EPA Adds Detail to the Clean Energy Incentive Program

On June 16, 2016, the Environmental Protection Agency (EPA) released a proposed rule for the Clean Energy Incentive Program (CEIP), part of the Clean Power Plan that encourages states and power companies to take early action to reduce carbon pollution. The Clean Power Plan establishes the nation’s first-ever limits on the carbon pollution from power plants, collectively our largest source of carbon dioxide (CO2) emissions; the key driver of climate change.

The new proposal expands on the CEIP, which was included in the final Clean Power Plan, put out in August 2015. By releasing the CEIP proposed rule and taking public comment, EPA is doing the prudent thing: continuing to work with those state, power companies, and stakeholders that continue to plan for Clean Power Plan implementation. The Supreme Court issued a stay in February that suspends implementation deadlines while a lower court evaluates the merits of the Clean Power Plan. But the stay allows states and power companies to move ahead with planning if they choose. Leading industries and officials are continuing to pursue clean energy pathways that will position them well if, as expected, the courts rule for EPA. 

Remind me: what does the CEIP do?

The CEIP encourages and rewards early action to reduce carbon pollution, something many states and power companies asked for as EPA developed the Clean Power Plan. As  described in the Final Rule, early investments in wind, solar, and energy efficiency in low income communities will earn valuable emission allowances (in states that choose a mass-based plan) or emission rate credits (ERCs) (in states that choose a rate-based plan) for the electricity they save or the renewable power they produce in 2020 and 2021.   

These early credits will add to the benefits these projects will receive for emission reductions achieved starting in 2022, the Clean Power Plan’s first compliance date. To provide an extra incentive for energy efficiency investments in low income communities, EPA proposed that these projects get double-credit.

The CEIP as-explained in August 2015 was a good start, but some aspects needed more work.  For example, when EPA proposed the CEIP, Congress had not yet passed the legislation that ultimately extended tax credits for wind and solar; stakeholders were concerned that absent the extension of these tax credits, investment would drop before the Clean Power Plan went into effect in 2022. The passage of extensions to the tax credits in December 2015 makes it more likely that a lot of wind and solar will be developed between now and when the Clean Power Plan goes into effect. For the CEIP to encourage new development, the program’s design should take into account this new reality. EPA needed to address other aspects, such as how “low income community” should be defined and whether solar projects in low income communities should also be eligible for double credit.

EPA’s proposal addresses some of these questions, and requests more comments from stakeholders on several key issues.

Key changes in the proposed rule

1. One allowance pool for renewables, another for low income communities

EPA provides CEIP credit to renewable and energy efficiency project developers from a pool of 300 million allowances, equal to 300 million short tons of CO2 pollution. Low income advocates, and NRDC, were concerned that wind and solar projects might take up almost all of these allowances, because energy efficiency projects in low income communities are harder to implement than renewable energy projects. EPA addresses this in the proposal by splitting the allowance pool into two equal parts: 150 million allowances for renewable projects, and 150 million allowances for low income community projects. Guaranteeing substantial allowances for low income communities is a good decision in our view.

2. Clarifying when projects can begin receiving credit

In the Clean Power Plan Final Rule, CEIP eligibility for projects was tied to the date a state submitted its final state plan: renewable projects that began construction after this date, and energy efficiency projects in low income communities that began saving energy after this date, were eligible.

EPA is proposing to change eligibility requirements such that renewable energy projects that “commence commercial operations” (i.e. start selling electricity) after January 1, 2020 would be eligible to receive CEIP credit. Energy efficiency projects in low income communities that go into operation (i.e., begin saving energy) after September 6, 2018 would be eligible to receive CEIP credit. This earlier credit for energy efficiency acknowledges the lead-time it takes to develop an energy efficiency program.

3. Defining the eligibility of renewable projects

In the Clean Power Plan Final Rule, EPA limited the CEIP eligibility of renewable projects to only wind and solar PV installations. EPA is now proposing to expand this definition to include geothermal and hydropower resources, which can provide the same benefits as wind and solar.

4. Interaction with extended tax credits for wind and solar

Many stakeholders, including NRDC, recommended that EPA revisit the design of the CEIP in light of the renewable energy tax credit extensions enacted in December 2015, in order to ensure that the CEIP drives investments in additional projects and emissions reductions, rather than crediting projects that would have been developed anyway. EPA is requesting further comment on this issue, and NRDC plans to continue to work with other stakeholders to develop more detailed recommendations.

5. Defining “low-income community”

When it proposed the CEIP, EPA asked for input on how states should define “low-income community” for the purpose of determining a project’s eligibility for the CEIP. NRDC sought to make sure that the program benefits the intended recipients and communities. We also recommended that programs that serve low-income people who happen to live outside of a low income community also be eligible. In response, EPA has proposed four definitions of low- income community that it might approve in advance, existing definitions already well-known in the field. States can also propose an alternative definition. EPA also proposed that efficiency projects serving commercial buildings in low-income communities may also earn credit. This is somewhat controversial. Energy efficiency projects for small businesses and institutions don’t face barriers as severe as those affecting energy efficiency projects for low-income households. We will likely comment on this: we want to make sure that the CEIP benefits communities and people most in need.

Making solar in low income communities eligible for double credit, like efficiency

EPA also proposed that solar projects serving low-income communities be eligible for double credit, just like energy efficiency projects. This proposal responds to some stakeholders who noted that solar deployment in these communities faces many of the same barriers as energy efficiency. In the proposed rule solar projects have a different eligibility start date: January 1, 2020, like all other renewables, instead of the 2018 date for energy efficiency.

What’s next?

NRDC will be working with other stakeholders to comment on EPA’s proposed rule on design details. We will have 60 days after the proposal is published in the Federal Register to do so. Our goal will be to help ensure that low income communities benefit from the Clean Power Plan’s work to reduce harmful carbon pollution, and that we move faster toward a clean energy future that protects our children and communities.

About the Authors

Dylan Sullivan

Senior Scientist, Climate & Clean Energy Program

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