Renewable Portfolio Standards

Promoting Green Energy: The Free Market Approach vs. The Public Policy Approach

The main­stream envi­ron­men­tal move­ment has put a lot of its resources into pro­mot­ing “green” ener­gy through a mar­ket-based approach rather than a pub­lic pol­i­cy approach. The mar­ket-based approach is char­ac­ter­ized as the vol­un­tary pur­chas­ing of “green” pow­er prod­ucts, which near­ly always cost more than buy­ing only con­ven­tion­al pow­er. A pub­lic pol­i­cy approach can take sev­er­al forms, but usu­al­ly is done through state or fed­er­al laws that pro­vide tax cred­its or pur­chas­ing require­ments to “renew­able” forms of ener­gy. Pur­chas­ing require­ments can apply to the state or fed­er­al gov­ern­ment, requir­ing them to buy cer­tain types of elec­tric­i­ty or they can require sell­ers of elec­tric­i­ty to have a cer­tain per­cent­age of “renew­able” pow­er in their mix. The lat­ter type is known as a Renew­able Port­fo­lio Stan­dard (RPS). As of Sep­tem­ber 2007, 26 states have RPS poli­cies as a mat­ter of state law (and 4 oth­ers have a “goal”).

The envi­ron­men­tal and social dam­age caused by con­tin­ued reliance on nuclear pow­er, fos­sil fuels, hydro­elec­tric dams and “bio­mass” incin­er­a­tion is extreme. If we’re to act with the urgency that these envi­ron­men­tal haz­ards demand, we must pur­sue strate­gies that do more than make peo­ple feel good while cre­at­ing com­par­a­tive­ly lit­tle change. RPS poli­cies have a much larg­er effect on the ener­gy sup­ply than vol­un­teer pur­chas­ing can, even if we get large insti­tu­tions like col­leges and uni­ver­si­ties to start buy­ing “green” power.

RPS vs. Vol­un­teer Pur­chas­ing Approach

There are seri­ous lim­i­ta­tions to the vol­un­teer pur­chas­ing (‘free mar­ket’) approach to sup­port­ing clean ener­gy. Just as we can­not expect that peo­ple who pay more for organ­ic food will cause all food pro­duc­tion to become organ­ic, we can­not expect that vol­un­tary approach­es will be suf­fi­cient to clean up our ener­gy sup­ply, since only a tiny per­cent­age of the ener­gy sup­ply can be affect­ed by vol­un­teer pur­chas­ing. We advo­cate strong pub­lic poli­cies, such as tax cred­its and Renew­able Port­fo­lio Stan­dards for wind and solar development.

In 2002, Green‑e cer­ti­fied “green” pow­er sold in the U.S. totaled 1,926,000 MWh (megawatt hours). Of this, 1,208,000 MWh (63%) was NEW renew­able pow­er. Of these 1,208,000 MWh, 24% was dirty, com­bus­tion-based “bio­mass” pow­er (most­ly from the burn­ing of tox­ic land­fill gas­es). This leaves 923,040 MWh of CLEAN, NEW renew­ables sup­port­ed by the free mar­ket approach. These clean, new renew­ables were near­ly all wind, with a frac­tion of a per­cent (0.11%) com­ing from solar.

While George W. Bush was still gov­er­nor of Texas, he signed a Renew­able Port­fo­lio Stan­dard bill into law. The Texas RPS law caused the dirty large util­i­ties in Texas to have to invest in renew­able ener­gy. They opt­ed for the cheap­est renew­ables defined under the bill. Thanks to cheap and plen­ti­ful wind resources in West Texas, the util­i­ties turned to wind pow­er to meet their new require­ments, mak­ing Texas sec­ond to Cal­i­for­nia in wind gen­er­a­tion and caus­ing more wind pow­er to be installed in Texas (912 MW) than in the rest of the U.S. com­bined (775 MW) in 2001.

As a point of com­par­i­son, this new wind gen­er­a­tion in Texas pro­duced 2,451,484 MWh in 2002, exceed­ing sales of all Green‑e cer­ti­fied new, clean renew­able pow­er sold nation-wide in 2002 by 2.7 times!

