for generating electricity. The two leading
states in terms of iron and steel production in the U.S. are Indiana
and Ohio, while other important states for the industry are Alabama,
Pennsylvania, Kentucky, and Michigan. A CES that will increase
electricity costs on coal-based utilities more than other sources will
therefore impact the steel industry more than industrial customers in
other areas of the country, by virtue of geographic location.
Question 1b. Would you speak specifically to the impacts of this
legislation on the steel industry in Ohio, Indiana, Pennsylvania, and
Michigan?
Answer. In 2010, the share of coal-based electricity in Ohio was 84
percent, in Indiana it was 92 percent, in Pennsylvania it was 57
percent, and in Michigan it was 64 percent. Not only are these four
states heavily reliant on coal as a source of electricity, but they
also are key states for steel production. As of 2011, there were
115,645 direct steel jobs in Ohio, 74,131 in Indiana, 101,227 in
Pennsylvania, and 67,143 in Michigan. In addition, every individual job
in the steel industry supports seven additional jobs in other sectors
of the economy. A national CES would make electricity supply more
expensive and less reliable for the steel making facilities in these
states, therefore threatening the international competitiveness of the
domestic industry and the associated jobs in the industry and related
sectors.
Question 2. In your written testimony, you explain that America's
steel industry is subject to ``substantial international competition.''
You say that ``this competition comes from nations such as China, where
the industry is largely state owned, controlled, and subsidized.'' You
explain that U.S. steelmakers operate ``under tight margins'' and that
``policies that raise energy costs on [American steelmakers] threaten
our ability to remain competitive.'' Would you please elaborate on how
S. 2146 would undermine American steelmakers' ability to compete with
Chinese steelmakers?
Answer. Steel is trade intensive. In 2011, 31 percent of all steel
produced in the world was exported from its country of origin. Steel
produced in the United States competes with steel produced in nations
such as China, where the industry is largely state-owned, controlled,
and subsidized. These subsidies often come in the form of below market
rates for electricity, creating an unlevel playing field. In fact, in
two recent countervailing duty cases, the Department of Commerce
determined that Chinese steel pipe producers were receiving below
market rates for electricity.
Energy, especially electricity, typically composes 20 percent or
more of the cost of making steel. In 2010 our domestic industry
consumed 45.7 billion kWh of electricity. A 1 cent per kWh increase in
the cost of electricity would cost the industry $450 million in
aggregate. Policies such as a CES that raise electricity rates on
domestic producers, while our competitors receive subsidized
electricity supplies, make the industry less competitive
internationally and threaten the existence of valuable manufacturing
jobs.
Question 3. Please describe what happens when a steel plant is
closed because it is no longer economically viable. What happens to the
workers, their families, and the community where the plant is located?
Answer. The North American steel industry is an important source
for employment and tax revenues for local and regional economies. In
the U.S., for every one job formed in the steel industry, seven
additional jobs are created in other economic sectors, such as raw
materials, transportation, computers, and related technical services.
Steel's economic contributions are multiplied many times over, as every
$1 increase in sales by our sector increases total output in the U.S.
economy by $2.66. In aggregate, the steel industry accounts for over
$101 billion in economic activity and supports more than 1 million jobs
across the country.
The steel industry is and will remain an important source for high
paying manufacturing jobs and in stimulating employment both upstream
for raw material and other suppliers and downstream for steel service
companies, steel using industries, and related firms. Steel plants in
North America are often the economic centers of their community--
providing above-average wages and benefits. When steel production
facilities are forced to close, the impact goes beyond the direct
employees of the facility, to the jobs and employees in related
industry, and to economic health of the communities in which they are
located. Policies that hinder the international competitiveness of the
domestic steel industry put the economic health of the industry and
related industries and communities at risk.
Appendix II
Additional Material Submitted for the Record
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Statement of American Forest & Paper Association
The American Forest & Paper Association (AF&PA) appreciates the
opportunity to submit this Statement for the Record on S.2146, the
Clean Energy Standard Act of 2012.
AF&PA is the national trade association of the forest products
industry, representing pulp, paper, packaging and wood products
manufacturers, and forest landowners. Our companies make products
essential for everyday life from renewable and recyclable resources
that sustain the environment. The forest products industry accounts for
approximately 5 percent of the total U.S. manufacturing GDP. Industry
companies produce about $190 billion in products annually and employ
nearly 900,000 men and women, exceeding employment levels in the
automotive, chemicals, and plastics industries. The industry meets a
payroll of approximately $50 billion annually and is among the top 10
manufacturing sector employers in 47 states.
BACKGROUND AND PRINCIPLES
The forest products industry is the nation's leading producer and
user of carbon-neutral renewable biomass energy--While other emerging
technologies are being developed, today's biomass energy is heavily
dependent on wood fiber. This same woody biomass also is an essential
raw material for value-added forest products, such as paper, packaging,
wood products, wood-based chemicals, and other products. Forest
products facilities account for 70 percent of the renewable biomass
energy used by all manufacturing facilities in all sectors. Most of
this energy is a byproduct of the manufacturing process, creating both
thermal and electrical energy, and often using combined heat and power
(or cogeneration) technology. The industry's biomass-based energy
should qualify as a resource under any CES.
AF&PA's Better Practices, Better Planet 2020 initiative includes
one of the most extensive set of quantifiable sustainability goals for
any major U.S. manufacturing industry, with a commitment to
transparently report progress towards achieving those goals. This
initiative builds on our legacy as a leader in sustainable forest
management principles.
Congress should avoid mandates and incentives that distort the
market for woody biomass raw material--AF&PA supports market driven
policies that recognize the industry's leading role in production of
renewable energy, promote sustainability of forests, focus on adequate
supply of raw material, and allow markets to direct the flow of fiber.
Studies show that per ton of wood used, the forest products industry
sustains nine times as many total jobs as the biomass energy sector. A
CES is just one of many existing and potential policies that can have
the unintended effect of diverting biomass supply to subsidized energy
use, thereby undermining highly efficient renewable energy production
at existing industry facilities.
Congress should avoid policies that will increase energy costs--
Despite meeting almost two thirds of its energy demand through biomass-
based energy, paper and wood products manufacturers also purchase
significant quantities of energy, much of it electricity. We believe
that a CES will result in increased electricity costs. Moreover, the
CES would add another layer of costs onto utilities that are already
facing dramatic cost increases due to a suite of current and future
environmental requirements. Those costs have been estimated to be as
high as $120 billion and are not fully reflected in the Energy
Information Administration's (EIA) reference case that supports the
recent EIA analysis of S.2146. The EIA analysis indicates that while in
the short term, electricity prices would remain relatively stable, they
would increase by nearly 20 percent in later years.
As large ratepayers, AF&PA members will face steep electricity cost
increases as utilities seek cost recovery of their environmental
compliance costs. These increases will adversely affect the
competitiveness of the industry and the jobs it provides. AF&PA opposes
policies, such as a CES, that will result in even greater electricity
cost increases.
Of specific concern are the following
Clean Electric Energy From Existing Industry Mills is
Excluded
AF&PA appreciates that the definition of ``Clean Energy'' in the
bill is broad and encompasses a wide range of energy resources. This
can help minimize the overall cost of the CES and avoid undue pressure
on any one clean energy source. However, we are concerned that the
definition of ``Clean Energy'' would exclude most, if not all electric
energy generated by existing forest products industry facilities
because of the placed in service dates included in the bill and the
restrictions included in the definition of ``qualified combined heat
and power'' (CHP).
Definition of Qualifying Biomass
The bill definition of ``Qualified Renewable Biomass'' is vague and
could be interpreted to exclude the biomass used by the industry to
generate electric energy. A study performed by RISI and commissioned by
AF&PA found that for a given volume of wood consumption, the forest
products industry sustains 5 times as many core jobs (i.e., mill 3
jobs) and 9 times as many total jobs (includes logging, paper
converting jobs, and downstream wood processing jobs) as the energy
sector. For this reason it is important that federal renewable energy
policies do not preclude the industry's biomass-based energy from
qualifying under those policies.
``Carbon Neutrality'' of Energy from Biomass Combustion
The bill calls into question whether energy derived from the
combustion of biomass is ``carbon neutral.''
The European Union, the United Nation Intergovernmental Panel on
Climate Change, and recent federal and state legislation that promotes
use of biofuel energy have recognized that, unlike fossil fuels,
biomass is part of the natural carbon cycle. When biomass is burned for
energy, the carbon dioxide absorbed from the atmosphere during tree
growth is released. When forests are replanted, or allowed to
regenerate naturally, that cycle is repeated. So long as forest carbon
stocks are stable or increasing--as they are in the United States--
biogenic carbon emissions are fully offset by carbon dioxide
sequestration in regenerating forests and do not result in a net
increase in atmospheric carbon dioxide concentrations. On the other
hand, fossil fuel combustion has no such repeating cycle. Stored over
millions of years, the GHG released when fossil fuels are burned
produces a net carbon dioxide increase in the atmosphere.
Forest products manufacturing mills use mill residues and
byproducts and harvested forest residues to generate onsite energy. The
manufacture of its products creates biomass residues and bio-byproducts
that are integral and incidental to the pulp and paper and wood
products manufacturing processes. There are no economic or
environmental alternatives for these biomass residues and byproducts
that would prevent CO2 from entering the atmosphere, and the
use of these biomass residues and byproducts for energy avoids the use
of coal and other fossil fuels.
Energy Efficiency and Thermal Energy Should be Included in
the Definition of ``Clean Energy''
AF&PA believes that energy efficiency, biomass used for thermal
energy, and waste heat recovery should be included in any CES as
qualifying resources.
Thank you for the opportunity to submit this Statement for the
Record. AF&PA and its member companies believe that the industry's
considerable contributions to our country's existing renewable energy
base provide an important foundation on which our nation can build a
larger renewable energy economy. As our country seeks to encourage
additional renewable energy, it is essential that policies are additive
to existing producers like the forest products industry rather than a
replacement for existing contributors.
We greatly value the Committee's consideration of our views and
would be pleased to answer any questions that the Committee may have,
or discuss further any items 4 mentioned in this statement. For
additional information, please contact Elizabeth VanDersarl, Vice
President of Government Affairs.
______
Statement of American Public Gas Association
The American Public Gas Association (APGA) appreciates this
opportunity to submit testimony and commends the Committee for holding
this important hearing on S. 2146, the Clean Energy Standard Act of
2012.
APGA is the national association for publicly-owned natural gas
distribution systems. There are approximately 1,000 public gas systems
in 36 states and over 700 of these systems are APGA members. Publicly-
owned gas systems are not-for-profit, retail distribution entities
owned by, and accountable to, the citizens they serve. They include
municipal gas distribution systems, public utility districts, county
districts, and other public agencies that have natural gas distribution
facilities.
Natural gas is the cleanest, safest, and most useful of all fossil
fuels. It is also domestically produced, abundant and reliable. The
inherent cleanliness of natural gas compared to other fossil fuels, as
well strong domestic supply projections and superior wells-to-wheels
efficiency of natural gas equipment, means that substituting gas for
the other fuels will reduce the emissions of the air pollutants that
produce smog, acid rain and exacerbate the ``greenhouse'' effect.
Natural gas is the lowest CO2 emission source per BTU
delivered of any fossil fuel. Using gas-fired water heaters for homes
instead of electric resistance water heaters ultimately reduces
greenhouse gas emissions by one-half to two thirds. Simply put,
increasing the direct-use of natural gas is the surest, quickest, and
most cost-effective avenue to achieve significant reductions in
greenhouse gases and therefore should be a critical component of any
clean energy legislation.
In June 2009, APGA, the Interstate Natural Gas Association of
America and others released a study conducted by the Gas Technology
Institute (GTI) entitled ``Validation of Direct Natural Gas Use to
Reduce CO2 Emissions.'' The study analyzed the benefits of
increased direct use of natural gas as a cost-effective means to
increase full fuel cycle energy efficiency and reduce greenhouse gas
emissions. Using the National Energy Modeling System (NEMS), the study
concluded that the increased direct use of natural gas will reduce
primary energy consumption, consumer energy costs, and national
CO2 emissions.
The study demonstrated, among other things, that conversions to
natural gas appliances from their electric counterparts will provide
substantially higher and immediate return values in energy efficiency
and carbon output reductions than an equal investment in electric
applications.
Unfortunately, APGA is concerned that over the years federal
policies have moved more toward an all-electric society and have not
recognized the benefits of the direct-use of natural gas. One example
of this can be found in the manner in which the Department of Energy
(DOE) calculates appliance efficiency. The DOE measurement takes into
account energy solely consumed at the ``site'', measuring the energy
used by the product itself.
The site-based measurement of energy consumption ignores the energy
spent in production, generation, transmission, and distribution. For
example, according to DOE's point of use consumer disclosure labels for
appliances, an electric water heater may appear to consumers to be over
60 percent more efficient than a gas water heater despite the fact that
current national generation, transmission and distribution efficiency
for central station electricity is, according to the U.S. Energy
Information Agency, only 29.3 percent efficient while the transmission
and distribution of natural gas directly to the consumer is 90.1
percent efficient. Ignoring these energy losses makes electric-
resistance heating appliances appear more efficient (allowing them to
receive a superior DOE efficiency rating).
This site-based measurement has placed natural gas appliances at an
unfair marketing disadvantage and as a result there has been a marked
increase in shipments of electric water heaters and a decrease in
shipments of natural gas water heaters. This increase in electric water
heaters will come with an increase in greenhouse gas emissions given
that electric water heaters on average emit 2.5 times the amount of
greenhouse gas emissions as natural gas water heaters given the current
make up of the sources of U.S. electric generation today. Renewable
energy generation is poised to grow in the future, but makes up less
than 2 percent (excluding hydro-electric) of generation today.
Conversion from electric to natural gas appliances will provide a more
immediate emissions reduction strategy than the many years it will take
for large-scale deployment of wind, solar and other renewable
technologies.
Rather than a site-based measurement for energy consumption, APGA
has advocated a ``source-based'' or ``full fuel cycle'' analysis that
measures energy from the point at which energy is extracted through the
point at which it is used. Such analysis provides a more accurate
assessment of energy use, efficiency, as well as greenhouse gas
emissions. The U.S. Government has consistently supported the most
efficient use of our natural resources. It has become increasingly
important for policymakers to look at the full fuel cycle to find out
if we are using our natural resources most efficiently. If there is any
question, then we must begin to look at the full fuel cycle when
measuring energy usage: consider energy use from the point of
extraction, whether fossil fuels from the earth or otherwise, in a
continuum through their ultimate usage.
In 2009, the National Academies recognized the importance of
measuring efficiency by this method, in its report to Congress,
``Review of Site (Point-of-Use) and Full-Fuel-Cycle Measurement
Approaches to DOE/EERE Building Appliance Energy Efficiency
Standards.'' The report found that the Department of Energy (DOE)
should consider changing its measurement of appliance energy efficiency
to one based on the full-fuel-cycle, which takes into account the
amount of energy produced and lost from the point of production to the
final point of use.
Similarly troubling is the fact that the proposed Clean Energy
Standard Act of 2012 does not credit direct use of natural gas in the
same manner as other clean energy sources. From a full-fuel-cycle
perspective, direct use of natural gas is drastically more efficient at
92 percent system efficiency than electricity, which only reaches 27
percent system efficiency. This legislation is missing the critical
component of allowing the option of direct-use of natural gas as a
means of meeting the CES. APGA strongly believes that if a utility that
provides both natural gas and electric service were to meet new load
requirements with the direct-use of natural gas, that utility should
receive a credit under a CES in the same manner that it would receive a
credit for utilizing clean and/or renewable energy sources for
electricity generation. This approach would recognize and take full
advantage of the benefits that the direct-use of natural gas provides
in terms of efficiency and reduced greenhouse gas emissions. Moreover,
it would help reduce the need for additional electricity generation and
provide electric/gas utilities with more flexibility in terms of
complying with a CES while meeting future load requirements.
At a minimum, the direct-use of natural gas should be included in
the Bill's directed study of alternative credited resources. The U.S.
Energy Information Agency released its 2012 Annual Energy Outlook on
January 23, 2012with the claim that there are 2140 trillion cubic feet
of technically recoverable natural gas resources within the United
States. Federal policy should seek to maximize every BTU of this
abundant domestic and low-carbon fuel by encouraging greater direct use
into our homes and businesses for heating and cooking and other
appropriate uses. Direct use into the home would be a far better use of
this country's precious natural gas resources.
APGA appreciates this opportunity to submit comments and looks
forward to working with the Committee towards fully utilizing the
benefits of the direct-use of natural gas in efforts to establish a
federal CES.
______
Statement of Timothy J. Considine, SER Professor of Energy Economics,
University of Wyoming
Executive Summary
This study estimates the contributions of the American steel
industry to the U.S. economy. The steel industry is defined here to
include two sectors: iron and steel mills and ferroalloys and steel
product manufacturing from purchased steel. Based upon data compiled by
MIG, Inc. from U.S. Department of Commerce data, the American steel
industry directly employed more than 139,000 workers and contributed
$17.5 billion in value added or gross domestic product during 2010.
The economic contribution of the steel industry to the U.S.
economy, however, goes beyond these sector specific measures because
steel companies purchase inputs from many other sectors of the U.S.
economy. Moreover, the steel industry contributes to household income,
which then induces additional rounds of stimulus to the economy as
households spend this income on goods and services. For instance,
during 2010 the steel industry purchased more than $20 billion of
materials produced in other industries, $8 billion of services, $5
billion of energy products, $4.5 billion of machinery, $4.4 billion
from wholesale and retail trade sectors, more than $4 billion of
transportation services, and generated $12.4 billion in labor income.
Clearly, the steel industry supports businesses and jobs in many
sectors of the U.S. economy.
To map these interdependencies, this study employs an input-output
table of the U.S. economy with the IMPLAN system from MIG, Inc. to
estimate these indirect or supply chain impacts as well as the impacts
induced by the spending of household income contributed directly and
indirectly by the steel industry. Our economic impact analysis
indicates that the steel industry directly contributed $17.5 billion of
value added, $40 billion indirectly via supply chain spending, and
induced another $35.8 billion as households spent their income
generated from these activities. So in terms of net contribution to the
U.S. economy the American steel industry contributed $93.4 billion to
gross domestic product during 2010. Likewise, the steel industry
directly employs over 139,000 workers, supports another 360,986 workers
indirectly through the supply chain, and induces spending by households
that supports another 443,002 jobs in other sectors of the economy. In
total the steel industry supported 943,045 jobs in the U.S. economy
during 2010.
With higher levels of steel sales during 2011, the American steel
industry contributes $101.2 billion to gross domestic product, and
generates $22.9 billion in tax revenues at the federal, state, and
local level, for a gross economic output of over $246 billion. Since
steel is the most prevalent material in our economy, the steel industry
is highly interrelated with other economic sectors, as reflected in the
ripple effect on employment. Every one job in the U.S. Steel industry
creates seven jobs in the U.S. economy. For 2011, the industry directly
employs 150,700, and given the multiplier effect, supports more than
1,022,009 jobs.
Definition of Steel Sector
The steel industry in North America is instrumental in supplying
the material requirements for construction, manufacturing, and energy
industries. For this study, the steel sector is defined to include two
industries in the North American Industrial Classification System
(NAICS): iron and steel mills and ferroalloy manufacturing and steel
products manufactured from purchased steel. The former includes both
integrated and electric arc furnace steel producers and companies
producing ferroalloy inputs to steel making, including ferrochrome,
nickel, and related products. The latter category includes steel pipe
and tube manufacturers and companies rolling and drawing purchased
steel to produce finished steel products. Given the close overlap of
these two industrial sectors, this study combines these sectors into
one so-called steel sector.
Employment, labor income, and value added for the steel sector are
reported below in Table 1. The iron and steel mill and ferroalloy
segment is the largest component of the steel sector with more than
86,000 employees, $8.3 billon in labor income, and $12.6 billion in
value added, which is defined to include payments to labor and capital
inputs, including profits, proprietor income, and indirect business
taxes. The manufacturing of steel products from purchased steel
requires more than 52,000 workers who generate $4 billion in labor
income and nearly $5 billion in value added. Together these two sectors
employ more than 139,000 and generate $12.4 billion in labor income and
$17.5 billion in value added (see Table 1).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The direct tax impacts associated with steel sector activity appear
below in Table 2. Tax revenues are paid from contributions to social
security, proprietor income, indirect business taxes, household income,
and corporate profits. During 2010, the steel sector paid a total of
$3.7 billion in federal, state, and local taxes, $1.453 billion in
social security taxes, $1.1 billion of income taxes on household income
and $350 in corporate taxes earned from the steel sector, and $772 of
indirect business taxes, and $9 million of taxes on proprietor income
(see Table 2).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Labor and multifactor productivity growth continues to allow the
industry to produce higher quality output with fewer labor hours. Given
this and pressures from international competition, employment levels in
the steel sector are down from levels in 2002 (*see Figure 1). After a
painful period of restructuring, employment steadily declined from 2002
to 2006 until a rebound in 2007-2008. After a sharp fall in value added
and employment in the steel sector during 2009, the steel industry
recovered during 2010 and recent indications suggest that this recovery
is continuing through early 2012.
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* Figure 1 has been retained in committee files.
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This employment and the industry's purchases of energy, materials,
and supplies for the production of steel stimulate economic output and
employment in other sectors of the U.S. economy. Since steel is the
most prevalent material in our economy, the steel industry is highly
interrelated with other economic sectors.
In understanding the role of the steel industry in the economy, the
first step is to identify the industry's purchases of inputs from other
industries. A tabulation of these transactions for 2010 is reported
below in Table 2. These estimates are obtained by using the definition
of the steel sector used in Table 1 above. To simplify the
presentation, these transactions are classified into several major
categories for values greater than $100 million with sub-categories
reported below each item.
