A Comprehensive Approach to Setting Clean Energy Standards for the Electricity Sector April 2009

As the Obama Administration and Congress consider approaches to promote clean energy and reduce greenhouse gases in the electricity sector by 2020 and beyond, the optimum approach includes three clean energy policies – an Energy Efficiency Resource Standard (EERS), a Renewable Electricity Standard (RES), and a cap, or limit, on carbon and other heat-trapping emissions. An EERS and an RES are similar; they each require electric power companies to provide increasing amounts of efficiency and renewable energy, respectively. An economy-wide carbon cap would limit heat-trapping emissions from all major sectors of the economy, including electricity, coupled with the ability to trade emissions credits. Both an EERS and an RES can reduce the costs of a carbon cap, basically returning wholesale electricity prices in 2025 to where they would be without any cap in place. The current congressional strategy of combining energy and climate legislation in one bill provides a golden opportunity to recognize the beneficial synergies of a comprehensive “Three Pillars” approach that includes:

• • An Energy Efficiency Resource Standard to reduce electricity usage by at least 15% and natural gas usage by at least 10% by 2020
• • A Renewable Electricity Standard to increase renewable energy production to at least 20% by 2020
• • A cap that would cut heat-trapping emissions by at least 35% below current levels by 2020 and at least 80% by 2050.

This comprehensive approach would establish the price signal needed to begin the transformation to a low-carbon economy while simultaneously containing costs and removing barriers that impede market uptake of efficiency and renewables. The “Three Pillars” approach for electricity is:

• • Affordable – It yields the lowest cost for consumers to both reduce heat-trapping emissions and meet future electricity needs by reducing energy demand, substituting clean renewables for fossil fuel plants that will require expensive retrofits or replacement as the cap tightens, and reducing wholesale electricity and natural gas prices.
• • Practical – It eliminates market barriers that will prevent cost-effective efficiency and renewables from entering the market, even with a carbon cap in place.
• • Fast – It builds on the initial investments made in the American Recovery and Reinvestment Act to facilitate rapid investment in the cheapest clean energy technologies available today – efficiency and renewables.
• • Long-Term – It sends market signals to invest in research, development, and deployment of more expensive, longer-term, or unproven technologies to limit carbon emissions from electricity generation – including carbon capture and storage and efficiency and renewables technologies still in the R&D phase.
• • Proven – 13 states, including California, Colorado, Connecticut, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Rhode Island, Vermont, and Washington have already adopted (or are actively considering) approaches just like it – showing that a comprehensive approach to climate and energy policy works.