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Bingaman and Murkowski Release CES White Paper

March 21, 2011 -- Today, Chairman Bingaman and Ranking Member Murkowski released a white paper soliciting comment broadly on key questions and potential designs elements of a Clean Energy Standard (CES). 

The full text of the white paper, along with instructions and forms for submitting responses, can be found here on the Energy Committee website at http://energy.senate.gov and below .  All responses should be submitted in accordance with the instructions by 5 p.m. on Monday, April 11, 2011, also shown below.

WHITE PAPER ON A CLEAN ENERGY STANDARD
Sens. Jeff Bingaman and Lisa Murkowski
Committee on Energy and Natural Resources
United States Senate
March 21, 2011
Purpose
In his recent State of the Union address, President Obama proposed a Clean Energy
Standard (CES) to require that 80 percent of the nation's electricity come from clean
energy technologies by 2035. The Senate Energy and Natural Resources (ENR)
Committee now faces a threshold question of what the general policy goals for the
electric sector are and whether a CES would most effectively achieve them. Is the goal to
reduce greenhouse gas emissions, lower electricity costs, spur utilization of particular
assets, diversify supply, or some combination thereof? Depending on the goals, is a CES
the right policy for the nation at this time? If so, is 80 percent by 2035 the right target? If
not, should alternatives to reach similar goals be considered?

The purpose of this document is to lay out some of the key questions and potential design
elements of a CES, in order to solicit input from a broad range of interested parties, to
facilitate discussion, and to ascertain whether or not consensus can be achieved.

Introduction
Advocates of a CES maintain that requiring the deployment of increasing amounts of
clean electricity can lead to a variety of benefits, such as the reduction of greenhouse
gases and other emissions, as well as an increase in domestic manufacturing of associated
technologies. In contrast, opponents have claimed that a federal electricity mandate,
depending on its design, could pick winners and losers among competing technologies
and serve as a tax that may cause a wealth transfer from those regions of the country
lacking compliant resources.

Congress has debated Renewable Portfolio and Renewable Electricity Standards (RES)
for the past decade. During the 111th Congress, the ENR Committee included a 15
percent by 2021 RES in S. 1462, the American Clean Energy Leadership Act of 2009.
While a number of CES proposals have been introduced or discussed in past Congresses,
the concept has not yet been seriously considered or analyzed.

Over time, there have been a variety of goals advanced for deployment of clean or
renewable energy. For some, the primary focus of an RES has been to enhance the
competitiveness of renewable technologies in the short term, in order to allow them to
become economically competitive with fossil technologies. Other proposals have focused
on diversifying electric generation in order to guard against possible resource constraints.
Still others highlight the emissions reduction potential of these technologies.

If the ENR Committee elects to develop a CES, there are a number of design questions
that require careful consideration. The decisions made in the design of such a standard
will necessarily favor certain priorities over others.

Current State of Clean Energy Deployment
Data from the Energy Information Administration (EIA) indicates that in 2010, domestic
electricity generation was comprised of about 20 percent from nuclear power plants, 10
percent from renewable energy power plants (hydropower, wind, solar, geothermal and
biomass), 25 percent from natural gas power plants, and 45 percent from coal power
plants. If clean energy were defined as renewable and nuclear energy only, then the
United States would currently be obtaining 30 percent of its electricity from clean
sources. If efficient natural gas (i.e. combined cycle) were included as well - and
awarded "half credits" in accordance with the President's CES proposal - the United
States would currently be obtaining 40 percent of its electricity from clean sources.
The EIA reference scenario, in its 2011 Annual Energy Outlook, projects that overall
electric generation will increase by about 20 percent between 2010 and 2035. The
majority of new capacity is expected to come from natural gas power plants. Natural gas
is expected to maintain its 25 percent share of overall electricity generation throughout
this period. Renewable power is expected to grow to a 14 percent share of the generation
mix. Nuclear is expected to add capacity but decrease slightly in its overall share of the
generation mix to 17 percent in 2035. Events in Japan may affect that potential growth in
capacity. Generation from coal is expected to increase overall but decrease to a 42
percent share of the generation mix.

Key Elements for Clean Energy Standard Proposals
1. What should be the threshold for inclusion in the new program?
In the RES contained in S. 1462 last Congress, utilities selling four million megawatt
hours or more of retail electric power in a calendar year would have been subject to the
mandate. Additionally, the State of Hawaii was specifically excluded from the program's
requirements. The President's CES proposal does not appear to contain a threshold for
inclusion, which means that all electric utilities, regardless of size, would be responsible
for meeting any new requirements imposed by a CES.

