The US will struggle to meet its climate goals without penalties for utilities that fail to cut emissions, report finds

Can a U.S. climate policy that lacks ​“sticks” to drive utilities to shut down fossil fuels get anywhere close to meeting the country’s decarbonization goals?

Climate activists are answering this question with a resounding no. They’re angered by last week’s news reports that Senator Joe Manchin (D-West Virginia) is refusing to support a budget reconciliation package if it includes the proposed Clean Electricity Performance Program (CEPP), which would levy financial penalties on utilities that fail to meet annual goals for cutting carbon emissions and pay financial incentives to utilities that do meet them.

The latest research backs the activists up. 

A new study from think tank Energy Innovation analyzed the emissions-reduction impact of climate and energy provisions in the draft budget reconciliation bill, also known as the Build Back Better Act, which is now being debated in both the U.S. House and Senate, as well as in the bipartisan infrastructure bill, which has passed the Senate. The analysis finds that removing CEPP would slash more than a third of the bills’ potential for reducing carbon emissions from the electricity sector.

The model used by the study’s authors indicated that if the two bills were passed with the CEPP, annual electricity-sector emissions would drop by 1,067 million to 1,510 million metric tons by 2030, but if the CEPP were not included, emissions would be 250 million to 700 million metric tons higher.

One option the White House is considering to ​“get Manchin on board” is ​“eliminating the penalties for utilities,” The Washington Post reports. But cutting out the $40 penalty for every megawatt-hour of carbon-emitting electricity sold above a steadily declining annual threshold ​“would likely dramatically reduce the CEPP’s effectiveness by making it an opt-in program for electricity suppliers rather than raising the floor for all suppliers,” the Energy Innovation report states. ​“As a result, we expect most of the CEPP’s potential impact would be lost.”

According to the model, getting rid of CEPP would prevent the U.S. from reaching the Biden administration’s target of 80 percent carbon-free electricity by 2030. Instead, the sector would reach an estimated 61 to 69 percent carbon-free electricity, depending on assumptions on other factors such as fuel costs and the speed of the clean energy buildout.

CEPP’s carrots-and-sticks approach won’t work without the sticks

The big problem with eliminating the penalty side of the CEPP is that it’s the sole federal policy mechanism being contemplated to push utilities to close coal and natural-gas power plants faster than they would otherwise be shuttered under business-as-usual conditions. It’s the only stick that’s proposed to do the job.

The rest of the policies aimed at utilities in the budget reconciliation bill and infrastructure bill would by contrast reward them for adding more carbon-free generation. Those policies — the carrots — include the CEPP’s incentive of $150 per megawatt-hour for utilities that exceed annual clean energy targets, as well as the expanded and extended federal tax credits for clean energy, energy storage and other technologies.

Encouraging new clean energy is only one side of the carbon-cutting policy framework, Energy Innovation points out. On the other side, some mechanism that forces fossil-fuel power plants to close is needed to meet the Biden administration’s targets.

Those targets are based on climate science. The past year’s reports from the International Energy Agency and the United Nations’ Intergovernmental Panel on Climate Change have hardened the scientific consensus that keeping global temperature rise below 1.5 degrees Celsius over the coming century will require a halt of all new construction of fossil-fueled power plants and ending about half of natural-gas use and almost all coal use by 2050.

Electricity-sector emissions cuts are also central to achieving broader reductions across the entire economy since transportation and buildings are switching from fossil fuels to electricity and we need that electricity to be as carbon-free as possible.

The Biden administration has pledged to cut economywide emissions by 50 to 52 percent below 2005 levels by 2030 as its ​“nationally determined contribution” to the international Paris climate accord. The administration hopes to be able to present a policy platform capable of reaching that goal as it joins other countries at the United Nations COP26 climate summit in Glasgow, Scotland next month, where the aim is for countries to raise their ambitions enough to stay below the 1.5° C target.

Out of the mix of policies in the reconciliation and infrastructure bills analyzed by Energy Innovation, more than half of the emissions-reduction potential would come from the CEPP, with both its penalties and rewards for utilities, plus clean energy tax credits. ​“They also serve as the linchpin for decarbonizing the rest of the economy, as more end uses are electrified,” the report states.

The second-biggest cut would come from a proposed fee on methane emissions for U.S. oil and gas companies, the report notes. Methane is a far more potent greenhouse gas than carbon dioxide in the short term, and even small methane leaks from natural-gas infrastructure can erase the emissions-reduction benefits of switching from coal to natural gas, according to multiple studies.

Many U.S. utilities have pledged to reach net-zero carbon emissions by 2050, including some of the country’s biggest: Duke Energy, Southern Company, Dominion Energy and Xcel Energy. But a number of these utilities still plan to build new natural-gas-fired power plants that would continue operating for decades. Climate advocates say this is incompatible with the rapid decarbonization that the science indicates must be achieved over the next decade.

Politics collide and a deadline looms 

Manchin has always been the key roadblock to passing the CEPP. He represents a state, West Virginia, where coal mining historically has played a central economic role, and he chairs the Senate Energy and Natural Resources Committee, which controls the drafting of the energy portion of the reconciliation bill.

Manchin, who has earned millions of dollars from his stake in a company that brokers coal, has said he would oppose a climate policy unless it gives coal and natural-gas plants an option to continue operating with carbon capture and storage (CCS) technologies. He’s also said that renewable energy is increasingly cost-effective at large scale and doesn’t need federal support.

News reports have cited anonymous sources involved in the negotiations suggesting several ways to work around Manchin’s objections, including shifting the rules to accommodate fossil-fuel plants equipped with CCS technologies. Other options could include weakening the emissions cut target of 4 percent per year for utilities to give them more time to reduce their dirty power use, reducing the size of the financial penalties for utilities that miss the target, or, as mentioned above, stripping the penalty side of the CEPP from the bill.

But backers of a robust CEPP say they won’t vote for a bill that weakens or eliminates the key policy to drive the reduction of emissions from fossil-fuel power plants. Senator Tina Smith, the Minnesota Democrat who’s the chief sponsor of the CEPP, told The New York Times that she ​“will not support a budget deal that does not get us where we need to go on climate action. There are 50 Democratic senators, and it’s going to take every one of our votes to get this budget passed.”