Witnesses:
Panel 1
David Sandalow
Assistant Secretary for Policy and International Affairs, U.S. Department of Energy
Howard Gruenspecht
Acting Administrator and Deputy Administrator, Energy Information Administration

 

Panel 2
Karen Palmer
Research Director and Senior Fellow, Resources for the Future
Collin O’Mara
Secretary, Delaware Department of Natural Resources and Environmental Control
Judi Greenwald
Vice President, Technology and Innovation, Center for Climate and Energy Solutions
Thomas Gibson
President and CEO, American Iron and Steel Institute
Keith Trent
Group Executive & President Commercial Businesses, Duke Energy
James Dickenson
Managing Director, Chief Executive Officer, Jacksonville Electric Authority

 

Committee Members Present:
Jeff Bingaman (D-NM), Chair
Lisa Murkowski (R-AK), Ranking Member
Bob Corker (R-TN)
Mark Udall (D-CO)
John Barrasso (R-WY)
Al Franken (D-MN)
Maria Cantwell (D-WA)
Jeanne Shaheen (D-NH)
Ron Wyden (D-OR)
Jim Risch (R-ID)
Chris Coons (D-DE)
Joe Manchin (D-WV)

 

On May 17, 2012, the Senate Energy and Natural Resources Committee held a hearing to discuss the Clean Energy Standard Act of 2012 (S. 2146). A clean energy standard (CES) on the largest utilities starting in 2015, would require each utility to derive a percentage of their electricity from clean energy sources. The percentage would start at 24 in 2015 and increase every year thereafter. Credits would be awarded based on a comparison of emission levels versus the amount of electricity produced. Meeting the standard can be accomplished by submitting credits earned, making alternative compliance payments (ACP's), or a combination of both. Penalties will be assessed for not meeting the standard. Any funds generated by ACP's or penalties will be proportionally returned to the states for investment in energy efficiency. Clean energy sources include renewable energy, qualified renewable biomass, natural gas, hydropower, qualified waste-to-energy, and facilities that capture carbon dioxide.

 

Chairman Jeff Bingaman (D-NM) opened the hearing by noting the benefits of the bill. The bill would help to establish a “national standard for electricity”, enhance development of cheaper and cleaner energy sources for the future and support “ home grown innovation and manufacturing.” He explained that zero-carbon emission sources like nuclear and renewables get a full credit per kilowatt hour of electricity produced, oxy-fuel combustion from advanced coal technology will get partial credit, and natural gas will receive about a half a credit. Credits will be submitted to meet a standard that will increase overtime. The Department of Energy’s (DOE) Energy Information Administration (EIA) estimates the CES would reduce power emissions 20 percent below the reference case in 2025 and 44 percent in 2035.

 

Ranking Member Lisa Murkowski (R-AK) stated that she questioned whether the American people want a CES.  She is not certain if this type of action is required at the federal level. She stated that there is more than one option and suggested using revenue from other resources that could help pay for newer and cleaner initiatives. She pointed out the bevy of energy policies already in public law and how policy makers need to “break the habit of piling one policy on top of another.”

 

The first witness, Assistant Secretary David Sandalow, talked about the global race for clean energy and the risk of the U.S. falling behind. He stressed that the CES is a “technology neutral approach.” Sandalow closed by saying that the U.S. has made progress in clean energy investments, but needs to do more. A market-based mechanism is the best way to advance innovation through ingenuity and a CES would help.

 

Howard Gruenspecht stated in his testimony that EIA does not take a position on any policy issue and only supplies data. Gruenspecht provided results from EIA’s report, Analysis of the Clean Energy Standard Act of 2012, which was conducted at the request of Bingaman. He stated the proposal is expected to lead to a decline in coal-fired electricity generation, while nuclear energy, natural gas and non-hydropower renewable sources are expected to increase. He mentioned that the bill has language for credit dispersal for combined heat and power and carbon capture and sequestration (CCS), though neither is expected to play a valuable role. Although the bill focuses on the electric power sector, all sectors with energy-related emissions are projected to be 18 percent lower than the reference case in 2035. Gruenspecht noted there is a variation of clean energy resources from region to region across the U.S., which could result in prices differences in different regions.