The largest category is materials, such as scrap and iron ore,
comprising nearly 31 percent of inter-industry purchases. The steel
sector purchased $9.8 billion of iron and steel scrap, $2.9 billion of
steam and metallurgical grade coal, $2.4 billion of iron ore, and $1.1
billion of primary nonferrous metals. Industrial gas purchases totaled
$739 million while refractory materials amount to $592 million, and
nonferrous metal product purchases were $485 million. In total, the
steel sector supports $20 billion in sales of materials, cutting across
a broad swatch of the mining and manufacturing sectors of the U.S.
economy.
Somewhat surprisingly, the next largest category of inputs to the
steel sector at nearly $8 billion is a broad range of services.
Management services, services for buildings, securities and investment
services, legal, and architectural and specialized design services are
the top six service categories, comprising almost 42 percent of
purchases of services by the steel sector. The third largest category
of purchases by the steel sector is from energy industries with nearly
$5 billion in transactions between these two sectors. Sales of
machinery, wholesale and retail trade, and transportation to the steel
sector are each more than $4 billion (see Table 2). Computers and
electronics provide $1.6 billion to the steel sector.
Sales between the two major segments of the steel sector amount to
$18 billion so that total inter-industry purchases from other
industries to the steel sector amounted to nearly $66 billion in 2010.
Value added or gross domestic product generated by the steel industry
is $17.5 billion during 2010 with $12.3 billion compensating employees
and the remaining $5.2 billion going to payments for capital resources
and to governments via taxes.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Methodology
These transactions between the steel sector and other industries
determine the impact of the steel industry on the U.S. economy.
Economists have devised several measures of these economic impacts that
are calibrated to changes in output or final sales. The first are so-
called direct impacts reported above in Table 1 in which changes in
final steel sector sales directly affect output, employment, labor
income, or value added.
If steel sector sales increase then a second round of economic
impacts above and beyond the direct impacts occurs as the steel sector
purchases inputs to make steel for shipment to customers. These changes
are known as indirect impacts and reflect the supply chain stimulus
that the steel sector provides. This is one reason why so many
countries around the world welcome investments that establish steel
mills because they stimulate industrial supply chains. These indirect
impacts support jobs in industries supplying the steel industry with
inputs of energy, materials, and services, such as those discussed
above in Table 2. The sum of the direct and indirect effects divided by
the direct impacts are called Type I multipliers.
The third and final set of economic impacts arises from the
stimulus that additional labor and capital income provides for
households to spend on goods and services. For example, the direct and
indirect impacts discussed above increase income to households. This
additional income induces consumers to spend more on goods and
services, which provides an additional round of stimulus through the
direct and indirect channels discussed above. These so-called induced
impacts together with the direct and indirect impacts constitute the
``total'' economic impact of the industry. The ratio of this total
impact to the direct impacts is known as a Type II multiplier.
Estimates of Steel Industry Economic Impact
These economic multipliers are calculated for every industry in the
United State economy by a variety of government agencies and private
companies using the input-output tables collected and published by the
U.S. Department of Commerce, Bureau of Economic Analysis. This study
employs the IMPLAN (IMpact analysis for PLANing) system developed by
MIG, Inc., one of the most widely used and highly regarded system for
economic impact analysis.\1\
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\1\ http://implan.com/V4/index.php?option=com__content&view-
frontpage&Itemid=1
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A summary of the economic multipliers for the two major steel
industry related sectors discussed above are presented below in Table
3. For every dollar increase in sales for iron and steel mills and
ferroalloy industries, total output in the U.S. economy increases by
$2.66, $1 is the direct sales increase, another $0.94 dollars arise
from indirect or supply chain impacts, and the remaining $0.73 is
generated from the induced impacts as workers and asset holders spend
the additional income generated from the direct and indirect impacts
(see Table 3). The Type I multiplier of 1.935 means that for every
dollar increase in sales for iron and steel mills and ferroalloy
industries total output increases $1.94 (see Table 3). The Type II
multiplier is 2.66 indicating that for every dollar increase in steel
sales, the total economic impact is $2.66. The multipliers for steel
products made from purchased steel are slightly larger than for iron
and steel mills and ferroalloy manufacturers.
The employment multipliers reported below in Table 3 are measured
in jobs per million dollars of gross output. For instance, for every
one million dollars of final output, 1.44 jobs are supported directly
by the iron and steel mills and ferroalloy industry, which is simply
the ratio of employment in this sector 86,461 to gross output of
$60,043 million reported in Table 1. With indirect and induced effects,
this industry and steel products produced from steel support 10.87 and
12.74 jobs respectively. Labor income multipliers and value added are
also reported in Table 3 and reflect the dollar changes in each of
these components for a dollar change in final sales.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
An aggregate of these two sectors is formed to calculate
multipliers for the entire sector. These multipliers are reported below
in Table 4 and measure the economic impacts of the steel industry on
the U.S. economy. For instance, the steel industry supports 2.722
dollars of output for every dollar of steel industry sales. This
multiplier implies that for the current steel industry gross output or
sales of $83.5 billion (see Table 1), $227.3 billion in total gross
output is generated.
A more meaningful measure of economic impact, however, that avoids
double counting is value added or gross domestic product. Using this
measure, the steel industry contributed $17.5 billion of valued added
directly, $40 billion indirectly via supply chain spending, and $35.8
billion as households spend their income generated from these
activities. In summary, the net contribution to the U.S. economy by the
steel industry is $93.4 billion.
In terms of employment, for every million dollars of gross output
11.298 jobs are supported. Another way to express the employment
impacts is with the Type I and Type II multipliers. For example, for
every one job directly created in the steel industry, 3.596 jobs are
supported via supply chain impacts and 6.782 jobs are created from the
stimulus emanating from industries that supply steel inputs and from
households as they spend the additional income that this activity
generates. In summary, for every one job directly created in the steel
industry seven jobs are created the U.S. economy.
These multipliers also imply that the direct steel industry
employment of 139,000 workers, supports another 360,986 workers
indirectly through the supply chain, and induces spending by households
that supports another 443,002 jobs in other sectors of the economy. In
total the steel industry supported 943,045 jobs in the U.S. economy
during 2010. With higher levels of steel sales, it would fair to say
that the American steel industry supports more than one million jobs.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The tax multipliers are also displayed below in Table 4. For every
million dollars of gross output in the steel sector, $152,154 of
federal tax revenues and $101,046 of state and local tax revenues are
generated. Using total gross output of $83.5 billion, the steel sector
generated $21.2 billion in federal and state and local taxes during
2010, $3.7 billion directly, $9.1 billion indirectly from supply chain
interactions, and $8.2 billion from induced impacts.
Estimates of Steel Industry Economic Impact
The economic contributions of the steel sector presented above are
based upon the IMPLAN input-output tables of 2010. These estimates are
updated for 2011 based upon preliminary data for employment in the
steel sector reported by the Bureau of Labor Statistics. The
preliminary estimate for direct steel sector employment in 2011 is
150,700. This level of employment is consistent with gross output of
$90.461 billion and valued added of $18.996 billion (see Table 5).
Given the multipliers presented above, the steel sector in 2011
supported 1,022,009 jobs in the U.S. economy and contributed $101.211
in value added, and $246.213 in gross output (see Table 5). Given the
tax multipliers presented above, during 2011 the steel sector generated
$22.9 billion in local, state, and federal taxes (see Table 5).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Disaggregation of Steel Sector Multipliers
The multipliers appearing in Table 4 are disaggregated by industry
in Table 6, sorted by employment impacts from highest to lowest. For
instance, the 11.298 employment multiplier is the summation of
employment impacts by sector appearing in Table 5. The steel sector
contributes 1.963 jobs of this total. The next largest category is
professional, scientific, and technical services with 1.743 jobs per
million dollars of gross output. The third largest category is repairs
and related services. Education and health care and business support
services each contribute slightly over one job per million dollars of
gross output. In summary, these top five industries together constitute
about 65 percent of the total employment impact. The next five
industries, retail trade, wholesale trade, transportation, machinery
and equipment, and mining comprise slightly over 22 percent of the
employment impact. The remaining 13 percent is distributed across a
broad swatch of the U.S. economy (see Table 5).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
Statement of the American Chemistry Council
The American Chemistry Council (ACC) is pleased to comment on the
Clean Energy Standard Act of 2012 (``CESA'' or ``Act''). ACC believes
that in order for our economy to grow, U.S. industries to innovate and
compete globally, and businesses to create new jobs, a national energy
strategy that provides for innovation as well as efficient, cost-
effective and reliable generation of electricity is critical. Policies
must allow us to capitalize on all of our domestic energy resources;
prioritize greater energy efficiency in homes, buildings and industrial
facilities; and encourage the adoption of diverse energy sources,
including renewable energy and energy recovery from plastics and other
materials. Unfortunately, CESA falls short of these objectives and
would significantly raise electricity costs of industry and households.
We think there are better ways to meet the objectives of a national
energy strategy. As an energy-intensive industry we know that high-cost
purchased power can jeopardize our industry's global competitiveness.
In the short term, policy should favor the deployment of the most
economically efficient power generation, consistent with the policy
objective. In the long term, policy should encourage a diverse mix of
technologies, including clean coal energy systems. Economically
efficient generation varies in different parts of the country, so
policy should avoid one-size fits all solutions and should avoid
picking winners and losers. The nation is already moving toward a
cleaner energy portfolio so it is fair to ask, are additional policy
instruments needed in pursuit of a lower carbon economy?
Americans agree that a national energy strategy is needed.
According to a recent national survey conducted by Washington-based
Clarus Research Group, an overwhelming majority of voters (94 percent)
believe that a ``comprehensive energy policy is essential to building a
strong economy, creating new jobs, and making America more competitive
with other countries.''
The chemistry industry is the foundation of America's manufacturing
sector, Chemistry creates the basic building blocks for countless
products Americans rely on every day, as well as 96 percent of all
manufactured goods made in the United States. Abundant, affordable
domestic natural gas has created a new competitive edge for American
chemistry, and it's driving a renaissance in U.S. manufacturing.
Chemistry companies are tremendous sources of American innovation--
essential to addressing our energy challenges and building and
maintaining our competitive position in the world. One in five U.S.
patents is chemistry-related. Chemistry is the source of essential
materials and technologies for energy efficiency and renewable and
alternative energy. Building insulation, photovoltaics, advanced
batteries, lightweight plastic vehicle parts, and fuel innovations are
among the many sustainable solutions made possible by chemistry. Our
industry can help enable a strong, secure and sustainable future for
the United States.
The energy savings are impressive. A recent ACC study found that
the use of chemistry in energy-saving products and technologies helps
save up to 10.9 quadrillion Btus of energy annually, enough to power up
to 56 million households or up to 135 million vehicles each year, and
saving Americans up to $85 billion in energy costs annually.
With so much at stake, we have carefully examined the Clean Energy
Standard Act of 2012 (S. 2146), which would have far-reaching impacts
on the power sector and its customers. While ACC supports the bill's
objectives to encourage growth of clean energy sources of generation,
we have considerable reservations about how the bill would achieve its
goals.
First, we are concerned about a policy that sets 20 plus years of
ever increasing clean energy thresholds that apparently were chosen
without concern about costs. No one knows the cost impact of these
regulations, but power rates are very likely to soar.
Second, it is not clear to us that a clean energy standard with
arbitrary thresholds is needed to continue on a path toward a clean
energy economy. The national economy is rapidly moving toward cleaner
energy technologies. Federal air quality standards and state renewable
energy standards will accelerate the shift toward low carbon power
generation in the years to come. Given the suite of existing and
forthcoming federal and state policies there may be little compelling
need for CESA.
Third, ACC believes that energy efficiency should be a cornerstone
of any national energy policy, on par with other clean energy sources.
Yet under CESA, energy efficiency improvements at an electric utility
or manufacturing facility do not receive credits toward compliance with
the Act. Investments will focus on credit-receiving clean energy
technologies. CESA's approach will result in lower investment in energy
efficiency and comparatively higher utility bills for rate payers.
A better option can be found in S.1000, the Energy Savings and
Industrial Competiveness Act, introduced by Senators Shaheen and
Portman. Congress should pass S. 1000 this year. It contains provisions
to achieve energy savings across the economy, including building energy
codes, appliance standards and a manufacturing energy efficiency
program. The bill will help industries identify new energy efficiency
opportunities and pave the way for additional programs to harness the
potential of industrial energy efficiency.
Fourth, national energy policies must be fair to all regions of the
country, recognizing differences in their energy resource endowments.
CESA will create inequities for areas that rely heavily on coal. As a
result, compliance costs can vary widely across the country.
Manufacturers are likely to be especially hard hit: Energy-intensive
industries in coal-dependent states will face higher electricity rates,
putting them at a competitive disadvantage with businesses from lower-
compliance-cost states.
Fifth, ACC supports an ``all of the above'' approach to energy
policy, but CESA discourages sources that are critical to America's
energy portfolio. For example, the bill discourages coal-fired power
from the date of enactment. Later in the program, natural gas-fired
generation would no longer qualify for credits. Faced with a reduced
portfolio of credit-receiving clean energy technologies power rates are
very likely to soar in many parts of the country. Again, energy-
intensive industries in hard-hit regions will be placed at a
competitive disadvantage. The implications for the cost of energy to
ratepayers, for our economic recovery, and for American jobs are clear.
In addition, we are concerned that the CES as proposed treats all
qualified renewable biomass the same way, which has commercial and
environmental implications. Bio-based feedstocks like black liquor
soap, crude tall oil, and crude sulfate turpentine can be, and are,
converted into high-value chemicals and products. However, they can
also be burned as a fuel. The highest and best use of the biomass,
based on both commercial considerations and environmental
considerations taking life cycle impacts into account, may therefore be
to create bio-based chemicals or products from the biomass and not use
it as an energy source. A policy that incentivizes their use as bio-
energy can distort the market to the disadvantage of bio-based chemical
producers.
On a positive note, we are pleased to see that CESA qualifies new
combined heat and power (CHP) installations for the standard. CHP can
and should play a major role in the nation's clean energy future.
Because CHP facilities create two forms of energy--electricity and
steam--with the same amount of fuel, they are often twice as efficient
as older coal-burning electric utilities. By 2030, the U.S. can meet 20
percent of its electricity needs from high-efficiency CHP, according to
the Oak Ridge National Laboratory.
Regrettably, while CESA includes CHP, it is not placed on a level
playing field with other qualified clean energy sources. Under the
bill, CHP put in place prior to enactment is not considered ``clean
energy,'' while other qualified technologies placed in service after
1991 are eligible to receive credits.\1\ The legislation does award
clean energy credits to owners of qualified heat and power systems for
avoided greenhouse gas emissions where the facility is used for on-site
thermal needs. Facilities that are able to meet the bill's definitions
of useful electric and thermal energy generation may benefit through
the award of credits for this activity. This provision recognizes the
full value of CHP as a cost-effective and energy efficient source of
thermal heat and power.
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\1\ Under Section 610(b)(1)(A), facilities placed in service after
1991 using natural gas are defined as ``clean energy'' while Section
610(b)(1)(B) considers combined heat and power facilities to constitute
``clean energy'' only if they are placed in service after the date of
enactment.
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Energy recovery is another important provision in CESA. ACC
supports increased adoption of energy recovery technologies to capture
abundant amounts of energy, particularly from non-recycled plastics.
Used plastics have a higher Btu value than coal and can be converted
into electricity, motor fuels and valuable chemicals. Recovering this
energy complements recycling and reduces waste that would otherwise be
sent to landfills. CESA classifies certain energy recovery facilities
as qualified clean energy. However, we are concerned that over time,
these facilities may not be able to meet the carbon intensity standard
established by CESA unless they can employ carbon capture and
sequestration technology soon.
In sum, ACC supports the growth of the clean energy economy.
America's chemical industry is a major supplier of the innovative
solutions needed. We question the need for legislation that duplicates
market trends already underway as a result of other regulations. We
support policies that implement ``all of the above'' energy strategies.
In its current form, CESA immediately disadvantages coal, would
eventually disadvantage natural gas, and excludes energy efficiency
from qualification for clean energy credits. By limiting the nation's
energy options, the Act will result in higher electricity rates that
could put energy-intensive industries at a competitive disadvantage in
the global marketplace. We think there are better ways to meet the
objectives of a national energy strategy.
______
Statement of Steven Nadel, Executive Director, American Council for an
Energy-Efficient Economy
Introduction
I am pleased to submit this statement for the record in conjunction
with the hearing today on S. 2146.
We thank Senator Bingaman and his cosponsors for introducing this
bill to create a national clean energy standard (CES) as it helps
advance the discussion on ways to encourage a cleaner electricity
supply in the United States. We think a national CES would be very
useful for spurring a gradual transition from today's current
electricity supply mix to one that is much cleaner, thereby advancing
our environmental objectives while also helping to build a strong
economy. In particular, we appreciate that the bill includes combined
heat and power (CHP) as an eligible resource. Expanding use of CHP in
the United States is an important approach for saving energy, reducing
costs, and reducing emissions because CHP systems are significantly
more efficient than separate power generation and steam systems.
However, we are troubled by the fact that S. 2146 relegates other
energy efficiency savings to second class status--energy efficiency is
not included in the initial CES but instead is left to a report that
will make recommendations to Congress but that will require further
congressional action down the road in order to add energy efficiency to
the standard.
We strongly urge that S. 2146 be amended to explicitly include
energy efficiency as an eligible resource. Energy efficiency should be
included because:
1. Energy efficiency is generally the lowest cost resource
available to electricity providers. Including energy efficiency
will reduce the cost to consumers of a CES.
2. Energy efficiency is generally the cleanest resource.
3. Energy efficiency standards for electric utilities work--
half the states now have and are successfully implementing such
energy efficiency standards.
4. Exclusion of energy efficiency from the CES tilts the
playing field, increasing rather than decreasing the barriers
to energy efficiency.
5. Energy efficiency will create more jobs-- investments in
energy efficiency generate more jobs per dollar invested than
other electricity resources.
In the paragraphs below we elaborate on these points and also make
some suggestions on how energy efficiency can be incorporated into a
national CES.
Including Energy Efficiency Will Reduce the Cost of a CES
Energy efficiency is generally the least expensive resource
available to power providers as shown in the graph below. Energy
efficiency generally has costs to the power provider of less than half
the next cheapest options.
Graph Sources--Energy efficiency data were gathered from 14 states
and compiledin an ACEEE study.\1\ All other data from Lazard Ltd.\2\
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\1\ Friedrich, Katherine, Maggie Eldridge, Dan York, Pattie Witte,
and Marty Kushler. 2009. Saving Energy Cost-Effectively: A National
Review of the Cost of Energy Saved Through Utility-Sector Energy
Efficiency Programs. Report U092. http://www.aceee.org/research-report/
u092. Washington D.C.: American Council for an Energy-Efficient
Economy.
\2\ Lazard, Ltd. 2011. Levelized cost of energy analysis-version
5.0 New York, NY: Lazard Limited. http://j.mp/Lazard__LCOE__ver5
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Since energy efficiency is lower cost than other resources that
will be encouraged under the CES, inclusion of energy efficiency will
reduce the cost of the CES. This is illustrated by the November 2011
report by EIA that analyzed several CES options.\3\ While the primary
analysis did not include energy efficiency, one of the alternative
cases that EIA examined illustrated the positive impacts of energy
efficiency in reducing the costs of a CES. Specifically, the analysis
included a case in which electricity use would be reduced by 6.7
percent in 2035 as a result of stronger energy efficiency standards and
building codes. EIA found that these energy efficiency savings reduced
the annual cost of the Basecase Clean Energy Standard (BCES) by $57
billion in 2035, the last year of the analysis. These savings include
$44 billion in lower annual electricity expenditures and $13 billion in
lower annual natural gas expenditures outside of the power sector.
Electricity costs decline because electricity use is down and because
electric rates are lower (by an average of 0.3 cents per kWh) than in
the BCES case. The savings in electricity also mean that less natural
gas is needed by the electric power sector, reducing natural gas demand
and lowering the price of natural gas for all users by an average of 40
cents per thousand cubic feet.
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\3\ EIA. 2011. Analysis of Impacts of a Clean Energy Standard as
requested by Chairman Bingaman. Washington, DC: Energy Information
Administration.
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The energy efficiency standards and codes case that EIA examined
included only modest efficiency savings--i.e., the 6.7 percent saved in
2035 works out to an average reduction of 0.3 percent per year. ACEEE's
recent State Energy Efficiency Scorecard\4\ found that five states
(Vermont, Nevada, Hawaii, Rhode Island, and Minnesota) are already
saving more than 1 percent per year, not including standards and codes,
with the highest saving at 1.6 percent per year. Many other states are
now ramping up to these levels of savings. Allowing energy efficiency
to fully participate in a CES would potentially increase the efficiency
savings by a factor of 3-5 compared to the case EIA examined. So if 6.7
percent energy efficiency savings saves $57 billion, then 20 percent
efficiency savings will likely save considerably more-reducing the cost
of electricity services with a CES to less than the cost of electricity
services if no CES were enacted. Of course this is a rough
approximation; we recommend that EIA be tasked with conducting a
specific analysis on this scenario.
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\4\ Sciortino et al. 2011. State Energy Efficiency Scorecard.
Washington, DC: American Council for an Energy-Efficient Economy.
http://www.aceee.org/research-report/e115.
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Including Energy Efficiency Will Reduce Emissions
The cleanest power is power we do not need to produce. A primary
purpose of the CES is to reduce emissions of criteria pollutants (e.g.
nitrogen oxides) as well as greenhouse gases. The November 2011 EIA
analysis discussed above found that relative to the BCES, including
efficiency savings from standards and codes would reduce 2035 nitrogen
oxide emissions by 7 percent, mercury emissions by 6 percent and carbon
dioxide emissions by 14 percent. If energy efficiency is added to the
CES, energy efficiency savings will be much greater than just the
standards and codes savings that EIA modeled, producing even larger
emissions savings.
