RenewNewEngland.com

Maine PUC Chair Speaks on Renewable Energy

On December 15, Maine Public Utilities Commission Chairman Tom Welch addressed attendees of the Maine Renewable Energy Association’s 17th Annual Gathering.  In his thoughtful and thought provoking presentation (pdf), Mr. Welch questioned the role of renewable energy in addressing climate change in the near- and medium-term, as well as the difficulty in achieving any politically palatable policy changes that could alter trends over the next century or two.  What might this mean for the renewable energy industry, he asked?  He suggested that in explaining the need for renewable energy to the public and to policy-makers, proponents of these sources of energy might need to change their focus.  Instead of highlighting the reduction in carbon emissions achievable through a shift to renewable energy, proponents may find it more helpful, and even necessary, to highlight the other benefits of renewable energy projects.  Mr. Welch summarized what he sees as the other key benefits in his presentation.  His insightful remarks are well worth the read.

 

Regulatory Oversight: Who Will Regulate Cap and Trade?

As climate legislation slowly wends its way through the Senate and the economy struggles to recover from the impact of toxic assets, concerns over climate trading fraud abound.  Skeptics are wondering whether a cap and trade regime will inevitably render the market vulnerable – again – to under-regulated trades of little-understood assets.

Somewhat less discussed is who will regulate the trades in a federal cap and trade program.  The EPA has the authority to regulate emissions and has recently announced mandatory reporting rules (pdf) for greenhouse gasses.

There is some debate about whether EPA has the authority to implement a cap and trade program, however.  Most acknowledge the EPA could regulate carbon under the existing Clean Air Act rules; others believe (pdf) that the EPA has sufficient existing authority to implement its own cap and trade system.  But both Industry and the Obama administration have reservations about leaving the regulation of carbon emissions to the EPA.  And legislation proposed by Republicans, longstanding opponents of EPA regulation of carbon, would limit the EPA’s authority to implement cap and trade.

Assuming the EPA can’t or won’t take the regulatory lead, FERC seems like a likely contender.  Under EPAct 2005 (pdf), FERC has authority to prosecute manipulation of energy prices. 

But this summer, the Commodity Futures Trading Commission announced its intent to evaluate whether the Chicago Climate Exchange (CCX), an unregulated market, should be regulated because it “performs a significant price discovery function.”  (This authority over Significant Price Discover Contracts (SPDC (pdf)) is new; it was exercised by the CFTC for the first time in July, 2009, making CCX only the second target.) 

And so, a jurisdictional dispute (pdf) between FERC and CFTC is brewing, but not for the first time:  a similar dispute between the agencies prior to re-authorization of the CFTC is described here (pdf).  A detailed description of the regulatory gaps between these two agencies can be found here (pdf):  one key gap is that while FERC regulates contracts for “physical energy,” that energy is often traded through standardized forward contracts, which could also be considered futures and subject to CFTC jurisdiction.  Will energy-related emissions be traded as futures under the CFTC or as energy under FERC?  Bridging that gap will be critical when it comes to implementing any federal cap and trade legislation that may emerge. 

Connecticut v. EPA: Public Nuisance Holding May Spur Federal Legislation

On September 21, 2009, the Second Circuit Court of Appeals issued a decision reversing the dismissal of a public nuisance claim brought by eight states, New York City and three land trusts against six power companies.  The decision, Connecticut v. American Electric Power Co., which reversed the district court’s finding that the claims constituted “non-justiciable political questions,” has significant implications for a wide range of businesses, and may provide some incentive to move forward with clear, federal regulation of carbon emissions.  

In the case, the plaintiffs are seeking the abatement of the defendants’ “ongoing contributions to the public nuisance of global warming” by emitting carbon dioxide.  Concluding that deciding the case would require the “identification and balancing of economic, environmental, foreign policy and national security interests,” a job properly left to the legislative and executive branches, the district court dismissed the case.  The Second Circuit, on the other hand, found that “well-settled principles of tort and public nuisance law provide appropriate guidance to the district court in assessing Plaintiff’s claims and the federal courts are competent to deal with these issues.”

The Second Circuit also held that the federal common law of public nuisance had not been “displaced” by federal legislation (the Clean Air Act) addressing carbon dioxide emissions.  While the EPA has authority to regulate greenhouse gas emissions under Massachusetts v. EPA (pdf), the Second Circuit found that because the EPA’s proposed findings do not regulate those emissions in a way that “speaks directly” to Plaintiff’s claims, the federal common law of public nuisance may still apply.

Put together, these two Second Circuit findings - that carbon emissions issues may be justiciable and are not necessarily pre-empted by current federal legislation - indicate that, without a comprehensive set of regulations governing greenhouse emissions including carbon dioxide, emitters bear the risk of tort claims brought under the common law.  When viewed in that light, comprehensive regulation may hold new appeal to a wide array of business interests.  While conventional wisdom now holds that comprehensive cap-and-trade legislation won’t likely come to pass until 2010 or later, this Second Circuit decision may inspire some traditional foes of regulation to push for federal legislation sooner rather than later. 

