Published on EGEE 401: Energy in a Changing World (https://www.e-education.psu.edu/egee401)

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Unit 5, Lesson 11

Introduction

Unit 5: Environmental Solutions: Technical and Legislative Approaches – Lesson 11: Legislative and Policy Approaches

About Lesson 11

In this lesson, we will consider three types of policy tools for addressing environmental issues: cap and trade, renewable energy standards, and "other enabling policies," including net metering, financing and financial incentives.

What will we learn in Lesson 11?

With the successful completion of this lesson, you will be able to:

  • form and defend a personal opinion on energy/climate legislative issues such as cap and trade, renewable energy standards, and energy credits;
  • research federal and state energy incentives and describe their eligibility criteria;
  • think in terms of policy that balances economic, security and environmental concerns.

What is due for Lesson 11?

The table below provides an overview of the requirements for Lesson 11. For details regarding the assignment, refer to the page(s) noted in the table.

Please refer to the Calendar in Canvas for specific time frames and due dates.

Lesson 11 Requirements
REQUIREMENT LOCATION SUBMITTED FOR GRADING?
Reading: (Cap and Trade):
  • "Cap and Trade: Essentials," Environmental Protection Agency (EPA)
  • Cap and Trade Curbed Acid Rain: 7 Reasons Why It Can Do The Same For Climate Change" (Forbes magazine)
  • From Regional Greenhouse Gas Initiative (RGGI), "Welcome" and "Program Overview"

Page 2

No

View: (Cap and Trade):

  • "Cap and Trade Explained in Under Four Minutes," Treehugger
Page 2 No
Reading: (Carbon Tax or Fee):
  • "What's a Carbon Tax?", Carbon Tax Center
  • "Citizens' Climate Lobby" (portions as designated)
  • The Republican Carbon Tax Is Republican, Say Republicans
Page 3 No
Reading: (Renewable Portfolio Standards):
  • "PA AEPS" (portions as designated)
Page 4 No
Reading: (Other Enabling Policies):
  •     "DSIRE" (portions as designated)
Page 5 No
Lesson 11 Activity: Complete Lesson 11 Activity. (It's in Canvas, in the Unit 5 module.) Page 6 Yes
Unit 5 Discussion Forum: "Envisioning a Sustainable World" (It's in Canvas, in the Unit 5 module.) Page 7 Yes

Questions about EGEE 401?

If you have any questions, please post them to our Questions about EGEE 401? Discussion in Canvas. Use this Discussion for general questions about course content and administration. I will check it daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate or have a related question.

 

Cap and Trade

The Big Picture

"A cap-and-trade system is a market-based mechanism that uses market principles to achieve emissions reduction. A core component of a greenhouse gas cap-and-trade program is that an emitter must turn in one “allowance” for every metric ton of carbon dioxide equivalent (CO2e) that they emit." (Source for this, and all other quoted passages in this section, Western Climate Initiative [1])

"The government(s) running the cap-and-trade program sets an absolute limit, or cap, on the amount of greenhouse gas emissions. Then, through a method called 'allocation,' each emitter is issued a set number of allowances." The total number of allowances issued represents the total emissions set by the cap. For example, if the cap were set at 1,000 tons of CO2e, then a total of 1,000 allowances would be issued. These allowances are tradeable; that is, emitters can buy and sell them to one another.

To comply with the cap and trade law, an emitter must submit one "allowance" for each metric ton of CO2e they emit. If an emitter's emissions are higher than the number of allowances it holds, the emitter must either buy allowances from another emitter or reduce its own emissions. "In this way, individual emitters do not have a limit on emissions, but the system as a whole has restricted supply of allowances to cover emissions."

The decision an emitter makes to acquire sufficient allowances or to reduce emissions depends largely upon cost. "The price of allowances efficiently informs consumption and investment decisions. For some participants, implementing new, low-emitting technologies may be relatively inexpensive. Those participants will buy fewer allowances or sell surplus allowances to participants that face higher emission control costs. A participant will choose to buy more allowances when the cost of an allowance is lower than the cost of reducing its emissions. By giving participants a financial incentive to control emissions and the flexibility to determine how and when emissions will be reduced, the capped level of emissions is achieved in a manner that minimizes the cost of emissions reductions."

