Clean Energy Standard hearing questions costs

A national standard to drastically reduce carbon emissions with a variety of technologies would likely succeed in reducing pollutants but would also drive costs higher.

That was the consensus reached during a Senate Energy Committee hearing on May 17, but there were was much to dispute about the proposal.

Sen. Jeff Bingaman, D-N.M., chairman of the Senate Committee on Energy and Natural Resources, called the hearing to consider his Senate Bill 2146, the Clean Energy Standard Act of 2012. Most observers think the prospects for passage are dim in the current Congress.

“The purpose of the Clean Energy Standard CES) is to establish a national standard for electricity to make sure that we leverage the clean resources we have today and provide a continuing incentive to develop the cheaper, cleaner energy technologies of the future,” Bingaman said.

The proposal gained some traction when it was embraced by President Obama in the 2011 State of the Union Address. It would add nuclear power, carbon capture and storage, combined heat and power and some natural gas as qualified resources to traditional renewables like wind,, solar and geothermal.

“By having a long-term, predictable market for advanced electricity generation, the legislation is intended to provide innovators with confidence and the ability to make their best case to investors and project financiers.” Bingaman said.

The Energy Information Administration projects that it would reduce emissions from the power sector by 20% below their reference case in 2025, and by 44% in 2035.

Sen. Lisa Murkowski, R-Alaska, honed in on a fundamental dispute over the standard. “The question I have is whether the American people really want a CES and whether one is appropriate in light of what states are already doing,” she said.

Murkowski did not co-sponsor the bill, while often joining Bingaman in committee legislation.

“There’s reasonable disagreement over whether this type of mandate is appropriate … Electricity costs are also going up, and bringing energy prices down should be our objective,” she added.

The proposal would grant credits to qualifying technologies and provide market signals to technologies that would promote their development.

Including natural gas creates one challenge, said Group Executive and President, Duke Energy Commercial Businesses Keith Trent. “Natural gas technologies are already preferred by the market – they don’t need additional incentives. Including them weakens the policy’s ability to advance and deploy alternative technologies and creates disparate regional cost impacts,” he said. The company is part of Duke Energy (NYSE: DUK).

However, inclusion of natural gas was favored by James Dickenson, managing director and CEO of municipal power company JEA in Jacksonville, Fla. “While applauding the inclusion of nuclear energy and the partial credits for natural gas technologies in the CES, the move away from existing coal generation, including JEA’s, will strand not only large capital investments but the nation’s abundant supply of a secure domestic fuel that will be exported to other countries,” he said.

The CES will have very modest effects on national average electricity price through 2025 and lead to lower prices in the near term in some regions of the country. However, after 2025, national average electricity prices will increase as a result of the CES policy, rising to 18% above baseline levels by 2035, noted Karen Palmer, research director and senior fellow at Resources for the Future.

“The alternative compliance payment mechanism will be triggered in all years, generating substantial revenue for states to invest in energy efficiency, while reducing the share of clean energy and the amount of CO2 emissions reductions compared to a CES policy without an alternative compliance payment,” she said.

Costs were the concern of Thomas Gibson, president and CEO of the trade group American Iron and Steel Institute. “Our principal concern is that this will inevitably raise the costs of electricity to large industrial customers like steel, while potentially lessening the quality and reliability of electricity supply,” he said.

After the hearing, Scott Segal, director of the Electric Reliability Coordinating Council, said the policy is problematic. “Supporters must take into account geographic differences and must incentivize a sensible mix of technologies, including both energy-generating and energy-saving approaches.  A CES must be based on realistic assumptions about the future of nuclear power and the real costs of certain renewables,” he said.