Is a National Renewable Energy Standard a Good Deal?

The three environmental pillars supporting the need to develop greater renewable energy resources in the U.S. are to reduce emissions from SO2 (acid rain), NOx (smog), and CO2 (Global Warming). On all three of these issues, current proposals for a National Renewable Energy Standard fall well short in achieving these key environmental objectives.

Percent of Wind Energy to total Renewable Energy Resources in EIA or UCS Case Studies
Location of U.S. Wind Energy Resources

Basis of Our Opinion: Results from six1 Case Studies developed by the Energy Information Agency (EIA) and the Union of Concerned Scientists (UCS) were compared.

Case Studies 1 through 5 are based on a 10% Renewable Energy Standard (RES), while Case 6 is based on a 20% RES.

While these scenarios use very different assumptions on items like the future price of natural gas and whether to cap subsidies on renewable energy credits, one consensus conclusion can be reached:

Key Point:
Under a National 10% Renewable Energy Standard, both the EIA and UCS analyses concur that the portfolio mix of Renewables would most likely be dominated by wind energy projects developed in Western States.

Thus, in order to comply with a 10% National RES, electric utilities in wind poor regions (especially Southeastern States like Florida) would primarily purchase "credits" from Wind Energy Providers from Western States.

Given this consensus opinion on wind energy by two highly reputable organizations (EIA and UCS), raises an important question. Is a currently structured 10% RES a good deal in reducing NOx, SO2, and CO2 emissions?

A 10% Renewable Standard and NOx:   Smog is a very regional specific problem in heavily populated areas. While implementing a currently structured 10% RES could possibly improve air quality in Western Grid areas (e.g., Denver) by reducing fossil fuel use, this would have little if any impact on air quality in regions like the Southeastern U.S. (e.g., Atlanta, Pensacola/Mobile, etc.).

A 10% Renewable Standard and SO2:   According to EIA's analysis for Senator Bingaman, the total level of SO2 emissions in the U.S. would not be reduced under a currently structured RES. What would be reduced is the price of SO2 credits. Thus, implementing a 10% RPS would actually increase SO2 emissions most likely in Eastern States where Acid Rain concerns are the greatest (e.g., Power Providers would purchase low cost SO2 credits rather than reducing SO2 emissions) .

Percentage of CO2 Emissions by U.S.
Electric Utilities by Fuel Source
Percent of Coal Displacement
in EIA or UCS RES Case Studies
A 10% Renewable Standard and CO2:   In addressing CO2 emission levels within the electric utility industry, we believe that many people are taking their eye off the ball or are never even seeing the ball. As we continue to emphasize, per information from the EIA, approximately 90% of all CO2 emissions coming from the electric utility industry are from coal-fired generation.

Stated another way, only about 10% of CO2 emissions are coming from non-coal fired generation (primarily natural gas).

From an environmental perspective, any energy policy that is heavily weighted to natural gas displacement is addressing the wrong fuel source, as the problem is clearly coal. In 5 of the 6 EIA and UCS Case Study Scenarios, only ~50% of fuel displacement achieved through a national RES is coal.

Key Point:

Under a ten percent RES, about half of the fossil fuels displaced will be a fuel source (natural gas) that is only creating ~10% of total CO2 emissions.
In our opinion, a good illustration of a more appropriate balance of coal and natural gas displacement under a RES is reflected in Scenario 5. This anomaly to other scenarios was performed by the Union of Concerned Scientists and uses a key economic assumption of higher natural gas prices than in EIA Scenarios. In this scenario, the price of natural gas has risen to such a high level that the lowest cost new generation options would be coal and even oil fired generation. Thus, by implementing a RES, Renewables would heavily displace new coal and even oil generation.

While we believe the results of this Scenario 5 more appropriately reflects what a RES should achieve, this scenario does not reflect effective policy. Rather, it only shows how a currently structured RES would perform under a specific economic scenario. In a world where natural gas prices would be low (rather than high), an exactly opposite outcome of a RES would occur (e.g., displacement of natural gas, not coal or oil).

By remembering history, Policymakers should clearly know the incorrectness of counting too heavily on future economic projections in making energy policy. In the late 1970's with the Arab Oil Embargo, the consensus of economic opinions predicted rising oil prices to ~$100 a barrel. These high oil price projections were a major justification of the U.S. embarking on a massive nuclear energy program (involving billions of dollars in federal tax subsidies). In retrospect, these economic projections of high oil prices did not occur. What did occur were out of control cost over-runs in building nuclear generation, price shocks to electricity consumers, and crippled financial health of electric utilities.

Dear Congress, Don't Forget the South: While we strongly support the need for Renewable Energy Resources, we just don't think the Renewable Energy Standard as currently structured is the best we can do. In developing Energy Policies, we hope Decision-makers will keep their eye on the ball on two critical points:

  • ~90% of CO2, NOx, SO2, and Hg emissions come from coal generation.
  • The concentration of emissions in the South, especially with CO2.
  • Not only does a currently structured RES have the potential (under EIA assumptions for natural gas prices) to heavily weight the displacement of the wrong fossil fuel (natural gas) -

    Regional CO2 Emissions by
    U.S. Electric Utilities.
    Fossil Carbon Intensity (lb-C/MBtu)

    Key Point:

    Under the EIA and UCS consensus that Electric Utilities in the Southeast would primarily purchase "credits" from wind energy providers in Western States in order to comply with a 10% RES, no meaningful reductions in air emission levels in the South would occur.

    We believe that a National Renewable Energy Standard needs to be more focused -- with an effective policy that will achieve significant reductions in air emissions from coal and even oil generation (e.g., UCS Scenario 5) -- rather than hoping a certain economic projection (e.g., high natural gas prices) will occur in order to achieve environmental objectives.

    Maybe the problem that Policy-makers have is in compartmentalizing/separating the topics of renewable energy and energy efficiency. As the U.S. Department of Energy has well documented, there are numerous ways to make coal power plants more efficient using existing technologies -- resulting in tremendous reductions in air emissions. Perhaps one of the most remarkable engineering advancements of our time has been in heat recovery systems.

    It is our opinion that clearly, energy policies that combine renewable options such as biomass co-firing and efficiency improvements in coal power plants directly addresses head-on where problems of NOx, CO2, Hg, and SO2 exist.

    Instead of a sledgehammer approach threatening coal users with carbon taxes or litigation of New Source Performance Standards (NSPS) for decades to come, why not use a carrot -- and provide incentives for power producers that use coal to be more energy efficient and to use small percentages of cleaner fuels like biomass.

    We have faith that smart people are out there somewhere that can maneuver through the NSPS mine-field, linking power plant efficiency and renewable energy together into an effective energy and environmental policy.

    1 Case 1:   EIA Bingaman RPS Analysis (AEO 2003)
    Case 2:   EIA Bingaman RPS Analysis (AEO 2003) with nominal cost cap
    Case 3:   EIA Bingaman RPS Analysis (AEO 2003) with real cost cap
    Case 4:   UCS Senate RPS Analysis (AEO 2002)
    Case 5:   UCS Senate RPS Analysis (AEO 2002) -higher gas prices
    Case 6:   UCS 20% RPS Analysis (AEO 2001)