A white paper released by the Brookings Institution last week charts a new policy to cut U.S. greenhouse emissions. Joseph Aldy, an economist and former special assistant to President Barack Obama on energy policy, says the approach would be "more politically palatable" than cap-and-trade, which is a nonstarter in Washington, D.C., these days. But that's not saying much.
Aldy has dubbed his proposal the National Clean Energy Standard. It builds off the Obama Administration's Clean Energy Standard (CES), first aired in the president's State of the Union address. The White House has yet to release details about the proposal, which would require 80% of U.S. power to be derived from zero or low carbon sources by 2035. The idea has attracted lukewarm support from Democrats in the Senate and even less enthusiasm from House of Representatives Republicans.
But that opposition hasn't stopped Aldy from floating a detailed version of the concept. In shifting to a mandate strategy instead of an emissions cap, Obama is hoping to encourage the growth of low emissions energy technologies without specifically capping emissions. The details of Aldy's proposal follow the same lines but with a direct focus on greenhouse gases. "The primary policy motivation is to tackle climate change," says Aldy, who calculates his system would cut emissions by 60% relative to 2005 levels.
Cap and trade systems, like those in place in Europe and in several U.S. interstate pacts, involve limits on greenhouse emissions and tradable emissions certificates that carbon polluters must purchase in order to operate. Mandates, by contrast, specify what fraction of produced or distributed electrical power must derive from certain sources. Some 30 states already have adopted what amount to mandates standards.
But economists generally think those mandates—dubbed Renewable Portfolio Standards or Clean Energy Standards -- may not lower emissions as effectively as would imposing emissions limits directly. A cap can extend to refineries or concrete plants whose emissions can't be supplanted by using renewable fuel sources. Caps are also technology neutral, while a mandate selects which technologies are preferred. Opponents of mandates deride that selection as "picking winners."
Recognizing that cap and trade is politically unviable; Aldy melds its best features with a mandate in hope of attracting broader support. The most important innovation is a technology-neutral standard focused squarely on carbon. Under his system, compliance depends not upon the choice of energy technology—i.e. wind is in, coal out—but rather on the tons of CO2 emitted for every megawatt-hour (MWh) of power produced. A simple rule of thumb is that burning coal to produce 1 MWh of power generates a ton of CO2. Aldy's scheme would require emitting no more than 0.4 tons of C02 for every MWh of power starting in 2015. (It would drop to 0.2 tons by 2035.)
Economist Dallas Burtraw, a colleague of Aldy's at Resources for the Future in Washington, D.C., calls this aspect "refreshing … under this system a coal plant is rewarded for efficiency." Aldy's scheme allows that plant to satisfy the standard through a combination of buying low or zero-emissions power and making its own power with lower carbon intensity. "If I invest in a more efficient boiler with a traditional Renewable Energy Standard, I get no benefit," says Aldy. Nuclear power would also fare well under the system.
Other mandate systems regulate power distributors that buy and sell energy. Aldy instead would regulate power producers, which feature a strong existing emissions monitoring system. Under Aldy's scheme, as in many states, emitters may buy permits from the government at a set price. The price acts as a ceiling to keep costs low and would fall slowly over the 20-year life of the system. "Under this system, the dirty technologies finance the clean," says Aldy.
Aldy acknowledges that the approach has two weaknesses. By affecting consumer energy prices more modestly than cap-and-trade, his standard includes less incentive for citizens to use energy more efficiently. It also essentially targets the nation's carbon intensity instead of its carbon emissions. And that means it may have less impact on global warming, says Aldy's former White House colleague Michael Greenstone, now a professor at the Massachusetts Institute of Technology in Cambridge. "The atmosphere cares about carbon, not about your carbon intensity." (India and China have been criticized for insisting in climate negotiations on intensity targets.)
While Aldy's proposal might resonate with some on Capitol Hill, it's unlikely to lead to legislation. The White House has pointedly avoided putting much emphasis on Obama's February proposal or releasing details. In March, senators Jeff Bingaman (D-NM) and Lisa Murkowski (R-AK) released a white paper on the CES concept that had more questions than answers about the idea. (The committee solicited public input on the proposal and plans to release the collated responses soon.) But Bingaman said last week that he's not sure he can even get the bill out of his committee. And if Bingaman managed to pass a bill on the floor of the Senate, the House would want to alter it drastically.
Aldy says that the current effort by the Environmental Protection Agency (EPA) to regulate a power plant's production of carbon could be potentially more costly than his proposal. (That drive to regulate is under intense legal and legislative attack right now.) It's unlikely, without a legal system set up by Congress, that EPA will allow power plants to buy tradable certificates for renewable power, a step that could make lowering emissions more affordable. But Aldy says that a National Clean Energy Standard scheme "can be more cost-effective than exercising EPA authority to go after emissions."