Forest Carbon Incentives Program

Earlier this week, Sen. Jeanne Shaheen (D-NH) introduced legislation that would establish a system of incentive payments to qualifying forest-land owners who create permanent conservation easements or agree to undertake certain forest-management techniques to maximize the amount of carbon sequestered by their trees. 

In introducing the bill, Sen. Shaheen pointed out that NH is the second most forested state in the nation (Maine is the first) and noted that while large forest owners have the opportunity to achieve carbon offset goals by participating in carbon offset markets, family and smaller landowners usually lack the efficiencies of scale to handle the substantial transactional costs that go along with market participation.  (For example, the Chicago Climate Exchange requires forestry management offset projects to go through a forestry management practice certification process and to quantify annual carbon sequestration through modeling or annual inventory.)

According to Sen. Shaheen, if conserved and managed properly, our forests could capture up to 20% of US carbon emissions, so it makes sense to provide some incentives to property owners to do so.  And since more than half of private forestland is privately owned in parcels of 100 acres or less, it makes sense to provide incentives to small property owners.  (New Hampshire law affords a similar incentive to small renewable energy generators by allowing behind-the-meter renewable generation--and even solar hot water heaters--to generate RECs, starting in 2010.)

Whether Sen. Shaheen’s bill ultimately succeeds is anyone’s guess, though it has garnered the support of a broad spectrum of organizations, from conservation organizations like the Trust for Public Land to timber industry organizations like the New Hampshire Timberland Owners Association.  But her comments suggest that carbon markets are the most effective way to provide forest management incentives, begging the question:  why not propose a program that lets small forest owners aggregate their acreage and participate in the offset markets along with larger forest owners?  This might save the Department of Agriculture the trouble of re-creating the wheel, since markets have already developed standards and protocols for offset projects.  Turns out, in fact, the markets have already thought of that, and there are many organizations registered as aggregators of small offset (and renewable energy) projects.  (An EPA report (pdf) describes how aggregators work with the Chicago Climate Exchange – see page 10 for a helpful flow-chart.)  In the end, the incentives in Shaheen's legislation may actually be an attempt to address a different but related issue:  carbon offset prices that are too low to adequately incentivize small forest owners to participate in the market through an aggregator.

Afforestation for the Trees

In honor of the opening of the movie, Earth, Disney has partnered with The Nature Conservancy to plant 2.7 million trees (pdf) in Brazil (one tree for each ticket sold on the opening day).  In honor of Arbor Day, the ABA Section of Environment, Energy and Resources is planting 1 million in the US.  In honor of the ongoing debate over the inclusion of offsets in proposed federal carbon legislation, we’re wondering whether those 3.7 million new trees could count as carbon offsets under RGGI or voluntary markets today. 

Despite their ambitious scope, both projects would likely fail to qualify as RGGI offsets.  The Brazilian project would likely fail due to RGGI’s project location requirement:  under the RGGI model rule (pdf), to be certified as offsets, “afforestation projects” must be located within the RGGI member state or in a US state or jurisdiction in which the regulator has agreed to comply with RGGI’s standards.  Even if every tree was rooted in a suitable jurisdiction, the ABA program would also likely fail to qualify due to RGGI’s easement requirement:  RGGI standards require a permanent conservation easement on the land on which the afforestation project is located. 

Disney’s project may fit the typical mold of a reforestation offset, at least as defined by major voluntary offset markets and standards: replanting land, often in remote and ecologically important areas, using diverse native species where possible, and using prescribed methodology to calculate the carbon captured.  For example, see this Costa Rican Forest Offset Case Study (pdf) from the Chicago Climate Exchange.  The Atlantic Forest, where Disney will plant its trees, is home to 60% of Brazil’s endangered species and provides clean drinking water to 120 million people, but only 7% of the original forest remains.

But urban trees, like those included in the ABA project, would not be certified under most voluntary market rules, even though urban trees provide special benefits beyond carbon offsets that a remote rainforest tree can’t.  As one advocacy group notes, “one tree that shades your home or office is more efficient in saving fossil fuels and carbon emissions, than 15 trees in the forest.”   Another study (pdf) have found that “on a per-tree basis, energy simulations from 12 U.S. cities found that annual energy savings for cooling from a well-placed 25 ft tall deciduous tree ranged from 100 to 400 kWh (10 to 15%), and peak demand savings ranged from 0.3 to 0.6 kW (8 to 10%).”

