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A N 8 8 D 8 B 1 AR SINCE www. NYLJ.com 245—NO. 46 thursday, march 10, 2011

Environmental Law Expert Analysis Increasing Use of Renewable : Legal Techniques and Impediments he current turmoil in the Middle East the Federal Energy Regulatory Commission to and the consequent rise in oil prices set wholesale rates. are highlighting the long-recognized Renewable Standards. Congressional need for the to reduce its By enactments in 2005 and 2007 require motor vehicle dependence on foreign energy sources. Michael B. to include large and increasing content from TheT most promising way to do that is through renewable sources, most prominently corn-based Gerrard increased efficiency in our use of energy. My last . column (Jan. 13, 2011) discussed the legal aspects . Imposing a price on burning of that measure. Today’s column is devoted to fossil fuels, perhaps either under a or the legal aspects of the second most important figure could be met through not only renewable a cap-and-trade system, would reduce their price way—increasing the share of the energy that we sources such as , solar and hydro, but also advantage over renewable sources. Some of the use that comes from renewable sources. through nuclear , with carbon capture considerable revenues that would be generated Currently 83 percent of the energy consumed and sequestration (if and when that comes into could also be used to subsidize renewables as in the United States1 is from fossil fuels. This in commercial application), and (perhaps well as efficiency. turn creates 81 percent of the United States’2 receiving partial credit). Tax Incentives. A variety of tax incentives, emissions of gases (GHGs), is the This would approximately double the portion such as production tax credits and investment tax principal source of urban air , and leads of the nation’s electricity that now comes from credits, are available for certain renewables. to major environmental problems where the fuel such sources, and is generally considered to be Non-Tax Incentives. The largest of these is extracted from the ground. a very ambitious target. Whether Congress will are contained in the American Recovery and Increasing the share of non-fossil energy embrace it is very much an open question. Reinvestment Act, signed into law by Mr. Obama involves a from the fuels that took tens Mandatory Utility Purchases. Electric utilities in 2009, which provided some $80 billion for of millions of years to form under the ground, can be required to purchase renewable energy various kinds of clean energy (though this includes to sources that are constantly renewed. These from those who offer it, thereby removing one substantial funding for and carbon renewable energy sources (with the exception of the chief risks in building a new facility (that capture and sequestration in addition to efficiency of geothermal) derive from the constant influx of it will not have enough customers). The Public and renewables).6 , and (with the exception of certain Government Procurement. The federal uses of ) they emit little by way of GHGs government spends more than $24 billion per and other air pollutants, require no imports, and year on energy purchases, and is the largest are inexhaustible. These renewable energy sources derive volume purchaser of energy-consuming products 7 8 Legal Techniques from the constant influx of solar energy, in the world. The Act of 2005 and Executive Order 13423, issued by President George Several legal techniques have been developed and they emit little by way of GHGs W. Bush in January 2007, require substantial to increase the use of renewable energy. and other air pollutants. purchases of renewable energy by the federal Portfolio Standards. Most states have adopted government. renewable portfolio standards (RPSs), which Research and Development (R&D). Perhaps require electric utilities to supply a certain Utility Regulatory Policies Act of 1978 (PURPA)3 in part because the and the wind are freely percentage of their power from renewable sources. requires electric utilities to interconnect with and available to everyone, and energy efficiency would There are wide variations in the numerical purchase excess power from “qualifying facilities” save a lot of people a little money (as opposed standard and in what sources qualify. (a category that includes many independent to making a few people a lot of money), it has In his State of the Union address on Jan. 25, producers of renewable energy) at the price the been suggested that R&D for renewables and 2011, President called for a “clean utility would pay to generate or purchase the efficiency have lagged behind R&D for oil and energy standard,” under which 80 percent of power. gas.9 The American Recovery and Reinvestment the nation’s electricity would come from clean Several European countries have instituted Act and other sources are providing substantial energy sources by 2035. Under this proposal, the “feed-in tariffs,” which involve long-term contracts funding for R&D for renewables and efficiency, under which utilities must purchase wholesale though these and other federal financial supports power