A growing body of data indicates that 2030, not 2050, is the deadline for U.S. utilities to close all coal-fired power plants and that the time to stop building new natural-gas-fired power plants is now.
On Tuesday, nonprofit research organization RMI released a report underscoring this growing consensus and upping the ante on driving down U.S. carbon emissions even faster than the Biden administration’s aggressive new target would require.
And for those wondering how U.S. utilities can possibly meet that aggressive goal, RMI unveiled the Utility Transition Hub, a public data platform designed to clarify the financial and policy challenges that must be solved to close the gap.
The report, Scaling U.S. Climate Ambitions to Meet the Science and Arithmetic of 1.5°C Warming, calls for the United States to cut economywide carbon emissions by 57 percent by 2030. That’s quite a bit higher than the emissions cut commitment of 50 to 52 percent by 2030 that the Biden administration made to the international Paris accord last week.
The report finds that without this drastic action, the U.S. can’t reduce economywide carbon emissions fast enough to keep global warming below 1.5 degrees Celsius over the next century. This is the level that the U.N.'s Intergovernmental Panel on Climate Change has identified as necessary to avert the most destructive effects of climate change.
“The most important year for reducing emissions will always be ‘this year,’” said Charles Teplin, a principal in RMI’s Carbon-Free Electricity Practice and report co-author. That’s because greenhouse gas emissions accumulate and intensify global warming impacts over time, making early reductions more powerful than those delayed to future years.
That means that clear plans to reduce cumulative emissions starting now are far more valuable than setting a future date to reach a lower emissions total, he said. As the report’s introduction states, “The trajectory matters as much as the end point.”
The United States is responsible for 15 percent of global emissions today, but it still is responsible for approximately three times the carbon emissions per capita than the global average, said Zack Subin, report co-author and senior associate in RMI’s U.S. program. Unless the United States decides to invest heavily in the expensive task of removing carbon dioxide from the atmosphere, it will have to go beyond reductions of 50 percent by 2030 to account for this embedded carbon intensity.
Replacing fossil-fueled vehicles, building heating and industrial systems will also not happen as quickly as replacing power plants. RMI’s report sets a 2030 deadline for sales of all new passenger cars and 70 percent of heavy trucks, as well as all new residential and commercial building heating systems, to be carbon-free.
Decarbonizing transportation and industry will depend on a clean electricity grid, however. That means the U.S. electricity sector must cut emissions by 80 to 83 percent from 2005 levels by decade’s end and get to zero emissions by 2040, the report finds.
This will require closing all coal plants by 2030 and not building any new natural-gas plants — something that only a handful of U.S. utilities have committed to doing today.
The disconnect between 2050 targets and 2030 reductions
The Biden administration’s Paris Agreement targets have brought new attention on the 2050 net-zero carbon goals set by many of the largest U.S. utilities, starting with Xcel Energy in 2018. Many of these utilities plan to build new natural-gas plants or keep coal plants open for decades, on the grounds that they’re needed to reliably serve the grid during gaps in wind and solar power production.
At the same time, reports from a wide range of stakeholders, including the Sierra Club, the Energy and Policy Institute, Deloitte and others, have highlighted the gap between these long-range targets and the slow pace of decarbonization baked into utilities' 15-year integrated resource plans.
These plans have become the subject of regulatory battles over the past year. In the Southeast, environmental groups are challenging the integrated resource plans (IRPs) of Duke Energy, Southern Company and Dominion Energy, all of which have 2050 net-zero targets.
The utility PacifiCorp, whose territory stretches across parts of the Rocky Mountain and Pacific Northwest regions, has not set a net-zero target but has adopted an IRP heavy on renewables and battery storage. PacifiCorp is facing simultaneous demands from the states of Oregon and Washington to decarbonize its portfolio faster than it currently plans to, as well as from Wyoming lawmakers seeking to force it to keep open the coal plants it plans to close by decade’s end.
Multiple studies indicate that U.S. utilities can reach 80 percent carbon-free generation by 2030 without increasing costs or threatening grid reliability, even with electricity demand increasing from electric vehicles and building heating.
The latest such study from Energy Innovation, released Monday, found this goal can be reached without increasing energy costs or threatening grid reliability. It came out on the same day that Reuters reported the White House is planning to promote a national Clean Electricity Standard that would codify the goal of 80 percent carbon-free electricity by 2030 into law.
At the same time, multistate utilities such as Duke, Dominion, PacifiCorp, Xcel, AEP and Southern Company, which account for the majority of U.S. power sector emissions, have a complex set of state-by-state economic and regulatory imperatives that may complicate efforts to impose nationwide decarbonization targets on them.
This same diversity can make tracking the decarbonization impacts of their state-by-state plans more challenging, compared to utilities within states with clear mandates such as California and New York.