The California Climate Action Registry is the only voluntary market we know of providing offsets for urban tree projects, having added urban forest offsets in August 2008.  Using the Urban Forest Project Reporting Protocol (pdf) developed by the US Forest Service and other stakeholders, the Climate Action Registry will certify qualifying projects developed by – and contained within the boundaries of  – California municipalities, educational campuses and utilities.  Other organizations, like tree-planting non-profits, may participate (pdf) in an offset project by partnering by a municipality, educational institution, or utility. 

Long Term Contracts: RPS transition or prelude to a FIT?

All this talk of carbon cap and trade legislation has Bradford Plumer over at the Vine musing on why we need a national RPS:

. . . if adding wind or solar or biomass or hydropower isn't the most effective way of reducing emissions, at least in the short term, why saddle utilities with an existing requirement?

One answer, which Plumer finds moderately satisfying, is that the price of carbon has to get really high in order to make coal cheaper than most renewables, and that an RPS (Renewable Portfolio Standard) requirement is a way to ease the transition from carbon-intensive to low-carbon energy sources. (Check out this whip-smart powerpoint by Holmes Hummel which elaborates on this point)

Which is kind of funny, because we've been thinking lately about state policies in New England that are designed to ease the transition to . . . an RPS requirement. Every New England state but Vermont has passed legislation requiring that a percentage of its electricity come from renewable sources (Vermont has a non-binding portfolio goal). Since passage, the states have continued to tinker with the incentives needed to ensure there's sufficient renewable generation to satisfy their ever-increasing RPS requirements. 

One common method is to require distribution companies to enter into long term (10-20 year) power purchase agreements with RPS-eligible generators.  Some programs, like Connecticut's Project 150, specify a price premium. Though the programs are relatively small, the contracts provide much-needed certainty in financing renewable generation, since other incentives like the production tax credit and RECs require sale to a third party and delivery into the market.

April's been a busy month for these programs.  We blogged earlier about the April 22nd auction of RECs from the Massachusetts Green Power Partnership, a now-defunct program that entered into long-term purchase agreements for RECs from renewable generation developers.  Comprehensive proposals for the Maine Public Utilities Commission's RFP for Long Term Contracts for Capacity and Energy, with priority for renewable projects, were due April 7th.  That same week, the Rhode Island PUC and National Grid reached agreement in a dispute over the utility's failure to enter into long term contracts for renewable energy as part of its 2010 electricity supply plan.

But long term contracts? Fixed and subsidized prices?  Starting to sound a lot like a feed-in tariff, another well-established way to develop the renewable energy industries needed for the low-carbon energy transition.  Not surprisingly, states have begun to look into feed-in tariffs, the German solar and wind industry's secret weapon, which until recently was anathema to US regulators still haunted by PURPA (more on this in a future post). New England hasn't been immune, with legislators considering proposed feed-in tariffs this session in Vermont (pdf) and Maine.

Fancy Math

On March 26, Maine’s Governor Baldacci proposed LD 1201, emergency legislation called “An Act Regarding Energy Independence.”  A major feature of this bill (Section 9303(4)(D)) is the establishment of “Efficiency Maine Plus,” an entity that will replace the current Efficiency Maine and will be governed by a Council which will be responsible for developing “quantifiable measures of performance” to which EMP will be held accountable.  “Such measures may include, but are not limited to, reduced energy consumption, reduced capacity demand for natural gas and electricity, reduced energy costs, reduced carbon dioxide emissions, program and overhead costs and cost-effectiveness, the number of new jobs created, the number of energy efficiency trainings or certification courses completed and the amount of sales generated.”

Reducing emissions and creating jobs sound like great objectives.  But measuring this kind of performance is not a challenge to be taken lightly.  Even if you can measure a reduction in emissions or the creation of jobs, how can you be sure those changes were caused by the program you’re funding?

This issue of whether incentives (like those that would be offered through EMP programs) should only be available when the reduction in emissions or increase in jobs would not have occurred but for the incentive is called additionality and is hotly contested in the carbon-reduction arena.  Some commentators say additionality is a good objective in theory, but in practice will lead to public money being invested only in bad ideas.  In other words, this school of thought argues that additionality tests serve only to encourage the diversion of funding from projects the market supports (because they work) to projects the market does not support (because they don’t). 

Others take the position that incentives shouldn’t be squandered on changes that will take place anyway.  Under the Kyoto Protocol, for example, only “additional” reductions may be counted as Clean Development Mechanisms,  and the governing body has developed a tool (pdf) for measuring the additionality of a project.  As you can see from the Kyoto Protocol, screening for additionality is a complex task (though the flow chart on page 3 of the tool provides a nice visual introduction). 

Whether additionality should be a factor in public funding of programs like those envisioned by LD 1201 may be an open question.  But surely the metrics proposed should at least be calculable.  Section 9303 (1)(C), for example, gives EMP the target of reducing peak load by 100 MW by 2020.  It does not say relative to what: 2008 peaks?  Future forecasts?