Renewables technology has progressed significantly since the first RPS was enacted in Iowa in 1983. Iowa Code § 476.41, et seq. And RPS programs, which require retail electricity suppliers to supply a minimum percentage or amount of their retail load with eligible sources of renewable energy, are constantly playing catch-up to these ever-evolving market dynamics. Technological innovations and the diversification of financial products have driven down project costs and broadened accessibility. States have provided incentives such as rebates or net metering credits. Project developers and service providers have adapted to meet the varied conditions of their markets. The result is a diverse portfolio of U.S. RPS policies, as states across the country have designed, implemented, revised, frozen, annulled, or otherwise modified their individual RPS programs as the renewables sector has matured over the course of the past 33 years.
Today, 29 states and the District of Columbia have compliance RPS programs. Altogether, the obligations apply to 55 percent of total U.S. retail electricity sales. See Galen L. Barbose, U.S. Renewables Portfolio Standards: 2016 Annual Status Report, Lawrence Berkeley National Laboratory No. 1005057 (April 2016). And these figures do not include states with voluntary renewable energy goals, such as North Dakota, Utah, and Virginia. See Jocelyn Durkay, State Renewable Portfolio Standards and Goals, Nat’l Conf. of State Legislatures (Dec. 28, 2016).
Although most RPS programs share common elements (such as imposing penalties for lack of compliance and utilizing some form of tradable renewable energy credit (REC) to track compliance), no two states share an identical RPS. States differentiate their RPS policies with unique targets and time frames, entities obligated and exemptions, eligibility rules and definitions, carve-outs, contracting or procurement requirements, and the use of cost caps and floors. Barbose, supra. This differentiation has empowered states to design programs that best fit their needs, market dynamics, and renewables goals. Modifications can be made when and where the barrier to entry is too high, or if the RPS imposes exorbitant costs on ratepayers. Consequently, the majority of states with RPS have hit their targets, with 94 percent achievement in 2013 and 95 percent achievement in 2014. Id.
While few new RPS policies have been enacted in recent years, states continue to modify existing policies in response to changing market conditions, program success and end-dates, and federal policies. As states begin to approach their target years or achieve (or exceed) target goals, states are evaluating whether and how to extend targets into the future. Under currently enacted laws, 20 states will reach the terminal year of their RPS by 2026. Id.
Recent legislative activity evidences this period of reformation. State legislatures have introduced and enacted more than 200 RPS-related bills since the beginning of 2015. See EQ Research, available at http://eq-research.com/. Most notable are the five jurisdictions (California, Oregon, New York, Vermont, and D.C.) that have adopted policies requiring at least 50 percent renewables, and Hawaii—the first U.S. state to establish a 100 percent RPS goal. Id. In addition to extending and expanding RPS time frames and goals, states have modified RPS programs by introducing resource-specific or distributed generation carve-outs, refining resource eligibility rules and definitions, and relaxing geographic preferences or restrictions. Barbose, supra.
As we approach common terminal years in 2020 and 2025, we are likely to see continued legislative and gubernatorial action on RPS programs and renewables goals. But approaching targets are not the only reason why states are revisiting and revising their RPS policies. Endogenous factors, including compliance costs, legal challenges, and other state- and local-level market and policy conditions are the primary internal drivers of RPS reevaluation. On the federal front, continued FERC regulation and the impending decision on CPP are making states rethink—and redesign—RPS policies to ensure continued compliance with federal law. Even before CPP leaves the bench, some states are planning ahead to ensure that their RPS programs will support their CPP-compliance programs. Pennsylvania, for instance, is already designing its CPP state plan, undeterred by the U.S. Supreme Court’s February 2016 decision granting a stay on the CPP pending the resolution of legal challenges. See Susan Phillips, Wolf says PA will move forward on Clean Power Plan, StateImpact Pennsylvania (Feb. 10, 2016); and Chamber of Commerce v. EPA, 136 S. Ct. 999 (2016) (order in pending case).
