Updated: Oct 23, 2021
By Hamilton Steimer
Last week, the government narrowly avoided a catastrophic funding crisis by passing a temporary spending measure that will run through December 3, when Congress must have a new budget plan ready. The government also failed to pass the approved bipartisan infrastructure bill as progressive Democrats refused to approve the measure without commitments from party leadership to support the companion $3.5 trillion reconciliation bill. If approved, the reconciliation bill would provide massive amounts of funding to Democrats’ ambitious policy priorities concerning healthcare, education, climate change, and social programs. Unfortunately for progressives, Senator Joe Manchin (D-WV), arguably the most powerful member of the Senate, has said he won’t go above $1.5 trillion for the reconciliation bill, putting the entire Biden agenda, particularly his agenda on infrastructure and climate change, at risk of collapse.
One of the policies that may face the chopping block is the Clean Electricity Performance Program (CEPP), which is a key component of the larger Build Back Better Act. Similar to a national clean electricity standard (CES), the CEPP is considered crucial to achieving our climate goals of reducing emissions by 50% by 2030 and achieving a carbon-free energy grid by 2035. Without the CEPP, it would be near impossible for the country to achieve President Biden’s climate goals.
Brief History of Power Sector Emissions Reduction
Historically, the power sector has been the number one source of GHG emissions in the United States thanks to the dominance of coal use for electricity generation. However, over the past two decades, the power sector has made great strides in reducing its emissions, largely thanks to natural gas and renewable energy expansion. In 2005, coal made up 50% of electricity generation, but that share was as low as 19% in 2020. This decrease in coal generation, which largely favored cleaner-burning natural gas, dramatically reduced the power sector’s annual emissions by 819 million metric tons from 2005 to 2019. Although renewables have grown significantly, the growth of natural gas use has been attributed to 65% of this emissions decline, as coal-fired generation produced 2,257 pounds of CO2 per MWh in 2019 compared to 976 pounds of CO2 per MWh for natural gas.
Thanks to natural gas and renewable energy, the power sector now produces only 25% of the country’s emissions, second to transportation which produces 29% of total emissions in 2019. Despite this achievement, the power sector is not decarbonizing fast enough to meet our ambitious climate goals. Even with the reduced emissions from natural gas, our planet cannot afford the emissions that result from electricity production. Our power sector must be rapidly transformed with fossil fuel power plants retired quickly, renewable energy ramped up, new transmission and distribution lines constructed, and battery storage brought to scale. The country is now at a crossroads, presented with an opportunity that will literally impact the fate of the planet. The reconciliation bill must pass with the core climate initiatives intact.
What is the CEPP?
The Clean Electricity Performance Program (CEPP) represents one of the country’s most significant climate initiatives ever designed. Similar to a CES, the CEPP is designed to rapidly accelerate the decarbonization of the nation’s power sector through financial incentives to utilities to achieve 100% clean electricity by 2035. However, unlike a CES, which is a legislative policy mandate, the CEPP can be passed through the budget reconciliation process because the program centers around the use of federal dollars as incentives, which satisfies the budget-related criterion.
Under the CEPP, utilities that increase their share of clean electricity by an average of 4% annually are rewarded grants from the Department of Energy, with awards calculated by multiplying the MWh of clean electricity that exceeds 1.5% above the previous year by $150. Utilities that fail to achieve this target are fined, with fines calculated by multiplying each MWh under the 4% target by $40. Grant funding can only benefit customers because it is required to go towards offsetting rising energy bills, funding energy efficiency measures, deploying distributed clean energy sources, and supporting other programs. Penalty payments cannot result in higher customer bills either. Once a utility achieves 85% clean electricity, they are no longer penalized for failing to maintain 4% growth as long as their share of clean electricity does not decrease.