2002 is the first year that Green‑e prod­ucts — on aver­age — were large­ly new and clean, thanks to the new trend towards buy­ing wind cer­tifi­cates. In 2001, only 26% of Green‑e cer­ti­fied pow­er was new and only 42% of that new pow­er was clean. Com­par­ing the Texas wind pro­duc­tion in 2002 to sales of Green‑e prod­ucts in 2001, Texas out­paced Green‑e sales of new, clean renew­ables by 22 times.

Unfor­tu­nate­ly, many of the RPS laws in oth­er states allow exist­ing and dirty “renew­ables” to qual­i­fy. How­ev­er, some stronger RPS bills have been put forth. A mod­el RPS bill — the strongest and clean­est in the nation — was intro­duced in the Penn­syl­va­nia Sen­ate in ear­ly Novem­ber 2003.

A 1% RPS require­ment in Penn­syl­va­nia (required in year two of the timetable in PA Sen­ate Bill 962) would require 1,543,793,000 MWh in 2007 — most of which would have to come from clean, new renew­ables. Such a require­ment exceeds what can be expect­ed from vol­un­tary pur­chas­ing in a nation-wide green ener­gy mar­ket­place… and the Penn­syl­va­nia bil­l’s require­ments would go up to 9% over 10 years. 

The severe lim­i­ta­tion of the vol­un­teer pur­chas­ing approach can be demon­strat­ed with some sim­ple math:

Res­i­den­tial con­sumers rep­re­sent only 36.8% of elec­tric demand. Com­mer­cial and indus­tri­al users make up the rest. For the most part, the green ener­gy mar­ket­place is lim­it­ed to the res­i­den­tial sec­tor. There have been some promi­nent exam­ples of com­pa­nies, gov­ern­ment bod­ies, col­leges and uni­ver­si­ties pur­chas­ing green pow­er, but the over­all mar­ket is large­ly con­fined to res­i­den­tial cus­tomers, since busi­ness and indus­try as well as cash-strapped state and local gov­ern­ments and schools are not as like­ly to pay more for ben­e­fits that aren’t reflect­ed in their bot­tom line. Where green pow­er options are made avail­able, only about 1% of res­i­den­tial cus­tomers have been will­ing to pay for “green” pow­er, affect­ing a total of 0.37% of the elec­tric sup­ply (if we assume that this is hap­pen­ing nation-wide, even though the mar­ket­ing has been focused on a minor­i­ty of states). Add to this some opti­mistic assump­tions about the com­mer­cial and indus­tri­al sec­tors and you’re up to 0.41% of the elec­tric sup­ply being affect­ed. And now for the bad news… Since only 63% of green ener­gy prod­ucts are NEW gen­er­a­tion, only 0.25% of the elec­tric sup­ply is real­ly being affect­ed by vol­un­teer pur­chas­ing in this opti­mistic ver­sion of real­i­ty. Of this 0.25%, only 76% is clean wind (and solar) pow­er. The rest is large­ly dirty “renew­able” gen­er­a­tion. Thus, the green ener­gy mar­ket­place — if it were nation-wide — is affect­ing 0.19% of the elec­tric gen­er­a­tion sys­tem in a pos­i­tive way.

RENEWABLE PORTFOLIO STANDARD (RPS): A pol­i­cy that requires those who sell elec­tric­i­ty to have a cer­tain per­cent­age of “renew­able”* pow­er in their mix. These poli­cies often start around 1–5% in the first year and require an increas­ing per­cent­age of renew­ables in each ener­gy sup­pli­er’s mix, often aim­ing for a goal of 4–20% in about 10 years. RPS poli­cies typ­i­cal­ly involve a cred­it trad­ing mech­a­nism so that com­pa­nies with extra renew­able pow­er can sell the extra “cred­its” to sup­pli­ers who haven’t met their RPS require­ment. RPS poli­cies vary in many ways. Some allow only new renew­ables* while oth­ers allow exist­ing renew­ables to qual­i­fy. Most RPS poli­cies do not have strong require­ments for clean renew­ables*. Some have more con­sumer pro­tec­tions than oth­ers. For an idea of the var­i­ous dif­fer­ences, check out a com­par­i­son of RPS poli­cies pro­posed in the state of Pennsylvania.

