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American Association of Blacks in Energy (AABE) Webinar on The American Clean Energy and Security Act – H.R. 2454 Sponsored by AABE Legislative Issues and Public Policy Committee August 27, 2009 AGENDA Introduction and Background Key of Provisions of H.R. 2454 Climate Change Combined Energy Efficiency and Renewable Energy Standard Other Questions Action Items Slide 2 Background on H.R. 2454 Passed By House June 26, 2009 Four titles Promoting clean energy Increasing energy efficiency Combating climate change Assisting the transition to a clean energy economy Regulates greenhouse gas emissions (GHG) Amends Clean Air Act adding a Title VII Establishes “Global Warming Reduction Program” Slide 3 Senate Action on Climate Legislation Draft legislation to be released soon after the Labor Day recess Chairwoman Boxer, Senate Environment and Public Works Committee H.R. 2454 a starting point Legislative hearings followed by markup Week of September 22 before Senate Environment and Public Works Other Senate Committees will have substantial input Energy and Natural Resources, Finance, Agriculture, Commerce and Foreign Relations Goal - Complete work of Committees by September 28 Deadline set by Majority Leader Reid Slide 4 Climate Change Questions We Must Answer! How do you minimize the impact of compliance costs on low-income consumers? What must U.S. climate change legislation and carbon management strategy include to Ensure economic growth? Ensure energy security? Avoid unfairness? Slide 5 Key Climate Questions Economy Wide? Cap-and-Trade or Tax? Mitigating Customer Impacts? Allowances Offsets Strategic allowance reserve Other approaches Targets and Timetables? Slide 6 U.S. Green House Gas Emissions By Sector Agriculture 7% Residential 6% Commercial 7% U.S. Territories 1% Electricity Generation 32% Industry 19% Transportation 28% Slide 7 Targets and Timetables Leading Congressional Proposals H.R. 2454 U.S. CAP proposal 3 % below 2005 by 2012 17 % below 2005 by 2020 42 % below 2005 by 2030 83 % below 2005 by 2050 3 % below to 2 % above 2005 by 2012 14-20 % below 2005 by 2020 42 % below 2005 by 2030 80 % below 2005 by 2050 Boucher-Dingell discussion 6 % below 2005 levels by 2020 draft (110th Congress) 44 % below 2005 levels by 2030 80 % below 2005 levels by 2050 Targets and Timetables Questions / Concerns To meet short-term targets Power sector will rely on energy efficiency, renewables and natural gas In the medium term (i.e., 2020-2025) Targets should be harmonized with the development and commercial deployment of advanced climate technologies and measures (e.g., nuclear energy, advanced coal technologies with carbon capture and storage, PHEVs, smart grid) Electricity demand will increase 21% by 2030 Latest DOE Energy Information Administration forecast Slide 9 Targets and Timetables Questions / Concerns Cost-containment mechanisms to mitigate consumer cost increases Allocation of allowances (v. auctions) Price collar Full and robust domestic and international offsets Additional mandates will further increase consumers’ electricity prices e.g., Combined Efficiency and Renewable Energy Standard (CERES), performance standards for new coal generation and smart grid peak reduction goals Slide 10 Allocation of Allowances Primary Goals Help mitigate the impact of increased energy prices on consumers Assist in transition to clean energy economy Advance development and deployment of clean energy technologies, including energy efficiency Slide 11 Cumulative Distribution of Allowances Under H.R. 2454 2012 - 2020 Energy Programs 35% Direct Auctions 21% International Programs 6.9% Domestic Energy Technology 14.5% Low-Income Consumers Public Purpose Programs General Purpose 14.8% 1.5% Auctions 4.6% Industrial Energy Sector 13.2% Small LDCs Petroleum & Natural Gas 0.49% Consumers 6.7% Cogenerators 0.04% Merchant Coal 3.7% Electricity LDCs 31.9% Long-term Contract Generators 1.6% Energy Producers & Consumers 44% Slide 12 Cumulative Distribution of Allowances Under H.R. 2454 2021 - 2030 Energy Programs 33% Low-Income Consumers 14.2% International Programs 8.8% Public Purpose Programs 3.3% Direct Auctions 32% General Purpose Auctions 14.5% Domestic Energy Technology 13.2% Industrial Energy Sector 10.5% Electricity LDCs 24.3% Merchant Coal 2.4% Petroleum & Natural Gas Long-term Contract Consumers Generators 7.3% Small LDCs 1.0% 0.3% Energy Producers & Consumers 35% Slide 13 Cumulative Distribution of Allowances Under H.R. 2454 2031 - 2050 Energy Programs 24% Low-Income Consumers 14% Direct Auctions 75% Public Purpose Programs 5% General Purpose Auctions 56% International Programs 10% Domestic Energy Technology 14% Industrial Energy Sector 1% Energy Producers & Consumers 1% Slide 14 Allowance Distribution Schedule 2012 - 2050 6000 Reds = Energy Producers & Consumers Yellow = Domestic & International Energy Programs Blues = Auctions 5000 Electricity LDCs Small LDCs 4000 Long-term Contract Generators Merchant Coal 3000 Petroleum & Natural Gas Consumers Domestic Energy Technology 2000 Industrial Energy Sector 1000 General Purpose Auctions International Programs 0 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 15 Slide 15 Mitigating Customer Impacts Allowances Electric power sector 35% For consumers until 2025, phase out 2026 – 2030 Small electric LDCs .5% For (sales under 4 million MWh/year) for renewable, efficiency and low income; cannot sell output for RECs Natural gas consumers - 9% Low-and-middle-income consumers ~15% (auctioned) Home heating oil and propane ~2% Energy efficiency 3% to 6% Through 2050 Slide 16 Mitigating Customer Impacts Offsets Allows use of up to 2 billion tons annually of offsets Recognizes three types of offsets Up to 1 billion from domestic sources With waiver (insufficient domestic offsets at market price of allowances), up to 1.5 billion from international sources Domestic (exchanged at 1:1 basis) International Term offsets (only valid for five years) Concerns Questions about supply and ability to fully utilize cap Domestic offsets mainly from ag, forestry projects (<1/2 billion tons)? International offsets largely dependent on successor to Kyoto Protocol EPA has discretion whether to issue any international offset credits Slide 17 Mitigating Customer Impacts Strategic Allowance Reserve Provide price cushion if allowance prices rise faster than expected Reserve pool stocked by borrowing from future 1% of the allowances from years 2012-2019 2% from years 2020-2029 3% from years 2030-2050 (2.5 billion total) Minimum auction price = 60% above rolling 36-month average market price by 2015 In 2012, the minimum price will be $28/ton Limits on purchase levels Auction revenue used to purchase REDD offsets Converted to allowances at 1.25:1 ratio, used to replenish the reserve Slide 18 Mitigating Customer Impacts Other Approaches Stretching out the transition to full auction Economic safety valve Price collar Upper limit or ceiling on price for allowances To limit impacts of price volatility and rate impacts Also includes minimum prices for allowances Mitigating near- and medium-term targets Slide 19 Federal Preemption States cannot enact or enforce separate cap-and-trade programs from 2012-2017 States can continue to regulate GHG emissions in other ways Can exchange Regional Greenhouse Gas Initiative (RGGI), California or Western Climate Initiative (WCI) permits issued before 2012 for federal permits, but not one-for-one exchange CAFÉ standards Emissions caps Required surrender of federal allowances Etc. Other federal laws not addressed Endangered Species Act, Clean Water Act, etc. Slide 20 AABE Climate Change Principles AABE supports Consistency of compliance timetables w/ technology development Ensuring low / fixed income consumers are not disproportionately impacted Cost containment measures Preserving all energy options – energy efficiency, renewables, advanced nuclear, carbon capture and storage Inclusion of all sectors of the economy and all sources of GHG Balancing economic improvements with economic development Cost effective GHG reductions Green jobs, economic development, maintain trade balances Public / private partnerships – research, development & deployment Use of alternative fuels and needed infrastructure Slide 21 What Will It Take to Address Climate Change? There is no silver bullet! Renewables Energy efficiency Clean coal technologies Carbon capture and storage Nuclear Plug-in hybrid electric vehicles (Smart grid) We need it all … but it will be costly! Slide 22 Renewable / Energy Efficiency Questions We Must Answer! Renewable Technology How much can increased renewable capacity contribute going forward? How do we get transmission constructed for renewables? Energy Efficiency How significant of a role can energy efficiency play in the future? How can customers benefit and