Yogi Berra famously had a quote for every occasion. If asked to describe the effect of the U.S. Supreme Court’s February 9 stay of the U.S. EPA’s Clean Power Plan (CPP), I’d bet he’d say, “It’s déjà vu all over again.”
The post-McCain-Lieberman and Waxman-Markey world of failed federal climate policy was one of uncertainty and apprehension for fossil-fuel-fired generators. The now-stayed CPP world likewise leaves these generators in a place in which there isn’t yet—but likely soon will be—some form of national regulation on carbon.
The bad news: the uncertainty of this policy vacuum leaves the energy industry, the investment community, and utility regulators on their own to make the best of things.
The good news: states have strategies—often called “no regrets” strategies—that they have used in the past, which can be called upon again to promote lower-cost, lower-risk, and lower-emissions resources regardless of whether EPA’s CPP, or something like it, is ultimately upheld by the courts.
What Do We Mean by “No Regrets?”
No regrets policies are consistent with other policy objectives like saving money, improving public health, and reducing carbon emissions, but what distinguishes them is that they cost-effectively provide multiple benefits and make sense to do anyway. For example, in 2006 the Regional Greenhouse Gas Initiative (RGGI) states questioned whether the compliance costs of the program, once operational, might cause emissions leakage outside the program’s boundaries (which would increase emissions and negate the purpose of the program). To mitigate this concern, they identified a portfolio of policy responses, including “no-regrets” approaches:
- End-use energy efficiency;
- Efficiency portfolio standards;
- Appliance and equipment efficiency standards;
- Building codes and standards; and
- Market-based ways to remove barriers and provide incentives for combined heat and power.
RGGI staff correctly concluded that not only would these policies reduce demand for electricity that might come from outside the region, they would also significantly enhance system reliability, lower consumers’ electricity bills, reduce regional pollution, and encourage job creation. In the seven years of the program, the RGGI states have not identified material leakage, and they enjoy significant economic benefits from their no-regrets, clean energy investments.
How to Know Which Policies to Pursue? Plan!
States’ circumstances differ greatly, so determining the approaches that will best suit an individual state’s needs requires planning. Integrated resource planning (IRP), a common practice in a majority of states, requires utilities to develop a transparent, long-range plan to cost-effectively meet consumer needs over time. IRPs serve as more thorough guidance for utility investment and operational decisions, and help prevent investment decisions based on short-sighted analyses.
Another model can be found in the 2010 initiative that Colorado’s utility and air quality regulators undertook jointly with two large power companies to respond to the state’s “Clean Air – Clean Jobs Act.” This legislation anticipated new, more stringent EPA regulations for NOX, SO2, particulates, mercury, and CO2, and it resulted in the development—in less than one year—of a thoughtful, multi-pollutant plan to meet those requirements simultaneously.
In both examples, the key is planning in an integrated manner: lining up all potential supply-side and demand-side resources, identifying potential issues ahead of time, and screening the resulting options for cost savings, risk mitigation, emissions reductions, and other benefits. For example, if one were to consider only carbon regulation, conclusions about investing in a natural gas plant to replace a coal plant would likely be very positive, since natural gas produces roughly half the carbon emissions of a coal plant. However, an integrated analysis, like that provided by IRP, the Colorado model, or other similar approaches, would assess other reasonable compliance costs associated with NOX and ozone regulations, resulting in a more comprehensive regulatory outlook, and potentially very different conclusions about the proposed investment.
Sharpen Your Pencils
In the wake of the Supreme Court’s stay, several attorneys general wrote to the leaders of the National Association of Regulatory Utility Commissioners (NARUC) and the National Association of Clean Air Agencies (NACAA), suggesting that the stay “means that the states, their agencies, and EPA should put their pencils down.”
Their advice demonstrates a misunderstanding of the responsibilities of state public utility and air regulators, since the stay itself is largely irrelevant to the trends shaping today’s energy markets. Neither utilities nor regulators can afford to stand still. State economies continue to be less wasteful as they increase their investment in end-use efficiency and adopt more effective appliance standards and building codes. Consumers still want the freedom and the opportunity to produce cleaner electricity themselves, on their own rooftops and in their neighborhoods. Utility companies and their ratepayers continue to benefit from avoiding the costs and risks characteristic of large, long-term capital energy projects.
In addition to market trends, cleaner energy production provides tangible health benefits. John Stine, Commissioner of the Minnesota Pollution Control Agency, made precisely this point recently. Replying to state legislators who asked why the state environmental regulator had not ceased all work on the CPP, he explained that identifying policies that would help meet the CPP would also reduce air pollution that causes cardiovascular and respiratory illness. Air pollution in Minnesota, he noted, leads to thousands of premature deaths and hundreds of hospitalizations and emergency room visits annually—with accompanying costs to the state exceeding $800 million a year.
Identifying and planning for no regrets policies, despite the newly-imposed holding pattern on the CPP, will help states steer their economies into the heart of the 21st century. It will also help avoid déjà vu because “the future ain’t what it used to be.”
Putting your pencils down—bad advice. Picking up your pencils—good advice. Sharpening your pencils is the best advice.