Useful Terminology

(Source for full section: Western Climate Initiative [2])

Allocation: Process by which emissions allowances are initially distributed. For example, if the cap were set at 100 metric tons, then a total of 100 allowances would be made available to the market (allocated) in some fashion, either through free distribution or by an auction. When allowances are allocated based on on historical emission levels, it is called grandfathering.

Banking: Entities are allowed to hold more allowances than they need to cover their emissions in one compliance period and use these allowances in future compliance periods to cover emissions.

Carbon credits: When reductions are made by an offset project [see below], the sponsor of the project receives credits that can be sold and traded within a cap-and-trade program and function similar to an emissions allowance.

Compliance period: The time frame for which entities must submit sufficient allowances equivalent to their emissions during that period. This submission is called a true-up. Reporting periods may be shorter than compliance periods. For example, the reporting period may be annual, but the compliance period may be three years.

Offsets: Alternative compliance mechanism where emission reductions are made by sources not included in the cap-and-trade program. An offset must result in an emission reduction outside of the cap. These reductions must be additional, meaning over and above those that would otherwise have occurred in the absence of the project. They must also be permanent, the definition of which is subject to the rules that govern specific categories of offset projects.

Details and Programs

Viewing Assignment

Watch this outrageously fast-talking video, Cap and Trade Explained in Under Four Minutes [3]. It's fast and fun, but on the money. It will help you put the pieces together. When the ecogeek uses the term "credit" in the video, he means what is more commonly called "allowances."

Reading Assignments

  • From the Environmental Protection Agency, read "Cap and Trade: Essentials [4]"
  • Read Cap and Trade Curbed Acid Rain: 7 Reasons Why It Can Do The Same For Climate Change [5] (Forbes magazine)
  • Visit the Regional Greenhouse Gas Initiative [6] (RGGI). Read "Welcome" page and "Program Design"

 

Carbon Tax or Fee

Like cap and trade, a "carbon tax" or "carbon fee" is a market-based approach for reducing greenhouse gas emissions designed to correct the "market failure that exists when the value of environmental damages is not included in the market price of fossil fuels." (Not required, but for more good reading with a strong economic perspective, see Options and Considerations for a Federal Carbon Tax [7].) 

Reading Assignment

 

Visit the Carbon Tax Center and read What's a Carbon Tax? [8]

One of the most widely known advocacy groups for a carbon tax in the USA is the Citizens' Climate Lobby [9]. This group works for the adoption of a national Carbon Feed and Dividend (CF&D), "a revenue-neutral carbon tax with all revenue returned directly to households, will reduce greenhouse gas emissions 52% below 1990 levels within 20 years while growing the economy and saving lives." Key to their mission is use of the word "fee" rather than "tax" and the concept of "revenue neutral." Over the years I have watched this group grow through consistent messaging, widespread public empowerment and engagement, and persistent lobbying efforts. Their message is highly persuasive. Read for yourself...!

Reading Assignment

Vist the Citizens' Climate Lobby. [9]

  • Read About CCL
  • Under "Our Climate Solution," read The Basics of Carbon Fee & Dividend and scan The Policy and FAQs
  • Under "Take Action," read the Support the Climate Solutions Caucus.
  • It is not required that you click through on any additional info, but certainly feel free to do so!

From The Atlantic, read The Republican Carbon Tax Is Republican, Say Republicans [10]

 

Renewable Portfolio Standards

This diagram shows how renewable energy certificates (RECs) and electricity take different pathways to the point of end use.  RECs represent the right to claim the attributes and benefits of the renewable generation source. See link in caption to text version
Figure 11.1: Renewable Energy Certificates (RECS) chart. (Text Version) [11]
Credit: Environment Protection Agency Green Power Partnership [12]

A Renewable Portfolio Standard (RPS) is a market-based mechanism, established by government policy, to encourage the generation of electricity from renewable energy sources. An RPS program requires that a certain percentage of electricity sold in a region be generated by renewable energy sources. Electricity providers must demonstrate that they have complied with the standard, or face significant fines. To comply, electricity providers must either generate clean (from renewables) electricity themselves or buy it from those that do. Or, they can buy just the renewable attributes from a renewable energy generator that is connected to the grid. The renewable energy attributes of electricity are packaged and sold as Renewable Energy Credits (RECs).