Energy Efficiency Resource Standards Are in Place in Half the States
and Have Been Proven to Work
Twenty-five states now have mandatory energy efficiency targets. We
call these Energy Efficiency Resource Standards (EERS). This includes
two states (Nevada and North Carolina) with a combined EERS/Renewable
Energy Standard. These states are shown in the map* below. A 2011
evaluation of EERS implementation in the 19 states that have been
implementing their EERS for at least two years found that that all but
three states are meeting or close to meeting their targets.\5\ One of
the three has since caught up. In addition, our 2011 State Scorecard
(referenced above) found that eight other states (Connecticut, Idaho,
Montana, Nebraska, New Hampshire, New Jersey, South Dakota and Utah)
plus the District of Columbia have used energy efficiency in the most
recent year to save at least 0.2 percent of electricity sales. Thus, a
substantial majority of states are already implementing significant
energy efficiency programs, allowing them to quickly ramp-up activities
to help meet early-year CES targets at modest cost.
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* The map has been retained in committee files.
\5\ Sciortino et al. 2011. Energy Efficiency Resource Standards: A
Progress Report on State Experience. Washington, DC: American Council
for an Energy-Efficient Economy. http://www.aceee.org/research-report/
u112.
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Excluding Energy Efficiency from the CES Unfairly ``Tilts the Playing
Field''
Energy efficiency and natural gas are now often competing in the
market as the low-cost resources for meeting electricity needs. It
makes no sense to ``put a finger on the scale'' and allow only natural
gas to participate in a CES, and not energy efficiency as that would
create a market incentive for utilities to invest in new natural gas
power plants instead of energy efficiency programs. In order to ``level
the playing field,'' energy efficiency should be added to the CES. If
there is a concern that this would mean that the resulting mix does not
adequately promote renewable energy and other advanced energy sources,
then the targets can be increased. Energy efficiency produces no
emissions and therefore is ``cleaner'' than many of the resources now
included in CES proposals.
Alternatively, if the intent of the CES is not to reduce emissions
but is instead designed to encourage use of advanced, low-carbon
resources that have difficultly competing with efficiency and natural
gas, then the standard could be retitled an Advanced Energy Standard,
and only more expensive energy sources that need some help (e.g.,
renewables, nuclear, and coal with carbon capture and storage) would be
included. In such a case, the targets would need to be lower than those
now in S. 2146.
Including Energy Efficiency Will Create More Jobs
Energy efficiency measures tend to be labor intensive, creating
more jobs than capital-intensive investments such as power plants.
ACEEE economic analyses have generally found that energy-efficiency
investments generate about 20 jobs per million dollars invested
(includes direct, indirect, and induced jobs) while investments in the
energy sector generate about 10 jobs per million dollars invested.\6\
The net difference is about 10 jobs per million dollars invested.
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\6\ http://www.aceee.org/files/pdf/fact-sheet/ee-job-creation.pdf.
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In 2009, ACEEE examined the job impacts of an EERS that reduces
nationwide electricity use by 15 percent in 2020 and natural gas use by
10 percent in 2020. Based on a detailed input-output economic analysis,
we concluded that such a policy would, by 2020, create 222,000 net jobs
relative to the EIA Reference Case scenario (net jobs means jobs from
efficiency investments after adjusting for the fact that lower
electricity demand results in fewer power plants and reduces the amount
of fuel needed for power generation).\7\ These are a substantial number
of jobs.
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\7\ Furrey et al. 2009. Laying the Foundation for implementing a
Federal Energy Efficiency Resource Standard. Washington, DC: American
Council for an Energy-Efficient Economy. http://www.aceee.org/research-
report/e091.
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Incorporating Energy Efficiency into a National CES
In terms of modifying S. 2146 to include energy efficiency, we
recommend that definitions and and implementation provisions be drawn
from S. 548, introduced by Senator Schumer in the 111th Congress. Using
this approach, the legislation would establish evaluation principles
and DOE would establish national guidelines for evaluation of energy
efficiency savings. DOE could draw on its own prior work as well as
regional evaluation guidelines that have been developed in the
northwest\8\ and are now being developed in the northeast.\9\ States or
utilities and their contractors would be responsible for conducting
evaluations. We recommend that states be encouraged to oversee utility
implementation of the evaluation portions of the CES, including
reviewing and approving evaluations. DOE would review such state-
approved evaluations on a spot basis to see where the evaluation
guidelines needed to be improved and to look for any gross abuse. In
addition, if a state Public Utility Commission elected not to review
utility evaluations, then DOE would need to conduct this review.
Furthermore, since energy efficiency opportunities exist in all states,
we do not think interstate trading of energy efficiency credits is
needed or desirable. Trading of energy efficiency credits would add
unneeded complication and would mean that some states will not get
their share of energy efficiency benefits. Intrastate trading could be
allowed with approval of the state Public Utility Commission.
---------------------------------------------------------------------------
\8\ htp://www.nwcouncil.org/energy/rtf/subcommittees/
deemed.Default.asp.
\9\ http://neep.org/emv-forum.
---------------------------------------------------------------------------
Conclusion
Energy efficiency is our cheapest and cleanest energy resource. In
order to reduce the cost of the CES and also further reduce electric
sector emissions, energy efficiency should be included in the CES.
Including energy efficiency will save money so that we can better
afford to use advanced energy resources such as renewables, nuclear and
coal with carbon capture and storage to meet the balance of our future
energy demand. S. 2146 should be amended to specifically include energy
efficiency as an eligible clean energy resource.
______
Statement of the Biomass Power Association, Portland, ME
The Biomass Power Association (``BPA'') appreciates the opportunity
to share its views on S. 2146, the ``Clean Energy Standard Act of
2012.''
BPA represents the Nation's grid-connected electricity industry
that utilizes ``open-loop'' biomass-essentially agricultural and
forestry by-products and residuals, as well as other organic materials-
in the production of electricity and thermal energy. Most member
companies have operated for decades, supporting rural economies while
promoting the use of materials that would otherwise contribute to
climate change if left to decay. While most members operate
electricity-only facilities, others support manufacturing by providing
both power and steam. All of our members make a critically important
contribution to the economic fabric of rural America. We are
responsible for approximately 14,000 jobs and nearly $1 billion in
value to the economy.
It has been 34 years since Congress last attempted a national
energy policy with enactment of the Public Utility Regulatory Policy
Act of 1978. As a Nation, we are blessed with abundant, diverse and
sustainable energy resources that have the potential of contributing to
our economic growth and providing long-term stability for ratepayers.
For that reason, we commend Chairman Bingaman and this Committee for
taking on the task of developing a national policy. The Clean Energy
Standard Act of 2012 is an important and meaningful first step.
BPA supports the overall approach in the Act of requiring clean
energy goals, and establishing targets that can be achieved through
credits much like states currently do through state-based renewable
portfolio standards. However, BPA has significant concerns with respect
to the specific application of the CES to open-loop biomass. First, the
Act needs to establish a simple and predictable definition of what
constitutes ``biomass'' and embrace the view-widely shared by all state
renewable portfolio standards and indeed around the world-that biomass
as used by our industry today and for the foreseeable future is a
carbon friendly feedstock that should be promoted wherever possible.
Second, we object to the Act's requirement of a regulatory proceeding
to determine the carbon intensity of biomass. Finally, existing biomass
facilities should qualify under the Act, and not just facilities that
were built after 1991. Each of these points is discussed in greater
below.
1. A Simple and Broad Definition of Biomass
At last count, there were fourteen (14) different definitions of
``biomass'' found in legislation enacted by the Congress since 2004,
see ``Biomass: Comparison of Definition in Legislation Through the
111th Congress, CRS Report to Congress March 7, 2012'' there are
thirty-five (35) definitions at the state level. See Exhibit A.
The definition in Section 610 (b)(5) of ``Qualified Renewable
Biomass'' would add yet another definition-one that is vague and
fraught with regulatory uncertainty. Congress should adopt the
definition of ``open-loop biomass'' found in Section 45 of the Internal
Revenue Code, or the definition of biomass found in the 2008 Farm Bill.
Both are familiar to the electric generating industry, and well
understood. The proposed definition in S. 2146 leaves our industry with
no certainty about whether biomass will qualify, and delegates
qualification of the resource--which makes up 50 percent of the
Nation's renewable energy supply--to agency rulemaking.
2. The Carbon Intensity of Biomass
S. 2146 creates uncertainty regarding the carbon intensity of
biomass. While there has been substantial discussion in the scientific
community about how to account for carbon emissions associated with
bioenergy, this much is clear--Biomass to electricity generated today
and for the foreseeable future is profoundly beneficial from a carbon
perspective. Current biomass feedstock sources--agricultural and urban
wastes, residues, by-products and low value roundwood-do not cause land
use changes or the depletion of carbon stocks. That is why all 35
states that have a renewable portfolio standard include open-loop
biomass without regard to a complicated carbon intensity criteria.\1\
---------------------------------------------------------------------------
\1\ The one possible exception is Massachusetts, which has
proposed, through its Department of Energy Resources, a complicated and
unworkable definition of biomass that is based on a flawed scientific
study that focuses on the harvesting of natural forests, not the use of
biomass in states with established forest products industries. See
Proposed changes to Renewable Energy Portfolio Standard Regulation, 225
CMR 14.00
---------------------------------------------------------------------------
On what scientific or policy basis should biomass be treated
differently than solar or wind? Every form of energy results in the
generation of some carbon emissions. Intermittent sources of renewable
energy with low capacity factors need backup sources of power, and
frequently that means fossil fuel-based sources like natural gas.
Should the CES calculate the carbon profile of backup generation, or
conduct a lifecycle analysis of solar panels or the steel in wind
turbines? Congress should resist the overly complicated procedure of
carbon lifecycles and simply recognize biomass as another form of
``renewable energy'' in Section 610 (6)(7).
In addition, the CES should create a ``safe harbor'' from the Clean
Air Act regulation of GHG emissions for sources of energy that qualify
under the CES. As others have testified, if the stated goal of the CES
is to reduce carbon emissions by promoting certain electrical
generation like biomass, then Congress should avoid duplicative
regulation by establishing that such source is not subject to further
carbon regulation by EPA.
3. Existing Versus ``New'' Facilities
The proposed cut-off date for what constitutes a qualifying
facility-December 31, 1991-is arbitrary and would disqualify many
biomass facilities in operation today. These pre-1991 plants were built
without federal production tax credits and yet provide benefits like
baseload capacity and improved air quality that other, intermittent
sources of renewable fail to provide. If enacted, S. 2146 would have
the perverse effect of causing existing facilities to close only to
then promote the development of a new facility in the same place, using
the same fuel source, creating the same amount of power, solely for the
purpose of being eligible for the CES. Stated simply, it is in the
national interest to preserve the economic viability of existing
biomass while also promoting new facilities. BPA supports both and so
should the Congress.
In closing, we commend the sponsors of the Bill and the Committee's
attention to these important issues. As the Senate considers this
legislation, we look forward to working with the Committee on the above
issues.
exhibit a--state renewable portfolio standards biomass definitions
California
Any organic material not derived from fossil fuels, including, but
not limited to, agricultural crops, agricultural wastes and residues,
waste pallets, crates, dunnage, manufacturing, construction wood
wastes, landscape and right-of-way tree trimmings, mill residues that
result from milling lumber, rangeland maintenance residues, biosolids,
sludge derived from organic matter, and wood and wood waste from
timbering operations. Agricultural wastes and residues include, but are
not limited to, animal wastes, remains and tallow; food wastes;
recycled cooking oils; and pure vegetable oils. Landscape or right-of-
way tree trimmings include all solid waste materials that result from
tree or vegetation trimming or removal to establish or maintain a
right-of-way on public or private land for the following purposes: 1)
For the provision of public utilities, including, but not limited to,
natural gas, water, electricity, and telecommunications. 2) For fuel
hazard reduction resulting in fire protection and prevention. 3) For
the public's recreational use.
Colorado
Nontoxic plant matter consisting of agricultural crops or their
byproducts; animal wastes and products of animal wastes; methane
produced at landfills or as a byproduct of the treatment of wastewater
residuals.
Delaware
Organic matter that is available on a renewable or recurring basis,
including timber, aquatic plants, dedicated energy crops, agricultural
food and feed crop residues, forestry and timber residues, and lumber/
pulp residues.
Hawaii
Including biomass crops, agricultural and animal residues and
wastes, and municipal solid waste and other solid waste.
Illinois
Crops and untreated and unadulterated organic waste.
Indiana
(5) Organic waste biomass, including any of the following organic
matter that is available on a renewable basis:(A) Agricultural crops.
(B) Agricultural wastes and residues. (C) Wood and wood wastes,
including the following (i) Wood residues(ii) Forest thinnings. (iii)
Mill residue wood.(D) Animal wastes (E) Animal byproducts.(F) Aquatic
plants. (G) Algae.
Iowa
Agricultural crops or residues, or woodburning facility.
Kansas
Dedicated crops grown for energy production; cellulosic
agricultural residues; plant residues; methane from landfills or from
wastewater treatment; clean and untreated wood products such as
pallets.
Maine
Wood or wood waste, landfill gas or anaerobic digestion of
agricultural products, by-products or wastes.
Maryland
Nonhazardous, organic material that is available on a renewable or
recurring basis, and is:(i) waste material that is segregated from
inorganic waste material and is derived from sources including:1.except
for old growth timber, any of the following forest-related resources:
mill residue, except sawdust and wood shavings; precommercial soft wood
thinning; slash; brush; or yard waste; 2.a pallet, crate, or dunnage;
3. agricultural and silvicultural sources, including tree crops,
vineyard materials, grain, legumes, sugar, and other crop by-products
or residues; or 4. gas produced from the anaerobic decomposition of
animal waste or poultry waste; or (ii) a plant that is cultivated
exclusively for purposes of being used at a Tier 1 renewable source or
a Tier 2 renewable source to produce electricity. does not include: (i)
unsegregated solid waste or postconsumer wastepaper; or (ii) an
invasive exotic plant species.
Michigan
Any organic matter that is not derived from fossil fuels, that can
be converted to usable fuel for the production of energy, and that
replenishes over a human, not a geological, time frame, including, but
not limited to, all of the following: (i) Agricultural crops and crop
wastes. (ii) Short-rotation energy crops. (iii) Herbaceous plants. (iv)
Trees and wood, but only if derived from sustainably managed forests or
procurement systems, as defined in section 261c of the management and
budget act, 1984 PA 431, MCL 18.1261c. (v) Paper and pulp products.
(vi) Precommercial wood thinning waste, brush, or yard waste. (vii)
Wood wastes and residues from the processing of wood products or paper.
(viii) Animal wastes. (ix) Wastewater sludge or sewage. (x) Aquatic
plants. (xi) Food production and processing waste. (xii) Organic by-
products from the production of biofuels.
Minnesota
Biomass includes, without limitation, landfill gas; an anaerobic
digester system; the predominantly organic components of wastewater
effluent, sludge, or related by-products from publicly owned treatment
works, but not including incineration of wastewater sludge to produce
electricity; and an energy recovery facility used to capture the heat
value of mixed municipal solid waste or refuse-derived fuel from mixed
municipal solid waste as a primary fuel.
Missouri
Dedicated crops grown for energy production, cellulosic
agricultural residues, plant residues, methane from landfills, from
agricultural operations, or from wastewater treatment, thermal
depolymerization or pyrolysis for converting waste material to energy,
clean and untreated wood such as pallets.
Montana
Low-emission, nontoxic biomass based on dedicated energy crops,
animal wastes, or solid organic fuels from wood, forest, or field
residues, except that the term does not include wood pieces that have
been treated with chemical preservatives such as creosote,
pentachlorophenol, or copper-chroma-arsenic.
Nevada
Biomass.
New Hampshire
Plant-derived fuel including clean and untreated wood such as
brush, stumps, lumber ends and trimmings, wood pallets, bark, wood
chips or pellets, shavings, sawdust and slash, agricultural crops,
biogas, or liquid biofuels, but shall exclude any materials derived in
whole or in part from construction and demolition debris.
New Jersey
Cultivated and harvested in a sustainable manner; same meaning as
that assigned to this term in Executive Order No. 13134, published in
the Federal Register on August 16, 1999. Executive Order No. 13134
defines biomass as `` . . . any organic matter that is available on a
renewable or recurring basis (excluding old-growth timber), including
dedicated energy crops and trees, agricultural food and feed crop
residues, aquatic plants, wood and wood residues, animal wastes, and
other waste materials.''
New Mexico
Fuels, such as agriculture or animal waste, small diameter timber,
salt cedar and other phreatophyte or woody vegetation removed from
river basins or watersheds in New Mexico, landfill gas and
anaerobically digested waste biomass.
New York
Agricultural Residue?Woody or herbaceous matter remaining after the
harvesting of crops or the thinning or pruning of orchard trees on
agricultural lands. .Harvested Wood?Wood harvested during commercial
harvesting. The supplier must have and be in compliance with a current
Forest Management Plan prepared by a professional forester that
includes (a) standards and guidelines for sustainable forest management
that require adherence to management practices which conserve
biological diversity, maintain productive capacity of forest
ecosystems, maintain forest ecosystem health and vitality, and conserve
and maintain soil and water resources; (b) a harvest plan following
production and harvest standards based on best management practices set
forth in guides developed, tested and peer reviewed for USDA and USDOE;
(c) the monitoring of harvest operations by a professional forester;
(d) the reporting of harvest operations by a professional forester; and
(e) periodic inspections of harvesting operations by state authorities
or approved non-governmental forest certification bodies to assure that
harvest operations conform to the standards.
Mill Residue Wood Hogged bark, trim slabs, planer shavings,
sawdust, sander dust and pulverized scraps from sawmills, millworks and
secondary wood products industries.
Pallet Waste Unadulterated wood collected from portable platforms
used for storing or moving cargo or freight.
Refuse Derived Fuel The source-separated, combustible, untreated
and unadulterated wood portion of municipal solid waste or construction
and demolition debris generally prepared by a densification process
resulting in a uniformly sized, easy to handle fuel pellet or
briquette.
Site Conversion Waste Wood Wood harvested when forestland is
cleared for the development of buildings, roads or other improvements.
Silvicultural Waste Wood Wood harvested during timber stand
improvement and other forest management activities conducted to improve
the health and productivity of the forest. The supplier must have and
be in compliance with a current Forest Management Plan prepared by a
professional forester that includes (a) standards and guidelines for
sustainable forest management that require adherence to management
practices which conserve biological diversity, maintain productive
capacity of forest ecosystems, maintain forest ecosystem health and
vitality, and conserve and maintain soil and water resources; (b) a
harvest plan following production and harvest standards based on best
management practices set forth in guides developed, tested and peer
reviewed for USDA and USDOE; (c) the monitoring of harvest operations
by a professional forester; (d) the reporting of harvest operations by
a professional forester; and (e) periodic inspections of harvesting
operations by state authorities or approved non- governmental forest
certification bodies to assure that harvest operations conform to the
standards.
Sustainable Yield Wood (woody or herbaceous) Woody or herbaceous
crops grown specifically for the purpose of being consumed as an energy
feedstock (energy crops).
Urban Wood Waste The source-separated, combustible untreated and
uncontaminated wood portion of municipal solid waste or construction
and demolition debris. Adulterated forms of wood, such as plywood and
particle board, may be used as a feedstock for biogas or liquid biofuel
conversion technologies if it can be demonstrated that the technology
employed would produce power with emissions comparable to that of
biogas or liquid biofuel using only unadulterated sources as feedstock.
North Carolina
Agricultural waste, animal waste, wood waste, spent pulping
liquors, combustible residues, combustible liquids, combustible gases,
energy crops, or landfill methane.
North Dakota
Agricultural crops and agricultural wastes and residues, wood and
?wood wastes and residues, animal wastes, and landfill gas as the fuel
to produce electricity.
Ohio
Solid wastes, as defined in section 3734.01 of the Revised Code,
through fractionation, biological decomposition, or other process that
does not principally involve combustion, biomass energy, biologically
derived methane gas, or energy derived from nontreated by-products of
the pulping process or wood manufacturing process, including bark, wood
chips, sawdust, and lignin in spent pulping liquors.
Oregon
Organic human or animal waste; (b) Spent pulping liquor; (c) Forest
or rangeland woody debris from harvesting or thinning conducted to
improve forest or rangeland ecological health and to reduce
uncharacteristic stand replacing wildfire risk; (d) Wood material from
hardwood timber grown on land described in ORS 321.267 (3);(e)
Agricultural residues;(f) Dedicated energy crops; and (g) Landfill gas
or biogas produced from organic matter, wastewater, anaerobic digesters
or municipal solid waste. (3) Electricity generated from the direct
combustion of biomass may not be used to comply with a renewable
portfolio standard if any of the biomass combusted to generate the
electricity includes wood that has been treated with chemical
preservatives such as creosote, pentachlorophenol or chromated copper
arsenate.
Pennsylvania
(i) Organic material from a plant that is grown for the purpose of
being used to produce electricity or is protected by the Federal
Conservation Reserve Program (CRP) and provided further that crop
production on CRP lands does not prevent achievement of the water
quality protection, soil erosion prevention or wildlife enhancement
purposes for which the land was primarily set aside; or (ii) any solid
nonhazardous, cellulosic waste material that is segregated from other
waste materials, such as waste pallets, crates and landscape or right-
of-way tree trimmings or agricultural sources, including orchard tree
crops, vineyards, grain, legumes, sugar and other crop by-products or
residues.
Rhode Island
Fuel sources including brush, stumps, lumber ends and trimmings,
wood pallets, bark, wood chips, shavings, slash and other clean wood
that is not mixed with other solid wastes; agricultural waste, food and
vegetative material; energy crops; landfill methane; biogas; or neat
bio-diesel and other neat liquid fuels that are derived from such fuel
sources.
North Dakota
Agricultural crops and agricultural wastes and residues, wood and
wood wastes and residues, animal and other degradable organic wastes,
municipal solid waste, or landfill gas as the fuel to produce
electricity.
