What Is a Clean Energy Standard?
A clean energy standard (CES), sometimes also called a clean electricity standard, is one type of electricity portfolio standard, where portfolio refers to the set of energy sources used to produce electricity. It requires a percentage of retail electricity sales to come from low- and zero-carbon “clean” electricity sources. CES allow a wide array of low- and zero-carbon sources to be used to meet the standard, including nuclear power and fossil generators with carbon capture and storage. Since it emits about half as much carbon dioxide as coal, natural gas is often included as a qualifying resource, eligible for some level of partial crediting during the early part of CES implementation. While there are many ways to design this type of policy, the share of clean energy required typically increases over time.
A CES reduces greenhouse gas (GHG) emissions only in the power sector and is therefore considered a sector-specific approach. CESs are similar to renewable portfolio standards, or RPSs, with the major difference being that RPSs require that a certain percentage of electricity supplies come solely from renewable energy sources such as wind, solar, and geothermal generators. RPSs are well-tested policy mechanisms that numerous states have adopted. A CES differs in that it allows a wider array of low- and zero-carbon sources to be used to meet the standard, including nuclear power and fossil generators with carbon capture and storage. Under either a CES or RPS, qualifying sources earn tradable credits for each megawatt-hour they generate—or save, if energy efficiency is included. Retail suppliers of electricity must hold enough credits at the end of each compliance period to demonstrate that they have met the standard. For example, under a 10% CES, a retail electricity supplier who delivered 1,000 MWh of electricity over a given time period would have to hold 100 MWh of clean energy credits.
How Do Clean Energy Standards Work?
Decarbonizing the power sector is important because other economicsectors—including, notably, transportation—will likely require electrification to a large degree to mitigate climate change. By creating a market for clean energy credits, a CES allows qualifying sources to capture a greater share of the marketplace over time. Put another way, the standard ensures that clean sources of electricity gradually replace conventional sources in the market. The qualifying sources are defined broadly, so the CES creates a market for low-carbon technologies while providing maximum flexibility for competition across different technologies. Since the CES focuses on electric utilities and the power supply, complementary policies may be needed to advance other desired goals for a decarbonized power sector, such as supporting energy efficiency and innovation. Though energy efficiency may be included as a resource that can earn clean energy credits, a CES does not directly affect consumer behavior or demand for electricity. In addition, though this policy approach does create a long-term market signal for technology innovators, it is less likely than targeted innovation incentives or public research, development and demonstration to prompt the kinds of high-risk, large-scale investments needed to commercialize and deploy cutting-edge technologies with potential for transforming the power sector more quickly.
Key Clean Energy Standard Design Considerations
Several design details of a CES require careful consideration. Key issues include:
How will the policy treat different types of generation, as well as efficiency and energy storage? Will the policy specify which types of technologies can earn clean energy credits, or will eligibility to be considered “clean” be based on the ability to meet a specified (or avoided) GHG emission rate? If the latter, what emission rate should be used?
What percentage of the electricity supply must be “clean,” and by what date must the requirement be met?
Will the policy allow existing electricity sources to qualify as “clean” and earn credits, or will eligibility be restricted to new sources of “clean” energy?
What is an acceptable compliance cost for achieving the CES? Should the policy include features to try to control costs such as credit trading, credit banking, or a price cap (sometimes known as an alternative compliance payment) that would allow regulated entities to buy additional credits, or to make up a shortfall in credits, at a price set by regulators?
Who will be required to demonstrate compliance with the standard? Put another way, what entity or entities have the obligation to hold clean energy credits? The choice for policymakers is between: 1) regulating electric utilities and making their CES compliance obligation a function of their electricity sales; and 2) regulating generators and making their CES compliance obligation a function of their electricity generation. For states with RPSs, the compliance obligation has typically been placed on electric load-serving entities (i.e., utilities) based on utility size. In the case of a national policy, should the requirement to meet the standard be imposed at the level of individual companies (e.g., generators or utilities), regional power pools, states, or other?
How would a national CES interact with state-based electricity portfolio standards and with other state, regional, or national policies and programs to reduce GHG emissions and promote clean energy innovation? Questions around whether a federal program will complement or interfere will state efforts and the approaches utilized to connect state and federal policies will have a large impact on CES design and performance.
U.S. experience with Clean Energy Standards
CESs build on a long history of state-level policies to promote renewable energy. As of March 2020, 30 states and the District of Columbia have enacted renewable portfolio standards (of varying ambition), while seven states have voluntary renewable portfolio goals.[1] Several states have recently proposed or passed state-level CESs, in some cases in conjunction with a separate renewable energy requirement.[2]
For example, New Mexico recently passed a law requiring all retail electricity sold in the state by investor-owned utilities to be zero-carbon by 2045, with at least 80% of those sales coming from renewable sources. California’s law requires 100% carbon-free power by 2045, with 60% of electricity coming from eligible renewables by 2030.
Resources
[1] States with renewable portfolio standards: Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Virginia, Washington, and Wisconsin. States with renewable portfolio goals: Indiana, Kansas, North Dakota, Oklahoma, South Carolina, South Dakota, and Utah.
[2] https://s3.amazonaws.com/ncsolarcen-prod/wp-content/uploads/2019/07/RPS-CES-June2019.pdf
