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THE CLEAN AIR ACT: Opportunities For Renewable Energy January 11, 2001 National Renewable Energy Laboratory Washington, DC by David R. Wooley Elizabeth M. Morss Young, Sommer, LLC Albany, NY

Big Picture: 

Big Picture The “next” Clean Air Act Renewables could make a significant contribution toward air quality goals Cap & Trade Programs will be a fundamental building block of CAA programs Emission Trading Can be adapted to provide for participation by, and revenues for renewables

Big Picture: 

Big Picture Federal and state agency actions in near term can experiment with and popularize integration of renewables into CAA control mechanisms Potential financial benefits for renewables are huge - and justify an effort to pursue policy changes

REPP Paper: Financial benefits for Renewables from Emission Trading: 

REPP Paper: Financial benefits for Renewables from Emission Trading Avoided Emissions Valuation C02 $5/T 0.6T/mWh = $3.0/mWh N0x $2000/T 0.00075T/mWh = $1.5/mWh S02 $200/T 0.006T/mWh = $1.2/mWh Total = $5.7/mWh

Annual Value Pollution Allowance Trading to Renewable Energy Industry in 2010: 

Annual Value Pollution Allowance Trading to Renewable Energy Industry in 2010 Industry 20-MW Facility Entire Industry (in millions) Wind $360,517 $311 Biomass $587,059 $467 Geothermal $946,109 $447 Solar $119,181 $ 46 Total $1,271

NREL Report: Background & Purpose: 

NREL Report: Background & Purpose REPP Report (February 2000) EPA Guidance Document - NOx Set-Asides Draft NWCC Paper on Renewable Energy Credits (November 2000) Draft Western Regional Air Partnership (WRAP) Proposal Summarize existing CAA programs that directly or indirectly promote renewable energy Identify specific changes to CAA and related programs to boost renewables Focus on market-based programs (emission trading, allowance set-asides)

CAA Programs: 

CAA Programs Title IV acid rain program – Sulfur dioxide (SO2) Ozone and nitrogen oxide controls (NOx) Visibility, regional haze and particulate matter (PM) Climate change and greenhouse gases (GHG) – Carbon dioxide (CO2)

Title IV Acid Rain Program: 

Title IV Acid Rain Program Cap-and-trade program for SO2 emissions from power plants Flexible compliance options for sources (install controls, buy allowances, shutdown) Generally regarded as success – significant and cost-effective reductions in SO2 emissions

Acid Rain Program, Con’t: 

Acid Rain Program, Con’t Conservation and Renewable Energy Reserve (CRER) Set aside 60,000 allowances for renewables Program under-subscribed: limited participation to utilities; cheap compliance alternatives available; low rate for awarding allowances (1 per 500 mWh generated); required least cost planning

 Ozone and NOx Controls-1990 CAA Amendments Regulated NOx as ozone precursor-Acknowledged regional ozone transport problem established Northeast ozone transport region-Northeast ozone transport region MOUNOx trading program applicable in 12 northeastern states and District of Columbia: 

Ozone and NOx Controls -1990 CAA Amendments Regulated NOx as ozone precursor -Acknowledged regional ozone transport problem established Northeast ozone transport region -Northeast ozone transport region MOU NOx trading program applicable in 12 northeastern states and District of Columbia

Ozone and NOx Controls, Con’t: 

Ozone and NOx Controls, Con’t Several NE state programs include NOx allowance set-asides for Renewables Recent MOU exploring other NOx control alternatives (RPS, SBC, EPS, etc.) NOx SIP Call EPA rulemaking requiring NOx reductions to address regional ozone transport concerns Applicable in 19 states and DC Establishes voluntary emission trading program as alternative for achieving required NOx emission reductions EPA guidance issued on EE/RE set-aside program and output-based allocation strategy

Ozone and NOx Controls, Con’t: 

Ozone and NOx Controls, Con’t CAA § 126 petitions Northeastern states petitioned EPA under CAA § 126 for finding re: ozone transport EPA granted the petitions and established mandatory emission trading program applicable to 392 sources in 12 states and DC Allocates allowances on an input basis until 2007; May move to output-based approach later EPA has not indicated whether it intends to include renewables under output-based program

Visibility, Regional Haze and Particulate Matter: 

Visibility, Regional Haze and Particulate Matter Regional haze rule Authorizes states to adopt emission trading as substitute for Best Available Retrofit Technology (BART) for older fossil-fired sources No guidance issued as yet re: trading program

Grand Canyon Visibility Transport Region (GCVTR): 