Texas
Biomass or biomass-based waste products, including landfill gas. A
renewable energy technology does not rely on energy resources derived
from fossil fuels, waste products from fossil fuels, or waste products
from inorganic sources.
Utah
(iv) Except for combustion of wood that has been treated with
chemical preservatives such as creosote, pentachlorophenol or chromated
copper arsenate, biomass and biomass byproducts, including: (A) organic
waste; (B) forest or rangeland woody debris from harvesting or thinning
conducted to improve forest or rangeland ecological health and to
reduce wildfire risk; (C) agricultural residue (D) dedicated energy
crops; and (E) landfill gas or biogas produced from organic matter,
wastewater, anaerobic digesters, or municipal solid waste.
Virginia
``Renewable energy'' means energy derived from.biomass, sustainable
or otherwise, (the definitions of which shall be liberally construed),
energy from waste, municipal solid waste.
Washington
Animal waste or solid organic fuels from wood, forest, or field
residues, or dedicated energy crops that do not include (i) wood pieces
that have been treated with chemical preservatives such as creosote,
pentachlorophenol, or copper-chrome-arsenic; (ii) black liquor by-
product from paper production; (iii) wood from old growth forests; or
(iv) municipal solid waste.
West Virginia
Nonhazardous organic material that is available on a renewable or
recurring basis, including pulp mill sludge.
Wisconsin
A resource that derives energy from wood or plant material or
residue, biological waste, crops grown for use as a resource or
landfill gases. ``Biomass'' does not include garbage, as defined in s.
289.01 (9), or nonvegetation-based industrial, commercial or household
waste, except that ``biomass'' includes refuse-derived fuel used for a
renewable facility that was in service before January 1, 1998.
District of Columbia
Solid, nonhazardous, cellulosic waste material that is segregated
from other waste materials, and is derived from any of the following
forest-related resources, with the exception of old growth timber,
unsegregated solid waste, or post-consumer wastepaper: (A) Mill
residue; (B) Precommercial soft wood thinning;(C) Slash; (D) Brush; (E)
Yard waste; (F) A waste pallet, crate, or dunnage; (G) Agricultural
sources, including tree crops, vineyard materials, grain, legumes,
sugar, and other crop by-products or residues; or (H) Cofired biomass,
subject to the condition under Sec. 34-1433(f).
Puerto Rico
Any organic or biological material derived from organisms that have
the potential to generate electricity, such as wood, waste, and
alcohol-derived fuels; and includes natural biomass, which is produced
naturally without human intervention; residual biomass, which is a
byproduct or residue generated in agricultural, forest, and cattle
activities, as well as solid residue from the food and agriculture
industry and the wood-processing industry; for the purposes of this Act
it also includes any biomass similar in nature to those described, as
designated by the Administration.
Northern Marianas
Municipal solid waste, biofuels, or fuels derived from organic
sources (other than coal, oil or gas).
______
Calpine Corporation,
Washington, DC, February 29, 20012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U. S. Senate,
Washington, DC.
Dear Chairman Bingaman:
Calpine is a national leader in clean power generation, providing
nearly 28,000 megawatts of electricity generated from the largest and
most modern fleet of low-carbon, combined-cycle natural gas-fired power
plants, and from the largest source of renewable geothermal power. We
have been a leader in supporting responsible environmental legislation
and regulations at the state, regional, and national levels. We also
have been and continue to be committed to generating electricity from
the cleaner, more efficient energy resources.
With respect to your proposed Clean Energy Standard Act of 2012
(``CES'' ), Calpine believes that, if a CES is needed to assist in
moving the nation towards a cleaner energy economy, it must employ
specific mechanisms in order to deliver meaningful benefits and meet
its stated goals. First, it should be defined sufficiently broadly to
encompass all low GHG emissions resources, including efficient natural-
gas fired power plants and combined heat and power plants. It must set
reasonable interim targets and timetables to provide incentives for
early and steady investments in existing and new clean energy
resources. Cost control mechanisms, such as alternative compliance
payments (ACP) and banking, should be included to lessen the economic
impact on regulated entities and consumers. Additionally, when setting
the price levels for the ACP and CES credits, they should be set at a
level sufficiently high enough to send a clear price signal to ensure
regulated entities make needed investments in new, clean technologies.
The Clean Energy Standard Act of 2012 addresses much of these criteria
and marks a good framework for discussion should such legislation move
forward.
We look forward to working with you as the discussion of this CES
legislation progresses.
Sincerely,
Yvonne A. McIntyre,
Vice President, Federal Legislative Affairs.
______
Statement of the Province of Manitoba
We are pleased to have the opportunity to submit this statement for
the record in connection with this hearing on S. 2146. We applaud the
Committee's efforts to promote a clean energy future. However, we have
a significant concern about the legislation as drafted because it does
not recognize Canadian hydropower consumed in the U.S. as an eligible
``clean energy'' source. For the reasons stated below, we respectfully
urge the Committee to reconsider this aspect of the legislation.
This statement addresses (1) the important role that Canadian
hydropower plays in the U.S.; (2) how Canadian hydropower supports the
development of U.S. renewables; (3) the recognition by several U.S.
states of Canadian hydropower as a renewable resource; (4) Canada's
strong commitment to clean electricity; (5) the close alignment of the
U.S. and Canada's electricity futures; and (6) the substantial untapped
hydropower potential in Canada that can help the U.S. meet its clean
energy objectives.
The important role that Canadian hydropower plays in the U.S.
On an annual basis, Canada exports approximately 50 TWh of
electricity to the U.S. The vast majority of that power ( 80 percent)
is from hydropower. These exports to the U.S. represent 10 percent of
the hydro currently consumed in the U.S., equivalent to powering 3.5
million U.S. homes. Over the past 20 years, the electricity imports
from just one province (Manitoba) have resulted in the avoidance of
over 170 million metric tons of greenhouse gas emissions. In 2011
alone, provincial power utility Hydro-Quebec's net electricity exports
helped avoid 12 million metric tons of CO2 emissions, the
equivalent of yearly emissions of 3 million vehicles.
In some Border States, Canadian imports provide an important
portion of the electricity necessary to meet the state's needs. For
example, Manitoba typically provides the Upper Midwest with about
10,000 GWh of electricity per year. This is enough to power nearly 1
million homes, and accounts for over 30 percent of the region's supply
of renewable generation. Manitoba Hydro currently delivers electricity
into Minnesota that is approximately equivalent to 11 percent of the
state's total electricity demand. In Vermont, the portion is even
higher, with one-third of the electricity consumed in the state
delivered from Quebec. New York receives about 7 percent of its
electricity from Canada.
The *chart below shows the degree to which some of the Border
States, and the U.S. as a whole, rely upon Canadian power sources:
---------------------------------------------------------------------------
* Chart has been retained in committee files.
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Consumption of Canadian electricity is not just limited to Border
States. By virtue of its ties through the Western Interconnection grid,
Canada provided over 2,250 GWh of electricity to California in 2010-
enough electricity to power about 320,000 California homes (estimate
based on 2010 Energy Information Administration data). As transmission
infrastructure continues to develop and Canada increases its hydropower
infrastructure, the potential for this sort of longer-range
relationship increases.
Canadian hydropower helps support U.S. renewable development
In many Border States that rely on Canadian hydropower, the
availability of this low-cost, clean electricity helps to support the
development of the states' own intermittent renewable energy sources
(e.g., wind, solar). Canadian hydropower provides a clean, reliable and
affordable source of electricity that is available to meet states'
needs and to support the variability of intermittent resources.
An increasing number of U.S. utility partners and states that
border Canada are recognizing Canadian hydropower as part of their
Renewable Energy Portfolio standards and climate risk strategies. The
recently completed sale between Minnesota Power and Manitoba Hydro is a
good example of this. The agreement also includes a `U.S. wind storage'
provision that highlights the synergies between those resources.\1\ In
the Northeast, the long-term (2012-2038) contract between H.Q. Energy
Services (U.S.), a subsidiary of Hydro-Quebec, and Vermont's
distribution utilities is a key component of Vermont's strategy to
remain the lowest per-capita emitter of greenhouse gases (GHGs) among
U.S. states. Including Canadian hydro in Clean Energy Standard (CES)
legislation would respect historic partnerships between the U.S. and
Canada and would enable these types of sustainable development
partnerships to grow.
---------------------------------------------------------------------------
\1\ Minnesota Power Press Release. May 24, 2011: Hydropower
purchase agreement will trim carbon emissions, bolster transmission
system and allow Minnesota Power to ``store'' wind energy: http://
www.mnpower.com/news/articles/2011/20110524__NewsRelease.pdf.
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As Jon Brekke, Vice President of Minnesota's Great River Energy,
stated in 2009 in an interview with Manitoba Hydro:
We have over 300 megawatts of wind now in operation and as
our consumers demands increase during the typical day there's
no guarantee that the wind power's going to be there to match
that. We also have a problem where sometimes we get too much
energy from wind and the demand of our members is not there to
absorb all that wind energy. Manitoba Hydro can take advantage
of that low cost power and store up water resources during
those hours. Then, when loads increase, hydroelectric power can
be released to help provide power to the consumers in the
region.
Moreover, recognition of Canadian hydropower as a qualifying clean
energy resource in a U.S. national CES would not displace or adversely
affect the development of other clean energy sources in the U.S., such
as wind or solar power. The Energy Information Administration shows
that low- or no-carbon sources generated 31 percent of U.S. total
electricity in 2009 (20 percent nuclear, 7 percent hydroelectric, and 4
percent other renewables).\2\ S. 2146 would require 84 percent of
electricity sold to come from low- or no-carbon energy sources by 2035.
Given the size of that gap, there is an enormous U.S. opportunity for
the development of clean energy technologies. In fact, considering the
magnitude of the challenge, very high levels of development would be
required from many clean energy technologies including Canadian
hydropower.
---------------------------------------------------------------------------
\2\ U.S. Energy Information Administration. Analysis of Impacts of
a Clean Energy Standard as requested by Chairman Bingaman, November
2011; http://www.eia.gov/analysis/requests/ces__bingaman/pdf/
ces__bingaman.pdf.
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At present, Canadian imports account for less than 1 percent of
overall U.S. electricity consumption--a minimal amount, in the context
of overall U.S. electricity generation and consumption. Even if this
figure were augmented by the development of additional Canadian
hydropower capacity, Canadian hydro exports to the U.S. will still
account for a very small overall percentage of U.S. consumption.
Furthermore, any significant Canadian hydro development could only
take place gradually and over a long period of time due to multiple
constraints on construction resources, labor, engineering and capital.
In general, it takes 8-14 years for consultation, planning, permitting,
and construction of a hydro generating station compared to 3-5 years
for a thermal generating station. Thus, for the foreseeable future,
there will be ample room for as much development of U.S. renewable
resources as the market will accommodate.
However, if the CES legislation excludes Canadian hydropower, it
could actually send a perverse signal to current American buyers to
increase use and reliance on more carbon-intensive or otherwise riskier
sources of energy, potentially stunting emerging plans for further
growth of new hydropower into U.S. markets and moving the U.S. further
away from the goal of reducing GHGs. As Minnesota Power notes in its
testimony before this Committee, if S. 2146 does not qualify Canadian
hydro as a clean energy source, Minnesota Power would be compelled to
develop thermal power alternatives to supply the baseload necessary to
support its wind power development. This would result in an additional
annual 560,000 metric tons of greenhouse gas emissions in Minnesota.
States are recognizing Canadian hydropower as a renewable resource
In recent years, there has been a trend toward recognizing Canadian
hydroelectricity imports as qualifying under state Renewable Portfolio
Standards (RPS). Here are examples of developments that have taken
place over the past two years at the state level:
In 2010, the Vermont legislature amended its renewable
requirements, granting full recognition of all hydroelectricity
as renewable, including that imported from Quebec, Canada.
In July 2011, Wisconsin adopted energy legislation that
grants renewable credit to imports from new hydropower
facilities under development in Manitoba, Canada.
In March 2011, Minnesota's Public Utilities Commission ruled
that Minnesota Power could apply a portion of hydroelectricity
purchased from Manitoba Hydro to meet state RES requirements.
In April 2011, California adopted legislation that requires
the California Energy Commission to conduct a study (due June
30, 2012) to determine whether British Columbia's run-of-river
hydroelectric generating facilities should be included as
eligible resources for its Renewable Energy Resources Program.
S. 2146 evidences an intention not to impede state Renewable
Portfolio Standards laws. However, by excluding Canadian hydropower,
the legislation creates an inconsistency with many state RPS standards.
If this is not addressed, it could nullify and effectively preempt the
affected state standards.
In addition, utilities located in U.S. Border States would face a
conflicting patchwork of state and federal regulatory requirements if
federal and state clean energy requirements and incentives are not
properly aligned. The National Association of Utility Regulators
(NARUC) has recognized this. In 2010, the Association adopted a
resolution recognizing all North American hydropower as a renewable
energy resource that warrants consideration in regional and national
clean energy mandates.
Canada has strongly committed itself to a clean electricity mix
Canada's generation mix is already quite clean--about 60 percent of
the electricity produced in Canada each year is renewable and 15
percent is nuclear--giving Canada already one of the cleanest
generation mixes in the world. Canada is undertaking steps to make its
generation mix even cleaner. Policies to further this effort are being
adopted at both the federal and provincial levels in Canada.
The Government of Canada is working towards phasing out
conventional coal-fired generation through regulations expected to be
finalized in 2012. The regulation would essentially prohibit the
construction of new coal-based plants after 2015 unless they include
carbon capture and storage (CCS) equipment. These regulations would
also require companies to close plants after 45 years of operation--
unless they are retrofitted with CCS. Approximately two-thirds of
Canada's coal-fired plants will reach the end of their forty-fifth
anniversary by 2025, and more than 80 percent will do so by 2030.
The pie charts* below illustrate the extent to which Canadian
electricity is produced from clean sources relative to the rest of the
world.
---------------------------------------------------------------------------
* Pie charts have been retained in committee files.
---------------------------------------------------------------------------
In addition to federal regulations, many Canadian provinces have
regulations in place to reduce GHG emissions. Some examples include:
British Columbia implemented a carbon tax in 2008 that will
increase to CAD $30 per metric ton CO2-equivalent in
July 2012 and covers about 75 percent of the province's GHG
inventory. In addition, British Columbia has a legislated
target to generate at least 93 percent of the electricity in
British Columbia from clean or renewable resources. As well,
B.C. energy policy states that existing thermal generation must
have net zero greenhouse gas emissions by 2016, as must any new
facilities.
Manitoba has implemented an emissions tax on coal, and the
last remaining coal-fired facility is regulated to operate only
in support of emergency situations.
Ontario is in the process of phasing out all of its coal-
fired capacity (over 6000 MW) by 2015.
In 2012, Quebec started an emissions trading program in
conjunction with the Western Climate Initiative that will
initially cover, as of January 1, 2013, approximately 75
emitters with annual emissions of 25,000 metric tons
CO2 equivalent or above. Currently, 97 percent of
Quebec's electricity production comes from hydropower. Quebec
is committed to meeting its medium-term GHG emissions reduction
target (20 percent below 1990 levels by 2020).
In Canada, hydropower facilities are subject to stringent
requirements of both the Canadian federal government and provincial
governments. Every hydropower project is subject to a detailed
assessment of the impacts of the project on the environment and
extensive public consultations, including consultations of the
aboriginal communities. Canada's constitution (s.35) imposes additional
requirements regarding the consultation of any aboriginal community
that may be impacted before the government's decision.
Under federal law, all hydropower projects must also meet the
requirements of the Fisheries Act, those of the Species at Risk Act
(SARA), those of the Migratory Birds Convention Act and those of the
Navigable Waters Protection Act. The Fisheries Act ensures that fish
populations and migrations are maintained and that losses of fish
habitat are mitigated or compensated.
Under provincial law, using the Province of Manitoba as an example,
approvals contain detailed restrictions on the design and construction
of the facility. They also require mitigation of habitat implications
and strict oversight of downstream sediment. Extensive collaboration
with native First Nations helps to ensure that the effects of projects
on local populations are minimized. As a result, hydropower facilities
now under development in Manitoba will rank among the world's most
environmentally protective. For example:
The 200-megawatt Wuskwatim Generating Station under
construction in northern Manitoba has been designed as a low
head, ``run-of-river'' plant. The facility will generate less
than 0.2 sq. miles of flooding, minimizing land-use change
implications due to flooding and other environmental impacts.
Wuskwatim is being developed by an equity partnership between
Nisichawayasihk Cree Nation and Manitoba Hydro, and represents
the first equity partnership with a First Nations community on
a major generating station project.
The 1485-megawatt Conawapa Generating Station in Manitoba
has been designed to take advantage of the naturally steep
river banks of the Nelson River, which are over 160 feet high,
in order to limit flooding to approximately 1.9 sq. miles,
almost all within the river's banks, again minimizing potential
negative environmental impacts. The provincial government and
Manitoba Hydro have entered into a Memorandum of Understanding
with Fox Lake Cree Nation related to the Conawapa project.
A levelized lifecycle GHG comparison for generating one GWh of
electricity at the Wuskwatim hydropower facility was produced to
compare various conventional and renewable power generation options.
The results show that relative life cycle GHG emissions of the
Wuskwatim project are very small and insignificant relative to those of
conventional thermal generating stations and comparable to that of
wind. Life cycle assessments underway for Conawapa (1485-megawatt) and
Keeyask (695-megawatt) generating stations are expected to show similar
results.
In the Northeast, the Province of Quebec applies ISO-14001
standards to the development of its hydropower projects, with special
attention to mitigation and adaptation efforts and community outreach.
In fact, since the 2002 Peace of the Brave Agreement with the Cree
nation, the negotiation of agreements with aboriginal communities has
been a key component of Quebec's approach to hydropower development.
Long-term environmental follow-up on projects is performed to
measure the real impact of projects and the effectiveness of the
mitigation and compensation measures. Recent projects provide examples
on the benefits of ensuring adequate long-term monitoring of impacts:
On Quebec's North Shore, construction of the Romaine river
complex, an interconnected network of 4 power stations that
will generate 1,550 MW, began in 2009, following completion of
an extensive environmental impact assessment that lasted 4
years. In 2011, 50 percent of the person-years that were
created on the Romaine project (1,198) benefitted Cote Nord and
Innu workers. Environmental follow-up on the Romaine river
complex project will continue until 2040, allowing Hydro-Quebec
to monitor environmental changes, determine the effectiveness
of mitigation and compensation measures, and make any necessary
adjustments. ISO 14001-certified environmental management
systems and OHSAS 18001-certified health and safety managements
systems govern jobsite activities.
The Pribonka River project, in Quebec's Saguenay-Lac-St-Jean
region, came online in 2008 and is the focus of sustained
environmental conservation efforts by Hydro-Quebec, so as to
preserve the river's rich fauna. Since 2007, the project's
reservoir has been stocked with 315,000 juvenile lake trout.
Waterfowl breeding has increased and the reservoir is
frequented by twice as many waterfowl broods as in 2008.
U.S. and Canada's electricity futures are closely intertwined and
aligned
Canada plays a very important role in the overall energy security
of the U.S. The two countries are each others' largest trading
partners. Canada now supplies 9 percent of overall U.S. energy needs,
including 87 percent of its natural gas imports, 21 percent of its
crude oil imports, and one-third of the uranium used in U.S. nuclear
power plants. Canada plays a key role in helping the U.S. reduce its
dependence upon energy from unstable and unreliable overseas sources.
Moreover, the electrical grids of the U.S. and Canada are highly
interconnected. Indeed, they are more accurately thought of as a single
North American electrical grid, composed of over 200,000 miles of high-
voltage transmission lines. In 2009, the total amount of electricity
that flowed across the U.S.-Canada border through this system of power
lines-from Canada to the U.S. and vice-versa-exceeded 70,000 GWh.
The map below shows the extent of U.S.-Canadian electrical
integration (only the high voltage interconnections are shown).
As the map shows, increased cross-border electricity flow will
require construction of new transmission infrastructure, which drives
jobs in design, engineering, construction and production of materials
on both sides of the Canada-U.S. border. A recent study by Brattle
Consultants estimated that, for every $1 billion invested in U.S.
transmission infrastructure, $2.4 billion in economic output and 13,000
equivalent years of employment are generated.
Demand for Canadian hydropower helps to promote further development
of Canadian hydropower infrastructure, and this provides benefits to
U.S. manufacturers that supply goods and services to help build out the
Canadian infrastructure. It should also be noted that, because our
economies are so entwined, for every dollar spent in Canada on energy,
the U.S. receives 91 cents back in the form of revenue from exports to
Canada. In all cases, furthering reliance on North American energy
resources helps minimize leakage of investment out of the economy and
protects U.S. jobs.
In February 2009, shortly after taking office, President Obama met
with Canadian Prime Minister Harper and established the U.S.-Canada
Clean Energy Dialogue (CED), which committed both nations to move
toward a cleaner, more secure energy future. When the two leaders met
again in February 2011, they issued a joint statement incorporating the
``Beyond the Border'' policy. The statement stressed the close
interconnection between the two countries on national security and
energy policy.
To further the shared energy goals of the U.S. and Canada, the CED
has committed to ``increasing opportunities for trade in clean
electricity.'' This commitment was motivated by an acknowledgment that
``[t]he North American electricity market is integrated across national
borders.'' Canadian hydropower, which accounts for over 60 percent of
Canadian electrical generation, is a clean and stable resource that can
play a central role in realizing the shared clean energy goals. It can
help displace electrical generation from fossil fuels in the U.S.,
thereby helping the U.S. reduce emissions.
Canada has substantial untapped hydropower potential that can help the
U.S. meet its clean energy objectives
Canada still has a large untapped hydropower potential. Hydropower
projects are capital-intensive to build and relatively low-cost to
operate. A recent report by the Canadian Hydropower Association cited
costs per MW installed from $2.9 million/MW to CAD $4.44 million/MW
depending on the region in which the generation is built.\3\
---------------------------------------------------------------------------
\3\ Job Creation and Economic Development Opportunities in the
Canadian Hydropower Market; HEC Montreal report for the Canadian
Hydropower Association, 2011.
