A Federal Clean Energy Standard: Understanding Important Policy Elements

President Obama has expressed his preference for a federal clean energy standard (CES) that diversifies U.S. electricity generation in a manner that promotes clean and renewable energy. A CES can take many forms, and different design parameters and their calibration can fundamentally alter its environmental efficacy, economic efficiency, and political viability.

On July 27, RFF's Center for Climate and Electricity Policy and the U.S. Environmental Protection Agency cohosted a one-day workshop to present current analysis of CES policies—drawing upon recent empirical modeling and conceptual thinking by RFF, other independent and government research institutions, industry, and other stakeholders. Panels focused on regional implications of a CES policy in terms of electricity pricing, utility profitability, and regional wealth transfers; implications for future investments in generation technology and the influence of different policy designs; the role that might be played by energy efficiency crediting; and the desirability of casting a CES policy as a performance standard.

RFF Fellow Josh Linn, Department of Energy’s Bryan Mignone, and RFF Senior Fellow Karen Palmer outlined the basics of a CES. As envisioned, a basic CES would have several goals: double the share of clean electricity over the next 25 years, protect consumers from rising energy bills, and promote new clean energy technologies. In practice, RFF modeling shows that a basic CES will reduce carbon emissions by 30 percent and, if no existing hydropower or nuclear plants are credited, increase national average electricity prices by 11 percent. Under a basic CES, coal-fired generation will cost more, costs for renewables and nuclear generation will decrease, and natural gas-fired generation will become cheaper in the short run but more expensive in the long run.

Dan Steinberg from the National Renewable Energy Laboratory, Terry Dinan from the Congressional Budget Office, and Kevin Leahy of Duke Energy covered the implications of policy design parameters. The panelists discussed CES targets and timetables, credit recipients and rates, banking and borrowing, and alternative compliance payments. Dan Steinberg noted that assumptions about costs for emerging technologies have a significant effect on projected technology penetration, but little effect on overall program costs.

RFF Center Fellow Anthony Paul and Bipartisan Policy Center’s Meghan McGuinness examined how a CES would affect different regions of the United States. Under the basic CES policy modeled by RFF researchers, credits would flow from the western part of the country to the east, with money therefore being transferred from east to west. Regions where electricity prices are currently lowest will see the greatest increase in prices, and areas where electricity prices are already high will only see a minimal increase, mitigating regional differences in price. Crediting existing hydropower and nuclear plants benefits consumers in the northwest and southeast, at the expense of those in other regions.

Judi Greenwald from the Pew Center for Climate Change reviewed the potential interactions of a CES with state policies, especially existing state renewable portfolio standards. RFF Fellow Harrison Fell explained the effects of policies on renewables investments, with attention to differences across locations and over time in the value of electricity supplied by renewables and the carbon dioxide emissions they displace. Finally, RFF Nonresident Fellow and Harvard professor Joe Aldy highlighted the potential of an emissions rate-based CES. ​