actively participate in energy efficiency programs from the residential and commercial perspectives? Slide 23 Combined Efficiency and Renewable Electricity Standard (CERES) 20% federal CERES by 2020 for retail electricity suppliers Federal Energy Regulatory Commission (FERC) administers “Electricity savings” definition: Reductions in electricity consumption, relative to business as usual. FERC standards must ensure that electric suppliers had a “significant role” Savings due to improved codes and standards are specifically excluded from “electricity savings” Alternative compliance option of $0.25 / MWh; trading and banking option; civil penalties Three-fourths (15% in 2020) must be qualified renewables unless a state petitions for more efficiency (up to two-fifths, or 8% in 2020) Slide 24 Waxman-Markey CERES Requirements 20% by 2020 Percentage 20.0 15.0 10.0 5.0 0.0 Remaining renewable energy Efficiency eligible with petition (up to 8%) Energy efficiency eligible portion (5%) CERES Requirements as Percentage of Retail Sales Slide 25 CERES – Changes Made on House Floor Central Procurement State (CPS) State runs central renewable procurement in lieu of RES State assumes responsibility for CERES compliance Federal RECs issued directly to state fund State defines renewable resources Mandatory state public benefit fund pays for renewables Funded by retail customers via suppliers State can make alternative compliance payments or demonstrate electricity savings Slide 26 Integrating Renewables Operational Challenges Higher RPS levels can create significant surplus energy Can’t be used on grid or sold to others Energy storage / off-peak electric vehicle charging can mitigate problem At present these technologies can not significantly contribute to resource plans - smart grid will help enable these new technologies Higher RPS levels will require higher planning reserve margins for system backup to maintain reliability More ancillary services req’d to maintain frequency and voltage levels Generation and storage technologies required to meet system regulation, load following, and ramping requirements Quick start and fast ramping technologies (peaking / storage) to manage generation variability and maintain reliability Slide 27 Biggest Challenge for Renewables … Transmission Planning Siting Cost Allocation Renewables are Variable Resources! Slide 28 Renewables Challenges Transmission Planning (Section 216A) House-passed version has slightly modified planning section Section 216A • FERC to develop planning principles • Planning entities submit plans within 18 months thereafter • Plans are to roll-up from subregional plans to interconnection-wide plans, if possible • A multi-regional plan cannot impose a facility on a region that did not include the facility in its plan • No cost allocation provision Slide 29 Renewables Challenges Backstop Siting Added on House floor Provides FERC with limited siting authority when states fail to act Treats Eastern and Western Interconnections differently Eastern Interconnection Current Federal Power Act Section 216 applies with additional requirement that facility must be “interstate in nature or is an intrastate segment integral to a proposed interstate facility” Fourth Circuit decision problem not fixed DOE is lead agency for siting Slide 30 Renewables Challenges Backstop Siting Western Interconnection Adds new Federal Power Act (FPA) section 216B that applies only in the Western Interconnection Applicability: Facility must be included in one or more plans and identified as needed “in significant measure” to meet the demand for renewables; multistate; no voltage limitation FERC backstop siting triggered if state: Did not issue a decision within one year; Denied a complete application for siting; or Authorized siting of the facility subject to conditions that unreasonably interfere with the development of the facility Federal lead agency: FERC and Interior (for federal lands) Slide 31 Renewables Challenges Transmission Cost Allocation Who pays for new transmission? Everyone pays Interconnection-wide / rolled in Beneficiaries pay Participant funding No cost allocation provisions in H.R. 2454 Strong advocates on all sides Heated debates Slide 32 AABE Renewables Principles AABE supports Renewables as part of an overall strategy for meeting energy and climate change challenges Renewable programs that carefully balance the availability of renewable