---------------------------------------------------------------------------
In addition to the capital costs, building cross-border
transmission capacity presents additional challenges. In general it
takes 8-14 years for consultation, planning, permitting, and
construction of a hydro generating station compared to 3-5 years for a
thermal generating station.
Given the high capital costs and long lead times associated with
new hydropower development in Canada, if the U.S. adopts a CES that
does not recognize Canadian hydropower as a qualified clean energy
resource, the U.S. will be disincentivising U.S. utilities from
purchasing Canadian hydropower to the detriment of U.S. ratepayers that
have been benefiting from this clean and costs effective energy
resource.
Current plans to purchase (and therefore to develop) hydropower in
Canada depend to an extent on the ability of hydropower to help the
buyer manage GHG and other environmental price risks. If passed, S.
2146 would effectively be the major GHG management policy in the United
States (alongside EPA regulatory actions under the Clean Air Act).
Unfortunately, under the current bill, Canadian hydro would be treated
the same as high-emitting GHG intensive coal and less favorably than
medium-emitting natural gas. This means U.S. purchasers will see little
of the risk management value they have been counting on from this clean
renewable resource.
The total technical potential of 163 GW in Canada as illustrated in
the *map below is more than double the capacity currently in
service.\4\ About 25 GW of that capacity is currently accounted for in
various stages of project planning across Canada. (Construction is
underway or expected to begin within the next ten years on 13 GW. The
additional 12 GW could be developed if the appropriate circumstances
arise.)
---------------------------------------------------------------------------
* Map has been retained in committee files.
\4\ Study of the Hydropower Potential in Canada: Final Report.
Canadian Hydropower Association, 2006.
---------------------------------------------------------------------------
Conclusion
We are committed to working with the U.S. on the shared goal of
moving towards a cleaner, more secure electricity future. While we
strongly support the Committee's objectives in this legislation, we
believe that the treatment of Canadian hydropower in S.2146 would
frustrate these objectives. We respectfully urge the Committee to
revise the bill to enhance the ability of U.S. utilities to utilize
Canadian hydropower to meet clean energy goals in a cost effective
manner.
We thank you for the opportunity to submit this testimony and look
forward to working with you to achieve these important goals.
______
COVANTA ENERGY,
Morristown, NJ, February 29, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate.
Dear Mr. Chairman: Covanta Energy congratulates you on the
introduction of your clean energy standard legislation. It is widely
acknowledged that you have worked for years to create a renewable
energy standard, and that your leadership and dedication have not only
advanced the energy and environment debate in Washington, but have also
helped create state renewable policy across the country. Your
legislation sets the stage for our country to lessen our dependence on
fossil fuels and increase the creation of good-paying, long-term jobs
in the clean energy sector.
We look forward to doing our part in helping our nation fulfill its
potential by creating energy from waste and moving away from burying
valuable BTUs in landfills. Thank you for your continued leadership in
setting America's energy policy.
Sincerely,
Paula Soos,
Vice President, Government Relations.
______
Gamesa Technology Corporation,
Trevose, PA, May 10, 2012.
Hon. Jeff Bingaman,
U.S. Senate Energy & Natural Resources Committee, Washington, DC.
Dear Chairman Bingaman:
Thank you for this opportunity to submit written testimony in
connection with the above-referenced hearing.
With more than 17 years' experience, Gamesa is a world leader in
the design, manufacture, installation and maintenance of wind turbines,
with more than 24,000 MW installed in 35 countries on four continents
and over 16,000 MW under maintenance. The company has 34 production
facilities in Europe, the US, China, Brazil, and India and over 8,000
employees worldwide.
Gamesa is also a world leader in the development, construction and
sale of wind farms, having installed over 4,100 MW and having a
portfolio of more than 23,800 MW in Europe, America and Asia. The
annual equivalent of the 24,000 MW installed amounts to more than 5.4
million tons of petroleum (TEP) per year and prevents the emission into
the atmosphere of about 21 million tons of CO2 per year.
In our responses to the Bingaman-Murkowski White Paper, Gamesa
stated that the goal of a national Clean Energy Standard (CES) should
be to drive the domestic market for clean (zero-emissions) energy
technologies that will reduce greenhouse gas emissions from electric
generators. In those responses, Gamesa identified several core
principles that should guide any bill designed to accomplish that goal.
We at Gamesa are impressed by how The Clean Energy Standard Act of
2012, S. 2146, addresses these principles, and with small changes,
Gamesa would wholeheartedly support the bill. Let me explain why the
bill so closely follows the principles we outlined in the White Paper,
and what small changes we would recommend.
Include as many utilities as possible to affect the largest market.
The bill exempts small electricity retailers that sell fewer than 2
million megawatt hours of electricity in 2015, and then ratchets the
exemption down to 1 million megawatt hours by 2025.
Focus solely on electricity generation and not energy efficiency.
The bill does precisely this.
Adopt gradually increasing targets over successive 5-year periods
to ensure markets can react and grow quickly. The bill exceeds the
expectations implicit in this principle by increasing the targeted
percentages of clean electricity every single year, going from 24
percent in 2015 to 84 percent by 2035.
Set target percentages at levels that ensure at least 30 percent
compound annual growth in deployment for the wind industry annually for
the next five years, and then 20 percent compound annual growth in
deployment over the subsequent five-year period. According to the
Energy Information Agency's (EIA) modeling of the bill, the amount of
wind energy purchased by utilities increases from 95 terawatt hours in
2010 to 212 terawatt hours by 2025--an overall increase of 223 percent,
representing a compound annual growth rate of 5.5 percent.
Allocate credits to only clean (zero-emissions) energy sources; and
if partial credits are offered for non-clean energy sources, those
credits should ratchet down over time. The bill does give partial
credits to energy sources that are responsible for some carbon
emissions, but their credits are calculated in a reasonable manner. The
credits do not ratchet down over time, but it appears that the higher
percentage targets provided in the bill make these partial credits less
valuable to utilities as they strive to meet the higher percentage
targets in the later years.
If partial credits are awarded, establish tiers to incentivize the
development of non-emitting energies and avoiding a monopoly of
conventional emitting technologies. The EIA modeling seems to indicate
that the aggressive target percentage increases over time avoids the
monopoly of conventional emitting technologies that we feared.
Measure emissions in the production and extraction process of the
fuel source. The bill measures emissions only from the generation
source of electricity. Gamesa's concern here is that there are fuel
sources tapped for the production of electricity where the greenhouse
gas emissions could be significant at the extraction (or distribution)
stages, and those emissions should be accounted for in calculating
credits under the bill.
It seems to Gamesa that the bill attempts to address this question
to some extent in section 611. That section requires a study of the
``losses of natural gas'' that occur during the ``production and
transportation'' of natural gas, and it requires the Secretary to make
policy recommendations based on the results of the study. But we
believe the scope of this section should be expanded in two ways.
First, it should require that the study should be explicit about
including the tracking of the methane component of natural gas
emissions at these stages. And second, the language should require the
Secretary to make specific policy recommendations as to what credit
calculations under section 610(g) of the bill should be modified in
accordance with the findings of the study.
Other policies will also be required to achieve the full set of
goals set by a national CES--namely transmission upgrades, permitting
acceleration, and ensuring the long-term viability of financial
capacity to drive the market growth. Gamesa believes that the passage
of the Clean Energy Standard Act of 2012 will expand the U.S. market
for clean energy technologies, drive down the costs of clean energy
technologies over a relatively short period of time, and give millions
of Americans access to clean, and affordable electricity. In so doing,
our strong belief is that a CES of this scope will spur economic
growth, significant greenhouse gas emissions reductions, and robust
American job creation.
Sincerely,
David Flitterman,
Chairman.
______
GE Energy,
Washington, DC, March 1, 2012.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources, Committee, 304 Dirksen
Senate Office Building, Washington, DC.
Dear Mr. Chairman:
Thank you for contacting us to make us aware of the new clean
energy standard (CES) legislation that you plan to introduce later
today.
GE is supportive of the legislation and looks forward to working
with you and members of the committee on this important proposal. We
believe that federal energy policy should support an aggressive and
predictable transition to a diverse portfolio of clean energy
technologies, including wind and solar power, highly flexible and
efficient natural gas generation, waste heat-to-electricity, advanced
nuclear energy and next generation coal power with carbon capture,
utilization and storage. By our reading, your legislation does provide
such a transition to a diverse portfolio of clean energy technologies.
We applaud you and your co-sponsors on this important first step
toward creating a clean energy standard and improving our nation's
energy future.
Sincerely,
Robert Hall III,
Senior Manager & Counsel GE Energy.
______
Statement of Douglas A. Dougherty, President and CEO, The Geothermal
Exchange Organization
On behalf of the Geothermal Exchange Organization (GEO), a non-
profit trade association representing the U.S. geothermal heat pump
industry, we are pleased to submit a statement for the record on S.
2146, the Clean Energy Standard Act of 2012.
GEO strongly supports the goals of S. 2146 but would like to work
with the Committee to ensure that utilities receive credit under the
CES for the renewable energy that geothermal heat pumps harness from
the ground.
Geothermal heat pumps capture a distributed, thermal form of
renewable energy that can be measured, metered, and verified and
effectively address one of the biggest consumers of U.S. energy--
buildings. Buildings account for more than 70 percent of the nation's
electricity usage, and geothermal heat pumps have the potential to
reduce energy use by as much as 40-70 percent in a typical building.
Geothermal heat pumps are a 50 state technology that use the only
renewable energy resource that is available on demand at the point of
use and cannot be depleted. If included in the CES, every utility in
the country can promote geothermal heat pumps as way to meet its CES
obligation.
Ensuring that utilities get credit under a CES for the thermal
energy avoided by geothermal heat pumps will create an incentive for
utilities to actively promote this proven technology. Every electric
utility in the country can improve its load factor, mitigate the need
for price increases, lessen the strain on the transmission grid,
forestall future generation needs, reduce carbon emissions, and provide
consumers with improved conditioned space by promoting geothermal heat
pumps. In fact, a review of existing studies done by DOE labs suggests
that GHPs could avoid more than 130 billion kWhs of retail electricity
sales by 2035.
While GEO appreciates that S. 2146 does direct the Department of
Energy to conduct a study to examine the benefits and challenges of
including geothermal heat pumps in the CES, GEO does not believe we
should wait for up to three years for a study when the benefits of
installing geothermal heat pumps are well documented.
In addition, measurement and verification of the GHP contribution
can be accomplished in a relatively straightforward manner. The
Department of Energy and the national labs already have identified ways
to measure and verify the thermal energy savings. Alternatively,
measurement could be achieved by requiring the installation of a
relatively inexpensive meter to measure the renewable energy geothermal
heat pumps harness from the ground.
The Committee could also look to legislation recently signed into
law in Maryland as a model. The Maryland legislature recently passed
legislation to make geothermal heat pumps eligible for renewable energy
credits under the state's Renewable Portfolio Standard (RPS). The state
recognized that including geothermal heat pumps will help the state
meet its RPS goal, while at the same time helping utilities reduce peak
demand, stimulating the economy by increasing geothermal heat pump
installations, helping consumers cut energy costs, and reducing carbon
emissions.
Under the Maryland model, the thermal energy avoided by installing
geothermal heat pumps in the residential setting will be estimated
using modeling tools. For commercial installations, a meter would be
installed on site to measure the thermal energy saved. In both cases,
the BTU energy savings attributable to geothermal heat pumps are
converted into annual megawatt hours that utilities can claim for
credit under the Maryland RPS.
In summary, we strongly support legislation to establish a CES and
hope to work with Chairman Bingaman and the members of the Committee to
ensure that geothermal heat pumps are included and utilities can claim
credit for the renewable energy that geothermal heat pumps harness from
the ground.
Thank you again for the opportunity to submit testimony for the
hearing record.
______
Hydro Green Energy,
Westmont, IL, March 2, 2012.
Hon. Jeff Bingaman,
Chairman, Energy and Natural Resources Committee, U.S. Senate, 304
Dirksen Senate Building, Washington, DC.
Dear Chairman Bingaman:
On behalf of Hydro Green Energy, I am writing to express our
support for S. 2146, the Clean Energy Standard Act of 2012.
Hydro Green Energy (HGE) is a renewable energy development company
with proprietary hydropower technology. The company, which maintains
headquarters in Illinois, focuses on developing new hydropower
generation at existing, non-powered dams in an environmentally-
responsible manner.
HGE is currently developing 37 low-impact hydropower projects in 15
states with a total installed capacity of 350 MW. Our projects will
provide enough annual power for nearly 200,000 homes and annually avoid
2.7 billion pounds of carbon emissions.
Based on our reading of S. 2146, as well as conversations with your
staff, we understand that S. 2146 would qualify all of our projects and
our energy output as ``clean,'' allowing for full participation in the
Clean Energy Standard (CES). Federal policies such as the CES will
ensure the most robust, economic development of America's renewable
energy resources.
While hydropower is the nation's largest renewable resource, and it
has long played an important role in providing millions of Americans
with clean, reliable and predictable power, there is substantial growth
potential for new, environmentally-responsible hydropower. S. 2146
properly recognizes hydropower's critical role in meeting the goals of
S. 2146, as well as its ability to robustly contribute to America's
clean energy economy.
We look forward to working with you and your colleagues in the
Senate to see that S. 2146's recognition of hydropower remains
unchanged and that the Clean Energy Standard Act of 2012 is enacted
into law.
If you or your staff have any questions, please do not hesitate to
contact Mark R. Stover, Hydro Green Energy's Vice President of
Corporate Affairs.
Sincerely,
Michael P. Maley,
President & CEO.
______
IBERDROLA RENEWABLES,
Portland, OR, March 1, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Mr. Chairman:
I am writing on behalf of Iberdrola Renewables to commend you for
introducing the Clean Energy Standard Act of 2012. As one of the
leading independent electricity generators and marketers in the United
States, Iberdrola Renewables believes that a properly structured Clean
Energy Standard is an essential element of a national energy policy
that enhances our energy security, promotes fuel diversity, protects
consumers from energy price volatility and substantially reduces
greenhouse gas emissions.
A national Clean Energy Standard offers a cost-effective approach
to provide electric generating facilities utilizing clean energy
resources an opportunity to compete in the marketplace. Over the last
decade, the ability of renewable energy generators to attract customers
has depended, in part, on the availability of a tax credit that has
been scheduled to expire practically every other year. This has created
several ``boom and bust'' cycles in the industry. A Clean Energy
Standard, on the other hand, provides generators utilizing renewable
and other clean resources, a more stable, long-term environment within
which to plan and operate.
Your introduction of the Clean Energy Standard Act of2012 is an
important first-step in the process of getting a national Clean Energy
Standard enacted. The bill proposes to establish aggressive, but
achievable targets for utilities to diversify their resource portfolio.
Iberdrola Resources offers any assistance necessary to help you get a
meaningful National Clean Energy Standard enacted this year.
I also want to take this opportunity to thank you for the vision
and leadership you have demonstrated during your service in the United
States Senate. You have been on the forefront of every major piece
oflegislation that has impacted the renewable energy industry over the
last 30 years. I hope that you will be able to complete your career
with the enactment of a strong national Clean Energy Standard.
Sincerely,
Martin Mugica,
Executive Vice President.
______
International District Energy Association,
Westborough, MA, March 9, 2012.
Hon. Chairman Bingaman:
The International District Energy Association (IDEA) applauds you
for your leadership in introducing the Clean Energy Standard Act of
2012. This legislation would provide a strong market-based approach to
encouraging clean energy that can spur economic growth, increase energy
security and grid reliability, and reduce emissions. Implementation of
the CES would be particularly timely given the upcoming need for
replacement of retiring coal power plants.
We are extremely pleased that the bill recognizes the efficiency
and economic advantages of combined heat and power (CHP) and district
energy systems. Few people realize that two thirds of U.S. power
generation fuel energy is currently thrown away as waste heat.
Increased implementation of more CHP--which generates electricity while
recovering useful thermal energy for heating buildings or industrial
processes-- will increase energy efficiency, reduce emissions, reduce
power transmission constraints and losses, and strengthen power grid
reliability and energy security.
Secretary Chu, in his February 16 testimony to the Senate Energy
and Natural Resources Committee, described his February 2 visit to IDEA
member Thermal Energy Corporation (TECO) in Houston, TX which employs
highly efficient CHP and district energy systems to supply steam for
heating and chilled water for cooling to the Texas Medical Center, the
largest medical center in the world. Secretary Chu described DOE as
``bullish on CHP'' and cited district energy systems as a primary near
term market opportunity to achieve dramatic increases in energy
efficiency on a community scale.
District energy systems like TECO produce steam, hot water and
chilled water at a central plant for distribution through underground
piping networks in cities, campuses and communities to multiple
buildings for space heating, hot water and air conditioning. District
energy systems not only represent an enormous ``heat sink'' for
increased CHP capacity. As the CES bill recognizes, district energy
systems also reduce power loads by delivering thermal energy to
consumers who would otherwise draw power from the grid. This is welcome
recognition of the importance of heating and cooling, which consumes 31
percent of total primary energy use in the U.S.
In contrast to some of the other potential clean energy resources,
CHP and district energy are proven technologies that can dramatically
increase the fuel efficiency of the electricity sector with the
simultaneous production of useful thermal energy and power nearer to
end users. CHP systems can reach efficiencies above eighty percent. Oak
Ridge National Laboratory estimated in 2008 that increasing the
percentage of electricity generated by combined heat and power in the
US from 85 GW of capacity (9 percent) to 241 GW (20 percent) by 2030
would attract $234 billion in private investment, produce 5.3
www.districtenergy.org quads of annual fuel savings, create nearly 1
million new jobs and cut CO2 emissions equivalent to taking
154 million cars off the road.
IDEA (www.districtenergy.org) serves as a vital information hub for
the district energy and combined heat and power industries, connecting
industry professionals and advancing the technology around the world.
With headquarters just outside of Boston, Mass., the 1,500-member IDEA
was founded in 1909 and comprises district heating and cooling system
executives, managers, engineers, consultants and equipment suppliers
from 25 countries. IDEA supports the growth and utilization of district
energy as a means to conserve fuel and increase energy efficiency to
improve the global environment.
IDEA looks forward to working with members of Congress and the
Administration on the optimization of district energy/CHP as an
important clean energy strategy for our country.
Sincerely,
Robert P. Thornton,
President & CEO.
______
Statement of David J. McMillan, Executive Vice President, for Minnesota
Power, Duluth, MN
Minnesota Power (MP) has reviewed the Clean Energy Standard Act of
2012 and related Energy Information Administration (EIA) analysis. MP
believes that compared to cap-and-trade programs a Clean Energy
Standard (CES) offers several advantages and is a superior policy to
achieve utility-sector greenhouse gas (GHG) emission reductions. We
offer these comments aimed at increasing the amount of clean energy
that electric utilities provide their customers, reducing greenhouse
gas emissions, and accomplishing both in a cost-effective manner.
Minnesota Power's General Comments on S. 2146, the Clean Energy
Standard Act of 2012
A fundamental question raised by the legislation is ``what is the
specific policy objective that is intended to be addressed?'' The
purpose section contains three separate and in some cases competing
directives: stimulating clean energy innovation; promoting low and zero
carbon electric generation in the United States, and; doing this at the
lowest incremental cost to consumers. In Minnesota Power's view, the
bill fails to balance the three directives to achieve both
effectiveness and affordability.
If the bill's objective is to maximize the reduction of GHG
emissions, all utilities, including co-operative and municipal
utilities of any size, should be subject to the same standards. If the
bill is not comprehensive it will not maximize CO2 emission
reductions and will create competitive dislocations. The United States
cannot begin to address what is an international issue if the starting
off spot for a domestic GHG reduction program isn't comprehensive in
nature.
Again, if the objective is to reduce GHG emissions, the legislation
fails to address EPA's ongoing and duplicative efforts to regulate GHG
emissions under the Clean Air Act. There is no rational reason to have
multiple regulations imposed on the power sector which seek the same
endpoint. Doing so will have the effect of driving up consumer prices,
threatening electric reliability and limiting fuel diversity.
If the objective is to reduce utility GHG and other emissions, and
do so at the lowest incremental cost, then there is no basis to exclude
any clean energy resources that are connected to the North American
grid. ``Clean energy'' resources that are available to U.S. consumers
from across the border should be considered qualifying resources under
the Act.
Similarly, there is no reason to treat biomass energy any
differently than other clean energy or renewable energy resources. As
crafted, the bill does not consider existing biomass energy clean or
renewable; new biomass energy is not considered ``renewable'' and the
definition of new biomass energy is overly prescriptive, and; the
speculative nature of the biomass clean energy crediting scheme creates
uncertainty.
The time frames and intensity of increasing clean energy
requirements envisioned by the Clean Energy Standard Act of 2012 seem
extraordinarily aggressive. Either the program's time frame needs to be
lengthened or the program's goals need to be moderated--or both--to
balance the needs for reliable, affordable and available electric
energy.
Background
Minnesota Power (MP) is an investor owned utility providing energy
services to customers in central and northeastern Minnesota and
northwest Wisconsin. Minnesota Power's northern location and high
percentage of industrial customers who operate around-the-clock make MP
a winter-peaking utility. Thirteen large power customers (requiring at
least 10 megawatts of generating capacity) purchase about half the
electricity MP sells. These large power customers compete in
competitive global markets. Minnesota Power's unique load profile makes
it imperative that our energy resources be reliable, affordable and
available around the clock.
The majority of MPs steam electric generation is coal-based with
the exception of two facilities that burn a mix of coal, biomass and
natural gas. These two facilities also provide steam to paper mills.
Minnesota Power has achieved significant particulate, SO2,
NOX and mercury emission reductions associated with our
electricity generation through a combination of emission reduction
technologies. By 2015 our emissions will be 85 percent less than they
were in 2005.
