Clean Energy Standard: Ramifications and Results Power lines in California, photo courtesy of USGS

Clean Energy Standard: Ramifications and Results

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A clean energy standard could become part of the reconciliation process later this year and would have wide ranging ramifications if implemented.

This is the second in a series of posts on climate proposals. While some, like a carbon border tax, require international coordination, others, like carbon capture, can be implemented domestically – though they will have international ramifications.

Clean Energy Standards

A clean energy standard (CES) mandates or incentivizes utilities to produce a percentage of energy from approved sources, though implementation can be gradual to allow time to comply. Mandatory standards exist in 30 states representing 73% of the US population, with voluntary standards in an additional 7 states representing 7% of the population.

Solar and wind power are ubiquitous inclusions, but other stipulations vary and may change over time. Some states place detailed requirements on hydropower facilities. Nuclear power is excluded in some states but included in others. Some states include “waste” fossil fuel sources while others allow natural gas in fuel cells. Fossil fuels are generally not included otherwise, but carbon capture may remove enough carbon dioxide to qualify them under certain circumstances.

Some utilities have their own standards. The Tennessee Valley Authority (TVA) provides electricity to 10 million people in Alabama, Georgia, Tennessee, Kentucky, Mississippi, North Carolina, and Virginia. Of those, only the latter two have renewable standards. The TVA, however, plans to reduce emissions over the next 15 years. Some substate utilities in states without standards also have their own plans, like JEA in Jacksonville, Florida.

The politics of renewable standards also vary. In Florida, county and city governments are prohibited from mandating standards, while counties and cities elsewhere have adopted standards despite an absence of state requirements.

A federal clean energy standard would supersede these mandates. While specifics for a CES are unknown at this time, the Biden administration has pushed for one and a CES would help it achieve its pledge to be net zero by 2050.

House Cleaning Standards

The impact of a CES depends on allowable sources and the timeline for restrictions. A CES which mirrors current trends in energy generation, for instance, would result in minimal market disruption. Conversely, a CES which put restrictive mandates into place on short timelines could be very disruptive, considering the US generates 40% of its power from natural gas and a further 19% from coal.

Disruption would also depend on how a CES affects states. States generate and consume power according to available sources as well as current standards, so a national requirement for renewable sources would be boosted by wind power in Texas or solar power in California. A more integrated national grid could make a national mandate easier to enact. The alternative, mandating renewables by state or region, would have significant impacts on states in which comparatively more generation or consumption comes from fossil fuels. There is also considerable energy flow between states, potentially complicating a regional or state-based mandate.

A clean energy standard would be a starting point for negotiation, a framework within which these questions could be answered by interested stakeholders. The process of creating and implementing standards at the state level is an intricate one and a national CES would also be complex. It would, however, provide predictable regulations to guide investments and reduce emissions.

Looking more closely at power generation, a CES would likely reduce the domestic fossil fuel industry. Power production from coal is in decline but LNG continues to rise. How and what type of fossil fuel power generation continues would be a question of how much power is required from renewable sources, the effectiveness of carbon capture, and what qualifies as net zero. Offsets, for instance, could keep fossil fuel plants online. If energy storage improves significantly, however, batteries charged by wind and solar power could replace fossil fuel plants needed for constant energy production. The decline of fossil fuel power production would produce a decline in jobs related to those fields, though exports may continue. Those regions most likely to be negatively affected should receive priority for assistance and incentives for a clean energy industry, which would be boosted by the implementation of a CES.

The biggest benefit of a clean energy standard is the reduction of emissions. Though renewable energy was the second biggest source of power in the US in 2020, the country remains well off-track of climate goals. Without significant action it will be difficult if not impossible to meet those goals.

Pitching In

The most recent data indicates the US has the 2nd highest total and 4th highest per capita carbon dioxide emissions in the world. Internationally, a clean energy standard would send a strong diplomatic signal that the United States is serious about climate change and is taking active steps to curb its emissions. This could be especially impactful in the lead up to COP26. Long-term, the US would have to adhere to the standard to pressure other states on emissions. If the US creates a CES and then backs out in a future administration, it will continue to erode international confidence in the reliability of the US as a partner, especially on climate matters.

If a domestic CES inspires international action, US fossil fuel exports could decline while the US renewable industry benefits. The IEA estimates $4 trillion per year in clean infrastructure investment will be needed by 2030 to meet climate goals. A US CES could increase pressure on other states to accelerate their renewable infrastructure, which could pay dividends for US industry, technology exports, and international partnerships.

Coal exports have already declined and the G-7 pledge to ended financing for new plants will only further this trend. LNG exports are currently at record highs and will continue to be viable in the short term but may eventually decline. The US will also have to consider the climate impact of exporting LNG.

Regulatory Scheduled Cleaning

At this juncture, it appears regulations will be unavoidable if the US is to meet its climate goals. The government should implement them in a predictable manner. A clean energy standard is a structured way to meet climate goals while reducing economic uncertainty and would provide a framework for energy production negotiations. Substantive negations should produce a CES that is not unduly disruptive, allowing markets and the economy to adjust. Internationally, a clean energy standard provides an example and a means of encouraging other countries to reduce emissions. It would also create market dynamics that could lead to economic advantages and increased opportunities for partnership abroad even as fossil fuel exports decline.