Modest Renewable Energy Growth Expected From EPA Proposal on Power Plant Emissions

Source: By Ari Natter, Environmental Reporter, Bloomberg BNA • Posted: Monday, June 23, 2014

June 12 — The Environmental Protection Agency’s proposal to regulate carbon dioxide emissions from existing power plants may not be the panacea for clean energy that environmentalists and industry advocates hoped for, with critics and others saying the new requirements are likely to spur only modest increases in renewable energy.

Instead, environmentalists and other observers say the proposal could further incentivize the switch from coal to cheap natural gas and is unlikely to replace federal tax incentives and state renewable energy requirements as the main drivers behind the transition to alternative energy sources.

The EPA’s regulatory analysis of the standards predicts an 8 to 9 gigawatt increase in non-hydropower renewable electricity by 2030 attributable to the rule, although analysts such as the consulting firm ClearView Energy Partners have said the EPA’s projections are conservative.

“It’s pretty clear to me it’s not going to be the boon for renewable energy we need,” Benjamin Schreiber, director of the climate and energy program for Friends of the Earth, a group that has been critical of the power plant proposal as not being stringent enough, told Bloomberg BNA. “For us, this is just a continuation of the administration’s all-of-the-above policy.”

The standards, the first ever for the nation’s fleet of fossil fuel-fired power plants, are anticipated by 2030 to reduce carbon dioxide emissions from the power sector by 30 percent from 2005 levels, when emissions from the power sector were at their highest.

The proposed rule would give individual states wide discretion in how those reductions are achieved, including investment in new renewable generation, energy efficiency, improvements to the existing fleet of power plants and interstate emissions trading.

More Cheap Natural Gas

While it remains to be seen how states would choose to comply with the proposed rule, critics and others say it is likely to hasten the switch from coal to cheap natural gas, which is already underway.

“That truth is, it’s a natural gas standard,” Schreiber said about the rule. “It was set up in a way that was simply fuel shifting. Natural gas will be the easiest compliance pathway.”

Other critics, including the environmental group Greenpeace, said the rule’s effect on renewable energy development would be muted because the emissions-reduction baseline is 2005. Carbon dioxide emissions from power plants have declined by nearly 16 percent since 2005, according to the EPA’s Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012.

“We think it could have been more aggressive,” David Pomerantz, a spokesman for Greenpeace’s climate and energy campaign, told Bloomberg BNA, referring to the proposed rule. “We think there is more that could be done that would put us more toward renewables and less toward gas.”

According to an analysis by Greenpeace, “from a technical perspective,” the U.S. power sector could achieve almost twice the reductions proposed in the rule on the same timeline, Pomerantz said.

Todd Foley, head of government relations for the American Council on Renewable Energy, told Bloomberg BNA that while the proposal provides an “important policy signal,” its effect would be modest.

“I think the rule will be important but not take the place of things like the tax credit and state policies,” Foley said, referring to the 2.3 cent per kilowatt-hour production tax credit for wind and other renewables and state policies like renewable electricity standards.

Wind, Solar Outlook

Rob Gramlich, the American Wind Energy Association’s senior vice president of public policy, said in an e-mailed statement the organization is not concerned by the modeling estimates that show a modest increase in non-hydro renewables.

“We are confident that wind energy does better in the real world than models think it will, in part because we believe we will have lower costs” than the Energy Information Administration estimates, Gramlich said.

Gramlich and other advocates said renewable energy’s rapidly declining cost will make it an attractive option for compliance.

For the solar industry, the EPA’s proposal presents a foundation for future development, Rhone Resch, president of the Solar Energy Industries Association, told Bloomberg BNA.

“We think utilities around the country that have been dabbling in solar for the last four or five years are really going to ramp up solar,” Resch said. “I think this rule will really expedite the business model for solar.”

Role of Energy Efficiency

Energy efficiency is likely to prove to be an attractive means of compliance given its low cost, according to the American Council for an Energy Efficient Economy, a nonprofit that promotes energy conservation.

An April report by the group found that energy efficiency measures alone could reduce power sector emissions by 26 percent by 2030 at a lower cost than natural gas, renewables and every other means of compliance with the rule.

“It would make sense for states to look to efficiency” as the primary mechanism of compliance, Sara Hayes, the organization’s senior manager for national policy, told Bloomberg BNA. “I think it paves the way for an increase in investment in energy efficiency.”

The EPA projected a 1.5 percent annual increase in energy efficiency due to the rule between the years 2020 and 2030.

States could use energy efficiency to comply with the standards by requiring efficiency improvements at coal plants, energy efficiency resource standards that require utilities to reduce energy demand by a set amount and requiring reductions in energy use by appliances and new buildings, according to the Center for Climate and Energy Solutions.

The power plant proposal is also likely to lead to the expansion of states’ existing energy efficiency resource programs that require energy conservation, Rodney Sobin, director of research and regulatory affairs for the Alliance to Save Energy, another nonprofit group that promotes energy efficiency, told Bloomberg BNA.

“We are pretty bullish on the opportunity for energy efficiency to play a large role because it will often be the least-cost method and positive for energy reliability,” Sobin said.

David Terry, executive director of the National Association of State Energy Officials, agreed.

“What we are hearing generally from the states is they clearly want to use efficiency as a compliance option,” Terry told Bloomberg BNA.

State Renewable Standards at Issue

Analysts such as Christi Tezak, managing director for ClearView Energy Partners, said the rule probably would make states such as Ohio and Indiana, which are considering rolling back state renewable energy and energy efficiency standards, think twice before doing so. Ohio’s legislature in May passed a bill suspending the state’s renewable energy mandates for two years, which a spokesman for Gov. John Kasich (R) has said he will sign, although he has yet to do so.

Indiana’s General Assembly earlier this year approved legislation ending the state’s mandatory energy efficiency program.

Twenty-nine states and the District of Columbia have renewable energy standards requiring varying amounts of electricity generation from renewables, and 24 states have energy efficiency resource standards setting mandatory energy reduction goals.

Sue Tierney, managing principal at the Analysis Group, told Bloomberg BNA the proposed rule “will provide a counterpoint” to arguments for rolling back state renewable energy standards.

“If people say [the standards are] costing us a lot of money or we don’t want to do that—and a lot of that has been happening with the backing of folks in the coal industry—this will give us a leg up in keeping” renewable portfolio standards, said Tierney, who served as the Energy Department’s assistant secretary for policy during the Clinton administration.

Ultimately, the EPA’s proposal represents an opportunity for renewable energy advocates to demonstrate to states the advantages of renewable energy as they develop their compliance plans, Jeff Deyette, assistant director of energy research for the Union of Concerned Scientists, told Bloomberg BNA.

“I think what EPA did was open the door for renewable energy in that they included it in one of the building blocks, but really it’s going to be up to the states to decide how much renewable they want to count,” Deyette said. “Time will tell how much.”

Too Early for Predictions

EPA spokeswoman Liz Purchia told Bloomberg BNA it is too early to know how states would implement the requirements.

“From our perspective, it’s up to the states how they want to approach this,” Purchia said. “Natural gas—that’s certainly one option, but there are many options on the table. There are renewables, there is nuclear, there is energy efficiency.”

The agency’s projections for renewable energy capacity increases represent an “initial projection,” Purchia said.

Tyson Slocum, director of the energy program for the activist group Public Citizen, told Bloomberg BNA the EPA’s estimate shouldn’t be taken at “face value.”

“At the end of the day, it’s going to be all up to the states, and that’s going to be a mix of economics and political forces,” Slocum said.