MP has an expanding base of renewable hydroelectric, biomass and
wind energy that supports compliance with the Minnesota Renewable
Portfolio Standard (25 percent by 2025). Today approximately 15 percent
of the energy Minnesota Power sells to its customers is from renewable
resources, including hydropower, wind and biomass, up from just 4
percent in 2005. Minnesota Power recently purchased a direct current
(DC) line in order to help it meet Minnesota's ``25 by 2025'' renewable
energy mandate. The DC line provides MP's customers with greater access
to North Dakota wind resources.
Minnesota Power also recently signed a long-term contract with
Manitoba Hydro. The contract is critical to enable us to ``back-up''
our wind resources from North Dakota with dependable hydropower from
Canada. We believe this marriage of ``wind and water'', which creates a
reliable and dispatchable renewable electric resource, is unique in the
utility industry.
Specific Comments on S. 2146
Minnesota Power uses a series of policy ``screens'' to evaluate
legislation and proposed regulations that affect the electric utility
sector. S. 2146 fails several of these screens, which we elaborate on
below.
Is the Policy Fair and Equitable--Does the policy affect all
players across the industry sector in a fair and equitable
manner?
--NO--The exclusion of ``small'' utilities has the effect of the
federal government picking winners and losers. EIA's recent
analysis confirms this by pointing out that . . . ``there
is likely to be a considerable divergence in the price
impacts for customers of exempt and non-exempt electricity
providers.'' EIA estimates that in some regions the cost
difference between exempt vs. non-exempt utilities can vary
as much as a factor of two. Exempting certain utilities,
restrictive qualifiers for credits and aggressive credit
surrender requirements will tend to magnify local and
regional differences in energy supply costs.
--If compliance costs and associated customer impacts of the CES
are a concern and the primary reason for the ``small
utility'' exemption, there are better solutions. For
example, fully funding the Low Income Home Energy
Assistance Program (LIHEAP) is a more direct method to
address the energy cost concerns. LIHEAP puts money
directly in the hands of the neediest electric consumers
across the utility sector. Low income consumers are not
limited to ``small'' utilities and are found in city
centers and urban areas as well as in small towns and rural
America.
--The CES treats biomass energy generators differently than other
clean and renewable energy options. The CES provides no
benefit to existing (pre-December 31, 1991) biomass energy
projects, and places significant qualifying burdens on new
biomass energy projects.
Do Consumer Benefits Outweigh the Regulatory Burdens: Do the
regulations result in compliance burdens that benefit our
customers?
--NO--One of the fundamental stated purposes of the CES is to
reduce carbon dioxide emissions. Yet the bill does not
address the concurrent regulatory scheme that the
Environmental Protection Agency (EPA) is in the midst of
implementing.
--EPA has recently issued proposed rules under the Clean Air Act
with the express intent of regulating new fossil-fueled
generation sources. Many believe, and EPA has so much as
conceded, that it will eventually extend these New Source
Performance Standard regulations to existing sources.
--Since the CES has the same stated policy outcome that EPA is
seeking under its regulatory program, that is to limit
carbon dioxide emissions from utility generation sources,
then the CES should either preempt the EPA from regulating
utility greenhouse gas emissions, or amend the Clean Air
Act to make clear that, once the CES is implemented,
greenhouse gases from utility generators are not considered
a pollutant under the Clean Air Act.
--Layering on another GHG regulatory program adds costs, complexity
and confusion.
Does the Policy Respect Regional Differences: Are
differences across the country factored into the design of the
program?
--NO. Each region of the country has access to different types of
renewable energy, yet the bill treats these renewable
energy resources in a disparate fashion.
--Biomass energy, widely available in some parts of the country, is
treated differently than other clean and renewable energy
resources.
--Clean energy generation located outside the borders of the United
States, yet accessible to electric consumers within the
United States, receives no recognition in the bill.
--Minnesota Power recently entered into a long-term contract with
Manitoba Hydro that will enable, not inhibit, additional
domestic wind energy resources. The exclusion of clean
energy resources located outside the United States but
connected to the integrated North American electric grid
will increase incremental costs to consumers in the United
States and, in our case, will also result in increased
overall carbon dioxide emissions. Natural gas is the only
other readily available option to back up our North Dakota
wind resources if we cannot use clean Canadian hydropower
to do so (for more information on our contract and
emissions profile see the attachment at the end of these
comments).
--The exclusion of Canadian hydropower also acts as a non-tariff
trade barrier, suggesting possible conflicts with the North
American Free Trade Agreement.
--For more detail on the use and clean energy benefits of Canadian
hydropower please see the comments submitted for the record
by several Canadian Provinces and electric energy entities.
--Regarding biomass energy, there is no defense for the
differential treatment of biomass energy resources as
compared to other ``renewable energy'' resources as defined
in the bill (solar, wind, ocean, current, wave, tidal or
geothermal energy).
--For more details on the use of biomass energy see the comments
submitted for the record by the Biomass Power Association.
Is the Policy Technically Feasible--Are the outcomes
envisioned or created by the policy achievable in a cost-
effective manner in the required time frames.
--NO. Minnesota Power's analysis of the predictions in EIA's recent
analysis of the Clean Energy Standard suggests that they
are highly optimistic. Significant increases in clean
energy generation resources will be needed. Some of these
resources have considerable licensing and siting challenges
as well as requiring significant investments in related
infrastructure to either make the electricity (i.e. natural
gas lines to power plants) or get the electricity to market
(i.e. electric transmission lines). These major
infrastructure additions will need to be in place in just
over 20 years.
--From the 2010 baseline, output from nuclear power plants is
expected to increase by a factor of 1.8 times by 2035,
which will significantly increase the proportion of nuclear
energy in the U.S. electricity mix from its current level
of 20 percent. Given that we have not built a new nuclear
plant in the United States in decades, and nuclear power
plants face daunting licensing and siting requirements,
this seems unlikely to occur.
--Similarly, the recent EIA analysis shows that, from a 2010
baseline, the output of natural gas generation is expected
to increase by a factor of 1.5 times. This may or may not
be achievable given the fact that this type of increase
would require substantial investments in new gas
transmission lines.
--One cannot assume that electricity output from natural gas
generation could be increased to make up for baseload
capacity deficits if the predicted nuclear output does not
materialize. This is because the goals of the CES cannot be
met if more natural gas is introduced into the system.
Another, as of yet unknown, baseload energy generation
technology would be required and in place in order to meet
the CES goals.
New natural gas generation is likely to
receive approximately one-half a credit per unit of
energy. Natural gas generation that goes into service
after 2023 will immediately fall short of credits
needed for its own compliance.
--Non-hydro renewables are predicted to increase by a factor of
four as compared to 2010 levels. Within this group, EIA
predicts that biomass energy will increase by a factor of
over six times from 2010 levels, and wind increases of
nearly three times. These seem to be wildly optimistic
projections which do not factor in the significant
investment in new electric transmission infrastructure to
connect these often remote, and in the case of wind,
variable electric resources to the grid. Given the unknown
treatment of biomass energy in the bill and its
questionable ability to count as a clean energy resource,
the EIA projection of a 6.6 times increase seems
exceedingly optimistic.
--Precluding clean energy resources located outside of the United
States from qualifying under the Act only makes a
challenging emission reduction policy goal more difficult
to attain. Given the aggressive nature and requirements of
the Clean Energy Standard, not allowing all clean energy
resources connected to the North American electric grid to
qualify under the Act violates the policy goal of
implementing this program at the lowest incremental cost to
consumers.
Conclusion
Minnesota Power believes that expanded clean energy deployment,
reductions of greenhouse gas emissions associated with electricity
generation, expanded energy conservation and efficiency improvements
are all important objectives for U.S. energy policy. Achieving a
balance between these sometimes competing objectives is essential for
keeping our electricity supply reliable and affordable. Balance is also
needed to deliver meaningful progress towards environmental objectives
while helping the U.S. economy support existing jobs while creating,
new well-paying job opportunities.
To mitigate unintended economic impacts the CES needs a mechanism
to encourage compliance yet allow flexibility should, for example,
unforeseen circumstances prevent deployment of needed clean energy
technology. Towards this end, the current structure of the alternative
compliance payment provision needs to be reconsidered. By 2035, when
more than 80 percent of all energy resources must come from clean
energy sources, the alternative compliance payment will be over $60 per
credit. Given that 2035 is just 23 years from today (a short time by
electric utility planning standards) this potential cost of compliance
could pose serious challenges for residential and energy intensive
industrial consumers alike.
The Clean Energy Standard Act of 2012 is directionally correct.
However, the breadth of infrastructure investments necessary to meet
its objectives will require significant changes to the electricity
generation and delivery system in a very short time frame. For example,
a massive switch from coal to natural gas generation may appear to be
technically possible by 2035. However, since even efficient natural gas
will require credit offsets after 2023, the investment costs from these
new and long-lived investments will not be fully recovered before they
come under intense CES compliance cost pressure.
Minnesota Power believes that the concerns we have raised can
easily be remedied and adopting these changes will make the Clean
Energy Act of 2012 better. Moderating the overall targets; minimizing
regional and local disparities by applying it to all utilities;
assuring that the alternative compliance payment is truly an
alternative compliance option; allowing all clean energy resources to
qualify under the Act including those connected to the electric grid
but located outside the U.S. border, and; preventing redundant
regulatory requirements are desirable and easily delivered objectives.
We all want a strong economy and a clean environment, and a Clean
Energy Standard for the electric utility sector is a policy
intervention that has a lot of merit. Minnesota Power welcomes the
opportunity to work with the authors of the Clean Energy Standard Act
of 2012 to support our shared objectives. Please contact William Libro
(wlibro@mnpower.com) or Michael Cashin (mcashin@mnpower.com) if you
have questions or concerns about these Minnesota Power comments to the
Clean Energy Standard Act of 2012.
______
Statement of the National Alliance of Forest Owners
Introduction
The National Alliance of Forest Owners (``NAFO'') is pleased to
submit a statement to the Senate Committee on Energy and Natural
Resources (``Committe'') on the S. 2146, Clean Energy Standard Act of
2012 (``CES''). NAFO is an organization of private forest owners
committed to promoting Federal policies that protect the economic and
environmental values of privately-owned forests at the national level.
NAFO membership encompasses more than 79 million acres of private
forestland in 47 states. NAFO members are well positioned to help our
nation meet its renewable energy objectives, and NAFO is prepared to
work with the Committee and Congress toward that end.
Private working forests are a fundamental part of the strategic
natural resources infrastructure of our nation, producing renewable,
recyclable, and reusable wood and paper products; sustaining plants and
wildlife; producing clean water and air; and providing recreation
experiences. Working forests also play a substantial role in helping
this country achieve energy independence while reducing greenhouse gas
(``GHG'') emissions. Forest biomass is a renewable energy feedstock
that can help meet our national renewable energy goals in all regions
of the country, if placed on a level playing field with other renewable
energy sources. Thus, biomass will play a vital role in an ``all-of-
the-above'' approach to American energy production.
NAFO urges this Committee to take care to avoid picking winners and
losers in the public marketplace; any definition of qualifying
renewable energy feedstocks should provide a level playing field for
market access. The CES should recognize that forest owners already work
within a well-established framework of laws, regulations and non-
regulatory programs and actions that apply to all aspects of forest
management, including biomass production, and that promote and maintain
responsible forest stewardship with proven results.
II. Private forests provide jobs for millions of Americans and
contribute significantly to the nation's economic well being
According to a recent national study, private forests in the United
States support over 2.4 million jobs, $87 billion in paychecks to
employees, and $115 billion in economic contributions. Forests and the
manufacturing they support are key employers in many states.
Private working forests and the jobs they support depend upon
reliable markets for continued viability. The U.S. has experienced
sustained growth in its forest resources in concert with an ever-
increasing demand for renewable forest products. This is attributable
at its core to the fact that viable markets for forest products keep
forestland economic compared to other uses, spurring investment in
forest management and limiting forest conversion to other land uses
that otherwise would yield a greater economic return.\1\ When existing
markets for their products are strong, or when new markets like
renewable energy emerge, forest owners are able to invest in tree
planting and forest health treatments which help maintain the private
forest land base, keep private forests economically competitive with
other land uses, and maintain family-waged jobs in the forestry sector.
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\1\ Environmental Effects of Land-Use Change: The Role of Economics
and Policy, Ruben Lubowski, et al., USDA Economic Research Service.
Economic Research Service Report No. 25 (Aug. 2006).
---------------------------------------------------------------------------
The Federal government should take actions to encourage viable
markets for forest products and maintain a regulatory framework that
encourages forestry as a viable land use that will continue to provide
good paying jobs in rural communities and provide multiple public
benefits for all Americans.
III. Our nation will not meet its objectives to increase our reliance
on secure, domestic sources of renewable energy without the
contributions of working forests
Wood is a dependable, domestic renewable energy resource that can
be utilized for energy production through a variety of processes like
biomass generation, wood gasification, and conversion to cellulosic
biofuels. Wood, wood residuals, and other plant material can be
utilized to produce steam and heat hot water boilers. Steam can be
converted to electrical power by turbines or used to heat buildings
through piping distribution networks. Newer ``wood gasification''
technologies heat wood in an oxygenstarved environment, collect gases
from the wood, and later mix the gases with air or pure oxygen for
combustion. Wood gases can be cooled, filtered, and purified to remove
pollutants and used as fuel for internal combustion engines, micro-
turbines, and gas turbines.
As members of the Committee are aware, biomass already produces
roughly 40 percent of the nation's non-hydro renewable electricity.\2\
Existing state CES policies reflect the importance of utilizing biomass
to successfully lower demand for traditional fossil fuels. To help meet
renewable energy goals, at least 38 states and the District of Columbia
have included biomass as a renewable generation source.\3\
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\2\ U.S. EIA at http://www.eia.gov/cneaf/alternate/page/
renew_energy_consump/table3.html. Biomass is the primary energy source
for 54.3 billion kilowatt hours of the 141 billion kilowatt hours of
non-hydro renewable energy produced in 2009.
\3\ Source: Database of State Incentives for Renewable Energy,
available at http://www.dsireusa.org/.
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A federal CES that does not appropriately include all forms of
forest biomass poses challenges to regions of the country where forest
biomass is the prevailing renewable energy source and where wind,
geothermal, solar, or hydroelectric power are not expected to make a
significant contribution. Moreover, a federal standard that does not
acknowledge or encourage the full use of forest biomass will jeopardize
the nation's ability to meet its renewable energy objectives.
IV. Utilizing working forests will both meet our nation's energy needs
and help reduce atmospheric GHG concentrations
Experts have long recognized working forests as a source of real
and verifiable reductions in greenhouse gas emissions and a cost-
effective source of industrial GHG offsets. The United Nations' 2007
Intergovernmental Panel on Climate Change (``IPCC'') highlights forest
management as a primary tool to reduce GHG emissions. The IPCC states:
``In the long term, a sustainable forest management strategy aimed at
maintaining or increasing forest stocks, while producing an annual
sustained yield of timber, fiber or energy from the forest, will
generate the greatest mitigation benefit''.\4\
---------------------------------------------------------------------------
\4\ Climate Change 2007: Mitigation. Contribution of Working Group
III to the Fourth Assessment Report of the Intergovernmental Panel on
Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer
(eds)], Cambridge University Press, Cambridge, United Kingdom and New
York, NY, USA, page 543.
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Similarly, the EPA has concluded that there is ```scientific
consensus' . . . that the carbon dioxide emitted from burning biomass
will not increase CO2 in the air if it is done on a
sustainable basis.''\5\ This position is supported not only by the
IPCC, but also by the Energy Information Administration (``EIA''), the
World Resources Institute (``WRI'') and other credible scientific
bodies. EPA is currently in the midst of a scientific review of the
climate impacts of biogenic CO2 emissions, which will inform
EPA policy under the Tailoring Rule and other related actions. Although
EPA's policy decisions are still forthcoming,, current research
consistently demonstrates that, when viewed on appropriate temporal and
spatial scales, the combustion of woody biomass for energy does not
increase atmospheric CO2 concentrations and instead provides
significant climate benefits by displacing fossil fuels.
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\5\ Environmental Protection Agency Combined Heat and Power
Partnership, Biomass Combined Heat and Power Catalog of Technologies,
96 (Sept. 2007) available at www.epa.gov/chp/documents/
biomass_chp_catalog.pdf.
---------------------------------------------------------------------------
Appropriately including forest biomass in a CES standard would take
full advantage of these carbon mitigation benefits in the energy
context. Likewise, a policy that discourages forest biomass utilization
will forfeit these benefits, particularly in areas where fossil fuels
are the predominant source of energy production and where alternative
forms of renewable energy, such as wind, solar, and geothermal, are not
viable options.
V. Forest owners work within a well-established framework of laws,
regulations and non-regulatory programs and actions that
maintain responsible forest management
Private forestry operations are governed by a fairly complex set of
laws, regulations, as well as non-regulatory policies at the federal,
state, and local levels. While the resulting framework is fairly
complicated and can vary widely between jurisdictions, overall it has
been very effective in improving the environmental performance of
forestry operations, and can be expected to do so in the future.
Under this framework, working forests provide significant
environmental benefits while producing important economic benefits like
renewable energy. Watershed protection, wildlife habitat, carbon
dioxide absorption, and other ``environmental services'' are currently
provided by private landowners at little or no cost to society.
Whenever policymakers consider new environmental requirements on
private forestry, such as eligibility requirements for forest biomass
intended for energy use, the implications for the economic viability of
working forests should be considered. If new regulatory requirements
reduce the private forest owner's ability to realize value from a
working forest, or if new market limitations constrain market
opportunities for working forests, private forest owners might be
compelled to consider other uses for their forests, which could result
in the reduction of many of the broader environmental benefits they
provide.
VI. Definitions of eligible biomass feedstock should put working
forests on an even playing field with other renewable energy
sources
Definitions of qualifying renewable energy feedstocks should
provide a level playing field for market access across all feedstock
sources and encompass the full range of forest biomass, including trees
and other plants, forest residuals (e.g., tops, branches, bark, etc),
and byproducts of manufacturing (e.g., sawdust, bark, chips, dissolved
wood retrieved from the paper-making process, etc). Presently there are
at least four different definitions of qualifying forest biomass in the
major federal statutes affecting biomass energy production.\6\ This
adds complexity and confusion for project developers, biomass
producers, and federal program administrators who are required to
determine how the various, and at times conflicting, definitions
interact with one another.
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\6\ Separate definitions of eligible forest biomass can be found in
Section 45 (c)(3) of the Internal Revenue Code (26 U.S.C. 45(c)(3));
Section 203(b)(1) of the Energy Policy Act of 2005 (42 U.S.C.
15852(b)); Section 201(1)(I) of the Energy Independence and Security
Act of 2007 (42 U.S.C. 7545(o)(1)(I)); and Section 9001(13) of the
Food, Conservation, and Energy Act of 2008 (7 U.S.C. 8101 (3))
---------------------------------------------------------------------------
Some of these statutes define biomass in a clear, yet broad manner
and allow biomass to compete with other renewable energy sources on a
level playing field. For example, the Food, Conservation, and Energy
Act defines biomass as ``any organic material that is available on a
renewable or recurring basis.'' 7 U.S.C. Sec. 8101(3)(A). To avoid any
confusion, the definition goes on to explicitly include ``trees grown
for energy production.'' Id. Sec. 8101(3)(B)(ii). This definition is
broad enough to include all forest-based biomass feedstocks without
restriction.\7\ At the same time, it provides clarity and regulatory
certainty, allowing private forest owners to invest in forests with
confidence that their products will be allowed to compete in renewable
energy markets without facing unnecessary regulatory hurdles.
---------------------------------------------------------------------------
\7\ However, even this broad definition excludes recycled paper and
fails to address mill residues, a critical feedstock for many
facilities utilizing biomass energy. Both should be included in a
definition of biomass.
---------------------------------------------------------------------------
In contrast, other definitions, such as the definition of eligible
forest biomass in the Energy Independence and Security Act of 2007
(``EISA''), place complicated and arbitrary parameters on significant
acreages of private forestlands in the form of land use restrictions.
These restrictions needlessly disqualify millions of acres of private
forest as a source of renewable energy and foreclose new market
opportunities for forest owners who are already reeling from steep
declines in traditional markets such as solid wood and pulp and paper
manufacturing. It also places forest biomass at a significant
disadvantage to other biomass feedstocks, such as short rotation
agricultural crops that require more energy, nutrients and water to
grow, as well as other renewable energy sources.
If applied to a federal clean energy standard, the EISA definition
or any other definition establishing arbitrary or complicated
parameters on the use of biomass would discourage necessary and
appropriate forest management activities that promote forest health and
sustainability. Such a definition would also create complex chain-of-
custody requirements that would discourage electricity producers from
using biomass because of the cost and complexity of compliance and the
associated legal uncertainty. If identifying qualifying feedstock
becomes too complex or costly, project developers will forego the
development of biomass facilities altogether, thereby potentially
placing the overall CES in jeopardy.
VII. NAFO is prepared to work with Congress and other stakeholders
to realize the contributions of working forests in energy policy in an
environmentally responsible way.
NAFO is prepared to help develop a constructive approach to using
forest biomass to help meet our nation's energy needs. Notwithstanding
the strong record of environmental benefits private forests provide,
NAFO is prepared to continue to work with policy makers and other
stakeholders to ensure that forest biomass, and all other sources of
renewable energy, help meet our renewable energy objectives in an
environmentally responsible way. NAFO suggests the Committee apply the
following principles when crafting legislation addressing the
eligibility of forest biomass as a renewable energy source:
1. Federal renewable energy policy should promote rather than
discourage the use of forest biomass for renewable energy--Federal
policy, and definitions of qualifying forest biomass in particular,
should be broad and inclusive so as to encourage forest biomass
utilization and foster cost-effective compliance. If definitions and
compliance requirements become too complex (e.g. the EISA definition),
they will place forest biomass at a disadvantage with respect to other
feedstocks or renewable energy sources and ultimately discourage its
use. This, in turn, would jeopardize the overall goal of the CES and
reduce the carbon mitigation and other environmental services private
working forests provide.
