Modeling a Clean Energy Standard Karen Palmer Senior Fellow Resources for the Future USAEE/IAEE Annual Conference Washington, DC October 11, 2011

CES is a portfolio standard requiring a minimum percentage of electricity be generated by qualified sources. Design parameters:  Qualified sources  Renewables  Beyond renewables: nuclear, CCS, NGCC; partial credit  Energy efficiency  Compliance entity  Coverage  Exclude small utilities  Exclude existing hydro and nuclear  Targets and timetables  Flexibility  Credit trading, banking and borrowing  Alternate Compliance Payment (ACP)  ACP revenue uses What is a Clean Energy Standard (CES)?

What to expect from a CES Cleaner mix of generation technologies and fuels CO 2 emissions reductions Electricity price impacts with regional variation Design parameters will affect outcomes. Treatment of existing nuclear and hydro Level of the Alternative Compliance Payment (ACP)

Policies Evaluated Baseline Core CES –Goal of 80% Clean Energy by 2035 –Clean energy credit (CEC) trading but no banking –All utilities must comply –No Alternate Compliance Payment (ACP) –Crediting scheme No credits for existing nuclear and hydro No credits for energy efficiency Full credit for renewables and incremental nuclear Half credit for natural gas combined cycle 90% credit for coal with CCS Credit Existing Nuclear and Hydro (CreditNH) Core CES with varying ACP levels ($15 - $55 per CEC)

Generation Mix in 2035 Billion kWH

How much does a CES reduce CO 2 ? Billion Tons

CO 2 Reductions vary with ACP levels Billion Tons

National Average Electricity Price $ / MWh

ACP and Electricity Price $ / MWh

Net Credit Revenue

Retail Electricity Prices & Δ from BL

Cumulative CO 2 emissions from the electricity sector would be reduced by 30% through A broad set of clean technologies and fuels would displace conventional coal generation. Average electricity prices would rise by 11%-15% in 2035 and mitigate regional price differences. Crediting existing nukes and hydro would barely affect emissions, but would lead to higher average electricity prices and exacerbate regional price differences. Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains. Conclusions

For more information see: Clean Energy Standards for Electricity: Policy Design Implications for Emissions, Supply, Prices and Regions by Anthony Paul, Karen Palmer and Matt Woerman Available at Renewable_and_Clean_Energy_Resource_Library.aspx

National Results Cumulative CO 2 emissions from the electricity sector would be reduced by 30% through 2035; less with binding ACP. A broad set of clean technologies and fuels would displace conventional coal generation. Average electricity prices would rise by 11%-15% in 2035; less with binding ACP. Crediting existing nukes and hydro does not affect emissions, but raises average electricity prices. Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.

Net Credit Revenue & Δ from Core

Preview of results Cumulative CO 2 emissions from the electricity sector would be reduced by 30% through A broad set of clean technologies and fuels would displace conventional coal generation. Average electricity prices would rise by 11%-15% in 2035, but with substantial regional variation. Crediting existing nukes and hydro would barely affect emissions, but would lead to higher average electricity prices and exacerbate regional price differences. Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.

Haiku Market Regions & Regulation

Clean Energy Credit Prices

Discounted Value of ACP Revenue Billion $

Drivers of Regional Outcomes Existing generation fleet Renewable resource endowment Electricity market regulatory structure Competitive vs. Cost-of-Service Qualified generators under CES

Electricity Market Regulation Suppose closed markets that do not trade power or credits with other markets. –Cost-of-Service CES will yield higher production costs, so higher prices. Consumers bear the burden. –Competitive Price effects depend on marginal costs, which may rise or fall under CES. Producers and consumers share the burden/benefit. U.S. markets are not closed. They trade power and would trade credits. So these rules apply not strictly.

Credits flow east, $ flow west. Pre-existing regional price differences would be mitigated. –Largest price increases tend to occur in the regions currently facing the lowest prices. –Smallest price increases, or even reductions, tend to occur in the regions currently facing the highest prices. Qualifying existing nuclear and hydro benefits northwest and southeast, exacerbating pre-existing price differences. Preview of Regional Results

Retail Electricity Prices & Δ from Core