Wyoming Suggests ESPS Renewable Credit For Importer, Exporter States
The extent to which EPA is receptive — or even legally able to embrace such a proposal — is not clear, given that such crediting could raise the issue of double counting emission cuts under the existing source performance standards (ESPS).
But the state’s suggestion of how to treat exported low-carbon power underscores the balancing act EPA faces as it seeks to allow states a variety of strategies to obtain GHG reductions under the ESPS — including possible multi-state strategies — amid thorny questions of how to account for power grids that cross state lines.
A top agency official recently suggested in general terms that the agency is looking for ways to accommodate coal-heavy Wyoming’s numerous concerns over the rule, but steered clear of specifics.
As proposed, the ESPS says that a state “could take into account all of the [carbon dioxide (CO2)] emission reductions from renewable energy measures implemented by the state, whether they occur in the state or in other states.” While many stakeholders are seeking clarification on that point, observers say that likely would mean exported renewable power in states such as Wyoming could not be used to meet its ESPS target.
Speaking Feb. 17 at a meeting of the National Association of Regulatory Commissioners (NARUC) in Washington, D.C., Wyoming Public Service Commission (PSC) Chairman Alan Minier argued that the ESPS’ treatment of interstate renewables treats his state unfairly.
“Why would we want to build wind generation to send to California if we get no credit for it,” Minier asked, referencing talk of several pending large wind projects in his state. He added that Wyoming exports roughly 85 percent of the renewable power generated in the state, and that EPA’s apparent policy means that new renewable facilities would play a small role in blunting the impact of the ESPS on his state’s coal generation.
Other states most acutely affected by the issue include Montana, Utah, New Mexico and other Mountain West states that export power to load centers on the West Coast, though any renewable project with power sent to another state also would be affected by the issue.
Minier’s comments at NARUC highlighted a Nov. 21 comment letter to EPA from the Wyoming PSC, raising numerous concern over EPA’s proposed “building blocks” used to set state emission targets.
The state argues that EPA’s methodology appears to overstate reductions available to Wyoming from all four building blocks: heat-rate improvements at coal plants, increased use of existing gas plants, and greater renewables and energy efficiency.
Underscoring the state’s concern about the treatment of exported renewables, the letter cites an EPA Region 8 conference call “with Washington participation” as one basis to conclude that EPA has determined to treat GHG cuts from renewable generation “to the benefit of the state of the owner or purchaser of the renewables, rather than to the state in which the renewable facilities are located.”
‘Credits To Both States’
At NARUC, Minier suggested that EPA could at least partially address the state’s concern by allowing both an importing and exporting state to take credit for GHG cuts from the same renewable generation.
“You might be able to give credits to both states for a while . . . I think that EPA needs to think a little more about the incentives in the system, and whether or not you are bringing people together, or you are driving them apart,” Minier said. He cited the possibility of several new wind projects that may export power from Wyoming to California, but argued that Wyoming has less incentive to build such projects if California gets all the ESPS compliance credit.
In a follow-up interview with InsideEPA/climate, Minier emphasized that he was not speaking on behalf of his state’s governor or environmental office in recommending any rule changes. But he said, “if you want to remove Wyoming’s objection, then you need to set this up so, for example, if these big projects were built then Wyoming might be able to shield some [fossil] electric generation” from the rule.
Even if EPA were to grant concessions to renewable exporting states such as Wyoming, it is not clear if that would mollify their resistance to the ESPS. Wyoming has been among the harshest critics of EPA’s rule and has joined novel early litigation seeking to scrap the proposal even before it is finalized.
A recent article in the Wyoming Business Report underscores the state’s concerns, citing a University of Wyoming analysis predicting a decline in coal output by as much as 45 percent in 2030 from the rule
But EPA air office attorney Joseph Goffman offered assurances at a Feb. 3 meeting of Wyoming’s infrastructure authority that the agency will take the state’s concerns into account in the final rule.
“We have a very deep understanding of the pivotal role that Wyoming, as a producer of coal and a producer of electricity generation, plays for this entire region of the country,” he said, according to an Associated Press report. “Wyoming is the swing producer, so we have to make this program work for Wyoming if we’re going to make it work across the region.”
‘Get Some Renewables Built’
Minier in the follow-up interview acknowledged that giving two states credit for the same power raises potential double counting issues, but defends the approach if EPA’s aim is to boost renewable generation. “It has to be on a magnitude to shelter our generation,” he said. “You may want to make a decision about whether or not you really are hot on this issue of no double counting or you want to get some renewables built.”
Minier also sharpened his NARUC remarks, suggesting that EPA could give renewable credits to both states throughout the rule’s compliance period, citing lengthy timetables for building renewable projects and infrastructure on federal lands, common in his state.
An industry source says offering “dual credit” for renewable power, in which importing and exporting states split the credit, would be allowed if the states “enter into an agreement to essentially determine however they want to credit that energy.”
But the source says “you definitely can’t” allow two states to claim full credit for the same generation. “That’s double counting. That would be a really bad thing.”
A source following the ESPS says the proposal is “not as specific” as other parts of the rule on the treatment of interstate emission effects, but says Wyoming’s concern might be most easily addressed through multi-state cooperation, rather than a prescriptive EPA policy. Under one such scenario, the importing and exporting states would strike a deal on how to account for the renewable generation.
The source says there are likely limits on what EPA can do to give emission credits to a power exporting state, particularly if an importing state has purchased renewable energy credits (RECs) associated with out-of-state generation to comply with a state renewable energy standard — creating a legal contract. Those contracts often cover all of the generation’s environmental attributes, the source says.
The source adds there might be more ambiguity on crediting of renewable power to exporting states in cases where a power purchase agreement exists without a transfer of RECs, though the source said such agreements might not be very common.
However, the source says a state like California might agree to sell some credits back to Wyoming.
The industry source adds: “Wherever the environmental attribute goes is whatever state gets the credit. A Wyoming generator doesn’t necessarily have to [sell the power’s environmental attributes]. They could export the energy but still use that energy for compliance if they retain that environmental attribute as a credit.”
The source adds that electricity’s environmental attributes are often transferred to the importing state – usually to satisfy a state renewable portfolio standard – but that is “not necessarily so.”
California has championed the idea of “modular” agreements, in which states retain individual state targets and compliance plans, but agree to cooperate on individual issues such as renewables or energy efficiency.
The source tracking the rule also notes that EPA has proposed an alternative approach to renewables accounting in its October notice of data availability that would treat renewable generation regionally rather than on a state-by-state basis, and the source says conversations among states on possible cooperation are ongoing.