Renewable Portfolio Standards

Promoting Green Energy: The Free Market Approach vs. The Public Policy Approach

The mainstream environmental movement has put a lot of its resources into promoting "green" energy through a market-based approach rather than a public policy approach. The market-based approach is characterized as the voluntary purchasing of "green" power products, which nearly always cost more than buying only conventional power. A public policy approach can take several forms, but usually is done through state or federal laws that provide tax credits or purchasing requirements to "renewable" forms of energy. Purchasing requirements can apply to the state or federal government, requiring them to buy certain types of electricity or they can require sellers of electricity to have a certain percentage of "renewable" power in their mix. The latter type is known as a Renewable Portfolio Standard (RPS). As of September 2007, 26 states have RPS policies as a matter of state law (and 4 others have a "goal").

The environmental and social damage caused by continued reliance on nuclear power, fossil fuels, hydroelectric dams and "biomass" incineration is extreme. If we're to act with the urgency that these environmental hazards demand, we must pursue strategies that do more than make people feel good while creating comparatively little change. RPS policies have a much larger effect on the energy supply than volunteer purchasing can, even if we get large institutions like colleges and universities to start buying "green" power.

RPS vs. Volunteer Purchasing Approach

There are serious limitations to the volunteer purchasing ('free market') approach to supporting clean energy. Just as we cannot expect that people who pay more for organic food will cause all food production to become organic, we cannot expect that voluntary approaches will be sufficient to clean up our energy supply, since only a tiny percentage of the energy supply can be affected by volunteer purchasing. We advocate strong public policies, such as tax credits and Renewable Portfolio Standards for wind and solar development.

In 2002, Green-e certified "green" power sold in the U.S. totaled 1,926,000 MWh (megawatt hours). Of this, 1,208,000 MWh (63%) was NEW renewable power. Of these 1,208,000 MWh, 24% was dirty, combustion-based "biomass" power (mostly from the burning of toxic landfill gases). This leaves 923,040 MWh of CLEAN, NEW renewables supported by the free market approach. These clean, new renewables were nearly all wind, with a fraction of a percent (0.11%) coming from solar.

While George W. Bush was still governor of Texas, he signed a Renewable Portfolio Standard bill into law. The Texas RPS law caused the dirty large utilities in Texas to have to invest in renewable energy. They opted for the cheapest renewables defined under the bill. Thanks to cheap and plentiful wind resources in West Texas, the utilities turned to wind power to meet their new requirements, making Texas second to California in wind generation and causing more wind power to be installed in Texas (912 MW) than in the rest of the U.S. combined (775 MW) in 2001.

As a point of comparison, this new wind generation in Texas produced 2,451,484 MWh in 2002, exceeding sales of all Green-e certified new, clean renewable power sold nation-wide in 2002 by 2.7 times!

2002 is the first year that Green-e products - on average - were largely new and clean, thanks to the new trend towards buying wind certificates. In 2001, only 26% of Green-e certified power was new and only 42% of that new power was clean. Comparing the Texas wind production in 2002 to sales of Green-e products in 2001, Texas outpaced Green-e sales of new, clean renewables by 22 times.

Unfortunately, many of the RPS laws in other states allow existing and dirty "renewables" to qualify. However, some stronger RPS bills have been put forth. A model RPS bill - the strongest and cleanest in the nation - was introduced in the Pennsylvania Senate in early November 2003.

A 1% RPS requirement in Pennsylvania (required in year two of the timetable in PA Senate Bill 962) would require 1,543,793,000 MWh in 2007 - most of which would have to come from clean, new renewables. Such a requirement exceeds what can be expected from voluntary purchasing in a nation-wide green energy marketplace... and the Pennsylvania bill's requirements would go up to 9% over 10 years.

The severe limitation of the volunteer purchasing approach can be demonstrated with some simple math:

Residential consumers represent only 36.8% of electric demand. Commercial and industrial users make up the rest. For the most part, the green energy marketplace is limited to the residential sector. There have been some prominent examples of companies, government bodies, colleges and universities purchasing green power, but the overall market is largely confined to residential customers, since business and industry as well as cash-strapped state and local governments and schools are not as likely to pay more for benefits that aren't reflected in their bottom line. Where green power options are made available, only about 1% of residential customers have been willing to pay for "green" power, affecting a total of 0.37% of the electric supply (if we assume that this is happening nation-wide, even though the marketing has been focused on a minority of states). Add to this some optimistic assumptions about the commercial and industrial sectors and you're up to 0.41% of the electric supply being affected. And now for the bad news... Since only 63% of green energy products are NEW generation, only 0.25% of the electric supply is really being affected by volunteer purchasing in this optimistic version of reality. Of this 0.25%, only 76% is clean wind (and solar) power. The rest is largely dirty "renewable" generation. Thus, the green energy marketplace -- if it were nation-wide -- is affecting 0.19% of the electric generation system in a positive way.