Key Questions:
  • Should there be a threshold for inclusion or should all electric utilities be subject to the standards set by a CES?
  • Should any states or portions of states be specifically excluded from the new program's requirements?
  • How should a federal mandate interact with the 30 existing state electricity standards?
2. What resources should qualify as "clean energy"?
The definition of what qualifies as "clean energy" will be crucial in determining the
overall mix of technologies deployed to comply with a CES. While previous CES
proposals have gone beyond the narrow set of renewable technologies allowed under a
RES, by including nuclear plants and coal plants with carbon capture and storage (CCS),
the President's proposal also seeks to allow efficient natural gas without CCS to count
towards compliance. While past proposals have credited energy efficiency measures to
varying degrees, the President's CES proposal does not give clean energy credits for
energy efficiency measures.

Key Questions:
On what basis should qualifying "clean energy" resources be defined? Should the
definition of "clean energy" account only for the greenhouse gas emissions of electric
generation, or should other environmental issues be accounted for (e.g. particulate
matter from biomass combustion, spent fuel from nuclear power, or land use changes
for solar panels or wind, etc.).

Should qualifying clean energy resources be expressly listed or based on a general
emissions threshold? If it is determined that a list of clean energy resources is
preferable, what is the optimal definition for "clean energy" that will deploy a diverse
set of clean generation technologies at least cost? Should there be an avenue to
qualify additional clean energy resources in the future, based on technological
advancements?

What is the role for energy efficiency in the standard? If energy efficiency qualifies,
should it be limited to the supply side, the demand side, or both? How should
measurement and verification issues be handled?

Should retrofits or retirements of traditional fossil-fuel plants be included in the
standard?

Should the standard be focused solely on electricity generation, or is there a role for
other clean energy technologies that could displace electricity, such as biomass-tothermal
energy?

3. How should the crediting system and timetables be designed?
The design of the crediting system and the timing and stringency of the targets will
necessarily impact the mix of technologies deployed as well as the ultimate costs
imposed on end-use customers. For example, previous RES and CES proposals have
called for taking certain existing technologies out of the baseline for purposes of
calculating the mandate (e.g. conventional hydropower), while providing full credits to
new resources.

Key Questions:
Should the standard's requirements be keyed to the year 2035 or some other
timeframe?

What interim targets and timetables should be established to meet the standard's
requirements?

What are the tradeoffs between crediting all existing clean technologies versus only
allowing new and incremental upgrades to qualify for credits? Is one methodology
preferable to the other?

Should partial credits be given for certain technologies, like efficient natural gas and
clean coal, as the President has proposed? If partial credits are used, on what basis
should the percentage of credit be awarded? Should this be made modifiable over the
life of the program?

Is there a deployment path that will optimize the trade-off between the overall cost of
the program and the overall amount of clean energy deployed?

What would be the effect of including tiers for particular classes of technology, or for
technologies with different levels of economic risk, and what would be a viable way
of including such tiers?

Should the same credit be available to meet both the federal mandate and an existing
state standard or should a credit only be utilized once?

Should there be a banking and/or borrowing system available for credits and, if so, for
how long?

4. How will a CES affect the deployment of specific technologies?
The value and expected future value of clean energy credits created by a CES will be the
primary driver of clean energy deployment. Each technology faces different economic
and financing issues. Some, such as nuclear energy, face significant upfront capital costs
but low ongoing fuel costs. Others, such as natural gas power plants, may be deployed
relatively inexpensively but with a higher percentage of ongoing costs coming from fuel.
How credit value changes the economics of each individual technology will determine
which technologies get deployed.

Key Questions:
How valuable would clean energy credits have to be in order to facilitate the
deployment of individual qualified technologies?

How might a CES alter the current dispatch order of existing generation (such as
natural gas-fired power plants), which has been driven by minimization of consumer
costs, historically?

What is the expected electricity generation mix for a target of 80 percent clean energy
by 2035, under the President's proposal or an alternative construct?

Could different crediting and requirements than those proposed by the President be
more effective in deploying clean technologies?

5. How should Alternative Compliance Payments, regional costs, and consumer
protections be addressed?
In considering a CES, it is important to consider the additional costs that may accompany
such a policy and how those costs may vary by region. Some regions of the country
contain more abundant energy resources than others, and utilities within those regions
may be utilizing vastly different fuel mixes. Important design goals for a CES are to
ensure price certainty for consumers and industry, minimize regional disparities in the
cost of such a policy, and contain costs overall. The RES contained in S. 1462 last
Congress included cost containment mechanisms such as limiting the electric rate impact
of a utility's incremental compliance costs to not more than four percent per retail
customer annually; an Alternative Compliance Payment (ACP) that was available for
utilities that determined they could not meet the program requirements; providing a
potential variance if transmission constraints prevent service delivery; and potentially
allowing waivers for reasons of Force Majeure.