The proposed definition's focus on site-specific land management
practices will require forest owners and biomass energy producers to
maintain complex chain-of-custody records that will vastly increase
compliance costs and ultimately discourage the production of biomass
energy. The definition of biomass must focus on the carbon benefits of
biomass feedstocks, not the location or method of harvest.
2. Federal policy should provide clarity and regulatory certainty
in order to promote investment in private forests and preserve the
environmental benefits of working forests--Federal policy should
promote predictability and regulatory certainty so that private
landowners can invest in forests with confidence that regulatory
programs and interpretations will support a stable marketplace. New
markets, such as renewable energy, help supplement disappearing markets
and provide new reasons to keep our forests growing sustainably for the
long term. Definitions of qualifying biomass that are complex,
ambiguous, or arbitrarily exclude biomass will create market and legal
uncertainty and reduce private investments in forests and in renewable
biomass energy. Likewise, definitions of renewable biomass that seek
land use objectives that are tangential to renewable energy policy
objectives will create strong regulatory disincentives and legal
uncertainty regarding the use of biomass in both future and existing
facilities.
The proposed definition includes many ambiguous terms, including
the requirement to ``maintain and restore the composition, structure,
and processes of ecosystems.'' This ambiguity will generate regulatory
uncertainty and limit investment in renewable biomass energy as
regulated entities will be unable to determine whether biomass
feedstocks will qualify under the CES program. Moreover, the
definition's consideration of ``diversity of plant and animal
communities, water quality, and the productive capacity of soil and the
ecological systems'' would introduce tangential land use objectives
that are unrelated to renewable energy production and would
unnecessarily complicate the CES program.
3. Federal policy must place all forms of renewable energy on an
even playing field--Accomplishing our nation's renewable energy goals
will require an ``all-of-the-above'' strategy. Rather than picking
winners and losers among renewable energy sources, Federal policy
should treat all types of renewable energy equally and allow market
forces to dictate choices among renewable energy options. Policies that
exclude biomass from ``renewable energy,'' narrow the definition of
renewable biomass, or discount the production of renewable biomass
energy by applying ``carbon intensity factors'' will arbitrarily limit
the production of renewable biomass energy and the environmental
benefits it provides.
The proposed definition of ``renewable energy'' excludes biomass
and arbitrarily distinguishes it from other renewables such as solar,
wind, and geothermal energy. This exclusion would discourage investment
in biomass energy by sending the message that biomass is something
other than renewable. Moreover, the bill's inclusion of ``carbon
intensity factors'' creates additional disincentives for biomass energy
by only allowing it to obtain a fraction of the credit provided to
``renewable energy'' sources. The CES definitions should treat all
renewable energy sources equally and allow market forces to operate
free of regulatory interference.
4. Federal policy should acknowledge and support existing federal,
state, local, and nongovernmental forestry practices and capabilities--
Federal policy should acknowledge and support the existing framework of
federal, state, and local laws, practices, and capabilities and avoid
overlaying on top of them new and potentially conflicting federal
requirements that would introduce unnecessary complexity and legal
uncertainty. The existing framework is well suited to address local
conditions and needs. Federal policies should also assume that this
framework will continue in the long-term and be applied to all forestry
practices, whether associated with traditional or emerging markets.
Forest owners are already subject to a host of regulations that
promote ``diversity of plant and animal communities, water quality, and
the productive capacity of soil and the ecological systems,'' many of
which are specifically tailored to local conditions. There is simply no
need to overlay a duplicative national standard that will lack the
flexibility to address local conditions and needs.
5. Federal policy should recognize that state and local resource
professionals are best positioned to identify and address changing
resource conditions and emerging needs--Given the uniqueness and
diversity of forest ecosystems across the nation, it is extremely
problematic to set forest management or land use standards in a Federal
policy. Potentially changing resource conditions and needs are best
addressed with a more tailored approach at the local level by state and
local authorities using existing tools, common forestry practices, and
well-established procedures.
State and local authorities should continue to fulfill their
responsibilities to assess any changing resource conditions associated
with existing or future forest practices, including the use of biomass
to meet federal energy standards, and make a determination as to
whether additional measures are needed to address emerging needs. If
state or local authorities determine that additional measures are
necessary, they should be allowed to continue the current practice of
identifying and taking necessary corrective measures, following the BMP
model that has proven highly successful across the country in
protecting water quality.
VIII. CONCLUSION
NAFO strongly supports our nation's efforts to establish new
sources of renewable energy, and thereby reduce its dependence on
fossil fuels and imported energy. America's working forests can play a
fundamental role in meeting these new and growing energy needs. U.S.
policies should encourage investment in forests as a source of
renewable energy, by establishing non-restrictive definitions of forest
biomass eligible for use in renewable energy programs.
A Federal CES, if adopted, should fully include forest biomass as a
renewable energy source, and ensure that the definition of biomass
encompasses the full range of forest biomass, including trees and other
plants; forest residuals; and wood byproducts including sawdust, bark,
wood chips, and dissolved wood. In addition, Federal policy should
allow state and local authorities to continue their current role in
assessing and responding to local resource conditions and needs
associated with renewable energy production. Such an approach will
enable our country to meet is renewable energy objectives and allow
working forests to make their full contribution to our energy future
while also reducing overal GHG emissions and providing clean water,
wildlife habitat quality recreation and other environmental benefits
Americans need and enjoy.
______
Sustainable Slopes,
Lakewood, CO, March 9, 2011.
Hon. Jeff Bingaman,
Chairman, Senate Energy & Natural Resources Committee, SD 304 Dirksen
Senate Office Building, Washington, DC.
Re: Ski Industry Support for S.2146
Dear Senator Bingaman:
We are writing to express our support for your Clean Energy
Standard (CES) legislation, S.2146. Eightyone (81 ) ski resorts across
twenty-two (22) states support the measure as a framework for boosting
the development of domestic clean energy, conserving natural resources,
reducing greenhouse gas emissions, reducing the cost of energy over
time, and national security. Ski areas support a long-term, stable
policy that provides an incentive for companies to use low-carbon
energy sources and helps support successful state clean energy programs
already existing in 31 states.
The 81 endorsing ski resorts, listed* below, are committed to
raising awareness of the problem of global warming and helping apply
solutions to solve it. As you know, there are plenty of good reasons
for ski resorts to be concerned about climate change and its potential
impacts. Apart from environmental impacts, scientific models suggest
that as warming continues, we could experience decreased snowpack,
warmer nights, wetter shoulder seasons, and reduced weather
predictability. All of these changes affect our industry, as fewer
operating days would obviously impact our bottom line, warmer nights
can impact our ability to make snow, and spring rain can wash away our
base at a critical time of year. We view climate change as a long-term
problem, and want to implement reasonable, bi-partisan supported
measures now to help solve it.
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* List has been retained in committee files.
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Ski areas have taken tremendous steps to reduce our own GHG
emissions. New this season, the National Ski Areas Association
initiated ``Climate Challenge,'' voluntary program dedicated to helping
participating ski areas reduce greenhouse gas (GHG) emissions and reap
other benefits in their operations, such as reducing costs of energy
use. Resorts who take the Challenge are required to complete a climate
inventory on their resort operations, set a target for greenhouse gas
reduction, and implement a new program or project annually to meet the
reduction goal. Examples of some of the actions taken so far include
lighting retrofits, development of on-site renewable energy including
solar and wind and investment in high efficiency snowmaking equipment.
Eight ski areas took up the challenge in its inaugural year: Alta Ski
Area (UT), Arapahoe Basin (CO), Canyons Resort (UT), Jackson Hole
Mountain Resort (WY), Jiminy Peak (MA), Mount Hood Meadows (OR), Park
City Mountain Resort (UT), and Telluride Ski & Golf Resort (CO). These
founding members of NSAA's Climate Challenge are listed first below as
resort endorsers of your legislation. We anticipate many more resorts
joining the Challenge in future years and are pleased to keep you
apprised of their progress.
Apart from the Climate Challenge, ski areas across the board are
developing renewable energy on site through the application of wind,
solar, geothermal and micro-hyrdo technology. Ski areas are applying
energy-efficient green building techniques, retrofitting existing
facilities to save energy, replacing inefficient compressors in
snowmaking operations, using alternative fuels in resort vehicle
fleets, implementing anti-idling policies and providing or promoting
car pooling or mass transit use by guests and employees. Ski areas are
also supporting renewable energy by purchasing Renewable Energy Credits
(RECs) and providing their customers the opportunity to do the same.
The ski industry represents a relatively small source of greenhouse gas
emissions, however, we are doing our part to set the example and unify
all businesses behind the common goal of addressing the long term issue
of climate change.
Please let us know if there is anything else we can to do help
ensure the passage of S.2146.
Best Regards,
``Climate Challenge'' Founding Resorts,
Alta Ski Area (UT), Arapahoe Basin (CO), Canyons (UT), Jackson Hole
Mountain Resort (WY), Jiminy Peak (MA), Mount Hood Meadows (OR),
Park City Mountain Resort (UT), Telluride Ski & Golf (CO).
______
Pew Charitable Trusts,
Philadelphia, PA, March 6, 2012.
Hon. Jeff Bingaman,
Chairman, U.S. Senate, 703 Hart Senate Office Bldg., Washington, DC.
Dear Senator Bingaman:
On behalf of the Pew Charitable Trusts, I am writing to thank you
for introducing S. 2146, the Clean Energy Standard Act (CES) of 2012
and for your continued leadership on clean energy issues. Over the past
decade, clean energy investment, businesses, and jobs have increased
dramatically around the world, reaching $260 billion in 2011. Expansion
of the clean energy industry in the United States can spur economic
growth, strengthen our national security, and reduce emissions that
threaten health and the environment.
Your CES legislation provides a foundation for building a clean
energy economy that will spur a new wave of technological innovation,
job growth, and manufacturing. Our research shows that clean energy
policy is vital to national competitiveness in this sector. Nations
with effective clean energy policies-- such as a clean energy standard,
renewable energy standards, feed-in tariffs, and clean energy tax
incentives--have attracted investment, manufacturing and jobs.
Over the next 25 years, global energy demand will grow by nearly 50
percent, mostly in emerging markets around the world. The United States
remains the world's leading source of clean energy innovation, but lags
behind in manufacturing and deployment of solar, wind and other
technologies. To strengthen our industry, make it more competitive and
take advantage of emerging export opportunities, the United States
needs to bolster domestic demand. The Clean Energy Standard Act will
create that demand and enhance the competitiveness of the U.S. clean
energy sector. A CES is an effective, market-based approach that will
give investors the certainty they need to finance in American clean
energy projects. It will bolster domestic manufacturing of clean energy
products and stimulate private sector innovation. And it will help the
United States harness the benefits of energy innovations that make our
economy stronger, our environment cleaner and our nation more secure.
We applaud the inclusion of industrial efficiency policies such as
combined heat and power (CHP) in the CES. However, a broader CES that
includes waste heat recovery, district energy, and other technologies
that utilize wasted heat, can create even more jobs and further expand
the clean energy economy. For example, a study by the Oak Ridge
National Laboratory found that doubling the U.S. production of combined
heat and power and waste heat recovery by 2020 could create up to 1
million highly skilled jobs. The Pew Charitable Trusts applauds you for
your 30 years of leadership on energy issues and joins you in seeking
pragmatic policies for enhancing our energy independence and security.
Without effective, forward-looking policy, the U.S. competitive
position in clean energy is at risk and capital is sitting on the
sidelines. We look forward to working with you to secure passage of S.
2146.
Sincerely,
Phyllis Cuttino,
Director, Clean Energy Program.
______
Statement of REMA (Renewable Energy Markets Association)
Renewable energy trade association recognizes Senator
Bingaman leadership in latest clean energy proposal
WASHINGTON, March 1, 2012--The Renewable Energy Markets Association
(REMA) applauds Senator Jeff Bingaman's (D-NM) leadership in clean
energy through his introduction of the Clean Energy Standard Act of
2012 (CES). The CES calls for retail electric utilities to provide 24
percent of their energy from qualifying clean energy sources beginning
in 2015, increasing to 84 percent by the year 2035.
``REMA applauds Senator Bingaman's leadership in on renewable and
clean energy legislation,'' said Josh Lieberman, REMA General Manager.
``We know this is a difficult time politically to stand and deliver on
clean energy development, but Sen. Bingaman's proposal today will help
lead our nation down the path of greater energy security and job
creation.''
Over the upcoming months, REMA pledges to work with Senator
Bingaman and other leaders in clean energy to ensure that the CES does
not impinge on the role of the voluntary markets for clean, renewable
energy. In 2010, the voluntary market for green power exceeded the
electricity needs of 3 million American homes, approximately 35.6
million MWh.
REMA urges policy makers to participate in rigorous debate that
allows private consumers to go above and beyond mandates to boost the
nation's energy future.
For more information on REMA's Clean Energy Standard position,
please visit renewablemarketers.com/pdf/REMA--CES--4.11.2011.pdf
About the Renewable Energy Markets Association (REMA)--The
Renewable Energy Markets Association (REMA) is a nonprofit trade
association dedicated to maintaining and growing strong markets for
renewable energy in the United States. REMA engages in education and
advocacy efforts on behalf of an industry coalition of renewable energy
marketers, utilities, equipment manufacturers, and others supportive of
renewable energy markets. www.renewablemarketers.org
______
San Francisco Bay Area Biosolids to Energy Coalition,
May 22, 2012.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Chairman Bingaman:
On behalf of the San Francisco Bay Area Biosolids to Energy
Coalition, I request that this statement be made part of the formal
record for the Committee on Energy and Natural Resources' hearing of
May 17, 2012 into the Clean Energy Standard Act of 2012 (S. 2146).
The San Francisco Bay Area Biosolids to Energy Coalition (BAB2E)
represents the interests of seventeen public agencies serving
wastewater needs of close to three million citizens and the related
industries. BAB2E is dedicated to the construction of an innovative
alternative energy project that will provide a biosolids biomass energy
solution. The project will deliver clean energy, reduced greenhouse gas
emissions, reduced demand on the region's road systems and reduced
reliance upon conventional and land intensive disposal options. The
project is in alignment with the Administration and Congress's priority
to leverage our renewable resources in a manner that will boost energy
independence, reduce environmental impacts, and generate new jobs. I
have enclosed detailed background information on the project. The
priority for this project is vital because conventional disposal
options such as land disposal are being constrained or eliminated by
changing regulatory conditions and the need to minimize greenhouse gas
emissions.
BAB2E initiated its effort to develop this promising energy
production technology because of the embedded energy contained in
biosolids. According to studies (Water Environment Research
Foundation), the energy value contained in the wastewater treatment
process exceeds by ten times the energy required to treat the
wastewater and biosolids. More important, it is estimated that if this
embedded energy is captured and utilized at facilities across the
nation, it could meet as much as 12 percent of nation's electricity
demand. BAB2E has determined that its ability to utilize biosolids to
develop a sustainable energy supply can lead to energy independence of
local, public utility operations AND provide a reliable source of
alternative energy to the grid for use by the public. During these
times of fiscal constraint, the ability to capture and utilize this
embedded energy can reduce energy costs to the public and ensure that
our efforts to address the energy-water nexus are comprehensively
addressed at the federal level.
One of the key foundational actions to leverage this untapped
sustainable energy resource is to provide a cogent and unambiguous
federal policy that will ensure this biomass resource is developed with
a commitment similar to that afforded cellulosic biomass energy
projects. This is an important matter.
Under current federal energy policies, biosolids biomass projects
appear to be disadvantaged in favor of cellulosic biomass. We
understand that the Department of Energy is on course to meet its
target of developing adequate supplies of such energy supplies,
suggesting that any clean energy standard must take into consideration
that biomass opportunities extend beyond cellulosic biomass supplies.
This is especially noteworthy as we consider water scarcity and the
highly water intensive nature of many cellulosic energy supplies.
Biosolids, conversely, provide a readily available feedstock to develop
a renewable and sustainable energy supply that does not impose burdens
on limited potable water supplies. Equally important, biosolids-
generated energy supplies can support other sustainable activities
including energy cooling waters and refinery needs. Of course, the
development of such a sustainable supply can be married to water
recycling and desalination technologies, further reducing the cost of
production of such alternative water supplies.
S. 2146 marks an important advancement in the policy debate to
establish a baseline of standards for clean energy supplies. Under
Section 2, Federal Clean Energy Standards, the bill articulates that a
market oriented standard for electric generation that will advance
clean energy innovation and that promotes a diverse set of low and zero
carbon generation solutions is vital. BAB2E has dedicated its effort to
address this priority.
Unfortunately, Section 2 would establish a clean energy standard
that inadvertently discriminates against biosolids. This is the
situation results from the bill's definition of qualified renewable
biomass (Section 610(b)(5)) and qualified waste-to-energy (Section
610(b)(6)).
Section 610 (b)(5) specifies that renewable biomass means that
which is ``produced and harvested through land management practices
that maintain or restore the composition, structure, and processes of
ecosystems, including the diversity of plant and animal communities,
water quality, and the productive capacity of soil and the ecological
systems.'' Biosolids, based on the embedded energy content and the fact
that diversion of biosolids from land application to energy production
would enhance ecosystems, should enjoy the explicit definition of
qualified renewable biomass as extended to cellulosic biomass. We
request that the committee amend this section to clarify that the
definition of qualified renewable biomass include biosolids by stating:
(5) QUALIFIED RENEWABLE BIOMASS--The term `qualified
renewable biomass' means (1) renewable biomass produced and
harvested through land management practices that maintain or
restore the composition, structure, and processes of
ecosystems, including the diversity of plant and animal
communities, water quality, and the productive capacity of soil
and the ecological systems; or (2) conversion of solids
produced at publically owned treatment works.
Similarly, Section 610(b)(6) creates a barrier to entry for this
readily available and sustainable clean energy feedstock. Under this
provision, qualified waste-to-energy is a produced energy from a series
of specific activities. This includes biogas, landfill methane, and
animal waste or animal byproducts. Absent from this extensive list of
qualified energy sources is biosolids. Our review suggests that this
lack of specificity would lead to a disqualification of biosolids. This
circumstance exists because regulators distinguish between animal waste
and biosolids. Further, while biogas and landfill methane can be
generated from the presence of biosolids as ``daily cover'' for
landfills and similar facilities, the vast amount of biosolids far
exceeds the capacity of landfills. Yet, the opportunity to recover the
embedded energy from biosolids exists, provided that federal policy
establishes equitable treatment and consideration of biosolids. Given
this discriminatory impact, we strongly urge the committee to amend the
definition of qualified waste-to-energy as follows:
(v) animal waste, animal byproducts, biosolids or a
combination thereof; or
This technical revision would clarify that biosolids and the
embedded energy would be available to develop sustainable energy
supplies alone or in combination with other eligible forms of biomass
energy.
The BAB2E Coalition has demonstrated that a critical mass of
support exists for this kind of innovative energy production project
that will deliver multiple benefits to the environment and deliver a
sustainable energy supply directly related to the energy/water nexus.
The ability to leverage this opportunity through a clean energy
standard will help to propel similar projects across the nation and
capture up to 12 percent of the nation's electricity demands. This is
consistent with the Administration's ``all of the above'' approach to
energy development.
We look forward to working with the committee as you and your
colleagues proceed with finalization of S. 2146.
Sincerely,
Gary W. Darling,
Bay Area Biosolids to Energy.
______
STATEMENT OF THE WILDERNESS SOCIETY
The Wilderness Society welcomes the opportunity to discuss the
proposal of Senator Bingaman and others to establish a Clean Energy
Standard (CES) for the production of electricity in the United States.
State renewable energy standards already in effect are demonstrating
the power of establishing market incentives and suggest that there is
an opportunity here to move the nation more quickly in the direction of
a low-carbon clean energy system that drives innovation, improves
public health, protects our public lands and meets our 21st century
energy needs.
Our public lands are managed for multiple uses, including energy
development. But the pace, scale and location of projects can
significantly degrade the health and integrity of these landscapes.
Expanded natural gas extraction in the Rocky Mountain West has boomed
in recent years, creating major environmental challenges. Moreover,
fossil fuels--oil, natural gas and coal--extracted from federal public
lands and waters are major air polluters, accounting for nearly 25
percent of the nation's energy-related greenhouse gas pollution. For
these reasons, we believe national market standards should be evaluated
across the full set of impacts and designed to jumpstart more
sustainable energy production, not more of the same.
In this regard, we wish to reinforce several points which we have
shared with the Committee in earlier comments on the White Paper that
preceded the bill.
First, we wish to note a fundamental difference between the
proposed CES and a renewable energy standard (RES) or RES and energy
efficiency standard (EES) combination common at the state level--that
is, the definition of eligible generation technologies. As recently as
2010, the House and Senate have worked to pass bipartisan RES and RES/
EES legislation that focuses on moving electricity supply away from
fossil fuels. The proposed CES would make nuclear and certain natural
gas and coal technologies eligible as well, thus shifting the focus
from renewable technologies and energy efficiency applications to a
suite of traditional energy sources that include every major
electricity source, some of which are anything but ``clean.''
For the reasons outlined below, The Wilderness Society strongly
prefers an approach which focuses on creating needed new markets for
renewable energy and does not include non-renewable sources. We urge
the Committee not to expand the list of eligible technologies beyond
the traditional suite of renewable sources approved by the Committee on
a bipartisan basis in 2009. That list generally reflects a two part
test--(1) Is the technology a low-or-no greenhouse gas emitter and (2)
Does it need an artificial boost in the marketplace in order to get
established?
We believe that there is general agreement that an RES is intended
to include solar, wind, geothermal, small hydroelectric, marine and
hydrokinetic renewable energy, and biogas and biofuels derived
exclusively from eligible biomass. That consensus falls apart when the
concept of an RES is extended to the following:
Nuclear energy--While nuclear energy meets the first test,
it clearly does not meet the second.
