Renewable Energy Standards

by hilzoy

A renewable energy standard is a requirement that utilities get a certain percentage of their power from renewable energy. It's a market-based system: utilities that exceeded the requirement would get credits that they could sell to other utilities who weren't doing as well, enabling us to meet the standard in the most cost-effective way. 

This would be good in a number of different ways: good for the environment, good for our national security, and also, according to both the Department of Energy's Energy Information Administration (EIA) and the Union of Concerned Scientists (UCS), good for consumers (note: RPS means 'Renewable Portfolio Standard', which is another name for a renewable energy standard):

"Both the UCS and EIA analyses show that a national RPS can save consumers money in several ways. First, by reducing the demand for fossil fuels, and creating new competitors for the dominant fuel sources, renewable energy helps reduce the price of fossil fuels and restrain the ability of fossil fuel prices to increase in the future. Natural gas therefore costs less for electricity generation, as well as for other purposes, benefiting both electricity consumers and other natural gas consumers. Second, some renewable resources, especially wind energy at good sites, are now less expensive than building new natural gas- or coal-fired power plants over the expected lifetimes of the plants, and reduce projected generation costs. And third, a national RPS reduces the cost of renewable energy technologies, by creating competition among renewable sources and projects to meet the requirements, and by creating economies of scale in manufacturing, installation, operations, and maintenance. Most importantly, projected savings are robust enough to be found in all of the recent RPS scenarios, at both the 10 percent and 20 percent levels, and despite large differences in projected renewable energy costs and performance in the EIA and UCS assumptions."

It would probably save less money now that oil and natural gas prices are down, but they will rise again. When they do, we'll be very glad if we took advantage of this drop in demand to cut our reliance on them. 

Luckily, a bill creating a renewable energy standard has been introduced in Congress. Unluckily, most Republicans and some "moderate" Democrats oppose it. Luckily, they're in the minority. Unluckily, that doesn't mean the bill will pass in the Senate, since the Republicans' willingness to filibuster every piece of major legislation means that it "needs" 60 votes. 

From the NYT:

"A nationwide renewables standard, or RES, is a longstanding pillar of Democratic energy plans that requires utilities to supply escalating amounts of power from sources such as wind and solar.

With President Obama in the White House and stronger Democratic majorities in the House and Senate, enactment of a standard has become more likely but remains far from certain. The Senate magic number of 60 votes, enough to get cloture and bypass a potential filibuster, remain the key hurdle. (...)

The number of Democrats who ultimately back the standard would determine how many GOP votes are needed. Some Republican moderates, including Maine's two senators, back renewables mandates, while supporters are also eyeing members including Sens. Arlen Specter (R-Pa.) and Charles Grassley (R-Iowa) and others as potential votes in their favor.

Democrats, following gains in last year's elections, control 58 seats and could see that grow to 59 if Al Franken prevails in the contested Minnesota race. But in recent interviews with E&E, several Democrats expressed misgivings about an RES.

If Bingaman goes through the committee -- where Democrats hold a 13-10 majority -- the Democratic swing votes are believed to be Sens. Blanche Lincoln of Arkansas, Evan Bayh of Indiana and Mary Landrieu of Louisiana. Bingaman would need to carry two of these three, or at least win over one if he also has backing from some GOP members.

Bayh has not committed his vote either way. "I am all for helping promote the use of renewable energy. Whether this is the appropriate mechanism or not remains to be seen," he said. Asked whether he would vote for Bingaman's proposal specifically, he replied: "I have not endorsed it yet. That is not a yes or a no. It remains to be seen."

I really hope this legislation does not end up being yet another victim of Bayh, Lincoln, and Nelson's desire to prove how very moderate and restrained they are. 

Comments

[d'd'd'dave]

"a national RPS can save consumers money in several ways."

If renewable energy is cheaper why does it need to be mandated? Won't the market just embrace the cheaper alternative?

Oops, it's because it is generally not cheaper. Renewable is good for other reasons apart from affordability.

Then why does this post say things like "most cost effective way", "good for consumers", "can save money", etc?

[John Miller]

Dave, I won’t go into all the reasons why your reasoning is wrong, but it might help if you actually read the post. The answers are there.

[Turbulence]

This would be good in a number of different ways: good for the environment, good for our national security,

Can someone explain the national security angle? It seems that even with RES, we're still going to be importing a vast amount of oil from the middle east. So nothing changes.

Even if we magically made our need for oil disappear tomorrow, the Israel-Palestinian conflict (and our unequivocal support for one side) would still exist as would the repressive regimes we've showered with money and weapons. All of that endangers our national security. To put it another way: how much oil do we have to displace in order to compensate for the terrorism risk associated with Hosni Mubarak's torture and mutilation of political prisoners using the billions of dollars we give him?

Of course, I'm ignoring that small national security crisis known as Iraq, but I have a feeling that like syphilis, it will become the gift that keeps giving.

[hilzoy]

Turb: what I was thinking when I wrote it was: our dependence on oil is one of several ways in which we have given away our freedom of action. We feel that we "have to" have a major military presence in the Middle East. We cannot afford to be seriously at odds with countries like Saudi Arabia. While I do not think that we fought the war in Iraq just because of oil, I do think that a number of the war's backers might not have backed it if Iraq had been located in, oh, the Andes.

I don't think that any single step will make us magically independent of oil. But (a) I don't think it's all-or-nothing; and (b) the fact that no single step will do it means (to me) that we should take a whole bunch of smaller steps. This one would be particularly good since it would help bring down the price of renewables, thereby enabling others.

[TJ]

Any market-based program like this may be irrelevant for the next few years. In the teeth of a major recession like this, nothing new is going to get built, unless it is a fully funded federal project. Just not going to happen.

