Energy Finance Report

New Jersey's Proposed Renewable Portfolio Standard- Ambitious, but Uncertain

Posted by Jeffrey Karp on 4/20/16 11:28 AM

Co-authors Emma Spath and Morgan M. Gerard

New Jersey is poised to become a national leader in renewable energy by virtue of pending legislation that would substantially decrease the Garden State’s greenhouse-gas emissions through an ambitious Renewable Energy Portfolio Standard (RPS). An RPS is a regulatory mandate that requires utility companies to obtain a certain percentage of the energy they sell from renewable sources such as wind and solar, or purchase renewable energy credits (RECs) from qualifying energy sources. Recently passed by the State Senate, a new bill would require utilities to source 80 percent of their electricity from renewable energy by 2050.  If the General Assembly passes the bill and it survives the pen of Governor Christie, utilities must procure 11 percent of their electricity from renewables by 2017, with an increase every five years of approximately 10 percent until the 80 percent threshold is reached in 2050.

Although New Jersey passed its original RPS mandate in 1999, and has since updated its program to reach 20 percent by 2020-21 (including a solar energy “carve out” requirement of nearly 4 percent), the ambitious new bill faces an uncertain outcome. First, although the bill already has passed one legislative chamber, the Senate vote was strictly divided along party lines.  Second, the General Assembly, which is the next destination for S1707, delayed voting on a similar Senate bill in December 2015.  However, this General Assembly, like the Senate, has a Democratic majority; thus, it seems likely that the bill would pass.  Finally, the bill faces a veto-threat by Governor Christie, which could be overcome by a two-thirds majority in both houses.  In this scenario, a lack of bi-partisan support could doom the legislation due to a failure to obtain the requisite super-majority vote to overturn a veto. 

The bill also may be perceived as political by some or a “hot potato.” In addition to an increased RPS mandate, the legislation would allow the Board of Public Utilities (BPU) to establish an “emissions portfolio standard applicable to all electric power suppliers and basic generation service providers, upon a finding that [t]he standard is necessary as part of a plan to enable the State to meet federal Clean Air Act or State ambient air quality standards.”  The provision may reflect the State Senate’s desire to assure New Jersey’s compliance with President Obama’s Clean Power Plan, an Environmental Protection Agency (EPA) regulation presently under court review that seeks to limit greenhouse gas emissions under authority of the Clean Air Act.  In an omnibus litigation pending before the United States Court of Appeals for the D.C. Circuit, twenty-seven states, including Governor Christie’s administration, seek to block the Plan’s implementation.  Recently, the Supreme Court stayed the regulation and suspended any deadlines for state compliance until resolution of the litigation.

Another possible objection to the N.J. bill—based on the reaction to a similarly aggressive RPS in California—may be its potential significant implications for the power grid. A review of a study concerning the potential impact of California’s plan to increase renewables to 50 percent by 2030 provides insight into the challenges that such measures may pose. That study found that an aggressive RPS could result in over-generation of renewable energy. The study showed that once California reaches a 50 percent RPS, excess power would be generated for 23% of annual hours.  Such an occurrence could result in grid forecast uncertainty, which is very costly for utilities.  Thus, New Jersey lawmakers instructed the BPU to concomitantly evaluate how to ameliorate solar energy volatility. It may behoove the BPU to also look at longer-term grid strategies to mitigate the substantial increase in renewable energy.  Such viable mitigative methods may include requiring steps such as energy storage, smart inverters with future solar photo-voltaic installations, or encouraging a diverse renewable energy portfolio.  While each of these measures may come with its own political baggage, the consideration of such grid solutions may be the palliative that enables New Jersey to substantially increase its RPS.

Topics: Energy Storage, Solar Energy, Renewable Energy, clean power plan, Wind Energy, renewable portfolio standard, Clean Air Act, New Jersey, Grid Security

S&W Lawyers Filed Legal Brief for Major Brand Companies Supporting EPA’s Clean Power Plan

Posted by Morgan Gerard on 4/4/16 4:25 PM

 

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On April 1, 2016, Jerome C. Muys, Jr., Jeffrey M. Karp and Van P. Hilderbrand, Jr. with the assistance of Morgan M. Gerard filed an Amicus Brief on behalf of Adobe Systems, Inc., Blue Cross and Blue Shield of Massachusetts, Inc., Ikea North America Services LLC and Mars Incorporated in support of the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP). The Motion and Brief, described the challenges that these major brands from diverse industries face in procuring low- and zero- greenhouse gas emitting energy, and the challenges that climate related risks pose to their businesses.

