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CBO: Clean Energy Standards Are an Affordable Way to Cut Carbon Emissions

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"CBO: Clean Energy Standards Are an Affordable Way to Cut Carbon Emissions"

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by Richard Caperton

It sure would be nice if members of Congress actually listened to the Congressional Budget Office. If they did, they would learn what we’ve known for quite some time: shifting to cleaner electricity generation is an affordable and effective way to reduce carbon emissions.

The CBO just released a summary of seven different types of standards from a variety of sources. The summary uniformly finds that either an RES (renewables alone) or a CES (some combination of renewables, natural gas, nuclear and CCS) will reduce carbon emissions, and that any price impacts to consumers will be minimal. Some consumers may even pay lower utility bills.

The report does acknowledge that some regions could see price increases. You can bet that some people will jump all over this and claim that clean energy mandates drive up rates. But let’s put the figures into perspective.

Only one out of seven scenarios sees a price increase of more than 5 percent by 2030. At the same time, in five of the seven scenarios, at least one region of the country is projected to see lower electricity prices.

Virtually all price impacts are between plus or minus 5 percent, which is extremely small compared to other expected price impacts. For example, a price increase of 1 percent would be overwhelmed by any change in the price of natural gas generation or in a regulated utility’s allowable rate of return. Electric rates for all consumers will change by 2030, and virtually none of that change would be because of a clean energy standard.

The CBO report also discusses the best ways to make clean energy standards more cost-effective for consumers. While CBO isn’t in the business of making recommendations, it’s clear that these will be a key part of designing a successful clean energy standard.  In fact, that’s why the Center for American Progress included these cost-effective measures in our clean energy standard proposal. Specifically, CBO’s report validates these aspects of our proposal:

  • Allowing utilities to use energy efficiency to meet part of the standard reduces compliance costs.  Obviously, accounting for energy efficiency can be challenging, and this aspect of a CES needs to be properly designed, but it’s important to include the most cost-effective emission reduction measures possible.
  • A federal CES should complement existing state standards, and utilities should be able to use clean energy credits from state programs to meet a federal standard.
  • Different regions of the country have different clean energy resources, and should be given flexibility to use the least-cost resources available.
  • Clean energy credits should be tradable.
  • The timing of interim targets should be flexible and gradual, so that utilities have sufficient time to develop the most cost-effective resources.

CBO’s report points to the need for more modeling of specific clean energy standard proposals. All of the studies in this report differ from serious policy proposals in significant ways. Specifically:

  • A study that doesn’t allow for all clean energy sources (including wind, solar, biomass, geothermal, hydropower, nuclear, and natural gas, to name a few) is unnecessarily imposing false constraints that will only increase the costs of compliance.
  • Studies that have less ambitious targets than 80 percent clean power will project fewer benefits, especially in terms of reduced carbon emissions.
  • CAP’s clean energy standard proposal includes a tiered approach, in which utilities should meet 35 percent of their target with renewables and energy efficiency.  Ignoring energy efficiency will lead to exaggerated costs of compliance, and ignoring specific targets for renewables will underestimate deployment of the most economically beneficial technologies.
  • Non-utility generators – like industrial facilities that use biomass or combined heat and power – need to be included in any modeling.  These facilities are key parts of the electricity system and their actions will lower the costs of compliance by contributing to a liquid trading market, especially in the southeast.

Frustratingly, none of the studies CBO includes look at actual policy proposals. Whereas the President has proposed getting 80 percent of the country’s power from a diverse mix of low-carbon sources, the studies in the CBO report are based on meeting much lower targets with much smaller sets of technologies. Inevitably, this means that CBO has underestimated the benefits and overestimated the costs of actual CES proposals.

— Richard Caperton, Senior Policy Analyst at the Center for American Progress

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