Thursday, February 26, 2009

What to Expect on the Energy Front from Congress in 2009

In his State of the Union address, President Obama identified energy above healthcare and education as one of the most critical areas to the future of the American economy. President Obama announced his support for increased domestic manufacturing of clean technologies such as solar panels and batteries along with more R&D spending and a cap-and-trade policy to incentivize corporations to implement these new technologies. Yet regardless of President Obama's popularity, congress has the ultimate say regarding if and how these policies will be written. Yesterday, Senate Majority Leader Harry Reid outlined his three step plan to turn President Obama’s goals into realities:

1) Congress will pass a bill establishing a renewable energy portfolio standard, among other increased efficiency requirements.

2) To help meet this portfolio, Congress will then pass a bill to support the development of "a highway to transmit electricity to where it's needed," which could bring the nation’s vast but isolated solar and wind resources to markets.

3) The first two bills will hopefully build enough political momentum to pass a cap-and-trade policy by the end of the year.

Perhaps 2009 could be the year the US government finally passes what could be considered a comprehensive energy policy: one that tries to manage both supply and demand with the same end-goal of reduced emissions. While details of the proposed bills are scarce and political gimmicks like corn ethanol or hydrogen may still find their way into the policy, at least the mention of a new electricity transmission infrastructure shows that Congress understands a fundamental obstacle to expanded clean energy generation capacity. Jeff Otto recently discussed the inherent contradiction between clean energy and “shovel-ready” projects. Additionally, while the stimulus bill does cover 30% of the costs of new wind and solar farms, that is not enough to make up for the disappearance of capital that once profitable banks invested in exchange for tax write-offs.

Despite the pervasive economic gloom, 2009 could be a seminal year for clean energy in the US.


Jacksonite said...

I'd be interested to see how a federal RPS would be enforced without the buildout of transmission first. It's kind of like the tail wagging the dog. The infrastructure needs to be there, and hopefully it will be.

From what I've heard from some of my coworkers from my internship, the new administration is looking at ways to expedite that process for permitting interstate transmission lines. Typically the FERC has total authority but the new administration is looking at segmenting these lines into regional (read: state) lines and giving states the authority to get the ball rolling.

And the ball is rolling. Here is an article detailing the buildout of new transmission facilities in the Bonneville Power Association to connect wind farms into the Northeast grid.

combustible said...

While I am excited about the new administration's ambition to take on our energy issues, I am a bit skeptical about implementation of a cap-and-trade system.

One of the fundamental aspects of our global energy problem is that it is *global.* It is a problem that extends well beyond the Pacific and Atlantic coasts of the Lower 48. Granted, the US is the largest energy-consumer on the face of the planet. But that does not negate the fact that other developing economies are becoming a larger part of the picture as their industries grow.

Enforcing a cap-and-trade policy on emissions will limit the refining capacity within our nation’s borders. This will, undoubtedly, reduce US pollution levels due to petro consumption. This doesn’t necessarily translate to a reduction in refining/processing capacity of other nations, though. Thus, while it appears to be an approach that could potentially have positive benefits in the short-term, I cannot submit to the idea that it would address long-term energy issues on a global level. Simply put, a cap-and-trade system enforced within US borders will have very little, if any, affect outside US borders.

While it is virtuous to take measures for cleaner energy and greater efficiency in such “top-down” measures, a more viable *global* solution to our energy crisis will have to more greatly rely upon a “bottom-up” approach (i.e., technological advances that change the energy outlook, legislation that addresses basic technological issues). There will have to be some fundamental & objective realizations (i.e., “bottom-up” approaches) that will change the energy landscape. This is not to say, though, that logical & subjective policymaking (i.e., “top-down” approaches) will not accompany said realizations. In fact, it is necessary. Ultimately, solutions to our energy problems will feature a combination of the two approaches.

Previously, I had posted a blog asking whether or not the US federal government should levy tariffs on foreign oil. In one respect, this is a “top-down” approach in that it is government enforcing duties on the market. This is distinct from cap-and-trade, however, because it focuses those financial constraints on foreign supply. Therefore, it is a “top-down” approach that *does* have an impact on foreign economies/industries.

Spivey said...

As the article states, Senator Reid's plan starts with Senator Bingaman, the Chairman of the Senate Energy and Natural Resources Committee. Bingaman wants to have a bill out of his committee by May.

Bingaman's draft legislation includes a Renewable Energy (or Electricity) Standard (RES), which is the same concept as a Renewable Portfolio Standard (RPS). (We all know the government - they can't just leave one good acronym alone, they have to devise a whole new one.) Anyway, his draft sets a RES of 4% by 2011, 8% by 2015, 12% by 2018, 16% by 2020, and 20% thereafter. The draft RES would include biomass, geothermal, landfill gas, wind, solar, and ocean generation. It would also include incremental hydro, but would exclude nuclear and waste incineration.

One of the main pressures against a national RPS/RES comes from the southern states, which lack the degree of renewable resources that the rest of the country enjoys.

Jack is right - conceptually an RPS is more effective when there is existing transmission capacity. This exact scenario is playing out on a smaller scale in the 28 states that already have a state mandated RPS (5 additional states have a “renewable energy goal”). The excess capacity on existing transmission lines has been rapidly consumed and there are now long waiting lists on the interconnection queues. More renewable energy projects cannot be built until existing transmission is upgraded or additional transmission lines are built.

Regional planning committees and the various electricity councils have been trying for years to develop regional, long distance transmission lines to bring renewable electricity to the load centers. There has been very little progress so far. Texas is probably the farthest ahead with its Competitive Renewable Energy Zones. But Texas has advantages such as having a self-contained grid, a large land expanse with renewable resources within its own borders, and a progressive, energy friendly legislative and regulatory environment.

Hopefully the federal government can find a way to get these green transmission superhighways created.