Retooling Regulation: Breaking the Trail Forward
In our prior Retooling Regulation posts, we illuminated the need to integrate energy and environmental regulatory planning processes, spotlighted recommended steps to do so via a process we’ve dubbed “E-Merge,” and considered the legality of such an approach. In this fourth and last post, we look at experience to date with related retooling efforts.
First, recall why retooling regulation is so important today. Changes to utility business models are occurring so quickly that proactively integrating energy and environmental planning and regulation just makes sense. Power sector transformation and beneficial electrification promise significant environmental improvement and lower costs for consumers. Greater integration will help ensure that advances in energy storage, renewable energy technologies, energy efficiency, and big data produce that outcome. Further, integration will reduce public health risks, the risk of stranded investments, and their impacts on consumers.
We developed E-Merge by identifying best practices in energy and environmental planning globally, extending them to cover multiple pollutants, and incorporating other energy-intensive activities, such as transportation and heating. While no jurisdiction has yet undertaken the comprehensive E-Merge process, key initial steps have been taken in parts of the United States. In Europe and China, modeling of policies to improve air quality has also demonstrated the benefits of holistic, multi-pollutant approaches.
Concrete Examples Already Exist
In developing E-Merge, we identified several superb forays into greater regulatory integration:
- The Bay Area Air Quality Management District’s 2010 Clean Air Plan, which assessed the multi-pollutant benefits of 55 policies across all sectors;
- Colorado’s Clean Air – Clean Jobs Act, which anticipated and sought to get ahead of new EPA regulations for criteria air pollutants (NOx, SO2, and particulates), mercury, and CO2;
- New York’s air quality improvement efforts in Applying the Multi-Pollutant Policy Analysis Framework to New York: An Integrated Approach to Future Air Quality Planning;
- Maryland’s modeling of the impacts of energy efficiency and renewable energy in reducing ambient concentrations of ozone and PM2.5;
- In China, an economic and environmental assessment of 84 energy saving projects completed across nine industrial sectors, as part of that country’s “Top 10,000” program, found NOX, SO2, and CO2 reductions per facility of up to 400, 1,000, and tens of thousands of tons, respectively. In eight of the nine sectors, immediate economic benefits would accrue to facilities;
- The International Institute of Applied Systems Analysis (IIASA) conducted “GAINS” (GHG-Air pollution INteractions and Synergies) modeling for European and Chinese clients, which found significant cost savings to achieve public health objectives if end-of-pipe control measures and energy efficiency were implemented together; and
- Other early work, including the 2004 National Research Council report, Air Quality Management in the United States, and a 2008 multi-pollutant pilot program conducted in Detroit by the Environmental Protection Agency (EPA).
EPA’s Clean Power Plan (CPP) also encouraged groundbreaking dialogue between energy and environmental regulators, setting the stage for greater cross-agency integration. The CPP focused on carbon dioxide, but similar strategies (such as energy efficiency and renewable energy) can also help states reduce criteria and hazardous air pollutants.
Regulation is Ripe for Retooling
When should state and local regulators consider adopting the E-Merge approach? As soon as possible. On top of today’s seismic shifts in the power sector, environmental regulation is also at a crossroads, so the time is ripe. The Supreme Court stayed the CPP (and the new administration may abandon it), but states still face Clean Air Act obligations requiring them to meet existing and future air quality standards. Many jurisdictions, for example, are now developing or revising state implementation plans (SIPs) for ozone, PM2.5, regional haze, and SO2. Tailored state energy plans could help address these multiple requirements. In fact, EPA’s 2015 Ozone Implementation Rule includes an analysis highlighting the ability of energy efficiency and renewable energy programs to help states meet air quality standards. Without these programs, ozone-season NOX emissions would be significantly higher. The same conclusion readily applies to other pollutants as well.
When should state and local regulators consider adopting the E-Merge approach? As soon as possible.
Already, several states have expressed interest in exploring ways to streamline, integrate, and rationalize their regulatory planning processes. They recognize that today’s serial, pollutant-by-pollutant SIP approach is ill-suited to the new challenges facing energy and environmental regulators. And integrated resource plans that fail to include environmental and public health externalities and their costs impose additional risks for utilities and greater costs on consumers. What’s more, regulatory processes that fail to incorporate rapidly evolving clean energy technologies expose ratepayers to greater stranded cost risk.
As with any departure from past practice, some hiccups surely await. States piloting the E-Merge approach, for instance, may need to initially cover their bases by conducting parallel SIP processes to ensure EPA approval—and incurring additional cost in doing so. But regulators can mitigate this risk by working closely with their regional EPA office throughout the E-Merge process. Few pilot programs enjoy perfect outcomes, so process refinements are likely down the road. No surprise, as improving existing processes is the reason to conduct pilot-scale efforts in the first place.
Today’s energy and environmental regulators face unprecedented challenges, and their roles are more inextricably linked than ever. They require processes that can evaluate multiple pollutants, adjust to rapid changes in business models, readily incorporate the electrification of new sectors, such as transportation, space, and water heating, and do all this in a way that promotes economic growth and is federally approvable. Based on the preliminary efforts to integrate energy and environmental regulation that we’ve seen in the U.S. and abroad, we believe E-Merge can meet this test.
A version of this article originally appeared on Utility Dive.