RENEWABLE: Elec­tric­i­ty com­ing from gen­er­a­tion sources where the fuel is renewed on a short-term basis. Renew­able def­i­n­i­tions dif­fer in var­i­ous state and fed­er­al laws, pro­posed leg­is­la­tion, and in def­i­n­i­tions used by pow­er cer­ti­fi­ca­tion groups and envi­ron­men­tal groups. Exam­ples include wind, solar, geot­her­mal, ocean-based, hydro­elec­tric (though some types don’t qual­i­fy in some def­i­n­i­tions) and “bio­mass” (a pan­do­ra’s box of dirty and unsus­tain­able fuels that are burned to make elec­tric­i­ty — some types don’t qual­i­fy in some def­i­n­i­tions). In 2004, Penn­syl­va­nia set a prece­dent for includ­ing the burn­ing of fos­sil fuels (waste coal, coal gasi­fi­ca­tion and coal-bed methane) in an RPS law (they called it an “alter­na­tive ener­gy port­fo­lio stan­dard” to avoid the real­i­ty that it’s not “renew­able”). In 2007, Vir­ginia went fur­ther and even allowed nuclear pow­er gen­er­a­tion to be exempt­ed from RPS require­ments, giv­ing it a qua­si-renew­able sta­tus. Also in 2007, North Car­oli­na passed an RPS law that cre­ates spe­cif­ic require­ments for devel­op­ment of poul­try waste incin­er­a­tors and hog waste digesters, and which gives blank checks to util­i­ties for devel­op­ment of new coal and nuclear pow­er plants.

NEW RENEWABLE: Renew­ables built after a cer­tain year. This is impor­tant because many green pow­er mar­ket­ing schemes and RPS poli­cies allow exist­ing “renew­ables” to qual­i­fy. If “renew­ables” are defined to include bio­mass or hydro­elec­tric, the effec­tive­ness of the pow­er mar­ket­ing or RPS is often very lim­it­ed, since it’s cheap­er to buy up the rights to mar­ket the exist­ing (dirt­i­er) “renew­ables” rather than invest in cre­at­ing NEW renew­able pow­er sources. Sim­ply shuf­fling around exist­ing pow­er sources that were already paid for and sell­ing them at a high­er price to cus­tomers does noth­ing to help the environment.

CLEAN RENEWABLE: Renew­ables that don’t cre­ate pol­lu­tion or major envi­ron­men­tal dam­age. Clean renew­ables do not include any sort of com­bus­tion (bio­mass or fos­sil fuels) and are best defined as only wind and solar, with the pos­si­ble inclu­sion of cer­tain geot­her­mal or ocean-based pow­er sources. 

Every year, elec­tric demand in the U.S. increas­es by near­ly 2%.

Even if we re-run the pre­vi­ous sce­nario with super-opti­mistic num­bers, sat­u­rat­ing the green ener­gy mar­ket­place by get­ting every pos­si­ble indi­vid­ual, school, gov­ern­ment and busi­ness to buy green pow­er, the over­all sce­nario isn’t too pret­ty. Let’s assume that the entire U.S. is involved and that a full 5% of res­i­den­tial cus­tomers opt to pay more for green pow­er. Let’s also assume that the com­mer­cial and indus­tri­al sec­tors respond at 25% of the res­i­den­tial response (1.3% of all com­mer­cial and indus­tri­al cus­tomers). These assump­tions have come from “High Growth Sce­nario” of a 2001 report by the Nation­al Renew­able Ener­gy Lab­o­ra­to­ry (“Fore­cast­ing the Growth of Green Pow­er Mar­kets in the Unit­ed States”). So far, we’re affect­ing 2.63% of the elec­tric sup­ply. Now, let’s add to this some super opti­mistic num­bers for the type of green pow­er prod­uct. Let’s assume that the stan­dard green ener­gy prod­uct con­tains 90% NEW renew­able con­tent (much high­er than the 63% rate from 2002). Let’s also assume that 100% of the new renew­ables are CLEAN — wind and solar, no bio­mass incin­er­a­tion (also about twice the real rate). This leaves us with a sat­u­rat­ed nation­al mar­ket sup­port­ing 2.37% of the elec­tric mix being clean, new pow­er. It would take years to build up to such an opti­mistic mar­ket­place, but in any sin­gle year, the increased elec­tric demand comes close to this num­ber and that demand is being met by new nat­ur­al gas pow­er plants, increased capac­i­ty at nuclear reac­tors and recent­ly, pro­pos­als for new nuclear and “clean” coal plants.