A Renewable Energy Credit (REC) is a certificate documenting that 1,000 kWh (1 MWh) of electricity has been generated using a renewable energy source connected to the grid. (RECs are also called "green tags" or alternative energy credits (AECs) and sometimes the "c" is for "certificate" rather than "credit." In all cases they are the same thing. What can I say? It's all new and we live in exciting times!)

It works like this, say you have a 5 kW solar electric system installed on your roof in Pennsylvania, and it's tied to the electrical grid. Your system generates about 6,000 kWH per year. You use whatever you need (instead of getting it from the grid) and send any extra back to the grid. (This process is called "net metering.")

Once the electricity is on the grid, it's all the same electricity (your electrons don't look or act any differently than those from a nuclear plant, wind farm or coal-powered plant). But, in our society, your electricity is special—it's from a renewable energy source. And, the "clean energy-ness" of your electricity has monetary value.

Now, let's be an electricity provider who is selling electricity to customers throughout your region. A local RPS program requires that some percentage, say 15%, of the electricity it sells must come from renewable energy sources. Depending on local regulations, the electricity provider may be generating its own electricity and/or buying it from others to resell to you. In some cases, one option to comply with the RPS program is for the electricity provider to make or buy its own renewable energy electricity.

But, there's another option—you are sitting out there, making clean electricity that you are using instead of getting it off the grid. Can the electricity provider make a deal with you so that your clean electricity helps it meet the RPS standards? Sure, it can! The electricity provider buys the "clean energy-ness" of your electricity from you. This is not the electricity itself, but the renewable energy attributes of the electricity. Then the electricity provider can report back to the RPS program that the company, in effect, paid you to generate electricity using renewable energy. The way this is done is through Renewable Energy Credits.

Your system generates 6,000 kWh per year (6 MWh), so you earn six RECs per year. You can sell these RECs to an electricity provider, and the electricity provider can use them to help prove that it is meeting the RPS requirement for clean electricity.

How much does the electricity provider pay you for the RECs? They pay the market price, based on supply and demand. Supply is the number of RECs available in the market and this is determined by the amount of electricity being generated using renewable energy at facilities with owners who choose to sell their RECs. Demand for RECs is determined by the RPS and the amount of electricity sold, a percentage of which must come from clean energy sources (per the RPS).

This process and market applies to renewable energy generators of all sizes and many different sources, such as wind, hydro, and biomass. A local hospital is installing a 250 kW system on its roof and is working now to reach a longterm agreement to sell its RECs at a fixed price. The system will earn about 300 RECs per year. Last year (2016), in PA the average price for a REC was $62.06 [13]. For the hospital, that's $18,618 per year. For the 5-kW homeowner, that will earn about 6 RECs per year, REC income would be $372 per year. And remember, a solar electric system has a life of 25 years or longer. The point is that REC income can be an important part of the financial analysis needed to secure financing and cost-justify renewable-energy generation projects of any scale. The opportunity to sell some or all of the RECs can make renewable energy projects cost justifiable that otherwise would not be.

When RECs are bought and sold to meet RPS standards, that is called the compliance market. Sometimes, however, people or organizations may choose to buy RECs simply because they want to use clean energy and can't buy it directly. They may do this for many reasons, including marketing value, image, principles of the group or its mission. I was personally affiliated with a large, annual, 3-day Renewable Energy Festival with hundreds of vendors and about 10,000 attendees. We generated and used clean electricity on-site as possible, but also bought electricity off the grid. Each year, we bought enough RECs to cover our electricity consumption—supporting a generator somewhere that is putting clean electricity on the grid. When a person or organization does this because they choose to (not because they are required to) it is called the voluntary market.

Reading Assignments

In Pennsylvania, renewable energy credits are called Alternative Energy Credits (AECs). The state RPS program is called the PA AEPS program. To see an example of how an RPS programs works...

Visit the PA AEPS program website [14].