technologies, their cost effectiveness and environmental benefits Recognition of renewable energy standards being developed at the state level Research, education and training for African-Americans to expedite the development of renewable energy solutions Renewable and alternative fuels and needed infrastructure Working with regional and local communities on renewable programs Slide 33 New Efficiency Standards Building efficiency code requirements Outdoor light bulb and luminaire efficiency standards 30% efficiency improvement in codes by date of enactment Compared to 2004 ASHRAE baseline / 2006 IECC baseline 50% efficiency improvement by 2015, 75% by 2030 Staged approach, start in 2016, increase in 2018 New efficiency standards Water dispensers, portable electric spas, and commercial hot food holding cabinets, and increased standards for commercial furnaces (2011) New standards for portable table lamps (2012) Significant changes to EnergyGuide and Energy Star labels Carbon footprint estimates added to EnergyGuide labels (AGA endorses), Ranking of Energy Star products Slide 34 AABE Energy Efficiency Principles ABBE supports Enhancements to US energy infrastructure for the development and implementation of energy efficient technologies Focused national, regional and local effort to educate and make available to all consumers a broad range of options to encourage energy efficiency Aggressive campaign for the promotion of energy efficiency technologies including “smart” buildings, appliances, grid and electric meters Optimizing domestic and foreign energy resources while promoting energy security, economic prosperity and environmental solutions Government and commercial suppliers making necessary energy efficiency upgrades to residential and commercial customers Slide 35 Smart Grid Peak Demand Reduction Goals Must establish peak demand reduction goals w/in later than 1 year from enactment Applies to any load-serving entity (LSE) serving more than 250 MW FERC will develop methodology for adjustments to applicable baseline within 180 days of bill enactment DOE, in consultation with FERC, EPA and NERC, will develop a system and rules for measurement and verification of demand reductions Must specify reduction / mitigation by a minimum percentage from the applicable baseline to a lower peak demand during year 2012 Greater reductions are required in 2015 Slide 36 New Coal Generation Performance Standards Date Initial Permit Received Standard Date Effective After 1/1/2009 Achieve an emission limit that is a 50% reduction in CO2 emissions After 1/1/2020 Achieve an emission limit that is a 65% reduction in CO2 emissions 4 years after “commercial operation” of CCS certified by EPA or 2025; can be delayed an additional 18 months for certain EGUs Immediately “Commercial operation” means at least 4 GW of generating units, including at least 2 EGUs of 250 MW, injecting and storing at least 12 million tons of CO2 per year into geologic formations other than oil and gas fields in the U.S. Of the 4 GW, 3 GW must be EGUs; 1 GW may be industrial. Slide 37 New Coal Generation Carbon Capture and Storage (CCS) “National strategy” for a CCS regulatory framework Geologic storage and propose regulations EPA to finalize regulations for under the Clean Air Act (sec. 112) Study of legal framework for geologic storage sites Federal agencies to develop a (sec. 111) Establish task force (sec. 113) New Carbon Storage Research Corporation Funded by charge on deliveries of fossil fuel electricity Fund commercial-scale (>250MW), integrated demo projects (sec. 114) $10 billion over 10 years; 50% of funds reserved for utility projects Corporation is an affiliate of EPRI and not an agent of the U.S. government Slide 38 Other Energy Investments Advanced Research Projects Agency – Energy (ARPA-E) Allocated 1.05% of allowances for 2012-2050 to be awarded competitively to accelerate novel early-stage energy research Clean Energy Deployment Administration (CEDA) Newly-created independent government corporation to provide financing assistance to clean energy technologies for which commercial financing is not available at affordable rates Focus on deployment of clean energy technologies Clean energy technologies = help stabilize GHG concentration Nuclear projects can receive financing assistance Financing: loans, guarantees, letters of credit, etc. Davis-Bacon applies to projects that receive assistance Slide 39 QUESTIONS