The Environmental Protection Agency's latest brainchild to help states make the switch from fossil fuels to more solar and wind may be too costly to be of any benefit to states. It also raises new questions over the agency's attempts to circumvent the law, with an increased chance of fraud to boot, some utilities say.
The Clean Energy Incentive Program, or CEIP, is the agency's latest attempt to coax states into complying with its much bigger program, the Clean Power Plan, which critics argue will raise energy costs and make the electrical system less reliable.
Most people know the Clean Power Plan. But the incentive program was not made public when the Clean Power Plan was drafted more than a year ago. Instead, it came out when the rule was finalized in August.
The power plan requires states to reduce their emissions by one-third by 2030. The incentive program aims to give states a leg up on meeting that goal by incentivizing renewable energy development before the Clean Power Plan goes into effect in 2022. The program would issue emission reduction credits to states for renewable energy.
However, states, the energy industry and others say establishing a system to track credits to make sure emissions are being credited correctly could be so expensive as to make the incentive program not worth the effort.
Under the Clean Energy Incentive Program, the EPA would provide matching allowances, or credits, to states that provide their own credit programs. Those credits would be given to renewable energy producers that can sell them to fossil fuel power plants to help them comply.
But "where would those allowances come from, and whom could they be provided [to]?" asked Kirk Johnson, senior vice president for federal affairs with the National Rural Electric Cooperatives Association. How those credits are accounted for, and the potential for fraud in the system is "certainly on our minds," he said. "We want to make sure ... the markets can't be manipulated and that there is transparency in that market, [so] that consumers don't pay any more than they have to," he said.
While the program was included in the final rule, it has not been fully fleshed out with input from utilities, states and others. The EPA has been holding conference calls about the program and is taking comments, but it's a non-regulatory process that a contingent of utilities argue is not legally binding.
A coalition of utility companies and trade groups says the agency is attempting to circumvent the law by not proposing the program as it would any novel regulation.
"EPA cannot circumvent the requirements of the [Clean Air Act] through the use of non-regulatory dockets and other atypical procedures," the Utility Air Regulatory Group said in comments to the EPA.
"Even worse, EPA alleges that the CEIP has already been 'outlined and initiated' in the final [Clean Power Plan], even though the CEIP was not in the proposed ... rule," the utility group said. "Neither are there sufficient details in the final ... rule for the public to understand how the CEIP will work."
The coalition said the "inadequate" process doesn't meet the requirements of the Clean Air Act or the Administrative Procedures Act.
EPA spokeswoman Melissa Harrison said "we won't be commenting on the legal issues, but we are reviewing all of the comments we receive as we determine our next steps" in developing the incentive program.
The Clean Power Plan is the centerpiece of President Obama's climate change agenda to reduce the greenhouse gases that many scientists blame for warming the Earth's climate.
Critics say the credit program picks winners and losers by undervaluing certain types of renewable energy such as hydropower and geothermal in favor of solar.
At the same time, some utilities say creating a credit system has the potential for fraud and market gaming. That poses a bigger risk for smaller, publicly owned utilities, such as rural cooperatives, that have been undercut by emissions trading programs proposed by Congress.
Johnson said there are a "ton of unanswered questions" about the structure of the incentive program. He said the program is too similar to the cap-and-trade legislation that was considered in Congress during Obama's first term in office. Under those proposals, the rural utilities would have gotten a bad deal on the number of credits they would have been given to comply compared to for-profit power generators.
"We are trying to find the least cost[ly] alternatives that can lower the cost of compliance. That is ultimately our test," Johnson said. "It's one of those things that can go wrong a thousand different ways" and is "hard to get right," he said.
Jeff Holmstead, former head of the EPA's air office under President George W. Bush, said there would be limited opportunity for fraud under the program.
He said the EPA has learned its lesson from the scandal that arose under its national renewable fuel program, in which fraudsters in the early part of the decade produced phony credits while producing no renewable fuel.
The credits were sold to oil companies and refiners, who were later fined by EPA for buying the credits even though the agency listed the bogus firms as legitimate and trustworthy suppliers of compliance credits.
"As I understand the [Clean Energy Incentive Program], EPA itself will be handing out the credits but only after an EPA or qualified state official certifies the project for which credits are given," Holmstead said. "There's still some possibility of fraud, but I think EPA has learned the lessons of the [renewable fuel credit] debacle and created a better approach for monitoring the program."
But states and others aren't as optimistic. Many say the measurement and verification systems required to make sure the credits are accurate could be too costly and impossible to implement, especially in areas with poorer populations.
The National Association of State Energy Officials, representing the governors' energy offices, raised the issue in feedback submitted to the agency Dec. 14.
"We fear a 'perfect being the enemy of the good' scenario," said David Terry, the group's executive director.