Carbon taxes are out, and clean electricity standards are in

Top Democrats on the House Energy and Commerce Committee have supported the policy, making it a centerpiece of their sweeping climate bill, known as the CLEAN Future Act. The final version of that bill, introduced on March 2, adopted Biden’s 2035 target for the power sector, a quicker pace than the 2050 goal that House Democrats had proposed in 2020.

In the Senate, Sen. Tina Smith, a Minnesota Democrat, has previously proposed separate clean electricity standard legislation to cut power-sector emissions by 80% by 2035 and achieve net-zero electricity emissions by 2050.

There’s even a bipartisan proposal from Republican Rep. David McKinley of West Virginia and Democratic Rep. Kurt Schrader of Oregon that adopts a clean electricity standard model, albeit a less aggressive version than the one that Biden and top Democrats are pushing.

The Washington Examiner put together a primer on the approach.

How does a clean electricity standard work?

A clean electricity standard sets targets for utilities to purchase a certain amount of low-carbon power. The policy ratchets up those targets each year until utilities are buying carbon-free power by a certain date.

The policy is similar to a renewable portfolio standard, which requires power companies to buy an increasing percentage of wind and solar power. A clean electricity standard, however, is more inclusive, allowing resources such as natural gas, nuclear power, and fossil fuel plants fitted with technology to capture and store emissions to qualify.

“This broader focus can enable a [clean electricity standard] to achieve higher emissions reductions at a lower cost relative to a traditional [renewable portfolio standard],” said Kathryne Cleary, a senior research associate at Resources for the Future.

Has this policy been tried before?

Yes. More than 30 states have enacted some version of a clean electricity standard or renewable portfolio standard, though the policies range in ambition from as low as a 10% requirement to a 100% requirement, according to Mike O’Boyle, director of electricity policy at Energy Innovation.

O’Boyle said New York currently has the most ambitious clean electricity standard on the books, requiring utilities to reach 100% clean power by 2040. A handful of other states, including California and Washington, have set a goal to reach 100% clean electricity five years later, by 2045, and others, such as Colorado and Arizona, are targeting 2050.

What are some of the pros of a clean electricity standard over other policies?

One benefit, supporters say, is that state utility regulators and power companies are already familiar with the policy. And by setting a clean power target into law rather than malleable regulatory language, the standard would provide certainty to utilities that there will be an expanding market for zero-carbon energy while still offering flexibility for companies to choose which technologies work best for their operations.

And while “most economists would consider a carbon price to be the most efficient policy option for reducing emissions,” if designed right, a clean electricity standard can “be almost as economically efficient,” Cleary said.

A clean electricity standard also has the potential to lead to greater reductions in power emissions than a carbon price, said Leah Stokes, an assistant professor of environmental politics at the University of California, Santa Barbara.

She noted studies and analysis that show countries that have adopted a carbon price haven’t experienced the deep emissions cuts needed to be on track to keep global warming to 1.5 degrees Celsius, the Paris climate agreement’s more ambitious goal.

And while a carbon tax and a clean electricity standard both would raise energy prices for consumers, the latter wouldn’t raise prices as much, according to research from Resources for the Future. By encouraging the build-out of cleaner power, a clean electricity standard is likely to create an incentive to expand energy supply, reducing wholesale market prices, the group has said.

What qualifies as “clean” power?

The most popular version of a clean electricity standard functions similarly to an emissions trading system, in which utilities earn credits for the clean electricity they produce, adjusted for the carbon intensity of the resource.

Zero-carbon resources, such as wind and solar energy, hydropower, and nuclear energy, receive full credit, while low-carbon resources such as natural gas only receive partial credit.

Utilities must earn enough credits to satisfy the increasing requirements to provide clean power. Companies can buy and sell those credits, or they can choose to pay alternative compliance payments in lieu of earning credits if they don’t have enough clean power to satisfy the requirements.

How would this work in practice?

For example, if the requirement in a given year directs utilities to provide 80% clean power, companies could choose to meet that in a number of ways.

