If the customer wants clean energy, he’ll have to pay for it, right? Wrong. There’s actually no premium attached to low-carbon power, state utility regulators heard last week at their annual conference in Dallas.
I’ll cut to the chase. Check out this report from Analysis Group, a five-star consultancy based in Boston, who presented at the conference. “Based on our own analysis and experience, we believe that the impacts on electricity rates from well-designed CO2-pollution control programs will be modest in the near term, and can be accompanied by long-term benefits in the form of lower electricity bills and positive economic value to state and regional economies.”
Here’s the back-of-the-envelope math. The EPA says that the Clean Power Plan—America’s no-nonsense blueprint to cut carbon pollution from its power plants—will cost between $4.3 billion to $7.5 billion per year by 2020. Let’s take a mean of $5.9 billion for the sake of fairness. That’s a mere 1.6 percent of America’s total spending of $363.7 billion on electricity in 2012.
If you want an itemized bill, that $5.9 billion will include investment in cleaner generation, including increased zero-carbon low-cost nuclear power, the expense of wringing efficiencies from existing plants, fuel-switching costs, and “demand-side” efficiency measures—which translates to getting your customer use power more smartly.
“I’ll believe it when I see it,” you may say. But there’s a secret weapon to this success: cooperative federalism. I know how regulators think. The state watchdogs are always guarding the consumer’s purse, and growl when anyone comes too close. That’s the beauty of reserved power. But let’s also consider additional key insights from the Analysis Group report:
- States have a track record of using regulatory and other policy tools to encourage investments that reduce the carbon intensity and cost of electricity. The consumer always comes first.
- States are flexible and agile and can tailor policy to fit their particular circumstances.
- Market-based tools, like the Regional Greenhouse Gas Initiative (RGGI), are now being used in many regions and will reduce costs across the board and cut carbon emissions from existing power plants.
- States have the know-how to protect lower income customers when electricity prices go up.
The bottom line is that America’s new climate rules put the states in the driver’s seat. They have the tools available to bring about lower electricity bills and greater economic growth, and they will get to work.
How much heavy lifting will be done by RGGI? Remember it was Mitt Romney who established the first carbon pricing mechanism when he was Governor of Massachusetts. RGGI, formed in 2003, built on Romney’s plan and established the country’s first regional market-based carbon pricing and trading mechanism. The goal was to reduce emissions from large fossil-fueled power plants in the RGGI footprint.
Right now, nine Mid-Atlantic and Northeast states are signed up. (My state, Pennsylvania, never participated, and New Jersey pulled out in 2011.) States have reduced emissions in a cost-effective manner by introducing price signals on carbon, and also raising revenue—a whopping $1.4 billion—through allowance auctions.
Analysis Group said in 2011 that RGGI had produced a total of $1.6 billion in economic value for participating states, which is, on average, around $33 per capita. It also led to 16,000 extra jobs for the ten states, across the entire economy. And crucially, carbon trading actually decreased electricity prices. At first, it brought down bills by less than 1 percent, but they fell further over time.
Full disclosure: Analysis Group found that RGGI programs, for states that have them, exert some upward pressure on electricity rates (which aren’t the same thing as bills) in their early stages. But over time, benefits come to the forefront. For example, investments in energy efficiency reduce household consumption levels. That reduces a generator’s spending on feedstock for its plant, allowing it to pass on the benefit to the consumers. In addition, the increasing role of low-cost nuclear power will fit into the Clean Action Plan’s execution and that will result in more low-cost power being part of the grid’s energy mix.
It’s almost easy to forget the environmental impact. RGGI is on track to reduce carbon emissions by 80-90 million tons through 2020, says Kenneth Kimmell, who served as Commissioner of the Massachusetts Department of Environmental Protection (DEP) and Chair of the RGGI, Inc. Board of Directors when I was the secretary of environmental protection in Pennsylvania.
RGGI isn’t the only solution. Nebraska’s Omaha Public Power Public Power District (PPD) utility recently announced that it will undertake a plan to cut greenhouse emissions by nearly 50 percent at an increased cost for power of no more than 2 percent. Omaha PPD is taking advantage of some notable Nebraskan assets, like good natural gas infrastructure and flat, windy territory. There’s a lesson to other power providers and especially to states in crafting their respective implementation plans—play to your strengths.
All of this is an inconvenient truth at an inconvenient time to those peddling fear over the new climate rules. But there is real food for thought for the level-headed. Take Pennsylvania, which is in the heartlands of RGGI but is only a RGGI spectator. The state has a well publicized budget bellyache. RGGI revenues could be just what the doctor ordered and could answer the state’s call on the Clean Energy Plan to boot. A “win-win.”
The path to lower electricity bills in my home state may be thorny. The Pennsylvania House of Representatives passed a bill in June, championed by a small group of special interests, which would create obstacles to the state DEP from doing its executive function of submitting its carbon-cutting state implementation plan. The law could give one or both houses of the legislature the power to override the DEP and act as a “super-DEP.” Furthermore, beyond the obvious separation of power issues, the loss of the state’s own control over its plan could be disastrous. In short, this law could be a huge poison pill.
Let’s take a lesson from Analysis Group and the Nebraska’s PPD — and think of the consumer.
Michael L. Krancer is Partner & Energy, Petrochemical and Natural Resources Practice Group Leader at Blank Rome LLP and a former secretary of the Pennsylvania Department of Environmental Protection. His blog, Energy Trends Watch, follows developments in energy, petrochemical and natural resources.