  • Read through AboutAEPS
  • Under Resources&Support, scan FAQs.
  • Download and review AEPS Requirements by Reporting Year [15]

 

Other Enabling Policies

The use of renewable energy sources offers many benefits to society, including a significantly cleaner environment and far less greenhouse gas emissions, freedom from highly variable fuel costs (where fossil fuel costs can rise and fall due to many factors beyond our control, renewable energy fuel costs are always the same: $0), "energy independence" (less dependency on energy imports) and a boost to local economies. To encourage development and use of clean-energy resources, governments of all levels offer financial incentives in a range of forms including grants, rebates, tax credits, and financing. Each incentive has criteria for eligibility, its own application process and deadlines, and rules for how money is awarded and spent.

Thankfully, this information is readily available in a single well-organized source: the Database of State Incentives for Renewables and Efficiency (DSIRE). I use this site nearly every day for something, and have yet to find it out-of-date or incorrect!

"DSIRE is the most comprehensive source of information on incentives and policies that support renewable energy and energy efficiency in the United States. Established in 1995, DSIRE is operated by the N.C. Clean Energy Technology Center [16] at N.C. State University and is funded by the U.S. Department of Energy. Follow the navigation above to read about the history of DSIRE, the partners on the project, and the research staff that maintains the policy and incentive data in DSIRE." (DSIRE About Us [17])

Reading Assignments

Visit DSIRE [18]

  • Read through the FAQs (under Help/Support), scan the Glossary and explore Resources.

The DSIRE database references many types of policies designed to encourage adoption of energy efficiency and clean energy practices and systems. Two of particular interest are "net metering" and PACE.

Net metering

We've learned in this course that electricity supply and demand need to be matched. How does that work when a home or business is generating its own electricity? When the system is installed, wiring is run to carry electricity generated by the system directly to the building's electrical panel. The building uses electricity generated by the system to meet demand (from anything in the building that needs electricity). If the building needs more electricity than the system is generating at that time, the building gets the electricity it needs FROM the grid. If the system is generating more electricity than the building is using, than the excess electricity is sent TO the grid. The utility company keeps track of the electricity that is sent to and from.

Here's how DSIRE defines net metering, "For electric customers who generate their own electricity, net metering allows for the flow of electricity both to and from the customer – typically through a single, bi-directional meter. When a customer’s generation exceeds the customer’s use, electricity from the customer flows back to the grid, offsetting electricity consumed by the customer at a different time during the same billing cycle. In effect, the customer uses excess generation to offset electricity that the customer otherwise would have to purchase at the utility’s full retail rate. Net metering is required by law in most U.S. states, but state policies vary widely."

In Pennsylvania, we have a strong net metering laws. I have a 9.6 kW system at my all-electric house (including car). In the summer, this system generates far more electricity than we are using. (We seldom use air conditioning in the summer.) This excess generation is sent to the grid and we are given "credit" for it on our electric bill. In the winter, however, our PV system generates less electricity and we are running our geothermal heat pump and using more electricity. So, during the winter months, we start using the "credit" we had built up over the summer. When it's gone, we pay for any more electricity we need. (Usually around January for us.)  

The tricky part is how the customer-generator gets compensated for the electricity they send back to the grid. In PA, for every kWh we sent to the grid we get a kWh of credit to use later. Seems fair, right? But some would say, hey, if you do that, who is paying for the grid? You're using the wires but aren't paying for them! Ah, but system owners would say, hey, I paid for this clean energy system and we all benefit from the avoided emissions--my system is making the air and environment safer for all of us! And, the grid is too congested anyway. Most of the electricity we make is used right here, and that reduces traffic on the grid and that's good for all of us too. 

This is a hot topic in clean energy policy these days. Stay tuned!

Property Assessed Clean Energy (PACE) 

PACE is way of financing clean energy projects (energy efficiency, renewable energy and water efficiency) where building owners pay no up front costs but pay for the project through property tax assessments. In other words, the cost of the project is added to the owner's property tax bill over a period of time, typically 5 to 20 years. If the building is sold, the new owner continues the payments. For PACE programs to be established, usually a state legislature has to pass "enabling" legislation that authorize and guide local governments. The, the local governments need to create and fund programs (usually with bonds).