Grand Canyon Visibility Transport Region (GCVTR) States in GCVTR can adopt emission trading regulations as alternative to basic regional haze rule Establish renewable energy goals (10% of regional power needs by 2005 and 20% by 2015) Establishes SO2 emission milestones; calls for mandatory trading program if emission milestones not me Draft trading program calls for awarding renewables 2.5 tons of SO2 allocations per MW of installed nameplate capacity per year

Particulate Matter (PM): 

Particulate Matter (PM) No emission trading programs currently established for PM PM2.5 standard currently being litigated EPA is scheduled to revise NAAQS for PM in 2002 State Implementation Plan revisions due 2005-6 at earliest (Court action could delay SIP deadline)

Greenhouse Gases : 

Greenhouse Gases National CO2 limits set for developed countries under Kyoto Agreement Agreement encourages development of renewables but includes no mandates International negotiations currently underway on various issues Emission trading, clean development mechanism (CDM) and joint implementation

Greenhouse Gases, Con’t : 

Greenhouse Gases, Con’t Rules governing credit for carbon sequestration Domestic regulation of CO2 emissions limited Current CAA programs limited to measuring CO2 emissions and voluntary reduction programs Early reduction bills as “foot in the door” opportunity Significant political opposition to implementing Agreement

Key Issues in Regulating Renewables under CAA: 

Key Issues in Regulating Renewables under CAA Who can participate (what is a renewable energy source/to whom is the program targeted) Impact on energy market (targeted at renewables vs. broader participation) Role of government (administration & allocation) Political implications Federal vs. state approach Program-by-program vs. integrated approach

Potential CAA Programs to Encourage Renewables: 

Potential CAA Programs to Encourage Renewables Renewable energy set-aside Renewable output-based allowance allocation Allowance auction State Emission/generation performance standards (EPS) Supplemental environmental projects (SEPs) and enforcement

Potential Non-CAA Programs to Support Renewables: 

Potential Non-CAA Programs to Support Renewables Renewable portfolio standards (RPS) System benefits charge (SBC) Pollution taxes or charges Green Pricing These can be used in combination with CAA Set-Asides

Recommendations: 

Recommendations Tighten the existing SO2 cap and establish an improved allowance set-aside program to replace the CRER Benefits Set-asides provide financial benefit for investing in renewables Significant political support (bills already introduced to lower cap) Opportunity to pursue output-based allocation scheme (once information needs and political concerns are addressed) Barriers Ensuring low enough emissions cap to make renewables viable Practical/political difficulties associated with allocating allowances under set-aside Double counting

Recommendations, Con’t: 

Recommendations, Con’t Encourage renewables under state programs developed under NOx SIP call or Northeast OTC MOU Benefits Momentum (several states already have implemented renewable set-asides under OTC MOU) Barriers Limited geographic scope Programs must be implemented at state level

Recommendations, Con’t: 

Recommendations, Con’t Pursue a mandatory state set aside for renewables in regional or national cap-and-trade programs for NOx Benefits Avoids patchwork of discretionary state programs; potential to expand to National scope or Annual (as opposed to seasonal) Some political support (legislation establishing tighter N0x controls have been introduced) Barriers Duplicate programs (administrative complexity) Differential regional impacts Alternative: Pursue integrated, multi-pollutant trading program in lieu of new cap-and-trade program for NOx

Recommendations: 

Recommendations Include renewables in emission trading programs developed to implement national regional haze requirements Benefits Nationwide scope (in case of trading program as substitute for BART) Role for renewables already contemplated (in case of GCVTR regulations) Barriers State implementation

Recommendations, Con’t: 

Recommendations, Con’t Include renewables in emission trading programs developed to implement national or international Greenhouse gas control requirements Benefits CO2 trading could provide largest source of revenue for renewables relative to other pollutant trading mechanisms Early reduction bills in Congress present an opportunity Barriers Political obstacles at both national and international levels Participation at international level could be difficult Participation by non-renewable electric power generation sources

Recommendations, Con’t: 

Recommendations, Con’t Pursue a multi-pollutant trading program Benefits If developed as substitute for existing individual programs, reduced administrative burdens Captures all of air quality benefits associated with renewables, making renewables more competitive Barriers Eliminating existing programs Ensuring role for CO2 (given political opposition to CO2 regulation) NOTE: Many of recommended program options could be combined with other mechanisms to encourage renewables (RPC, SBC, EPS, etc.)

CONCLUSION: 

CONCLUSION INTEGRATION OF RENEWABLES INTO THE FABRIC OF CLEAN AIR PROGRAMS IS AN IMPORTANT POLICY OBJECTIVE WHAT WILL IT TAKE? Coordinated Effort By Government, States, Renewable Industries And Environmental Groups To Popularize And Support The Concept Need To Move Quickly: Planning For Next Caa & Many State/regional Programs Is Underway