When it comes to designing the mechanism that will drive reductions in greenhouse gas emissions, air regulators and renewable energy producers hold conflicting viewpoints. As a result, it is possible that new federal climate change policies may do more harm than good for renewable energy.

Climate Policy Could Hinder Renewable Energy

by Michael Vickerman, RENEW Wisconsin
December 15, 2006


In the area of global climate change, the United States is both a leader and a laggard. Comprising only three percent of the planet's population, Americans are responsible for one-fourth of the carbon dioxide and other greenhouse gas emissions attributable to human activity. No other nation comes close to matching America's prodigious appetite for carbon-based energy sources, though China is clearly beginning to close the gap.

Where the United States lags is in instituting policies for reducing the volume of greenhouse gases discharged into the atmosphere. Here we are, less than a month away from 2007, and we still don't officially recognize climate change as a global environmental emergency requiring a national commitment to slash carbon emissions. Among other affluent countries, only Australia is willing to march with the United States down the path of inaction and denial, forging a fellowship of reprobate nations that refuses to treat the terrible environmental fix we're in with any degree of urgency.

During their 12 years of iron-fisted control over Congress, Republican leaders were successful in bottling up legislation to limit emissions of heat-trapping gases. Now that the Republicans have been relegated to minority party status, the odds that Congress will pass a climate bill are greater than zero.

Clean air and renewable energy advocates cheered when the incoming Senate Environment Committee chair, California's Barbara Boxer, announced plans to introduce a measure resembling AB 32, her home state's new and ambitious climate change policy. It certainly stands to reason that lowering atmospheric levels of carbon dioxide (CO2) would necessitate greater use of such emission-free energy sources as wind, solar and hydro.

But when it comes to designing the mechanism that will drive reductions in greenhouse gas emissions, air regulators and renewable energy producers hold conflicting viewpoints. As a result of this fundamental disagreement, it is entirely possible that new federal climate change policies may do more harm than good for renewable energy development.

Most climate change policy experts believe that when the United States does adopt a greenhouse gas reduction program, it will take the form of a cap-and-trade system, like what was employed some 20 years ago to lower quantities of acid rain-causing gases. Under this model, allowances (a/k/a pollution rights) are allocated to major sources of the pollutant being regulated. Within the limit set by the ceiling, these regulated entities can buy and sell these allowances depending on their ability to achieve reductions.

The beauty of this system is that when allowances are sold to non-polluting market participants to be "retired", the ceiling is lowered, thus reducing the volume of pollutants in the air.

Under the precedent set by the 1990 Clean Air Act, air regulators allocated allowances only to those entities discharging sulfur dioxide (SO2) and nitrogen oxides (NOx), namely coal-fired stations. Renewable generators do not receive allowances because they don't contribute to the acid rain problem. While this is unarguably true, this outlook effectively prevents new renewable generation from lowering the allowable ceiling for SO2 and NOx emissions.

It may surprise some to learn that all the renewable generation sources that were placed in service after EPA set its overall emissions budget have had no material effect on the ceiling, nor have they financially benefited from that market. Moreover, by being ineligible for any allowances allocated under the Clean Air Act, renewable generators cannot rightfully claim that they are avoiding the production of SO2 and NOx.

Though utilities see coal and renewables as resources that are constantly vying for space in their system mix, air regulators treat them as though they exist in parallel universes. And, if the carbon policy of the future mirrors current acid rain reduction efforts, renewable energy will have to find other drivers besides its proven ability in displacing fossil generation sources.

Right now, the United States has a very robust voluntary market for renewable generation. Many electric utilities and retailers provide renewable energy products to customers ranging from the very large (e.g., Johnson & Johnson, Starbucks and Staples) to the small. Over 30,000 customers of Wisconsin utilities have enrolled in a renewable energy subscription program. Why? Because the carbon reduction bang for the modest bucks shelled out is huge. For the average Wisconsin household that switches to 100% renewable electricity, the savings comes to about seven tons' worth of CO2.

If large and small customers value the greenhouse gas reducing properties of renewable energy, so should the regulators who will be responsible for shaping federal carbon policies. So long as the public perceives wind, solar, biogas and hydro projects as effective tools for mitigating climate change, voluntary markets for renewable energy will continue to grow. But if regulators decide not to give credit to personal and corporate decisions to buy renewable energy, the consequence for producers could be worse than no carbon policy at all.

Sources:

Green Power Marketing in the United States: A Status Report (9th Edition), Lori Bird and Blair Swezey, National Renewable Energy Laboratory, November 2006. (www.eere.doe.gov/greenpower)

Presentation by Elizabeth Salerno, American Wind Energy Association, to the 11th National Renewable Energy Marketing Conference, December 2006.

Vickerman is executive director of RENEW Wisconsin, an independent, nonprofit organization that acts as a catalyst to advance a sustainable energy future through public policy and private sector initiatives. For more information on RENEW's work, visit our web site: www.renewwisconsin.org. These commentaries also posted on RENEW's weblog: http://www.zmetro.com/community/us/wi/madison/renew
Michael Vickerman