Natural Gas--Natural Gas is a major source of greenhouse gas
pollution, already thrives in the electricity marketplace, and
its use continues to expand under current market and regulatory
conditions. It fails on both considerations.
Coal--Coal-based electricity, even with Carbon Capture and
Storage technology attached, remains a major source of
greenhouse gases. CCS technology can be, and in fact is,
encouraged through traditional forms of support such as tax
incentives.
TWS urges the committee to refocus its efforts on tweaking its
existing RES blueprint rather than trying to expand the concept to
sources that are neither credibly ``clean'' nor ``renewable''.
Second, we urge the Committee to put Energy Efficiency first.
Energy Efficiency is the most underutilized inexpensive nonpolluting
source of energy in America. The cleanest power plant will always be
the one that was rendered unnecessary before it got built because of
increased efficiencies in the end use of electricity. Energy efficient
appliances, boilers, furnaces, air conditioning, lighting and other
energy consuming machines can drastically reduce annual energy
consumption. Bringing the existing housing stock up to much higher
levels of thermal efficiency was recently found by the National Academy
of Sciences to offer the greatest potential for energy savings over the
next decade (see, eg, Real Prospects for Energy Efficiency in the
United States, National Academy of Sciences, 2012). Yet the persistent
lack of up-front financing and the failure to account for environmental
benefits that do not accrue to the individual consumer have left a huge
gap between the level of investment that would maximize net social and
environmental benefits and the investments in efficiency strategies
actually made by individuals and businesses. Therefore capturing cost
savings over time and achieving potential public benefits from private
energy reduction have proven to be problems at least as intractable as
shifting to more renewable energy sources.
To deal with this challenge, in the 111th Congress the House
combined an EES (Energy Efficiency Standard) and an RES, allowing
utilities to meet up to a quarter of their 20-percent-by-2020
compliance obligation through energy efficiency measures instead of
renewable technologies. The result of this approach would be to
complement the Committee's 15 percent RES with a 5 percent EES. TWS
urges the Committee to adopt this approach so that energy efficiency
measures, which are the most cost-effective to adopt, are not neglected
by utilities seeking to meet the RES standard.
Third, we suggest the following specific improvements in the new
bill:
1. Provide incentives for reuse of brownfields--TWS urges the
Committee to provide the same incentive for locating new solar,
wind and geothermal projects on already-disturbed
``brownfields'' sites that it provides for locating such
projects on tribal lands. Every congressional district has at
least one brownfields site, and the EPA has helped identify
which of those sites have renewable resource generation
potential. By simply building a multiplier incentive into a
national RES, utilities would be knocking on the doors of
public officials asking for the opportunity to redevelop
blighted land, rather than public officials trying to attract
the utilities to sites that they consider problematic. The
multiplier incentive is justified by the multiplier effects of
such an approach--protection of undisturbed land, development
closer to existing employment centers, less pollution, and
reuse of existing infrastructure and transmission lines. And by
offering a way to bring idle lands back on the tax rolls
without dependence on taxpayer dollars, everyone would benefit.
The Wilderness Society, the U.S. Conference of Mayors and a broad
coalition of groups has endorsed this small change in the RES that
could generate significant new support for the RES concept.
2. Provide improved standards for biomass eligibility:
a. TWS strongly supports the provision that asks the
Secretary to engage in a process with the National Academy of
Sciences to determine the correct methodology for determining
the net greenhouse gas emissions from various forms of biomass
harvest, combustion and replanting. Biomass is unlike other
renewable energy sources in that it emits both conventional and
greenhouse gas pollutants when it is burned. It is unlike
fossil fuels in that its removal is not necessarily permanent--
as plant material, it can be regrown over a period of decades
in a way that can mitigate some of the GHG pollution depending
on the original source.
TWS urges the Committee to follow the science of biomass
conversion. It makes no sense for some forms of biomass to be
considered eligible under RES if they create a carbon debt that cannot
be offset for 50 years after the harvest for electricity--as may be the
case when the source is whole living trees. On the other hand, no
carbon debt is truly caused when the source is the byproduct of
activity that is occurring for other economic reasons, such as the
waste stream of lumber mills or tree trimming to protect power lines or
the safety of homeowners in the wild land-urban interface. These
distinctions can and should be made in the definition of what
constitutes renewable biomass under an RES.
b. TWS is concerned that the new bill makes no distinction
between biomass found on public lands generally versus biomass
found in areas of special conservation concern. Under the bill,
utilities would submit credits to the Department of Energy and
certify compliance. Electricity generated by biomass would
qualify as long as the biomass source meets the definition of
``qualified renewable biomass'' in the bill, regardless of the
origin of the biomass.
(5) QUALIFIED RENEWABLE BIOMASS.-The term `qualified
renewable biomass' means renewable biomass produced and
harvested through land management practices that
maintain or restore the composition, structure, and
processes of ecosystems, including the diversity of
plant and animal communities, water quality, and the
productive capacity of soil and the ecological systems.
This is a very broad definition that lacks many of the ``no-go''
categories contained in earlier iterations of biomass definitions. In
the past the Senate Energy and Natural Resources Committee has been
careful to protect conservation areas, such as wilderness areas,
national monuments (see, eg, section 133 of S. 1462, 111th Congress.)
And the definition used for the Renewable Electricity Standards which
passed the House in 2010 within the context of the climate bill
specifically excluded biomass taken from
. . . components of the National Wilderness
Preservation System, Wilderness Study Areas,
Inventoried Roadless Areas, old growth stands, late
successional stands (except for dead, severely damaged,
or badly infested trees), components of the National
Landscape Conservation System, National Monuments,
National Conservation Areas, Designated Primitive
Areas, or Wild and Scenic Rivers corridors.
These careful distinctions are lacking in the new bill, which opens
up all federal lands as potential sources of biomass, with any
exceptions to be determined by regulations written after the bill
passes. This creates enormous uncertainly about whether critical
conservation areas will be found to be off-limits.
The regulations themselves are to be written by the Department of
Energy because DOE is in charge of certifying compliance. DOE is not a
conservation agency, nor does it have expertise regarding ``land
management practices that maintain or restore the composition,
structure, and processes of ecosystems, including the diversity of
plant and animal communities, water quality, and the productive
capacity of soil and the ecological systems.''
We strongly urge the Committee to restore meaningful distinctions
that steer biomass markets away from areas of clear conservation
concern and that require strong sustainability criteria as a condition
of eligibility. Areas that are managed primarily for their conservation
value--such as wilderness areas, wild and scenic river corridors,
roadless areas, etc.--should remain outside the commercial pull of RES
demand and be managed first and foremost for their ecological health.
Thank you for this opportunity to discuss this important proposal.
______
United States Clean Heat & Power Association,
Falls Church, VA, March 1, 2012.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, 703 Hart
Senate Office Building, Washington, DC.
Dear Mr. Chairman:
As you know, USCHPA is a trade association whose members are
leaders in combined heat and power (CHP) technologies.\1\ Our
membership includes manufacturers, developers, and suppliers who seek
sound clean energy policy and marketplace solutions that will
facilitate deployment of CHP systems in the U.S. On behalf of the CHP
industry, I am writing to commend you for introducing legislation to
establish a national Clean Energy Standard (CES) that aptly recognizes
the energy and environmental benefits of CHP and effectively
incentivizes greater deployment of combined heat and power in the
American marketplace.
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\1\ Combined heat and power systems include waste heat recovery, or
``bottoming-cycle'' CHP systems.
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USCHPA supports the overall policy objectives behind the CES, such
as reducing emissions of greenhouse gasses and other emissions,
creating new innovation and manufacturing opportunities, and increasing
the overall energy efficiency of the American economy. Greater
deployment of CHP has the potential to greatly contribute to all of
these objectives. For instance, the Oak Ridge National Laboratory
estimated in a 2008 study that if the United States adopted high-
deployment policies to achieve 20 percent of generation capacity
through CHP by 2030, it could save 5.3 quadrillion BTU of fuel
annually-nearly equivalent to the total energy consumed by U.S.
households. In addition, such policies would create $234 billion in
cumulative investment, and create over one million high-skilled
technical jobs.\2\
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\2\ U.S. Department of Energy, Oak Ridge National Laboratory.
December 1, 2008. Combined Heat and Power: Effective Energy Solutions
for a Sustainable Future. http://info.ornl.gov.sites/publications/
files/Pub13655.pdf.
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In particular, USCHPA is pleased that greater efficiencies under
the proposed CES will be awarded with greater credit. CHP system
efficiencies average above sixty-five percent, and many new systems
achieve efficiencies above eighty percent. In addition, we appreciate
that the clean energy standard recognizes the thermal benefits of CHP
by making additional credits available under the CES for emissions
avoided from not using a separate thermal source.
Thank you for your continued support of CHP and for your leadership
toward establishing a cleaner, more efficient economy. The members of
USCHPA and I look forward to working with you as the legislation
advances through Congress.
Sincerely,
Jessica H. Bridges,
CAE IOM Executive Director.
______
Statement of National Association of Clean Water Agencies (NACWA)
The National Association of Clean Water Agencies (NACWA) is pleased
to have the opportunity to submit for the record this written statement
to the Senate Energy and Natural Resources Committee on the occasion of
the Committee's hearing entitled, ``Market-Oriented Standards for Clean
Electric Energy Generation'' held on May 17, 2012.
NACWA is the leading advocate for responsible national policies
that advance clean water, clean energy and a healthy environment. The
Association represents the interests of more than 350 municipally-owned
wastewater treatment agencies and organizations who treat and reclaim
more than 18 billion gallons of wastewater each day.
A growing number of NACWA members are beneficially using and
producing electric energy from biosolids, a nutrient-rich byproduct of
wastewater treatment. While the technologies needed to generate energy
from biosolids are proven and mature, clean energy production from the
wastewater sector is still an enormously untapped resource.
To help communities across the country take advantage of this
abundant carbon-neutral clean energy source, it must be properly
encouraged. Energy generated from both biogas and biosolids produced in
the wastewater treatment process can and should be eligible to receive
full clean energy credit under a National Clean Electricity Standard
(CES). Full clean energy credit is a warranted and necessary first step
to realizing greater energy production from an abundantresource capable
of helping meet our national clean energy goals.
The Wastewater Sector Should Be Included in a Clean Electricity
Standard
Today, approximately 104 publicly-owned treatment works (POTWs)
produce renewable energy by anaerobically digesting biosolids and using
the resulting methane gas. If the policy objectives of aCES are to (1)
promote cost-effective clean energy production, (2) create greater
energy and resource efficiency, and (3) achieve a net reduction of
atmospheric carbon dioxide (CO2) emissions from the power
sector, it should incentivize deployment of energy produced from all
sources that helps achieve these goals, including energy produced by
the wastewater sector. CES legislation should encourage the total clean
energy recovery potential from biosolids and biogas for the following
reasons:
The Energy Potential in Biosolids is Huge--The energy
potential contained in biosolids exceeds the electricity
requirements for treatment by a factor of 9.3 to 1. In other
words, domestic wastewater contains almost ten times the energy
needed to treat it. This can potentially meet up to 12% of the
national electricity demand, enough to power New York City,
Houston, Dallas and Chicago annually.
Biosolids Are Abundant and Must Be Managed--Biosolids result
naturally and are collected and managed by POTWs to protect
human health and the environment. As one of many management
options, the emerging trend of energy generation is an
efficient and environmentally-beneficial management practice-
and therefore worth encouraging.
Biosolids and Biogas are Carbon-Neutral and Not a Waste--
Unlike other forms of biomass or qualified waste-to-energy
types, biosolids are uniquely recognized as being completely
biogenic and part of the natural carbon cycle (i.e. a truly
carbon-neutral fuel).
Energy Recovery Replaces Fossil Fuel Requirements--When
combusted directly or indirectly as digested biogas to produce
electricity, the biogenic CO2 emissions stored in
biosolids are recycled efficiently, producing a closed-loop,
net reduction in atmospheric CO2 levels by avoiding
release of methane gas and displacing required fossil fuel
electricity. EPA estimates that more than 3 million metric tons
of CO2 could be displaced if only the POTWs
currently using anaerobic digestion for biosolids management
were to deploy technology to actually generate electricity.
This is the equivalent of taking nearly 600,000 cars of the
roads.
Biogas Production Produces Beneficial By-Products--Digesting
biosolids to produce biogas fuel produces a nitrogen-rich
fertilizer which can also help displace CO2
emissions caused chemical fertilizer production. In addition,
digested biosolids result in significant volume reduction
requiring far fewer trucks to transport the material off-site,
which also results in significant CO2 displacement.
These emission reductions are in addition to the direct
reductions of the electricity generated and its use.
Projects are Clean, On-site, Reliable and Cost-Effective--
Recovery of energy from biosolids and biogas can decrease the
costs communities must bear to treat wastewater and can
increase grid reliability.
Biosolids Energy Recovery Can Create Jobs and Innovation in
Every State. Biosolids or biogas-to-energy projects are
possible in all 50 states, and can create local jobs and spur
growth and innovation.
Several States have already recognized the energy potential
in biosolids--Utilizing CHP technology, biogas is eligible
under 30 state and district renewable portfolio standards as a
qualifying renewable energy resource. Enabling biosolids to
qualify under a national clean energy standard would support
these states' efforts and avoid undermining current market
trends.
Technologies Used by Wastewater Treatment Plants to Generate and
Recover Energy
Energy can be recovered from domestic wastewater in several
different ways. The following list covers the ways that energy can be
recovered, briefly describes the technologies used, and their status
(common, innovative or under development). While many of these
technologies are mature and already in place at some utilities, current
rates of utilization are low. Including biogas and biosolids produced
in the wastewater treatment process in a national CES would rapidly
increase employment of these technologies throughout the sector.
Mature Technologies Underutilized by the Wastewater Treatment
Sector Include:
Anaerobic Digestion--An established technology to process
biosolids is anaerobic digestion which produces biogas
(methane). The biogas can be used to generate electricity, heat
or direct power. The technologies used to co-generate
electricity from biogas include internal combustion engines,
external combustion engines (Stirling), micro turbines, and
fuel cells (emerging). The engines also generate heat which can
be recovered. Biogas can also be used to produce heat required
for treatment or to operate boilers. Each million gallons per
day (MGD) of wastewater flow can produce enough biogas in an
anaerobic digester to produce 26 kilowatts (kW) of electric
capacity and 2.4 million Btu per day (MMBtu/day) of thermal
energy in a Combined Heat and Power (CHP) system. This is
mature technology and commonly used. However, on a national
scale, the technical potential for additional CHP at WWTFs is
over 400 MW of biogas-based electricity generating capacity and
approximately 38,000 MMBtu/day of thermal energy. This capacity
could prevent approximately 3 million metric tons of carbon
dioxide emissions annually, equivalent to the emissions of
approximately 596,000 passenger vehicles.
Hydraulic Head Loss--Energy in the form of hydraulic head
loss is available in most wastewater systems. This is the
energy from water stored at a higher level as it falls to a
lower level. Turbines are used to convert the energy from the
force of falling water to electric current. A few treatment
plants, such as San Diego, CA, use large turbines to capture
this energy and produce electricity. A more recently popular
technology, applicable in more systems, are micro (mini hydro)
turbines which use low head loss to generate electric current.
This is mature technology and available for widespread use.
Hydrokinetic energy, or the energy from flowing water, can also
be captured by some emerging technologies.
Thermal Energy--Energy in the form of thermal energy can be
extracted from most domestic wastewaters as the temperature of
the water is warmer than the air and ground. Heat pumps are
used to extract this energy which can be used by the wastewater
treatment facility to offset their demand for heat. This
technology works best in cold climates, and has been used in
Scandinavia. Some applications are underway in the U.S. (Aspen,
CO). This is mature technology but not yet commonly used in the
U.S.
Biosolids Thermal Oxidation--Solids are removed from
domestic wastewater in the treatment plant. Several types of
technologies can be used to recover energy from these solids.
Dry solids can be burned or incinerated. This is an established
technology but new designs are making this process more
efficient and reducing the need for additional energy sources
to keep the process going. In most new applications and
retrofit incinerator designs, there is the ability to recover
heat. This is mature technology and commonly used, but still
considered underutilized.
Biogas as Fuel--Recently, biogas generated by the wastewater
treatment process has been soldto natural gas suppliers and
used to fuel vehicles retrofitted to run on natural gas. Biogas
can be used to run direct drive engines which power pumps and
other equipment. This is mature technology but not commonly
used.
Gasification--New technologies are on the market that
convert wastewater solids to combustible gases through
pyrolysis or gasification. These gases are carbon-based and
energy rich, but are different from methane. Gasification is
the transformation of solids under high temperatures into a
carbon-rich substance called ``char'', which is subsequently
gasified producing a gas called syngas that can be used as fuel
to generate electricity and heat. Pyrolysis is a process used
to produce oil from sludge under heat and pressure. These
combustible gases can be used in engines to generate
electricity similar to the equipment to convert biogas. Heat
can also be generated and recovered. Sometimes these gases can
be used as feedstock to produce combustible products such as
oil and syngas.
Emerging Technologies Still Under Development:
Nutrient-rich Algae--The constituents in wastewater also
have energy recovery potential, but little has been done beyond
the research stage at this time. The nutrient-rich effluent can
be used to grow algae. The algae can be harvested and used to
generate fuel feed stocks. Sunnyvale, CA, harvests algae and
co-digests the algae with other solids to generate biogas. This
is emerging technology that still requires research and
development.
Microbial Fuel Cells--A new technology emerging from
laboratory research is the microbial fuel cell. A small amount
of electricity is released during microbial transformation of
both carbon and nitrogen compounds in wastewater during
treatment. New advances in nanotechnology allow this energy to
be recovered. This is an emerging technology and there are no
full scale applications yet, but it looks promising.
Nitrous Oxide Capture from Biological Nitrogen Removal for
Power--Biological nitrogen removal processes are based on
microbial conversions that release nitrous oxide as a
byproduct. It may be possible to capture the nitrous oxide
emitted from these processes and burn the nitrous oxide to
generate additional power or electricity. This technology is
also in the research stages and has not been applied at any
treatment facility.
The Clean Energy Standard (CES) Act of 2012 (S.2146)
The Clean Energy Standard Act of 2012 (S. 2146), introduced by
Senator Jeff Bingaman (D-NM) earlier this year, employs a market-based
approach to accelerate deployment of a wide variety of power generation
technologies and feedstocks. NACWA welcomes this legislation and
encourages policymakers to include all energy derived from the
wastewater treatment sector as qualifying energy sources.
As currently written, the Clean Energy Standard Act of 2012 would
credit biogas energy recovered from wastewater biosolids in a CES.
However, the bill discriminates against older facilities by
discrediting biogas produced at wastewater treatment plants built
before 1992. We urge Congress to amend the December 31, 1991 cut-off
date so that the wastewater sector may participate in the clean energy
market and help meet federal renewable energy targets. Furthermore,
this bill does not credit energy produced from dry wastewater biosolids
used as feedstocks for certain types of technology. For example, dry
biosolids are used in cement kilns as an energy source, reducing the
need for those cement kilns to use as much coal or other forms of
higher CO2-intensive energy sources. This is an often
overlooked energy option as renewables regulators are often unfamiliar
with biosolids. Yet with a consistent, predictable and sustainable
supply, it would be foolish to neglect this energy-rich resource.
Beyond these critical adjustments, we would recommend that biogas
and solids produced by the municipal wastewater treatment process be
provided its own separate category of qualifying clean energy sources.
The clean energy and environmental benefits provided by this resource
warrants separate categorical treatment to ensure optimal deployment.
Proper inclusion and recognition of the clean energy potential of
biosolids and biogas recovered and produced by municipal wastewater
treatment plants begins by recognizing its unique differences from
other types of energy resources. That potential should be captured
properly and fully promoted in any final CES legislation.
If you have any further questions regarding the intrinsic clean
energy potential of biosolids and biogas, or how a CES should account
for and promote such potential, feel free to contact Hannah Mellman at
hmellman@nacwa.org.
______
Statement of Third Way Fresh Thinking
Third Way has long supported a clean energy standard as a way to
help get America movingon clean energy. This will enable the United
States to compete in the $2.3 trillion global cleanenergy market,
reduce pollution, and accelerate innovation. Chairman Bingaman's Clean
Energy Standard Act of 2012 is a very important step in that direction.
The bill is technologyneutral, giving utilities a variety of options in
how they choose to comply. It also provides businesses with the
certainty they need to invest in clean energy.
The Clean Energy Standard Act embraces a truly all-of-the-above
strategy that empowers utilities and states to choose the best strategy
for them to move to clean energy. This includes not only critical
renewable energy sources like on- and off-shore wind, concentrated
solar, solar photovoltaic, and hydropower, but also combined heat and
power, natural gas, and nuclear energy.
This technology-neutral approach will minimize the cost of reducing
pollution and allow different regions to harness the resources that are
most economical for them to accomplish a national goal. The fact that
37 states now have goals or requirements for increased generation of
clean energy shows there is strong support for the concept of aCES. Yet
the diversity of these state requirements shows the importance of
giving utilities as many tools as possible to meet that standard. As
the debate on aCES continues, Third Way would advocate for greater
inclusion of efficiency measures as an additional tool that can be used
to meet the standard.
Chairman Bingaman's proposal also provides industry with the
certainty it needs to make long-term investment decisions. New
electricity generation is expensive, with costs often reaching into the
billions of dollars for a single plant. These facilities can take years
to build and can be operated for decades. To make such large
investments with long-term payoffs, utilities need certainty as to what
the government will require of them and the confidence that the rules
of the game won't be changed.
In today's global economy, the developed countries that succeed
have modern infrastructure, innovative industries, and reduced
pollution. Even China has a plan in place to increase its use of clean
energy. The United States cannot compete if we do not set high
standards for our private sector to reach so that we can remain the
world's leading economic power. While we are confident that the
Chairman will refine and improve it, Clean Energy Standard Act will
move us in the right direction.