Democrats could abandon clean energy incentives — here’s how to save them
As the Democrats shrink their $3.5 trilling reconciliation bill to placate wavering moderates, reports have surfaced that the clean energy performance program (CEPP) may be abandoned because of the vocal opposition of Sen. Joe Manchin (D-W.Va.), whose vote is essential to pass the reconciliation bill.
The CEPP is a $150 billion system of payments and penalties tied to whether utilities meet an annual target of increasing “clean electricity” by 4 percent per year through 2030.
Together with clean energy tax incentives, the CEPP would deliver far greater reductions in greenhouse gas (GHG) emissions than any other part of the Democrats’ climate package. President Biden wants to transition to 80 percent clean energy by 2030, and the CEPP would accomplish this through sizable financial inducements for a rapid expansion of renewable power and retirement of coal and gas-fired generation
This transformation is central to Biden’s national target of a 50 to 52 percent emission reduction from 2005 levels by 2030. Without the CEPP, this target would be out of reach. For the president to arrive empty-handed at next month’s United National climate conference (COP26) in Glasgow would be an embarrassing setback for U.S. climate leadership.
Is it possible to salvage the CEPP by addressing Manchin’s concerns? Let’s look at what he has said and how the CEPP might be fixed in response.
Although Manchin represents a state historically steeped in fossil fuel production, he understands that the utility industry is inevitably moving to clean energy noting, “I can tell you the transition is going to happen and people in West Virginia realize that.” Manchin’s office has also confirmed that he supports combatting climate change.
Manchin objects to the CEPP because we can’t “keep writing checks from our Treasury to publicly traded companies that have shareholders that are basically benefitting off of the investments we’re making with no return to taxpayers.” Manchin’s point is that utilities will make clean power investments anyway and the CEPP will give them an undeserved windfall that is unnecessary to reduce GHG emissions. This is in part an oversimplification: The CEPP’s financial incentives will likely motivate utilities to accelerate some clean power investments they would otherwise postpone as too risky or costly.
On the other hand, the industry is rapidly scaling up power production from renewable sources without the CEPP. Because of the long planning horizon in the industry, increases in renewable capacity that come online in2023 or later may have already been approved and financed before the CEPP is in place.
Manchin is right that rewarding utilities retrospectively for clean power investments they have already decided to make would simply enrich shareholders since the CEPP does not require utilities to refund surplus payments to the Treasury or use them to lower electricity rates. But this problem could be fixed. For example, utilities might be ineligible to receive payments under the CEPP for increases in clean energy production that were authorized and financed before the CEPP took effect.
Another Manchin concern is that the reliability of the grid will be “the big loser” from a forced buildout of clean energy. He has said that “the utilities will take every dime you want to give them, but they will not commit and be basically responsible for reliability. And then they’re going to have to buy it somewhere and the consumers are going to pay.” Utilities have a legal obligation under state laws to provide reliable service, but Manchin apparently fears that the financial drivers of the CEPP could push utilities into imprudent clean energy investments that later compromise reliability.
His concern is not unreasonable. In 2020, coal represented 19 percent of total generation, natural gas 40 percent and renewables only 21 percent. The CEPP would aim to increase the renewable share by 28 percent in 10 years. This will require new transmission lines that link remote renewable power sources with urban load centers. However, building new transmission is complicated, costly and time-consuming. Greater and more reliable energy storage capacity will also be needed because of the intermittency of solar and wind power but in the near-term fossil fuel plants which provide backup generation during peak demand may remain essential.
Threats to reliability could be reduced by changing the CEPP so that payments and penalties are keyed to a lower year-by-year increase in clean energy — say, 2.5 or 3 percent — that results in a less rapid buildout of renewable power. In addition, the CEPP could include a mechanism for waiving penalties where a public utility commission determines that a utility cannot achieve the required increase in clean energy without compromising reliability and/or risking unacceptable rate increases due to imbalances in power supply and demand. This would provide a cushion to West Virginia where coal accounts for 90 percent of power generation and options for increasing clean energy quickly are limited.
Whether these CEPP fixes would satisfy Manchin is anybody’s guess but seeking to address his concerns is better than watching the CEPP go up in smoke.
Bob Sussman served in the Clinton administration as the EPA deputy administrator from 1993 to 1994 and then in the Obama administration as senior policy counsel to the administrator. He is the principal in Sussman and Associates, was an adjunct professor of law at Georgetown University Law Center and previously taught climate change policy at Yale Law School and the Yale School of Forestry and Environmental Studies.
This piece has been updated.