The Clean Power Plan and Early Investments in Clean Energy

The Environmental Protection Agency (EPA), states, and stakeholders have been getting and asking questions about the role of early clean energy investments, made in the past and before the start of the Clean Power Plan (CPP) in 2022. Let's be clear: all investments in clean energy made in the past and in the future make it easier to achieve the CPP's emission limits and reduce a state's cost of compliance.

Two types of state plans

There are two policy approaches finalized by the Agency in the final CPP guidelines: rate-based and mass-based. In rate-based plans, the state establishes an allowed emission rate for its power plants: pounds of CO2 emitted per megawatt-hour (MWh) of electricity generated. At the end of the year, power plant owners must show that their emission rate was equal to or less than the rate-based limit. Under a mass-based approach policy approach, the state creates a permit - called an allowance - for each ton of carbon pollution power plants will be allowed to emit in the compliance period. At the end of the compliance period, power plant owners must submit to the state the number of allowances equal to their carbon dioxide emissions. For a longer description of mass- and rate-based state plans, see this earlier blog on emission rate credits (ERCs).

The manner in which clean energy investments are credited or valued under the two types of plans are slightly different. However, in both approaches clean energy investments remain an essential pathway to reduce emissions. The CPP applies carbon pollution limits to existing fossil fuel-fired power plants. Only power plants that emit carbon dioxide will be regulated under the program. Every unit of energy generated by wind, solar, hydro or nuclear does not fall under the CPP, will bear no cost from the program, and will be more competitive going forward. Fossil fuel-fired power plants, on the other hand, must reduce emissions or buy emission allowances or emission rate credits to meet the carbon pollution limits.

Investments in Clean Energy before 2012

States that have already invested in renewable energy or energy efficiency have reduced the scope of the CPP in their states. Had states not installed clean energy resources, electricity would have come from fossil-fuel fired power plants. These power plants would have needed ERCs or allowances in the compliance period, and the cost of ERCs and allowances ultimately flow to customers.

Iowa provides a good example of the benefits of investment in clean energy for CPP compliance. Between 2010 and 2012, installed wind capacity increased from 3,569 megawatts to 5,005 megawatts. This extra wind capacity reduces the amount of ERCs Iowa's fossil fuel-fired power plants need in 2030 by 25 percent. Together, the wind turbines installed in Iowa prior to 2013 (not just between 2010 and 2012) reduce the amount of ERCs Iowa's fossil fuel-fired power plants need in 2030 by 80 percent.

State and power company investments in non-emitting renewable energy sources and in energy efficiency occurred for many reasons: to lower emissions of carbon pollution and other pollutants, to lower electric bills, to create jobs, and to help accelerate technological innovation. But the investments also served - sometimes explicitly - as a response to anticipated regulation of carbon pollution from power plants. These were good investments.

Investments in Clean Energy after 2012

Just as clean energy investments made sense in the past, they make sense for states and utility customers now. In addition to the many benefits not related to carbon pollution, any clean generation or energy savings developed today that will continue to deliver power or reduce energy demand after 2022 will make it easier to achieve the CPP limits.

Clean energy projects like wind, solar and energy efficiency, installed after 2012, can generate emission rate credits, as I discuss here, for the electricity they produce or save in 2022 and later. These credits will be valuable to power plants, and will provide a revenue stream to the owners of clean energy projects. To generate emission rate credits, projects must be connected to the grid and located in a rate-based state.

In states that choose a mass-based approach, clean energy projects installed between now and 2022, by displacing electricity from dirtier power plants, will make it easier for states to meet their mass-based carbon pollution limits. States should also give a boost to clean energy in their state plans by channeling the value of carbon pollution allowances to clean energy.

Clean Energy Incentive Program: Early Action Credit for Wind, Solar, Energy Efficiency in a Low Income Community

The final Clean Power Plan included an additional feature that rewards early action: the Clean Energy Incentive Program. Eligible projects - wind, solar, and energy efficiency in low income communities, installed after a state submits its final state plan - get credit for the energy they save or the power they produce in the years 2020 and 2021, two years before they would otherwise.

So don't wait

Given that the first Clean Power Plan performance period is not until 2022, some are asking whether they should delay clean energy investments. Don't do it! Those benefits of clean energy that undergirded investment before the Clean Power Plan's release remain, except one: instead of hedging against potential future regulation of carbon pollution, we now know that power plants will no longer be able to emit unlimited carbon pollution into the atmosphere and that clean energy will help power plants comply.

A wind, solar, or energy efficiency project implemented tomorrow will have the same impact in 2022 as a project implemented on January 1, 2016. By implementing the project today we get 6 years of emission reductions and lower energy bills, and position ourselves better for 2022. So don't wait.