Residential PACE programs ran into a snag a few years ago with mortgage lenders, because if a building owner defaulted the PACE lenders would be paid before the mortgage lenders. This lead to opposition by the Federal Housing Authority (FHA) and most states have currently suspended residential PACE programs. However, it is still being figured out and new Federal legislation remains a possibility.

Commercial PACE programs are not opposed by the FHA and are widespread. These programs may include multi-family residences, as well as agricultural, non-profit and government facilities.

Additional Reading (not required)

PACE Financing (National Conference of State Legislatures) [19]

PACEnation [20]

 

Lesson 11 Activity

Complete the Lesson 11 Activity. (It's in CANVAS, under Modules, Unit 5.)

Unless noted otherwise, correct answers come directly from the content of this lesson and assigned readings.

The Activity consists of a variety questions of different types, which may include true/false, multiple choice, multiple select, fill in the blank, ordering, and short answer. The point value varies and is indicated for each. Some questions are graded automatically, and some are manually graded.

The quiz is not timed, but does close at 11:59 pm Eastern Standard Time on the due date as shown in CANVAS.

Questions that are "manually graded" will be scored based on the correctness and quality of your answers. Thinking is good! Try to make your answers as orderly and clear as possible. Short is good, as long as you fully answer the question. Help me understand what you are thinking, and include data where relevant.

Numbers must ALWAYS be accompanied by units of measure (not "300" but "300 kW").

Proofread and spell check your work.

Discussion Forum

Unit 5 Discussion Forum: "Envisioning a Sustainable World"

Let's start with this quote from Donella Meadows, making an important, albeit blunt, point:

"Environmentalists have failed perhaps more than any other set of advocates to project vision. Most people associate environmentalism with restriction, prohibition, regulation, and sacrifice. Though it is rarely articulated directly, the most widely shared picture of a sustainable world is one of tight and probably centralized control, low material standard of living, and no fun." She invites the reader to envision a "sustainable world as one that would be wonderful to live in."

Her obituary [21], February 2001, read in part:

Donella H. Meadows, 59, a pioneering environmental scientist and writer, died Tuesday in New Hampshire after a 2-week battle with bacterial meningitis. She was best known to the world as the lead author of the international bestselling book, The Limits to Growth, published in 1972. The book, which reported on a study of long-term global trends in population, economics, and the environment, sold millions of copies and was translated into 28 languages. She was also the lead author of the twenty-year follow-up study, Beyond the Limits [22] (1992), with original co-authors Dennis Meadows and Jorgen Randers.

Professor Meadows, known as "Dana" to friends and colleagues, was a leading voice in what has become known as the "sustainability movement," an international effort to reverse damaging trends in the environment, economy, and social systems. Her work is widely recognized as a formative influence on hundreds of other academic studies, government policy initiatives, and international agreements.

Dana Meadows was also a devoted teacher of environmental systems, ethics, and journalism to her students at Dartmouth College in Hanover, New Hampshire, where she taught for 29 years. In addition to her many original contributions to systems theory and global trend analysis, she managed a small farm and was a vibrant member of her local community. Genuinely unconcerned with her international fame, she often referred to herself simply as "a farmer and a writer."

The article goes on to describe Meadows' lifetime of contributions to the field of sustainability, including founding the Sustainability Institute [23] (now called the Donella Meadows Institute) in 1997, which she described as a "think-do-tank."

Let's step back and entertain Donella Meadows' invitation to envision a "sustainable world that would be wonderful to live in."

Activity

Read this paper, in full, Envisioning a Sustainable World [24], written for the International Society for Ecological Economics, 1994. Take the time to read (or watch) it all. Link to full transcript is below video.

On page 6, the section Envisioning a Sustainable World, begins: "So I invite you to join with me in building that vision. What kind of sustainable world do you WANT to live in? Do your best to imagine not just the absence of problems but the presence of blessings. Our rational minds tell us that a sustainable world has to be one in which renewable resources are used no faster than they regenerate; in which pollution is emitted no faster than it can be recycled or rendered harmless; in which population is at least stable, maybe decreasing; in which prices internalize all real costs; in which there is no hunger or poverty; in which there is true, enduring democracy. But what else? What else do YOU want, for yourself, your children, your grandchildren?" The section goes on to describe how to envision and more questions you may want to ask yourself.

