LegiStorm

Summary:

U.S. policymakers have considered and deliberated on several policy designs that could potentially reduce energy-related carbon emissions. In his 2011 State of the Union address, President Obama proposed the concept of a Clean Energy Standard (CES) that would result in 80% of U.S. electricity generation from clean energy sources by 2035. In March of 2012, the Clean Energy Standard Act of 2012 (S. 2146) was introduced in the Senate. The primary goal of S. 2146 is to reduce carbon dioxide (CO2) emissions from the U.S. electricity sector, which represents approximately 41% of total U.S. CO2 emissions. Generally, the approach used to achieve this goal is to require certain utility companies to source a portion of their electricity generation from qualified clean energy generators. Utilities located in either Alaska or Hawaii are exempted from CES requirements. Some utility companies that sell electricity directly to consumers (retail sales) would be required to comply with the CES. Determining which utilities have to comply is based on each utility company's total amount of annual retail sales. Starting in 2015, a utility company that sold more than 2 million megawatthours (MWh) of electricity to consumers would be required to comply. The retail sales level for compliance decreases by 100,000 MWh each year until 2025, where it remains constant at 1 million MWh. These thresholds represent a minority of electric utilities but a majority of U.S. electricity sales. Utilities required to comply with the CES would need to obtain a percentage of their electricity from qualified clean energy generators. In 2015 the minimum percentage is 24% and rises to 84% by 2035. The percentage is applied to a utility company's total retail sales; however, all electricity obtained from hydropower and nuclear power facilities placed in service before 1992 can be deducted from the sales base, potentially making compliance easier. The bill provides a four-part definition of electricity that would qualify as "clean energy": (1) electricity from renewable energy, biomass, natural gas, hydropower, nuclear power, or waste-to-energy facilities placed in service after 1991, (2) electricity from combined heat and power (CHP) systems or any non-biomass energy source that emits less than 0.82 metric tons of CO2 per MWh, (3) certain efficiency or capacity additions to nuclear or hydropower facilities that were placed in service before 1992, and (4) electricity from facilities that capture and store CO2. Utility companies can comply with the CES requirement by submitting clean energy credits, making alternative compliance payments (ACP), or a combination thereof. The ACP design element essentially caps the cost of CES compliance. ACP levels start at three cents per kilowatthour in 2015 and increase by 5% annually thereafter. Analysis by the Energy Information Administration (EIA) projects that enactment of S. 2146 could result in the following changes to the U.S. power sector in 2035, compared to EIA's reference case projections: (1) CO2 emissions from electric power facilities decline 44%, (2) electricity from coal decreases by 54%, (3) nuclear power and non-hydro renewable electricity increases by 62% and 34%, respectively, and (4) average electricity prices increase by 18%. EIA also notes that regional price disparity among exempt and non-exempt utilities could range between 3% and 30%. However, it should be noted that any projections over such a long time frame are difficult to accurately predict due to uncertainties associated with assumptions used to make such estimates.