Every year, electric demand in the U.S. increases by nearly 2%.

Even if we re-run the previous scenario with super-optimistic numbers, saturating the green energy marketplace by getting every possible individual, school, government and business to buy green power, the overall scenario isn't too pretty. Let's assume that the entire U.S. is involved and that a full 5% of residential customers opt to pay more for green power. Let's also assume that the commercial and industrial sectors respond at 25% of the residential response (1.3% of all commercial and industrial customers). These assumptions have come from "High Growth Scenario" of a 2001 report by the National Renewable Energy Laboratory ("Forecasting the Growth of Green Power Markets in the United States"). So far, we're affecting 2.63% of the electric supply. Now, let's add to this some super optimistic numbers for the type of green power product. Let's assume that the standard green energy product contains 90% NEW renewable content (much higher than the 63% rate from 2002). Let's also assume that 100% of the new renewables are CLEAN - wind and solar, no biomass incineration (also about twice the real rate). This leaves us with a saturated national market supporting 2.37% of the electric mix being clean, new power. It would take years to build up to such an optimistic marketplace, but in any single year, the increased electric demand comes close to this number and that demand is being met by new natural gas power plants, increased capacity at nuclear reactors and recently, proposals for new nuclear and "clean" coal plants.

We can't expect a strategy of voluntary purchasing to stop the dirty power system we have. We can't even expect it to keep pace with the annual increase in electric demand. We need a strategy that goes further and faster. Public policy measures do this.

On the national level, the only RPS being seriously considered is one that almost got included in the much larger energy bill that narrowly avoided passage in November 2007. A majority of U.S. Senators have expressed support for it, but it may be excluded from the bill by Democratic leadership who worry that it'll be too controversial to survive a filibuster or presidential veto. There are two huge problems with supporting a national RPS. First of all, the RPS that would be passed in this Congress would have a dirty definition of renewables -- one that includes burning of toxic landfill gas and poultry waste and which may even be amended to include trash incineration as renewable "biomass" energy. This poses major environmental justice concerns. The other main problem is that if the RPS bill passes as part of the larger energy bill, the promoting the policy could help pass the subsidies for nuclear power, coal and agrofuels which are also likely to be included in the 2007 energy bill.

This leaves to us the state level for public policy energy advocacy and the local level for market-based strategies.

Why still work on market-based strategies if they don't make much of a difference?

Local campaigns for wind and solar energy purchasing are important in two ways. Since the wind and solar energy industries are still quite small, anything that builds demand for new wind and solar photovoltaic generation helps bring the price down further. The cost of wind is starting to come within the range of conventional fuels. In some parts of the country (like Texas), it's recently been cheaper to build new wind turbines than an equal amount of new power from natural gas. Solar photovoltaic (PV) panels are still about 5 times more expensive than most other forms of electricity, but the costs have been dropping over time, just like the cost of wind has. As we build the market and as wind turbines and solar PV start to be mass produced, the cost will drop, making it more likely that power companies and consumers can opt to support clean energy without paying a premium for it.

The other benefit of the market-based strategies is that ANY visibility brought to the wind and solar industries helps show politicians that these technologies work and are viable. Despite the small amount of power created so far by market-promoted clean power, the visibility has enabled politicians to look more favorably upon them and this increases the chances of getting larger change made through the passage of laws creating tax-credits or Renewable Portfolio Standards.

Increasing demand for green energy in your community is only a means to the more effective goal of passing state legislation. While working towards local purchasing, it’s important to also lend support to larger legislative campaigns. Keep good goals on your agenda, pay attention to the details and work for the best. Our lives and the planet deserve nothing less.

Links

• Democracy and Regulation
• The Failure of Electricity Deregulation by Public Citizen
• Deregulation Kills: Emissions Trading, Electricity Industry Restructuring, and Investment in Pollution Abatement