 

In the question and answer segment, Bingaman asked Sandalow and Gruenspecht if increased rates as a result of a CES would make consumers’ power bills increase. Sandalow said that it would not and that in 2035, bills are expected to be about five dollars lower for each household. Murkowski mentioned the Energy Policy Act of 2005 (EPAct, P.L. 109-58) where the government requires utilities to purchase 7.5 percent of electricity from renewable sources by 2013. The current CES shows 24 percent by 2015. She asked Sandalow that given the requirement and increase cost for industry, would it be passed to the consumer. Sandalow responded that the technology neutral aspect of a CES makes it different. Senator Mark Udall (D-CO) mentioned the importance of looking at the medium and long term cost as well as direct and indirect cost.

 

Murkowski asked about the role of nuclear energy and coal in generating demand if the CES were implemented. She said, “What we’re talking about might not be achievable. So, it might look good on paper, but how do we get there from here?” Gruenspecht replied that a CES does force some existing plants out of the market and replacing them with nuclear would be cost effective. If nuclear did not work, there were other methods that could be used to reach the standard. If those methods did not work out, then Gruenspecht said there would be a problem. Murkowski closed by stating that because only 5,000 megawatts of nuclear capacity have been added since 1997,  not enough coal-fired power plants are equipped with carbon capture technologies, and solar and wind technology and deployment are not growing rapidly, a CES would have to rely on natural gas.

 

Udall asked the witnesses how a national CES would help the U.S. compete in the clean energy sector. Sandalow said it would “[provide] the long-term signal that businesses say they need.” He stated that around the world, investment in this particular area was large.

 
Senator John Barrasso (R-WY) asked Sandalow if the administration would need to repeal regulations already in place for carbon emission reduction if Congress adopts the bill. Sandalow replied they have no intention of amending the Clean Air Act.

 

Senator Ron Wyden (D-OR) discussed promoting clean energy nationally but managing the regional differences in the U.S. Sandalow thanked Wyden for his proposal and said that he would look into it further if CES moved forward.

 

Senator Al Franken (D-MN) mentioned how a CES would use the nation’s innovation to advance clean energy. Franken asked Sandalow what competitors are doing and how to make the U.S. competitive. Sandalow quoted Secretary of Energy Steven Chu, “We need to ensure our technologies are invented in America, made in America and sold around the world.” He said that “this is a race we (U.S.) can win and will win with policies like the CES.” Franken thinks a CES needs to incorporate renewables better by adding a renewable energy standard in the CES and asked for the panel’s opinions on the topic. Sandalow credited state policies for success in using more renewables for energy consumption.

 

Senator Jim Risch (R-ID) agreed with Sandalow on the “optimism the American people can do this.” He further went on to say, “I have absolute confidence in the American people. I have zero confidence in the government […] to make these innovations work.” He blamed government for the policies that withhold innovation from occurring.

 

Senator Chris Coons (D-DE) brought up Corporate Average Fuel Economy standards (CAFE) and asked if the success of the standards could be looked at as an analog. Sandalow agreed but Gruenspecht pointed out CAFE does not set up a program of removing an existing model based on new models. CES would focus on removing existing methods that do not meet the standard.

 

Senator Joe Manchin (D-WV) talked about the struggle for balance and stated, “We will be the first nation in history not to use its resources to its own benefit.” He referred to West Virginia’s coal supply and how a CES removes “the one abundant energy we (U.S.) have.” He asked Sandalow if a balance could be found and Sandalow said the technology neutral aspect of a CES would leave the energy balance up to the states.

 

Senator Jeanne Shaheen (D-NH) brought up energy efficiency and how a CES could elevate this aspect and asked for opinions on how it could help with reducing carbon emissions. Sandalow said that CES includes energy efficiency in the combined heat and power portion. Shaheen said she would like to see thermo-biomass included in the bill.

