August 5, 2010

Regional & state interests may dominate future climate & energy policy

The failure of climate legislation in the Senate last week is a blunt reminder of a basic truth, experts say: The nation's energy policies are historically driven by state and regional interests that will trump national agendas in all but the most compelling circumstances.

Without a national consensus on energy policy, the telling political forces come from states, based on how they relate to energy as producers or consumers, says historian and political analyst Bill Schneider.

"We have a political system that doesn't work unless people are facing a particular crisis. That's the way it is. There are too many ways to stop things from happening" at the national level, he said. The climate issue has not reached that point, in his view. "There is an economic crisis. Jobs are the crisis. Climate isn't. Most Americans really don't see a crisis there."

If hurdles increase in front of national climate and energy initiatives in the next few years, as many political observers expect, then regional and state interests are likely to continue shaping policies on renewable energy, electricity transmission, smart grid deployment and nuclear power expansion.

"The fact is, in our political system, when you can't do anything in the Senate without 60 votes, you need a very strong consensus to get action at the federal level. That consensus isn't there on climate," said Richard "Rick" Morgan, a District of Columbia utility commissioner and former chairman of the climate task force of the National Association of Regulatory Utility Commissioners. "All the action is at the state level.

"It feels like we really do need a national program to limit carbon emissions. That would be far better than a series of state efforts. Until and unless we do, the state and regional efforts are about all we've got."

Peter Fox-Penner, chairman emeritus of the Brattle Group consulting firm, describes a herculean task of creating new policies and regulations required to bring about a $1 trillion-plus transition to a clean energy future for the U.S. power grid.

"Absent very unlikely changes in federal law, this task will fall to fifty state legislatures, governors, and utility commissions," Fox-Penner concludes in his book, "Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities.

A patchwork of policies could remain so

American climate energy policy today remains a patchwork of varying state interests and policies.

Wind and solar power development is centered in the 29 states that have pushed ahead to create state renewable energy standards. If a national renewable energy standard is out of reach, the jumble of state policies will continue, slowing growth and perhaps technological development on this front, according to renewable power industry advocates.

The deployment of smart meters is highly scattered around the country, with programs under way in about 30 states. Rural electricity cooperatives have led the way because they could use smart meters to replace meter readers, to speed up the diagnosis and recovery from grid damage caused by severe weather, and to gain the ability to automatically disconnect and reconnect customers in billing disputes. Some states got $200 million or more in matching federal funds from the Obama administration's smart grid program last year. Several got less than $2 million.

Without a significant price on carbon, new nuclear power projects are likely to be concentrated in Southeastern states that did not "deregulate" electricity systems in the 1990s. Their vertically integrated utilities can seek regulators' approval to charge costs of new projects to ratepayers -- an option that does not exist in restructured energy markets in the mid-Atlantic and Great Lakes states, Texas and New England. "I just don't think nuclear has a chance in a pure marketplace without a carbon price," said John Rowe, chairman and CEO of Exelon Corp., the nation's largest nuclear plant operator.

A regional cap-and-trade program in 10 Northeastern and mid-Atlantic states, the Regional Greenhouse Gas Initiative (RGGI), has been operational since September 2008. There are also proposals to create cap-and-trade systems in the Midwest and in a swath of Western states in conjunction with Canadian provinces.

The death of federal legislation revives attention on regional cap-and-trade programs in the United States, which have been on hold as state leaders anticipated action by Congress. "I think we can expect some of the states to hit the gas pedal now," said Franz Litz of the World Resources Institute. The push may become even harder if Congress succeeds in blocking or limiting the authority of U.S. EPA to regulate greenhouse gas emissions from stationary sources. But there are political obstacles, too, confronting these initiatives.
Seventeen states offer incentives for energy efficiency investments, and some, including Pennsylvania and Maryland, require utilities to meet strict demand response and efficiency goals. Eight more states had proposals for performance incentives pending in June 2009, according to a report by the Edison Foundation. Congress may provide incentives for energy efficiency, and federal regulators can tighten efficiency standards for buildings and major appliances, but federal mandates are off the table, at least for now.

The evolution of an electrified passenger vehicle fleet has begun piecemeal, with stimulus grants in selected cities and states under the American Recovery and Reinvestment Act of 2009. Some experts predict that plug-in hybrid electric vehicles are likely to be concentrated predominantly on the West Coast and Northeastern regions, and in large urban areas. A state-by-state rollout of plug-in hybrids will push back development of grid infrastructure needed to support this technology, experts warn.

The Obama presidency began with proposals from renewable energy advocates for a nationwide build-out of the high-voltage power transmission grid, an electrical version of the federal Interstate Highway System to unlock wind and solar resources that can't connect to urban centers because of the current grid's limitations. That concept has been checkmated by utilities and legislators in the Southeast who don't support renewable mandates, and by governors and some utilities in the Northeast and Pacific Northwest that want to do their own renewable development and not be charged for transmission that brings power to them from the Great Plains.
Planning comes from the bottom up

The Federal Energy Regulatory Commission is developing policy to spread the cost of major new transmission lines more broadly. But planning for the grid's future is coming from the bottom up, reflecting the deep-seated regional character of the grid, with separate task forces of industry representatives developing separate policy proposals for the eastern and western grid interconnections and for Texas' independent power grid.