We can’t expect a strat­e­gy of vol­un­tary pur­chas­ing to stop the dirty pow­er sys­tem we have. We can’t even expect it to keep pace with the annu­al increase in elec­tric demand. We need a strat­e­gy that goes fur­ther and faster. Pub­lic pol­i­cy mea­sures do this.

On the nation­al lev­el, the only RPS being seri­ous­ly con­sid­ered is one that almost got includ­ed in the much larg­er ener­gy bill that nar­row­ly avoid­ed pas­sage in Novem­ber 2007. A major­i­ty of U.S. Sen­a­tors have expressed sup­port for it, but it may be exclud­ed from the bill by Demo­c­ra­t­ic lead­er­ship who wor­ry that it’ll be too con­tro­ver­sial to sur­vive a fil­i­buster or pres­i­den­tial veto. There are two huge prob­lems with sup­port­ing a nation­al RPS. First of all, the RPS that would be passed in this Con­gress would have a dirty def­i­n­i­tion of renew­ables — one that includes burn­ing of tox­ic land­fill gas and poul­try waste and which may even be amend­ed to include trash incin­er­a­tion as renew­able “bio­mass” ener­gy. This pos­es major envi­ron­men­tal jus­tice con­cerns. The oth­er main prob­lem is that if the RPS bill pass­es as part of the larg­er ener­gy bill, the pro­mot­ing the pol­i­cy could help pass the sub­si­dies for nuclear pow­er, coal and agro­fu­els which are also like­ly to be includ­ed in the 2007 ener­gy bill.

This leaves to us the state lev­el for pub­lic pol­i­cy ener­gy advo­ca­cy and the local lev­el for mar­ket-based strategies.

Why still work on mar­ket-based strate­gies if they don’t make much of a difference?

Local cam­paigns for wind and solar ener­gy pur­chas­ing are impor­tant in two ways. Since the wind and solar ener­gy indus­tries are still quite small, any­thing that builds demand for new wind and solar pho­to­volta­ic gen­er­a­tion helps bring the price down fur­ther. The cost of wind is start­ing to come with­in the range of con­ven­tion­al fuels. In some parts of the coun­try (like Texas), it’s recent­ly been cheap­er to build new wind tur­bines than an equal amount of new pow­er from nat­ur­al gas. Solar pho­to­volta­ic (PV) pan­els are still about 5 times more expen­sive than most oth­er forms of elec­tric­i­ty, but the costs have been drop­ping over time, just like the cost of wind has. As we build the mar­ket and as wind tur­bines and solar PV start to be mass pro­duced, the cost will drop, mak­ing it more like­ly that pow­er com­pa­nies and con­sumers can opt to sup­port clean ener­gy with­out pay­ing a pre­mi­um for it.

The oth­er ben­e­fit of the mar­ket-based strate­gies is that ANY vis­i­bil­i­ty brought to the wind and solar indus­tries helps show politi­cians that these tech­nolo­gies work and are viable. Despite the small amount of pow­er cre­at­ed so far by mar­ket-pro­mot­ed clean pow­er, the vis­i­bil­i­ty has enabled politi­cians to look more favor­ably upon them and this increas­es the chances of get­ting larg­er change made through the pas­sage of laws cre­at­ing tax-cred­its or Renew­able Port­fo­lio Standards.

Increas­ing demand for green ener­gy in your com­mu­ni­ty is only a means to the more effec­tive goal of pass­ing state leg­is­la­tion. While work­ing towards local pur­chas­ing, it’s impor­tant to also lend sup­port to larg­er leg­isla­tive cam­paigns. Keep good goals on your agen­da, pay atten­tion to the details and work for the best. Our lives and the plan­et deserve noth­ing less.

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