from renewable energy suppliers at prices for renewables are threatened by the current Michael B. Gerrard is Andrew Sabin Professor of that are attractive to the suppliers. Feed-in tariffs budget debates in Congress. Professional Practice at Columbia Law School and are the centerpiece of ’s successful policy Impediments to Growth director of the Center for Change Law, and is to greatly expand its production of renewable senior counsel to Arnold & Porter LLP. He is co-editor of energy,4 and many have advocated their adoption Numerous impediments exist to the growth of “The Law of Green Buildings: Regulatory and Legal Issues in in the United States.5 However, imposing this renewables. Design, Construction, Operations, and Financing” (American requirement on investor-owned utilities raises Intermittency. The largest single impediment Bar Association 2010). difficulties due to the exclusive jurisdiction of to growth in renewables is that most of them are thursday, march 10, 2011 intermittent. The wind does not always blow, and the next forty years: if we build a coal-fired power other laws. Considerable litigation has arisen, the sun does not always shine. Thus, renewables station today, we are meeting the capital costs but typically from neighbors, seeking to prevent the have been thought of as unsuitable for providing leaving our successors over its forty year life to siting of facilities by blocking these required baseload power—the irreducible minimum of meet the large fuel costs and the external costs approvals, using whatever laws and arguments electricity that must be available without fail. For associated with its pollution. When we build a are available, and this has often impeded that, fossil fuels, plus nuclear and some hydro, renewable we are effectively pre- construction. seemed essential. This problem is addressed in paying for the next forty years of electricity from In sum, existing economic and legal mechanisms several ways:10 it.”12 Thus most of the costs of renewables are as well as physical constraints significantly inhibit 1) Storage. It is easy to store fossil fuels, but for up-front capital; they do not have to pay for the growth of renewable energy resources, but much harder to store electricity. The most fuel. A corresponding advantage of renewables, of numerous techniques are available to overcome widespread system used at course, is that they are largely immune from the many of these difficulties. the utility scale is pumped storage: surplus price fluctuations of oil and natural gas, allowing •••••••••••••• •••••••••••••• electricity (usually at night) is used to pump greater certainty in planning. • water up to an elevated ; when there Turnover Rate of Capital Plant. Most capital 1. U.S. Energy Information Administration, facilities in the have a lifetime of Annual Energy Review (August 2010), Table 1.3. is a peak in power demand (or a drop in supply, 2. U.S. Energy Information Administration, Emissions of such as when the wind calms), the water is 25 to 50 years. That means only 2-4 percent of Greenhouse Gases Report (Dec. 8, 2009). released and spins a generator to produce existing equipment needs replacing in a given year. 3. 16 U.S.C. §824-a-3(e), 824(m); see 18 C.F.R. §292.602. Companies are reluctant to retire their equipment 4. Frank N. Laird, Christoph Stefes, “The diverging paths electricity. Other storage technologies under of German and United States policies for renewable energy: development are compressed air storage, before the end of its useful life unless compelled Source of difference,” 37 Energy Policy 2619 (2009). by regulatory requirements, or unless the total 5. See DB Advisors, “Paying for Renewable flywheels, and various advanced batteries. Energy: TLC at the Right Price—Achieving Scale Through If plug-in hybrid vehicles become widespread, cost of the new technology (capital and operating Efficient Policy Design,” December 2009. 13 they can become a dispersed type of electricity costs) falls below the operating cost of the old. 6. Joseph Biden, “Memorandum for the President from the The average age of U.S. generating plants is 40 Vice President: Progress Report: The Transformation to a storage. Surplus electricity can also be used Clean Energy Economy,” Dec. 15, 2009. to hydrolyze water; the resulting years for coal, 22 years for natural gas, and 30 7. Statement of Richard Kidd, Program Manager, Federal 14 can be stored for use in fuel cells. years for nuclear. Program, Office of Energy Efficiency Until these plants are no longer economical and Renewable Energy, Department of Energy, before the 2) Transmission. With enough transmission Senate Subcommittee on Federal Financial Management, to operate, they are unlikely to be replaced by capacity to and from the right places, power Government Information, Federal Services and renewables. (Closure of these plants could be International Security, Committee on Homeland Security can be brought in from remote locations to accelerated if their owners need to pay for GHG and Government Affairs, Jan. 27, 2010. fill in for gaps in generation. 8. 