Unfortunately, the CEPP faces considerable threats in the Senate, particularly from Sen. Manchin, who has ties to the coal industry. He has argued for natural gas and coal with carbon capture technology to be considered as clean energy, and he recently claimed the CEPP would take billions of dollars and “pay companies to do what they’re already doing.” Sen. Manchin has indicated his preferred price tag for the reconciliation bill is $1.5 trillion, so some Democratic priorities, such as the CEPP, will be on the chopping block. If they want to preserve the CEPP, Democrats will have to make concessions somewhere because, without his support, they can kiss their climate agenda goodbye.
Sen. Manchin may have a point that renewable energy is quickly gaining ground on fossil fuels, but his comments about the CEPP are completely inaccurate as demonstrated by the Resources for the Future and Southern Alliance for Clean Energy. Both groups point out that on average renewable energy is growing only .5% to 2% each year, well under the 4% target of the CEPP. The CEPP recognizes this shortfall and encourages new generation growth by only rewarding payments at 1.5% growth. While there could be greater financial penalties, in my opinion, the CEPP crucially provides both carrots and sticks to utilities to increase their renewable energy generation and gives our country the best chance to achieve its ambitious climate targets.
Addressing “Clean” Electricity Programs
While on the topic of achieving carbon-free electricity, I wanted to briefly discuss all the “clean” electricity programs that are available to customers all over the country.
You may have heard of companies such as CleanChoice Energy or Arcadia Power, which claim to easily connect you to electricity generated by renewable energy, usually solar or wind power, with minimal fuss and low costs. According to these programs, even if you individually cannot purchase a small-scale renewable energy system, you can “unlock the power to help save the planet” with a few simple clicks on your computer without even having to change energy providers.
Unless you have your house directly hooked up to a rooftop solar installation or wind turbine, your electricity could come from all over the place. Companies like Arcadia and CleanChoice Energy know that many people want to directly participate in clean energy but cannot for various reasons, and they know that most people do not really understand how the energy grid works. While these companies are fairly transparent with their services, they are slightly misleading about the positive environmental impact of your “clean” electricity. Arcadia and other similar companies do not change the electricity you use. Instead, they purchase renewable energy certificates (RECs) for you, allowing you to legally claim your electricity is “clean”.
Renewable energy certificates basically represent the “renewableness” of the power produced. Without the RECs, electricity from renewable energy sources is considered the same as electricity generated from fossil fuels. Renewable energy generation facilities across the country sell RECs at low prices, even as low as $1/MWh, to companies and governments who want to claim they are accomplishing their clean energy goals. Companies like Arcadia act as the middle man for homeowners and small businesses by paying their customers’ utilities for the electricity they use and purchasing RECs. Their customers then pay Arcadia for the energy bill amount, the cost of the RECs, and other fees.
There is a lot of debate on whether RECs facilitate greenwashing, and I have mixed feelings about the issue. RECs do provide an important service because they are the only legal method for many organizations and governments to facilitate their clean energy goals. If you are in a state with low renewable energy generation, like Mississippi, RECs may be the only means for some homeowners and small businesses to participate in renewable energy. Also, they provide another stream of revenue for renewable energy producers. However, RECs seem to give false credit to the highest bidder for clean electricity produced somewhere else. Additionally, by themselves, RECs do not generate enough revenues to be the difference maker between whether or not a new renewable energy facility is constructed, so even without the RECs, the clean electricity most likely would have been produced anyways.
Overall, I think the current REC system deserves some credit, but I think it emphasizes the importance of the CEPP in producing real tangible climate benefits. From my perspective, the current system is unacceptable. Purchasing the rights to the “renewableness” of clean electricity seems like a strategy created to benefit companies and governments looking for easy credit rather than to benefit the planet. Yet, I recognize that RECs are an imperfect solution within an imperfect system. They do provide another revenue stream for power producers, but falling costs and technology improvements, not RECs, are the main reasons why clean power is becoming more and more competitive. The CEPP, on the other hand, produces tangible climate benefits, encourages new renewable energy production, and enables people across the country to claim they use clean energy. If power plants everywhere are obligated to increase their share of renewable energy, then no matter where one lives, your electricity will become increasingly less carbon-intensive. In my opinion, the CEPP is the only viable solution to achieve clean electricity for all.