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Public policy can and will play a role in the development of corporate markets for green power for several reasons:
- The superior environmental characteristics of green energy currently do not have monetary value
- Environmentally superior green power options are young technologies whereas conventional fossil fuel-based electricity generation technologies are mature
- Integrating green power generators with the transmission and distribution system poses challenges given that green generators are often distributed and use intermittent renewable energy sources (e.g., wind, solar).
In response to these and other issues, current green power public policy activities and debates are addressing at least three general issue areas:
- Tax incentives
- Emissions markets and greenhouse gas emissions inventories
- Interconnection and transmission
1. Tax incentives
The tax code is one of the most effective policy tools used for altering market signals to encourage private sector actions that result in public benefits. Properly structured and targeted, tax incentives can be very effective in accelerating market penetration of new technologies by helping them overcome the economic barriers that initially confront them. Tax incentives can take many forms, including investment tax credits, rebates, and accelerated depreciation schedules. In particular, production tax credits have been a common and powerful policy tool over the past decade for renewables.
Ever since the passage of the Federal Energy Policy Act (EPAct) of 1992, the wind production tax credit (PTC) has served as one of the most effective incentives for the construction of new wind capacity. Despite precipitous decreases in cost of wind turbines over the last two decades as a result of advances in mapping and technologies, power from many wind projects today still remains slightly more expensive than that from traditional central station generation facilities. In these cases, the credit can make the difference of whether a project proceeds.
However, a slight set back occurred at the end of last year when the 1.8 cents per kilowatt/hour credit expired on December 31, 2001 leaving a number of proposed wind development projects stalled in the planning stages. Fortunately, a straight extension to the credit was included in the Economic Stimulus package (H.R. 3090) that was signed into law on March 9. The current authorization for the credit will expire on December 31, 2003.
In addition to the tax credit reauthorization, Congress has just begun joint House-Senate conference meetings with the hope of reconciling the differences between each chambers' version of the energy bill (the House version passed in August of 2001 and the Senate version passed on April 25, 2002). Together these two bills contain a number of green power incentives including:
- Further extension of the wind PTC authorization to 2007
- Expansion of the PTC to include geothermal, open-loop biomass (it currently covers closed-loop), solar and landfill gas
- A provision that would allow tax-exempt entities to transfer the credit to third parties
More policy perspectives on tax incentives
2. Emissions markets and inventories
Whether green power credits, pollution credits, or greenhouse gas credits, emission credit markets provide perhaps the most direct means of creating value for the environmental benefits of green power. Several markets currently exist in the U.S. and internationally for both green power and the pollution it displaces, but they are underdeveloped and therefore have minimal impact on energy investment and purchasing decisions.
Possibly the most mature of these markets in the U.S. are the SO2 and NOx trading programs established in the Acid Rain program of the federal 1990 Clean Air Act amendments. In particular, implementation of the SO2 trading system (which began in 1995) has demonstrated that providing greater regulatory flexibility for industry cap and trade programs can allow national emissions goals to be met in a more economic way than under traditional command and control approaches. Unfortunately, these markets have had little direct effect on green power production. Their emissions allowance allocations are limited to large utility generators and only very modest set-asides for green power projects.
Building on the success of the SO2 trading program, several proposals are currently being considered to expand cap and trade programs. Most of these proposals expand existing SO2 and NOx markets, while a few create a new market for CO2 allowances - a gas which currently is not regulated under the federal Clean Air Act.
Several states have taken action or are considering legislation that would reduce emissions of greenhouse gases as well as traditional pollutants. While the approaches vary, most proposals do include expanded use of market mechanisms.
In April of 2001, Massachusetts became the first state to pass a multipollutant bill that included CO2 along with traditional pollutants SO2, NOx and mercury. The bill affects six of the state's oldest and dirtiest coal-fired power plants. The law allows plants to choose between using end-of-pipe controls such as flue gas desulphurization units ("scrubbers") or repowering the plants (i.e., replacing old generation equipment with state-of-the-art technologies that are more efficient or use an alternative, less-polluting fuel). If plants select end-of-pipe controls, all upgrades must be completed by 2004. Those choosing to repower a facility with all new generation equipment have until 2006 to complete the process.
In the spring of 2002, New Hampshire followed Massachusetts' lead by passing its own four-pollutant legislation. The New Hampshire system requires the state's three fossil fuel-fired plants to reduce their SO2 emissions by 75 percent and NOx by 70 percent by 2006. For CO2, the plants must reach 1990 levels by 2010 either by reducing their own emissions or by purchasing credits from other plants that are already in compliance.
To maximize the possible benefits of greenhouse gas emissions markets, corporations will need to quantify and track the impact of their power choices by measuring changes in their emissions profiles. This can be accomplished through the creation and use of a corporate greenhouse gas (GHG) emissions inventory. A GHG emissions inventory is a detailed list of a company's greenhouse gas emissions. It records emissions by source and by type of greenhouse gas in "metric tons of gas" and in "metric tons of carbon dioxide equivalent (CO2e). Recording changes in GHG emissions sets the foundation for corporations to potentially benefit from using renewable energy in future climate change policy frameworks.
More policy perspectives on emissions inventories
DuPont Case Study
IBM Case Study
3. Interconnection and transmission
Inconsistent technical standards and business practices for interconnecting non-utility generators to the grid remain a major hurdle in the growth of green power technologies. Requirements for burdensome interconnection studies and unnecessary system upgrades have slowed the integration of green power with the conventional transmission and distribution network.
The creation of uniform national interconnection standards is being pursued at multiple levels. Recognizing the increasingly national and decentralized nature of today's U.S. electricity system, the Federal Energy Regulatory Commission (FERC) began in October of 2001 an advanced rulemaking process to develop uniform national standards for agreements and procedures for the interconnection of all power generators to the grid. This rulemaking process is expected to be completed by the end of summer 2002 and will likely fall into two general categories: Generators above 20 MW and generators below 20 MW. At the same time, there are several proposals in Congress for the creation of uniform national interconnection standards including a few that cover both high-voltage transmission and low-voltage distribution lines throughout the country.
There have also been a number of state proposals dealing with low-voltage distribution level interconnection standards include those in New York, Wisconsin and Missouri. To compliment various state efforts the U.S. Department of Energy and a number of technical standard setting organizations, most notably the Institute of Electrical and Electronic Engineers (IEEE), are developing voluntary standards on a technology by technology basis for specific generation size classes.
Currently, "intermittent generators" such as wind and solar often incur high fees from utilities for breaking prearranged contracts by over- or under-generating as a result of variations in weather. In addition to interconnection requirements, Congress is also considering provisions in the Energy Bill that would ensure fair and reasonable treatment of intermittent generators.
More policy perspectives on integrating green power with the grid
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