LegiStorm

Summary:

Introduction The Environmental Protection Agency (EPA) created the Clean Energy Incentive Program (CEIP) as a voluntary complement to its regulatory program known as the Clean Power Plan (CPP). The CEIP is intended to promote early reductions of carbon dioxide (CO2) emissions, before the CPP is scheduled to take effect in 2022. The goal of the CPP is to reduce CO2 emissions from existing fossil-fuel-fired electric power plants, which produced 30% of all U.S. greenhouse gas emissions in 2014. Economic modeling indicates that the CPP would significantly reduce future CO2 emission levels from U.S. electricity generation. (For more information, see U.S. Carbon Dioxide Emission Trends and the Role of the Clean Power Plan.) The CEIP would support this objective by supporting renewable energy electricity generation and energy efficiency activities. This Insight discusses the CEIP proposed rule. Status of CPP and CEIP The CPP final rule was published in the Federal Register on October 23, 2015. The CPP has generated considerable controversy and garnered interest from Congress and a wide range of stakeholders. The CPP is the subject of ongoing litigation involving a number of states and other entities. On February 9, 2016, the Supreme Court stayed the rule for the duration of the litigation. The rule therefore currently lacks enforceability or legal effect, and if the rule is ultimately upheld, at least some of the deadlines would likely be delayed. For more details on the CPP, see EPA's Clean Power Plan for Existing Power Plants: Frequently Asked Questions. Some have argued that EPA is effectively enjoined from engaging in any activities relating to the CPP. EPA stated that "while the legal effectiveness of the Clean Power Plan is currently stayed, the EPA has determined that it is appropriate to move forward with the design details of the CEIP component of the Clean Power Plan at this time." For more information about the Supreme Court stay, see CRS Legal Sidebar While the Clean Power Plan Is Stayed, EPA Moves Forward with the Clean Energy Incentive Program. EPA published a proposed rule for the CEIP in the Federal Register on June 30, 2016. CEIP Proposed Rule Although EPA established the framework of the CEIP in its CPP final rule, EPA's June 2016 proposed rule seeks to clarify certain elements and alters some of the program details. The CEIP is a voluntary program that would encourage states to support energy efficiency measures and renewable energy projects before the CPP compliance obligations take effect in 2022. Under the CPP, states submit plans to EPA detailing how they would comply with the CPP—either with emission rate targets (measured in pounds of CO2 emissions per megawatt-hour [MWh] of electricity generation) or mass-based targets (measured in tons of CO2 emissions). In addition, states would need to include particular design elements in their plans in order to participate in the CEIP. The CEIP would establish a system to award either emission rate credits or emission allowances for two categories of activities: Energy efficiency and solar renewable energy projects in low-income communities; and Renewable energy projects in participating states. The proposed rule altered these two categories by adding solar power projects to the low-income community category and expanding the scope of renewable energy project types to include not only wind and solar but also geothermal and hydropower. Electricity generated from nuclear power or biomass would not qualify. The proposed rule modified the eligibility start date for projects. Eligible energy efficiency projects in low-income communities would include those that commence operation on or after September 6, 2018. EPA defines "commence operation" as "the date that a CEIP-eligible low-income community demand-side [energy efficiency] project is delivering quantifiable and verifiable electricity savings." Eligible renewable energy projects, including solar power projects in low-income communities, would include those that commence commercial operation on or after January 1, 2020. Renewable energy projects would receive one credit/allowance from the state and one credit from EPA for every two MWh of renewable energy generation. Projects in low-income communities would receive double credits: For every two MWh of generation from solar power or avoided electricity generation through energy efficiency, these projects would receive two credits/allowances from the state and two from EPA. The CEIP credits take the form of emission rate credits or emission allowances, depending on whether a state plan chooses an emission rate or mass-based target. The credits/allowances could be sold to or used by an affected emission source to comply with the state-specific requirements. In a CO2-constrained regime, these credits/allowances would have monetary value. For example, in the Regional Greenhouse Gas Initiative, a CO2 cap-and-trade program involving nine Northeast states, emission allowances have sold at auction at prices between $2/ton and $7.50/ton. To generate the credits/allowances, states would effectively borrow from their mass-based or rate-based compliance targets for the interim 2022-2029 compliance period. For mass-based programs, EPA would match up to the equivalent of 300 million emission allowances during the CEIP program life. Half of the EPA's pool of matching credits would support renewable energy projects; half would support energy efficiency and solar energy projects in low-income communities. The amount of EPA credits/allowances potentially available to each state participating in the CEIP depends on the relative amount of emission reduction each state is required to achieve. States with greater reduction requirements would have access to a greater share of the EPA credits. Figure 1 illustrates the allowances available to each state, assuming the state were to adopt a mass-based approach in its compliance plan. Figure 1. Distribution of CEIP Allowances by State and Tribe Assumes a Mass-Based Approach / Source: Prepared by CRS; EPA, "Clean Energy Incentive Program," 81 Federal Register 42953, June 30, 2016. Notes: EPA did not establish emission targets for Vermont and the District of Columbia because they do not currently have affected electric generating units (EGUs). EPA stated that Alaska, Hawaii, and the two U.S. territories with affected EGUs (Guam and Puerto Rico) will not be required to submit state plans on the schedule required by the final rule, because EPA "does not possess all of the information or analytical tools needed to quantify" the best system of emission reduction for these areas.