Issues: Oil & Energy

Chapter 2
Providing America with Clean, Affordable Electricity

America's complex electricity generation system keeps our economy vital, powering our technological advances, industrial activity, medical research, and business transactions. Yet electricity generation also poses serious problems. Electricity production today typically involves burning fossil fuels using inherently polluting processes. Burning coal accounts for 51 percent of the nation's electricity. Electric power plants are the single largest source of some of the worst air pollutants, including deadly particulate matter, acid-rain-forming sulfur dioxide, and toxic mercury. They are also the single largest emitters of global warming pollution in the United States. Finally, the current structure of the electricity marketplace makes consumers vulnerable to price spikes and market-driven shortages.

America does not have to fall prey to these problems. Cleaner sources of electricity available today can power our economy and preserve our health and environment. A comprehensive energy policy for the electricity sector can and must:

Pass the McCain-Lieberman Climate Stewardship Act to cap and reduce carbon dioxide emissions -- the chief cause of global warming.

The electricity industry is the largest source of global warming pollution in the United States -- 40 percent of U.S. carbon dioxide emissions come from electric power generation. While energy efficiency measures will avoid a portion of our growing electricity demand, we still need to make electricity generation cleaner. The good news is that technologies exist today to modernize power plants and reduce global warming pollution. The challenge is to ensure these solutions are put to use. Some coal industry holdouts have gotten in the way of progress by ignoring the problem of global warming completely or by lobbying for polluter-friendly voluntary programs to reduce carbon dioxide emissions. Voluntary programs are simply not working. Many companies in the United States have participated in a range of voluntary efforts to reduce global warming pollution over the past 10 years, yet U.S. emissions have increased 14 percent since 1990.

Only binding limits on global warming emissions will create the market structure needed to allow competitive businesses to go beyond cosmetic steps to reduce emissions. The Climate Stewardship Act would create a comprehensive market-based program to cut heat-trapping pollution from all major U.S. sources, including power plants. It would set a cap on emissions of greenhouse gases from large carbon dioxide emitters in the electric power, industrial, commercial, and transportation fuel sectors -- which together account for more than three-quarters of U.S. global warming pollution. The nation could achieve these reductions without hurting American pocketbooks. An MIT economic analysis finds that meeting the Climate Stewardship Act emission limits would affect household purchasing power by less than one-tenth of 1 percent.

Provide a package of tax incentives for advanced energy-efficient buildings and appliances.

The fastest, cleanest, and cheapest way for America to address its growing energy demand is through energy efficiency -- getting more productivity using less energy. Thanks to readily available technology for improving heating and cooling systems in buildings and increasing the efficiency of everyday appliances, America can make dramatic cuts in energy use without sacrificing comfort or profitability. Indeed, the economic benefits of investing in efficiency measures typically outweigh costs by a ratio of 2 to 1. And the good news is that we can reap these benefits faster than by building new power plants. New efficiency measures will start delivering savings in a matter of months. By 2015, the Snowe-Feinstein bill's package of federal tax incentives and consensus standards for efficiency could achieve the following:

• Save 8 percent of total annual electricity use
  
  
• Save 10 percent of total projected natural gas use
  
  
• Reduce heat-trapping carbon dioxide emissions by an amount equal to almost 25 percent of the overall reduction that would be needed to comply with the McCain-Lieberman Climate Stewardship Act.
  
  
• Generate 600,000 new jobs in the production and installation of efficient equipment and in the additional economic activity generated by businesses that saved on energy costs.
  

Energy efficiency incentives have had remarkable success at the state level. It is time for the entire nation to reap these benefits. NRDC recommends a package of federal financial incentives and consensus standards for energy efficient products and buildings. Tax benefits for commercial and residential buildings would produce dramatic savings of 30 percent to 50 percent of annual energy costs. Incentives for highly energy efficient products, such as air conditioners and ceiling fans, would be based on the product's performance, not cost, in order to foster competition between suppliers. These product incentives would bring almost immediate energy savings. Similar programs operated by utilities show that manufacturers can respond to incentives with a lead time of only a few months, passing savings on to consumers in less than a year.

Establish a federal "portfolio standard" to ensure that renewable energy steadily increases its long-term market share at minimum cost.

More than half of U.S. electricity in the United States is currently generated by burning coal -- releasing air pollutants that cause acid rain, smog, and cardiopulmonary health problems. Electricity generation using fossil fuels is also the single largest source of global warming pollution. In contrast, renewable energy such as wind, solar, and geothermal can provide electricity with far less damage to the environment and our health.

A federal renewables portfolio standard will ensure that all Americans can take advantage of these clean resources. A portfolio standard requires electricity providers to include a percentage of clean energy resources in the electricity mix they deliver to their customers. And since renewable energy resources have become increasingly cost competitive, portfolio standards help bring consumers clean energy at affordable rates. In 2004, New York adopted a portfolio standard requiring 24 percent of the state's electricity to come from renewable resources by 2013. The state expects that the effect on consumers will range from a 1.2 percent drop to a 1.8 percent increase in energy costs. For instance, if a consumer's monthly electric bill is $50, the bill would fluctuate by only 75 cents or a dollar. Eighteen states and the District of Columbia already require power companies to produce a percentage of electricity from renewable sources; it is now time for a federal policy.

Extend the renewable-energy-production tax credit, which provides a crucial short-term boost for renewable energy sources.

In addition to reducing air pollution, renewable energy also adds much-needed diversity to the nation's electricity mix, improving reliability, dampening fuel price shocks, and contributing to economic development. These benefits become available at a rapid pace: the construction time for renewable generation facilities is measured in months, not years as with conventional sources.