Key Questions:
What are the anticipated effects on state and regional electricity prices of a CES
structured according to the President's proposal? What are the anticipated net
economic effects by region?

Would other CES formulations or alternative policy proposals to meet a comparable
level of clean energy deployment have better regional or net economic outcomes?

How might various price levels for the ACP affect the deployment of clean energy
technologies?

What options are available to mitigate regional disparities and contain costs of the
policy?

What are the possible uses for potential ACP revenues? Should such revenues be used
to support compliance with the standard's requirements? Should all or a portion of the
collected ACP revenues go back to the state from which they were collected? Should
ACP revenues be used to mitigate any increased electricity costs to the consumer that
may be associated with the CES?

Should cost containment measures and other consumer price protections be included
in a CES?

How much new transmission will be needed to meet a CES along the lines of the
President's proposal and how should those transmission costs be allocated?

Are there any technological impediments to the addition of significantly increased
renewable electricity generation into the electrical grid?

What are the costs associated with replacing or retrofitting certain assets within the
existing generation fleet in order to meet a CES?

What level of asset retirements from within the existing generation fleet are
anticipated as a result of a CES?

6. How would the CES interact with other policies?
The credit value generated by imposition of a CES may not, by itself, be enough to
address obstacles faced by particular clean energy technologies. For example, the
deployment of solar panels has raised concerns about land use changes in certain desert
areas. Coal with CCS confronts post-closure liability issues and the extraction of the
feedstock itself has become subject to increasingly stringent regulatory treatment. For
nuclear power, financing new projects has been difficult due to significant, up-front
capital costs. All domestic energy development projects face substantial permitting
hurdles. Reaching the President's CES target of 80 percent by 2035 will require a diverse
set of resources, so technology-specific supporting policies may be necessary.

Key Questions:
To what extent does a CES contribute to the overall climate change policy of the
United States, and would enactment of a CES warrant changes to other, relevant
statutes?

What are the specific challenges facing individual technologies such as nuclear,
natural gas, CCS, on- and offshore wind, solar, efficiency, biomass, and others?

Will the enactment of a CES be sufficient for each technology to overcome its
individual challenges?

Should there be an examination of energy connected permitting?

Are there specific supporting policy options that should be considered for coal,
nuclear, natural gas, renewable energy, and efficiency?

What is the current status of clean energy technology manufacturing, and is it
reasonable to expect domestic economic growth in that sector as a result of a CES?

Senate Energy and Natural Resources Committee Clean Energy Standard Submittal Due Date: Monday, April 11th at 5:00pm (EST) Submittal Address: Clean_Energy_Standard@energy.senate.gov Directions for Submittals In order to submit responses to the Clean Energy Standard (CES) white paper, please use the following form and directions.
The March 21 White Paper poses six basic questions (and 36 clarifying questions) about design elements of a CES. We invite interested parties to respond to the questions. Responses may address any one or more of the listed questions. Please use the attachments on our website to respond. Do not renumber or rearrange the order of the questions. To the extent that there is overlap in your responses, please repeat any overlap in each question.

All submitted proposals must adhere to the following rules. Submittals that do not will be returned to senders. These rules are necessary to facilitate the review of the submittals by the Senators and Staff and to allow for posting of selected answers to the Committee website.

Conference Submittal Rules

There is no limit to the length of responses.

Use 12 point Times New Roman font.

There are SIX main questions. Submit your response to each question as a separate word document. Using the separate response attachments will make review and web posting of selected proposals much less difficult.

Within each main question document, respond to the clarifying question(s) of your choice by starting a new page.

Each submitter should fill out ONE executive summary explaining which questions are being answered and a summary of those responses (not to exceed one page).

Thus, if you chose to answer all of the questions, you will submit a total of SEVEN documents.

If you wish to respond to an issue that is not covered by the White Paper but related to the design of mandatory market-based systems, please use the designated Word document.

Insert your name and affiliation in the header of your responses.

FAILURE TO STRICTLY FOLLOW THE RULES OUTLINED ABOVE WILL RESULT IN YOUR PROPOSAL BEING RETURNED TO SENDER.

Additional charts, graphics, or specific legislative language are also welcome and may be attached as a separate appendix to the responses.

Submittals must be e-mailed to Clean_Energy_Standard@energy.senate.gov no later than 5 p.m. (EST) on April 1st, 2011.

Staff contacts for the conference are Kevin Rennert and Kellie Donnelly.

All submittals will be reviewed.

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