[dmbeaster]

It's a market-based system

Not really. It's an artificially created market based on the regulations. It does not exist absent the mandates for a certain level of renewables. It does bring down the cost of renewables in the sense that by creating an artificial market, there will be a greater use of renewables and some economies of scale, but fundamentally, it is still a more expensive option in the short run.

I think it is a good policy -- something also proposed in the 70s in one form or another by Carter, as I recall, and still not implemented. It is about setting a larger social policy that reliance on fossil fuels, even if temporarily cheaper, is a long term failure strategy. And also on the philosophy that the market will be much slower to develop renewables until such time that fossil fuels are prohibitively expensive. A pure market strategy assumes that we should wait until the transfer of wealth to OPEC countries is crippling before doing anything about it.

dave's point may not have been as clear as it could be, but it remains true that we are opting for a more expensive alternative in the belief that it pays off long term. It needs to be defended on that premise.

[gwangung]

dave's point may not have been as clear as it could be, but it remains true that we are opting for a more expensive alternative in the belief that it pays off long term. It needs to be defended on that premise.

That defense is that it is more expensive in the short term, but probably cheaper in the long term. This is a reason that many companies use. Why this is so "controversial" here is that the long term is much longer than most companies nowadays are willing to look at, and the savings are not yet quantifiable because of that.

But given the absolute certainty that fossil fuels will run out, it's really kinda stupid not to make moves now to save money in the long term.

[Bernard Yomtov]

dave's point may not have been as clear as it could be, but it remains true that we are opting for a more expensive alternative..

Not necessarily. And, contra Dave, it is not true that the market would supply it if it were really cheaper.

Private costs and social costs are not the same thing. The entrepreneur who provides renewable energy does not capture the benefits of cleaner air, or of the security benefits. What is profitable on a social basis may not be on a private basis.

Also, these projections notwithstanding, it is far from clear that there could be adequate financing for RES projects without some sort of guaranteed market, even if they were likely to be somewhat profitable.

New ventures are risky, especially when based on relatively new technology that requires substantial capital investment. Spreadsheets showing what a good deal it is are all very well, but some requirement like this would do a lot to comfort risk-averse investors.

[Abby]

On the side issue of passing the senate on this or any legislation that may not carry all of the Democrats: Would Bayh et al really vote to filibuster?? Or would they vote for cloture and then vote against the bill? If the second is true, we still only need the 3 (or 2 or 1 depending on Kennedy and Franken's status) for all of the bills pending.

I really hope that being moderate isn't now defined as being obstructionist.

[cw]

While I'm theoretically in favor of renewable energy standards, and think we ought to be doing everything we can to get away from fossil fuels, the devil is in the details. My fears are that RES's may end up (1)distracting us from better solutions, and (2)end up not being effective. As Hilzoy says, they are but one component of a much larger solution, but having enacted them (along with all the hoopla) I'm afraid many voters will think our energy problems are solved, making additional necessary steps more difficult politically.

What might be some better solutions (at least in the near term)? My list would include more aggressively developing storage technology, increasing conservation measures, improving the grid, and improving transportation technologies.

A concern I have specifically with regard to wind developers is that RES's give them tremendous leverage to place the projects where they want them, overriding all the adverse environmental and human effects.

[Turbulence]

Turb: what I was thinking when I wrote it was: our dependence on oil is one of several ways in which we have given away our freedom of action.

Giving away our freedom of action does not always mean national security risk. I mean, we give away our freedom of action by entering into trade agreements, but that does not mean that NAFTA compromises our national security. You wrote "national security" and I'm still not seeing how that part can be justified.

We feel that we "have to" have a major military presence in the Middle East.

We feel all sorts of things, many of which are crazy. We feel the need to keep a major military presence in Korea and Japan for example.

We cannot afford to be seriously at odds with countries like Saudi Arabia.

I don't know what you mean here. Saudi Arabia can't afford to be at odds with their biggest customer. Beyond that, what exactly is the national security angle? Do you think Saudi Arabia is going to invade us? Try to kill lots of Americans for the heck of it? What?

While I do not think that we fought the war in Iraq just because of oil, I do think that a number of the war's backers might not have backed it if Iraq had been located in, oh, the Andes.

Well, a number of the war's backers are insane. Before the war, we purchased Iraqi oil at market rates. Now, we purchase Iraqi oil at market rates. Big difference. I don't see why the existence of insane people in the foreign policy establishment creates a national security threat.

I don't think that any single step will make us magically independent of oil. But (a) I don't think it's all-or-nothing; and (b) the fact that no single step will do it means (to me) that we should take a whole bunch of smaller steps.

This is pretty close to nothing. Oil
provides about 1.7% of our electricity. Natural gas provides about 18% which is pretty substantial. The only problem is that only about 3.2% of our natural gas imports come from the middle east. If we made it so that the middle east contributed nothing to our electricity needs, our total consumption of middle east petroleum products would not change significantly. That means that there is no national security justification.

I'm definitely in favor of this step. But I don't see any national security justification. I don't think there is any there. To be honest, I think a lot of Americans have developed something of a complex about being dependent on foreign oil and that complex pollutes our foreign policy discourse. Our relationship with oil-rich nations in the middle east is one of inter-dependence, but that does not mean weakness. It seems like Americans have so strong a need for dominance that any state of affairs leading to inter-dependence must be a threat to our national security.

[Gary Farber]

"Saudi Arabia can't afford to be at odds with their biggest customer."

And the nations of Europe couldn't afford to disrupt global trade in 1914.

But they did.

Just like Saudi Arabia once chose to be at odds with their biggest customer.

History trumps theory.