EPA Dangles Carrot for States to Cut Emissions Quicker

Plan to reward states for renewable energy use and efficiency gains was an unexpected addition to the Clean Power Plan.

The EPA has an incentive plan for states to quickly adopt renewable energy

The EPA embedded a renewable energy incentive program into the Clean Power Plan. Credit: EPA

One unexpected twist in the Environmental Protection Agency's rules governing carbon dioxide emissions from power plants is a proposal to create incentives to move more rapidly toward energy efficiency and renewables like wind and solar power.

The feature could help compensate for the agency's decision to delay by two years, until 2022, the first compliance deadline imposed by the Clean Power Plan regulations, which were published on Monday.

As an enticement to states and power companies to get a quicker start toward the steep emissions targets, which are expected to result in 32 percent less pollution nationally by 2030 compared to 2005, the EPA wants to build in extra credit for first steps taken in 2020 and 2021.

Details of the proposal, called the Clean Energy Incentive Program, have not yet been fleshed out, and it will be finalized only after a period of public review and comment.

The basic idea is to grant extra emissions credits, up to a cap, for programs that either spur investments in solar or wind power or that target low-income communities for energy efficiency projects. The credits could be used later, after the emissions limits take effect.

The program would be voluntary, according to the EPA – no state would be required to participate, and no electric utility company would be forced to go along. Because the details are not yet known, it's not possible to estimate its costs or benefits.

The idea presents several advantages for the Obama administration and it might help get the controls on carbon off to a faster start.

Efficiency is cheap. At best, it pays for itself. And the costs of wind and solar energy are dropping fast. The EPA was willing to put off its early compliance deadlines in the interest of lowering the costs of its new rules, but it didn't want to defer investments that are especially affordable, readily available and clean.

Politically, the enticement of extra credits might reduce opposition from states – mostly governed by Republicans or heavily dependent on coal – challenging the regulations or threatening to ignore them. The incentives would only become available once a state has an approved implementation plan in place.

Favoring wind and solar energy for a few years would also help bolster those industries against the risk that Congress lets existing tax credits expire. Unless extended, a key wind subsidy would expire at the end of this year and a solar subsidy would be reduced a year later. Anything that favors the thriving renewables industry and its rapidly expanding workforce helps sell this regulation.

The efficiency programs rely on familiar tools. Many states and utility companies already have such programs in place. Some work by paying consumers to cut their demand when the grid is delivering at peak capacity. Others provide financing to help customers install energy-saving appliances, better insulation, and the like. But some states and power companies have been backing away from these programs; the new credits could shore them up.

Supporting people who can't afford to see their electric bills go up is crucial to the success of the Clean Power Plan. The EPA has promised that even without cheap and dirty coal, its approach will offset rising prices per kilowatt-hour through efficiency.

Targeting poor communities would help make good on that promise. It might also appeal to rural electric cooperatives, many of which rely heavily on coal power and have opposed the new regulations.

A promising pilot program run by rural electric cooperatives in South Carolina recently demonstrated just how successful this program can be. Federally-supported loans paid for home improvements that cut power consumption by a third; load payments were folded into electric bills, but the bills were lower than before, saving typical families hundreds of dollars even as the loans were repaid.

When the EPA first proposed its rules last year, it relied on assumptions about energy efficiency and demand management as one of the so-called "building blocks" used to set targets for each state's emissions. In the final rule, it eliminated this building block, which had been challenged by some as an over-reaching intrusion into the energy economy that went beyond the agency's powers to regulate power plants as sources of pollution.

Even so, the final rule's overall pollution limits are more ambitious than the targets in the initial proposal, partly because  renewable energy trends allowed for a stricter regulation, even without counting the effects of efficiency. And EPA has been careful to note that it didn't use demand-side calculations to set its pollution limits, but it still views reducing the demand for electricity as the single best pollution-reducing tool.

The newly proposed Clean Energy Incentive Program adds to the rules' emphasis on renewables and efficiency alike. Clearly, the Obama administration remains eager to advance both as viable alternatives to dirty fossil fuels.

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