The CPP is the first-ever national standard aimed toward reducing carbon pollution from power plants, the nation’s largest source of emissions. See EPA, Fact Sheet: Overview of the Clean Power Plan (2015). Recognizing that fossil fuels will “continue to be a critical component of America’s energy future,” the EPA put forth the CPP to ensure that fossil fuel-fired power plants operate “more cleanly and efficiently, while expanding the capacity for zero- and low-emitting power sources.” Id. The CPP establishes interim and final carbon dioxide (CO2) emission performance rates for two subcategories of fossil-fuel-fired electric generating units (EGUs): fossil fuel-fired electric steam generating units (i.e., coal- and oil-fired power plants) and natural gas-fired combined cycle generating units. Id.
Under the CPP, states and utilities can implement the standards and meet these goals through one of three methods: a rate-based state goal measured in pounds per megawatt hour (MWh), a mass-based state goal measured in total short tons of CO2, or a mass-based state goal with a new source complement measured in total short tons of CO2, also known as a state measures plan. States need to develop and implement plans which, when combined with other state or regional initiatives, will ensure compliance with the CO2 emissions performance rates over the 2022–2029 compliance period, and with the final CO2 emissions performance rates, rate-based goals or mass-based goals by 2030 (or later, if the CPP is further delayed). The EPA estimates that the pollution reductions required by the CPP will yield climate benefits of $20 billion, health benefits of $14–34 billion, and net benefits of $26–45 billion. Id. Complementary or additive RPS programs will amplify these benefits by incentivizing additional renewable deployment, implementing stronger energy efficiency standards, and more.
Under any of the three methods, compliance will be tracked via emissions trading. See Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,662 (Oct. 23, 2015) (to be codified at 40 C.F.R. Part 60). How an existing RPS and its tracking mechanism will interplay with a state’s CPP plan and its emissions trading will depend on the state’s CPP compliance path. Under a rate-based state goal, renewable energy facilities, energy efficiency units, new nuclear facilities, or performance upgrades at existing nuclear, hydro, and natural gas combined cycle power plants will produce emission rate credits (ERCs), which represent one MWh of zero-emission generation. These ERCs will be added to the denominator of the pounds per MWh until the EGU (either individually or on a state average basis) satisfies the required rate.
A state with an existing RPS that uses RECs to track compliance will need to decide whether and how ERCs and RECs will be issued, tracked, and retired together or separately. In its guidelines, the EPA clarifies that ERCs were intended to be unique and separate from RECs, and that a single generating unit could produce both an ERC and a REC for each MWh generated where eligibility overlap exists. But in practice, managing ERCs and RECs in the same compliance universe will be no easy undertaking—there will be issues with double-counting, existing forward contracts, and whether a facility can still claim its renewable attributes if it keeps its RECs, but trades away its ERCs. Id.
Emissions trading under a mass-based state goal is much more straightforward—states will be issued emissions allowances, which can be auctioned (traded) or given away. Compliance will be determined solely on total tons of CO2 emitted. As designed, there is no direct relationship between a state’s CPP plan and its RPS; rather, the two plans would exist contemporaneously. Id.
States with RPS, energy efficiency standards, and other related programs are best suited for a mass-based state measures plan. The state measures plan allows a state to leverage its existing policies, programs, and compliance mechanisms to meet the standards imposed by the CPP. And, rather than being the primary enforcement mechanism, the mass-based emissions standard acts as a federally enforceable backstop that only kicks in if the state measures fail to achieve the required reductions. There are no ERCs under this plan, and states can continue to utilize RECs to track RPS compliance, focusing CPP compliance efforts on bolstering their existing RPS and other programs instead of establishing entirely new programs and tracking tools. Id.
It is evident that the EPA carefully crafted the CPP to exist in harmony with state RPS programs and to provide a path for all states to reduce overall emissions while incentivizing renewable energy development—including those already on the right track. And although the CPP or similar federal policies would be instrumental in accelerating America’s timetable for achieving its Paris Agreement goals, states have proven willing to push for progress on their own. Now more than ever, it is imperative that states renew their commitments to renewable energy, promoting a sustainable renewables industry that supports continued job creation, grid resiliency efforts, and energy independence. As we enter into the era of Trump—and with it, an uncertain federal position on climate policy—states will take hold of the power to determine and define the nation’s stance for renewable energy and against the threat of climate change. Will we stand united?