This is your assignment: envision a sustainable world that would be wonderful to live in. This is not easy to do and will take daring and imagination on your part. Go for it! Dream on and be inspired by the ideas of others. Don't argue for limitations and don't morph into implementation planning. Use this forum to build a vision, your vision, of a sustainable world that would be wonderful to live in.

Post your work in the Discussion, "Envisioning a Sustainable World" You'll find it in in Canvas, in the Unit 5 module. Please follow full instructions there.

Please see Canvas calendar for due date of your FIRST posting and date when discussion ends (graded participation ends, all replies must be in).

  • Describe your vision in an initial posting. (I'm curious to see who will go first on this one!!)
  • Read the postings of others and respond to at least one. Follow up on any postings made to your comment. For this assignment, it is especially important to feed off of the ideas of others – to invigorate and stimulate one another!

Grading criteria

You will be graded on the quality of your participation. Be interesting and interested! You may comment, of course, on the legislation described above on or on other aspects of the Donella Meadows article, but don't let these threads sidetrack you. Your graded participation will be on postings related to your vision. Please see Syllabus for full Discussion Forum grading criteria.

Summary and Final Tasks

Summary

In this lesson, you learned about several market-based mechanisms that can be policy-enabled to promote development and use of renewable energy sources. Cap and Trade limits and controls emissions. Renewable Portfolio Standards give market value to electricity generated from green sources. The DSIRE database provides a single source of information for government incentives and policy, designed to encourage investment in renewable energy (and energy efficiency) projects.

Reminder—Complete all of the lesson tasks!

You have finished Lesson 11. Double-check the list of requirements on the Lesson 11 Overview page to make sure you have completed all of the activities listed there before beginning the next lesson.


Source URL: https://www.e-education.psu.edu/egee401/content/p11.html

Links
[1] http://www.westernclimateinitiative.org/resources/cap-and-trade/introduction-to-cap-and-trade
[2] http://www.westernclimateinitiative.org/resources/cap-and-trade/cap-and-trade-terminology
[3] http://www.treehugger.com/files/2009/05/cap-and-trade-explained-video.php
[4] https://www.e-education.psu.edu/egee401/sites/www.e-education.psu.edu.egee401/files/Cap%20and%20Trade%20Essentials%20-%20EPA.pdf
[5] http://www.forbes.com/sites/justingerdes/2012/02/13/cap-and-trade-curbed-acid-rain-7-reasons-why-it-can-do-the-same-for-climate-change/
[6] http://www.rggi.org/
[7] http://www.c2es.org/publications/options-considerations-federal-carbon-tax
[8] http://www.carbontax.org/whats-a-carbon-tax/
[9] https://citizensclimatelobby.org/
[10] https://www.theatlantic.com/science/archive/2017/02/a-republican-proposal-for-a-carbon-tax-okay/516048/
[11] http://www.epa.gov/greenpower/gpmarket/rec_longdescription.htm
[12] http://www.epa.gov/greenpower/gpmarket/rec.htm
[13] http://www.pennaeps.com/reports/
[14] http://www.pennaeps.com/aboutaeps/
[15] https://www.e-education.psu.edu/egee401/sites/www.e-education.psu.edu.egee401/files/Copy%20of%20AEPS-Requirements-by-Reporting-Year.xlsx
[16] http://nccleantech.ncsu.edu/
[17] http://www.dsireusa.org/about-us/
[18] http://www.dsireusa.org/
[19] http://www.ncsl.org/research/energy/pace-financing.aspx
[20] http://pacenation.us/
[21] http://www.nytimes.com/2001/02/22/us/donella-meadows-59-author-and-advocate-for-environment.html
[22] http://www.unh.edu/ipssr/Lab/BTL.html
[23] http://www.donellameadows.org/
[24] http://www.donellameadows.org/donella-meadows-legacy/envisioning-a-sustainable-world/