If a power company is producing 100% carbon-free power, it could earn extra profit by selling clean electricity credits to those companies falling short of the requirement. Companies that choose to maintain some natural gas power could get partial credit for that and meet the 80% level by buying credits to make up the difference.

Heavy coal-burning utilities would face the toughest challenge. Those companies, if they want to keep their coal online, could buy credits from cleaner utilities or choose to pay the alternative compliance payments, which will become more costly each year. Companies could also find it more attractive to install carbon capture on their coal plants in an attempt to earn partial credit.

Thus, a clean electricity standard could help commercialize nascent low- and zero-carbon technologies such as carbon capture and storage, which would help fossil fuel units earn more partial credit, or advanced nuclear, which would earn full credit under the system.

The policy could also provide an incentive for direct air capture, which removes carbon directly from ambient air, by offering developers of the technology clean electricity credits for the carbon they capture and store. Utilities can then purchase those credits to satisfy the requirements, potentially allowing them to balance out some of their fossil generation.

So…is a clean electricity standard a market-based policy?

Yes, but not in the same way as a carbon tax or a cap-and-trade system, which Congress attempted to pass during the Obama administration.

Those policies put an economic penalty directly on emissions. A clean electricity standard, meanwhile, is “an investment signal,” setting a minimum requirement for how much utilities must spend on clean power that grows each year, O’Boyle said.

In essence, a carbon price makes it more costly to emit, a step that would eventually make it more economically attractive to spend on cleaner energy technologies. A clean electricity standard takes the opposite approach, directly requiring investments in cleaner power that forces utilities indirectly to price the carbon they are emitting as they decide what types of energy to develop.

What are design questions that policymakers will have to grapple with?

How to credit clean resources under the policy and, crucially, how and whether to count natural gas as clean is still one of the biggest questions policymakers will have to answer. Plans to reach carbon-free power by 2035 directly conflict with natural gas, which has driven much of the United States’s emissions reductions in recent years as utilities switch over from coal.

To get to carbon-free power, policymakers will have to determine how to either decarbonize or eliminate that natural gas power.

Another major question is whether to design the measure in a way that could pass under technical legislative rules known as budget reconciliation, which would allow the Senate to bypass the filibuster that requires a 60-vote majority to advance legislation. Stokes, working with climate group Evergreen and liberal think tank Data for Progress, helped design options for a clean electricity standard to meet those requirements.

Their approach wouldn’t follow the model of a credit trading system. Instead, the federal government would dole out direct payments to utilities that are purchasing enough clean power and require companies that aren’t to pay penalties.

Why focus on the electricity sector first?

It’s the low-hanging fruit. Sheer market forces, including cheap, abundant natural gas and falling renewable energy costs, have already led to significant cuts in power sector emissions, even without a nationwide climate policy in place.

Many utilities, too, are moving toward carbon-free power with their own goals to achieve net-zero emissions by the middle of the century.

In addition, decarbonizing other sectors, such as transportation and buildings, will mean electrifying them, O’Boyle said. “Electrification is only a deep decarbonization strategy if the electricity itself is carbon-free.”

What about the politics?

Republican governors have already backed this type of policy, and the fact that it potentially wouldn’t increase consumer energy prices as much as a carbon tax could make it more palatable for GOP lawmakers, supporters said.

A clean electricity standard is also a job creator in both Democratic and Republican states, O’Boyle said. He pointed to research that Energy Innovation conducted with the University of California, Berkeley, finding a standard targeting 90% clean power by 2035 created more than 500,000 jobs annually for 15 years.

In addition, it largely avoids concerns that liberal Democrats and climate activists raise with cap and trade or carbon pricing that companies could essentially “pay to pollute.” That is, fossil fuel-fired power plants and heavy industry could emit pollutants into towns, which would tend to be those of minority and poor people, with relative impunity, so long as the utilities paid a little extra.

There is already one bipartisan effort to establish a clean electricity standard, from McKinley and Schrader. That legislation would massively scale up research funding for clean energy technologies through 2030, after which a clean electricity standard would kick in, requiring utilities to slash their emissions 80% by 2050.

McKinley has expressed confidence that he can bring other Republicans on board with the concept, though none have publicly joined him in the effort yet.