The renewable-energy-production tax credit is helping expand the role that renewables play in America's electricity market. The production tax credit was designed to spur the use of technologies that are on the verge of economic competitiveness. As a performance-based incentive, it rewards companies only when renewable energy is delivered to the power grid. Since the production credit was introduced in 1992, installed wind capacity has grown more than 400 percent. Yet despite the obvious benefits, the incentive has been allowed to expire twice. It has been granted short-term extensions, but the uncertain future of the tax credit leaves developers without the financing certainty they need to expand production capacity and make commitments to future projects. NRDC recommends extending the production tax credit for five years and expanding it to include geothermal energy. This extension will keep renewables on their continued march to cost competitiveness.

Create financial incentives to develop carbon capture technology for coal plant emissions.

Energy efficiency and renewable energy resources form the core of a successful strategy to keep global warming emissions from spiraling out of control. But even as these resources expand, the International Energy Agency forecasts that nearly 1,400 gigawatts of new coal capacity will be constructed worldwide between now and 2030. This is equivalent to almost 2,800 large power plants. If all of these plants were built using conventional technology, the plants' lifetime emissions would equal half the total estimated carbon dioxide caused by all fossil fuel use over the past 250 years. Unless we act today to adopt new ways to use coal, our children will be threatened by this massive increase in global warming pollution.

Existing technology allows new coal plants to capture and store carbon dioxide emissions in geological repositories. But the power sector is adopting this technology far too slowly to avert dangerous carbon dioxide levels in the atmosphere. We need policy action to put this new technology in place at the required pace. First, Congress must pass binding limits on carbon dioxide emissions to give power plants the signal that the time has come for investing in carbon capture. Second, the federal government needs to create financial incentives to optimize and bring down the costs of today's carbon capture systems. The current policy approach of an extended -- and expensive -- research program will not give us significant results fast enough. Instead, Congress needs to give the private sector the business rationale for prioritizing investment in carbon capture today.

Establish comprehensive limits on air pollution from power plants covering emissions of nitrogen, sulfur, mercury, and carbon dioxide.

In addition to creating the lion's share of U.S. global warming emissions, coal-fired electric power plants are the single largest source of some of the worst air pollutants, including sulfur dioxide and mercury. Although progress has been made cleaning up air pollution since the Clean Air Act was passed in 1970, air quality has remained poor or has even deteriorated in many parts of the country. The Environmental Protection Agency estimates that approximately 159 million Americans live in areas where the air is unhealthy. From the aggravation of respiratory problems such as asthma and emphysema to premature death, air pollution takes a toll on Americans' health. It also harms the environment, causing acid rain, ozone damage to trees and crops, mercury contamination, and global warming.

Despite the air pollution dangers facing Americans, the nation's biggest electric power polluters are pushing for a plan that would delay and dilute pollution reductions required by the current Clean Air Act. NRDC supports power plant legislation, but only if it strengthens the Clean Air Act, protects Americans from breathing dangerous pollutants better than current law, and imposes mandatory limits on carbon pollution from power plants to address the urgent problem of global warming -- all while providing electricity producers certainty and flexible, enforceable compliance methods. NRDC supports the pending Clean Power Act and Clean Smokestacks Act in Congress because they:

• Reduce sulfur and nitrogen emissions from power plants, saving tens of thousands of lives and avoiding millions of illnesses
  
  
• Preserve the current Clean Air Act's mandate to cut toxic mercury emissions that threaten pregnant women, developing fetuses, and children
  
  
• Curb acid rain and clear smog from our parks, forests, lakes, and streams
  
  
• Use market mechanisms, known as emissions trading, to reduce sulfur, nitrogen, and carbon pollution nationally, while maintaining essential safeguards to protect air quality locally and regionally.
  

Reject additional subsidies for a mature and wholly uncompetitive nuclear power industry.

Nuclear power is a poor candidate for further public subsidies. It is a mature power technology with tens of billions of dollars in public and private capital already behind it. It is saddled with proliferation risks and a costly, long-lived hazardous waste burden. No energy generation company in the United States has been willing to order and construct a new nuclear plant in more than 30 years. This is not because of public opposition over safety or national security concerns. Rather, it is because new commercial nuclear power plants are uneconomical in the United States -- they simply cannot compete with other sources of electricity. According to an MIT study, the levelized cost of electricity generated by a new nuclear plant is estimated to be about 60 percent greater than the cost of electricity from a coal plant or a gas-fueled plant, assuming moderate gas prices.⁹ Faced with these marketplace realities, some of the largest and most successful energy companies are chasing taxpayer dollars to subsidize the difference in the cost of nuclear and fossil-fueled generated electricity.

NRDC believes that the nuclear power industry should fend for itself in the free market -- without additional taxpayer assistance. This mature industry has already benefited from decades of government subsidies. If the government were to subsidize six more nuclear plants, we would have 110 nuclear plants instead of 104 nuclear plants. This would not make nuclear power competitive or solve any of the nation's pressing long-term energy needs and global warming emissions targets. Nor would it address the serious outstanding problems that face the nuclear industry, such as the risk of proliferation and nuclear terrorism at home and abroad, reactor safety, and the environmental harms caused by mining uranium and disposing nuclear waste at such inadequately designed sites as Yucca Mountain. These problems need to be solved before expanding our commitment to nuclear power.

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Notes

9. "The levelized cost is the constant real wholesale price of electricity that meets a private investor's financing cost, debt repayment, income tax, and associated cash flow constraints," from John Deutch, Ernest J. Moniz, et. al., The Future of Nuclear Power, Massachusetts Institute of Technology, 2003, p.38. The report is available online at web.mit.edu/nuclearpower.