42 U.S.C. §15852. emissions, as through a carbon tax or the purchase 9. Kenneth Gillingham et al., “Energy Efficiency Economics 3) Energy Efficiency and Conservation. of allowances under a cap-and-trade system, but and Policy,” 2009 Annu. Rev. Resour. Econ. 597, 608. These lower the peaks in power demand, the ability to pass these costs through to captive 10. The following discussion draws heavily on North softening the impact of unavailable generation American Electric Reliability Corp., Reliability Impacts of customers dampens the effect.) Climate Change Initiatives: Technology Assessment and resources. Scale and Timing. Some alternative energy Scenario Development (July 2010), and David Lindley, “The Energy Storage Problem,” 463 18 (Jan. 7, 2010). 4) . Many large commercial technologies are still in the demonstration phase. 11. Institute, Estimating U.S. and industrial customers of electricity enter It is a major step to move to commercial scale. Government Subsidies to Energy Sources: 2002-2008 into interruptible power contracts with Once a technology has reached a commercial (Septmber 2009). See also Richard W. Caperton and Sima J. Gandhi, American’s Hidden Power bill: Examining Federal their utilities; in exchange for a substantial scale—such as wind turbines have—it takes quite Energy Tax Expenditures (Center for American Progress, reduction in their electric bills, they agree to a bit of time to build so many units as to make a April 2010). be on call to reduce their power demand in an notable difference in the overall 12. Geoffrey Heal, “The Economics of Renewable Energy,” 15 National Bureau of Economic Research, June 2009, p. 4. emergency. In residential settings, this can be picture. The new energy sources cannot simply 13. Gert Jan Kramer and Martin Haigh, “No quick switch to done automatically by, for example, sending be plugged into the transmission grid; extensive low-carbon energy,” 462 Nature 568 (Dec. 3, 2009). out a signal to lower the , or 14. North American Electric Reliability Corp., Reliability changes may be needed to the grid system to Impacts of Climate Change Initiatives: Technology 16 delay the operation of the dishwasher, at accommodate them. Moreover, some specialized Assessment and Scenario Development (July 2010), p. 51. times of peak electric load. minerals and other materials are needed for certain 15. See Richard A. Kerr, “Do We Have the Energy for the Next Fossil Subsidies. Transition?” 329 Science 780 (Aug. 13, 2010). The federal government has renewable technologies, and their availability in 16. Timothy P. Duane, “Greening the Grid: Implementing long provided numerous subsidies (whether in the the necessary quantities is uncertain.17 Climate Change Policy Through Energy Efficiency, Renewable form of direct spending or forgone revenues) to Siting and Environmental Impacts. Though Portfolio Standards, and Strategic Transmission System Investments,” 34 Vermont L. Rev. 711 (2010). the industry. More recently it has also renewables (other than biofuels) have minimal 17. David Fridley, “Nine Challenges of Alternative Energy,” begun heavily subsidizing renewables. According GHG emissions, they all have certain other in and Daniel Lerch, eds., The Post Carbon to a study by the Environmental Law Institute, for environmental impacts. Each presents its Reader: Managing the 21st Century’s Crises (2010). the period 2002-2008 federal subsidies to fossil own concerns. Wind turbines elicit aesthetic fuels totaled approximately $72 billion; those to objections as well as concerns over avian renewables totaled $29 billion, but almost half of impacts and noise. Solar collectors cover large that was for corn-based ethanol.11 areas of land and require much water to keep the Most of the largest subsidies for fossil fuels pipes cool and the reflectors clean. Geothermal are written into the U.S. Tax Code as permanent facilities may use large quantities of water. The provisions. Many subsidies for renewables are life cycles of biofuels raise numerous issues in implemented through temporary enactments the growing, processing and transportation of and only last for a few years (sometimes only crops. harms aquatic life. Tidal, one), greatly reducing their usefulness as a wave and current energy may have spur to investment. Mr. Obama has proposed uncertain aquatic effects. All of these facilities elimination of federal subsidies to the oil need to be connected to the users of the . by a transmission grid, which usually involves Capital Availability. Most renewables have low crossing large swaths of land with overhead operating costs because their source of energy is wires. free. (Biofuels are the notable exception.) In the New energy generation facilities (whether words of Professor Geoffrey Heal, “If we build a renewable or fossil) all require approval from at Reprinted with permission from the March 10, 2011 edition of the NEW YORK LAW JOURNAL © 2011 ALM Media Properties, LLC. All rights reserved. Further duplication wind (or other renewable) power station today, least one and often several levels of government, without permission is prohibited. For information, contact 877-257-3382 or reprints@alm. we are providing free electricity to its users for based on a variety of environmental and com. # 070-03-11-15