 

Karen Palmer began the second panel of witnesses with her testimony. Palmer presented three main points from an analysis Resources for the Future conducted on implementation of a CES. First, a CES would reduce a large amount of carbon dioxide emissions. Second, the ACP mechanism will be used in all years, which returns 75 percent of funds generated for investment in energy efficiency at the state level. Third, large savings provides an opportunity for electricity consumers to make their own small utility.

 

Judi Greenwald in her testimony said that 31 states and DC have some sort of CES. These standards differ from CES 2012 and provide information for building of a program. Greenwald discussed the uncertainty in EIA’s report and said there are many more options available to promote innovation, such as eliminating natural gas from clean energy, designing to limit specific types of energy, or complimentary policies for various methods.

 

Collin O’Mara discussed Delaware’s success in modernizing the electric power generation fleet in his testimony. He recommended complementing state standards already in place in 40 states, including energy efficiency in the CES, and adding lifecycle emissions into the carbon-intensity calculation.

 

Thomas Gibson, from American Iron and Steel Institute (AISI), noted that the domestic steel industry reduced its energy intensity by 27 percent since 1990 in his testimony. During this time, greenhouse gas emissions were reduced by 33 percent. DOE shows U.S. steel industry has the lowest energy intensity and second-lowest carbon dioxide emission and that the U.S. “is winning the race for clean steel.” Gibson said AISI does not support the bill.

 

Keith Trent presented three goals that a CES should accomplish in his testimony. Trent mentioned that it should contain diverse fuel sources and technology, give clean coal technologies the ability to move forward and it should support zero-emissions nuclear power. He said that CES contains these goals and does so “without picking winners and losers.” Trent was concerned about new natural gas plants getting partial energy credit.

 

James Dickenson shared some concerns with the bill in his testimony, especially in the area of regional competition. He called a CES “too aggressive.” Jacksonville Electric Authority would see an increase of about 64 percent over base cost in order to comply with a CES over 20 years. He asked for reconsideration of distribution of ACP’s to return them directly to any contributing utility to invest in clean energy or energy efficiency projects.

 

The question and answer portion began with Bingaman asking Gibson if the Environmental Protection Agency (EPA) should handle compliance with a clean energy standard. Gibson replied that EPA is currently regulating pollution and there would be a “parallel structure” if CES passed in regards to regulations set-up by EPA. Bingaman stated that EPA’s regulations of greenhouse gases would only apply to new coal plants. Gibson said his expectations are they may eventually look at existing facilities. Trent agreed with Bingaman that a market-based solution is better for the economy than any type of mandate from EPA. There is concern of overlapping regulations in regard to a CES, primarily EPA's regulations under the Clean Air Act. Murkowski asked if adding pre-emption of regulations that deal with emissions to the bill was a good idea. Dickenson agreed and said compounding regulations from different laws are difficult to keep up with. Trent and Gibson agreed with pre-emption, while O’Mara did not. Greenwald did not take a side, but would be open to discussion. Palmer said if there is pre-emption, it should focus on electricity generation because that is what CES covers.

 

Murkowski questioned the cost of a CES and asked Dickenson about the additional cost for his business due to compliance with the proposed CES. He suggested spreading out the compliance over a longer period of time to reduce the cost. Trent said market-base strategy reduces prices, giving industry long-term certainty and alternative compliance payments all help with the cost issue. He stated, “If you’re going to have a clean as a goal, you’re going to have some costs associated with that.”

 

Franken asked about the potential energy savings that could occur with an energy efficiency goal. Palmer agreed with the importance of energy efficiency but said keeping it separate from the CES would be “preferable.” Greenwald suggested looking at states that have the two policies in place. Coons asked O’Mara what message including energy efficiency in the CES would send to the market. O’Mara says it would show that energy efficiency would be treated as any other supply resource and that energy efficiency would lower bills.

 

Witness testimonies and a webcast of the hearing can be found on the Senate Energy and Natural Resources Committee web site.