"Energy issues have always been largely fought over on regional lines," noted Paul Bledsoe, strategy director of the National Commission, in an interview last year as the climate debate moved to the Senate. "There would appear to be a series of unifying goals, including reducing petroleum use, increasing energy employment and fighting climate change, that could bring regions and, indeed, the parties together."

Kevin Book, managing director of research at ClearView Energy Partners, saw the House-passed "American Clean Energy and Security Act of 2009" as a successful linkage of regional interests cushioned by federal allowances that offered to limit the economic fallout on parts of the economy most vulnerable to the bill's cap-and-trade program.

But that formula did not succeed in the Senate, as political lines hardened, the "carrot" of federal financial incentives lost impact and the threat of EPA regulation on coal plants seemed less dire, he says.

The collapse of climate initiatives in the Senate, so devastating to climate and energy partisans, is a new variation on an old theme. Since the 1970s, attempts to pass energy bills in Congress have turned on the struggle between federal goals and deep-rooted state and regional interests.

Some modifications to the nation's energy map

Behind these interests are the random distributions of continental energy resources that have created such distinctive profiles for key regions, all of them the result of random geological forces reach back eons. Oil, gas and coal reserves have driven federal and state policymaking since the minerals were discovered. Now, the maps of wind, solar and biomass potential are putting a new stamp on U.S. politics.

Biomass potential is clustered on the West and East coasts and in the Mississippi River Basin. The Great Plains is largely barren of prime biomass resources but more than makes up for it with wind power. The only continental states with concentrated wind resources rated as "good" or better are in this region, plus Alaska. The Sun Belt, from Southern California and southern Nevada to Colorado and central Texas, is the center of solar power development.

Only five states have more than 2,000 megawatts of undeveloped hydropower potential -- Arkansas, California, Oregon, Tennessee and Washington.

The Southeast has the nation's poorest wind power potential; in that region, only North Carolina has a mandatory renewables standard. The Sun Belt and the Midwestern wind belt have made big commitments to renewable power.

But ideology plays a part. The progressive political climates on the U.S. West Coast and in New England support renewable energy programs there. "The states with a more progressive point of view want to do something, so they're doing it," said Schneider.

Even in regions that have moved ahead on climate issues, there are challenges ahead. RGGI, in the Northeast, came under fire from environmentalists for setting emission targets that many said did not force coal-dependent utilities to change behavior.

Because the program's emission targets were set in 2005, long before the economic recession, greenhouse gases fell below target levels before the program got up and running. Much of that drop was attributed to slumping energy demand and declining natural gas prices that made it easy for coal-fired power plants to switch to natural gas, rather than the cap-and-trade program itself (ClimateWire, July 14).

There are discussions to tighten the cap, but any such plan would require approval from incoming governors. And it is not clear that those new state leaders will be behind tougher restrictions on greenhouse gas emissions.

State politics are in flux

In Maine, for example, the state Republican Party adopted a platform calling for a defeat of cap and trade and investigation of the "collusion between government and industry in the global warming myth."

Maine, Massachusetts, New York, New Hampshire, Vermont, Rhode Island and Connecticut are in too-close-to-call gubernatorial contests.

The political turnover could be more important for the Western Climate Initiative, a proposed cap-and-trade program for seven Western states and four Canadian provinces, and the Midwestern Greenhouse Gas Reduction Accord, analysts said.

That gubernatorial backing is critical because unlike RGGI, the plans have yet to become operational. They need governors and state bureaucrats to approve regulations before emission allowances are bought and sold.

"It's not a short process," said Becky Stanfield, a senior energy advocate in the Chicago office of the Natural Resources Defense Council. In her view, the earliest the Midwestern program could get going, assuming an aggressive push by state leaders, would be 2013.

Both the Western Climate Initiative and the Midwestern program would set up economywide cap-and-trade programs in their regions.

Like much of the Northeast, the Midwest is facing a potential huge political shuffle, with the governor's contests in Minnesota, Iowa, Illinois and Wisconsin ranked as "tossups" by the Cook Political Report.
Do early birds get the jobs?

"In a sense, we'll be starting from square one with new governors," Stanfield said. "It will be a learning curve for them."

All of the many scenarios indicating how the United States might achieve significant greenhouse gas reductions were based on the adoption of federal policies across all regions. Without the federal role, those scenarios are far weaker.

Some analysts say that "early adopter" states that have moved forward with smart grid and clean energy programs could become hubs of new technology expertise, attracting leading-edge companies and creating jobs on clean energy frontiers. That is the goal behind the Pecan Street Project in Austin, Texas, a clean energy program spanning smart grid innovation, renewable generation, energy conservation, distributed power and hybrid vehicles.

It is backed not only by Austin Energy, the city's power utility, and the Environmental Defense Fund, but also by the Austin Chamber of Commerce and the University of Texas.

"There is a prospect that early adopters could attract more business and investment because of more forward-looking policies, as California is trying to do," said Schneider. "On the other hand, their energy costs could go up, and that could repel businesses, one of California's problems now. I'm not sure there is a clear answer."

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