Finding the common threads within the disparate data sources
That’s where RMI’s Utility Transition Hub comes in. The platform has collected reams of data on investor-owned utilities across the country, ranging from the "Form 1" reports that electric utilities submit to the Federal Energy Regulatory Commission to U.S. Energy Information Administration data on the emissions profiles of generation capacity across the country.
“Unfortunately, those data sets don’t talk to each other. Nor do they talk to the state-level data on what utility plans are to change over the next decade,” said Uday Varadarajan, RMI principal and Precourt Energy Scholar at Stanford University's Sustainable Finance Initiative.
To solve this disconnect, the Utility Transition Hub cross-references information on utility assets and earnings, the current and future emissions intensity of their generation resource mix, and other key data points that often are siloed in separate realms of analysis, he said.
The purpose is to “get at the metrics for future emissions that are decision-relevant,” he said. That includes comparing utilities’ long-range goals to their on-the-books resource plans or collecting holistic future emissions profiles for utility holding companies with operations in multiple states with very different decarbonization policies.
The results of this analysis reveal that few U.S. utilities with net-zero 2050 goals are on track to achieve the steep 2030 carbon cuts that RMI and many other groups say are needed, as the chart below shows.
Data like this helps clarify the missing pieces between utility IRPs and decarbonization needs, Varadarajan said. “The complaint we hear from investors is that they see lots of disclosures that tell them about emissions utilities have had, they talk about commitments, and they don’t see how history is connected with where they say they’re going to go and whether they should believe it.”
Data also helps explain the financial pressures on utilities to keep fossil-fired plants open, he said. One example of this is the discrepancy between the accelerating closure of U.S. coal plants and their rising asset value on utility balance sheets.
Utilities have been able to reduce their overall emissions over the past decade through coal plant closures, even as new natural-gas plants have increased their share of emissions.
At the same time, big investments in retrofitting coal plants with pollution controls over the past two decades have left utilities with a rising portion of capital investments in power plants, he said. Those cumulative investments net of depreciation grew from about $59 billion in 2005 to about $158 billion in 2019, data from RMI's Utility Transition Hub indicates.
“That means the customers are still effectively paying more for less energy from these old assets,” he said. Nearly 80 percent of the U.S. coal fleet and 90 percent of new U.S. natural-gas power plants aren’t cost-competitive with renewable energy and energy storage-based portfolio investments. But shutting them down will leave utilities and their ratepayers shouldering the sunk costs involved.
At the same time, ratepayers aren’t the only stakeholders to consider, according to Varadarajan. The rate of coal plant closures from 2005 to 2019 eliminated about 14,000 coal plant jobs, or 42 percent of the U.S. total in the industry. Policies that accelerate the closure of power plants have to take these economic impacts into account as well, he said.
Policies to pave the way for faster carbon reductions
There are policies on the table to smooth this transition, Varadarajan said. One is securitization, or ratepayer-backed bonds that help reduce the financial impact of early coal plant retirements for utilities and ratepayers with lower-cost debt.
States including Wisconsin, Michigan, Colorado, New Mexico, Kansas and Indiana have passed legislation authorizing securitization pathways to making this shift. North Carolina, Duke Energy’s home state, is looking at securitization under a state clean energy policy framework being debated in the state legislature this year.
As for replacing coal plants with renewables, Varadarajan said that reforms to the federal Investment Tax Credit (ITC) could go a long way toward tapping utilities' latent investment heft. Right now, many U.S. utilities have reduced their tax burdens by making big capital investments via bonus depreciation, reducing their ability to make use of tax credits.
Even for those that do have tax liabilities to offset, complex “tax normalization” rules reduce the value of the ITC for utilities compared to independent project developers, he said. This combination of factors has limited the ability of the country’s biggest utilities to replace coal and gas plants with clean energy and storage to about 4 gigawatts — or about two coal plants' worth — per year.
That gap represents a massive missed opportunity for investor-owned utilities, particularly those in states with vertically integrated energy markets. A March report from RMI pegged the potential investment in new generation from vertically integrated utilities at 420 gigawatts through 2030, with 80 GW of that potentially served by clean energy resources at today’s prevailing prices.
“Market indexing” policies that are being considered in a handful of states could make the financial terms of the ITC more valuable for utilities, Varadarajan said. The Biden administration’s proposal to allow for “direct pay” of ITC credits to entities that don’t have tax liabilities could also solve this issue, although it’s not yet clear what that direct pay policy would look like, or whether it or the rest of the $2.2 trillion infrastructure and jobs plan it’s part of can be passed into law.
Given that the 20 largest U.S. utilities make up about 90 percent of Scope 1 carbon emissions from the regulated U.S. utility sector, targeting them for aggressive decarbonization could drive major change across the country, he said.
“If you want to get rid of fossil energy,” he said, “you have to let utilities play.”
(Editor's note: RMI is a financial supporter of Canary Media.)
(Article image courtesy of Jonathan Kemper)
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