May 18, 2011

New clean energy incentives on the horizon?

Hoping to find a way around the current political impasse on climate change and energy policy, a former top adviser to President Obama has devised a policy proposal to drive down greenhouse gas emissions from the utility industry over the next 20 years.

The plan, “Promoting Clean Energy in the American Power Sector,” borrows from a range of policy proposals, including President Obama’s latest clean energy policy, the cap and trade plan that foundered in Congress last year, and state-level clean electricity mandates. The proposal sets goals based on emissions intensity — the amount of carbon dioxide emitted per unit of electricity generated — an idea pursued both by the Chinese government and by former President George W. Bush.

The plan’s author, Joseph Aldy, a professor at Harvard University’s Kennedy School of Government and a former White House staff member on energy and economic issues, said that his proposal could help untie the political knot that has doomed all previous attempts at a comprehensive energy and climate policy.

It would give utilities incentives for converting to cleaner forms of electricity without top-down mandates from the federal government or penalties for failure to comply.

It would require Congressional action and would take the place of Environmental Protection Agency regulation of power plant emissions, a program that has generated intense opposition from Republicans in Congress, utility companies and manufacturers. It would also pre-empt the clean energy mandates adopted by 29 states and the District of Columbia.

Mr. Aldy is presenting his plan, drawn up under the auspices of the Hamilton Project at the Brookings Institution, at a symposium in Washington on Wednesday.

The proposal would set progressively stricter standards for clean electricity, eventually reaching 0.2 tons of carbon dioxide emissions per megawatt hour by 2035. (The current emissions intensity is nearly three times as high.) Companies that exceed their targets would be allowed to bank their credits or trade them to utilities having trouble meeting their goals.

As a last resort, high-emissions operators would be able to buy credits from the federal government, with the proceeds used to finance clean energy research or pay down the deficit.

“These goals are stretch goals,” Mr. Aldy said. “We would actually need innovation in clean energy technology to bring down the cost to reach them.”

He said that his hybrid proposal provided neither the absolute certainty about emissions reductions of a cap and trade program nor the price certainty of a carbon tax.

“We’ve been trying to get the perfect system for too long,” Mr. Aldy said. “We’ve got to get the ball rolling in the right direction.

“This is clearly not sufficient to deal with the problem of climate change in the long term, and it just focuses on one sector,” he said. “But it allows us to start sending the right signals for investment and innovation in the power sector and provides a stepping stone to a more comprehensive approach down the road.”

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