The following press release issued by Ceres is republished below.

Four global brand companies with significant energy footprints in nearly every state in the country are filing an amicus brief today in the U.S. Court of Appeals for the D.C. Circuit supporting the U.S. Environmental Protection Agency’s Clean Power Plan aimed at reducing carbon pollution from the nation’s electric sector.

The signatory companies include Adobe Systems Inc.; Mars Incorporated; IKEA North America Services, LLC; and Blue Cross Blue Shield of Massachusetts, Inc.

Calling the economic risks from climate change “staggering” and citing precipitous drops in renewable energy costs, the diverse companies praise the EPA plan as a viable “national market solution” that will create market certainty and warn of “economic and social disruptions” if it is delayed.

“Companies currently are facing and will face future damage … from rising sea levels and increasing intense weather events. They will also encounter climate-driven impacts to supply chains and agricultural production, as well as unreliable energy supply, decreased labor productivity and threats to public health,” wrote the companies in a 30–page brief, among numerous legal filings from companies this week in favor of the rule. At the same time, “the costs of doing business without a national carbon mitigation strategy subjects the Amici companies to undesirable risks.”

“(We) believe the Clean Power Plan, when fully implemented, would not cause business harm to (our) operations as large energy consumers and purchasers,” the companies concluded. “Swift and full implementation of the Clean Power Plan will directly benefit the Amici companies’ operations.”

“The scale of the sustainability challenges in the world require bold commitments and bold action,” said Rob Olson, Chief Financial Officer, IKEA North America Services, LLC. “IKEA supports long-lasting, robust policies like the Clean Power Plan, which encourage the innovation needed to grow a low-carbon economy.”

“Mars takes climate change very seriously and believes the security of the world’s food supply depends on it. We know we have a responsibility to mitigate the impact of our business on climate change, and we have committed to eliminating fossil fuel energy use and greenhouse gas emissions, minimizing our impact on water quality and availability, and mitigating the impacts of waste by 2040,” said Barry Parkin, Chief Sustainability Officer, Mars, Incorporated. “We know we can succeed faster toward these goals through collaboration with industry, government and non-government organizations, and with the timely implementation of the EPA’s Clean Power Plan.”

"Blue Cross Blue Shield of Massachusetts is committed to reducing our own impact on the environment and creating healthy environments for our associates, members and communities,” said Kyle Cahill, Director of Sustainability and Environmental Health at Blue Cross. “Implementing the Clean Power Plan will bring significant health benefits through improved air quality and helping to address climate change, one of our biggest public health threats today.”

The brief, being filed in advance of key oral arguments before the D.C. Circuit Court on June 2, makes wide-ranging arguments in support of the EPA rule that was placed under “an emergency stay” by the U.S. Supreme Court earlier this year. Among its key points:

    • Relying on traditional fossil fuel power generation is increasingly unattractive to businesses due to its high carbon footprint, consequences to air quality and volatile fossil fuel prices. Renewable energy costs, on the other hand, are falling precipitously and provide more price certainty in the long term since the fuel source is free, making this a mutually beneficial energy source for industry and the planet on which we work and live.
    • Uncertainty around the Clean Power Plan and the future of high-emitting fuel sources, both domestically and globally, makes long-term business planning a “difficult challenge” and unnecessarily prolongs strains on the environment.
    • Most of the country’s largest U.S. businesses, including all of the signatories, have set specific goals to boost renewable energy use in order to “cut costs and hedge the risks of relying on entirely on increasingly volatile fossil fuels.” Keeping the Clean Power Plan on track will stimulate more renewable investments, “long-term price certainty” and improve the quality of public health in the long run. 

About Ceres

Ceres is a non-profit organization that is mobilizing many of the world’s largest investors and companies to take stronger action on climate change, water scarcity and other global sustainability challenges. Ceres directs the Investor Network on Climate Risk, a group of 120 institutional investors managing about $13 trillion assets focused on the business risks and opportunities of climate change. Ceres also engages with 100-plus companies, many of them Fortune 500 firms, committed to sustainable business practices and the urgency for strong climate and clean energy policies. For more information, visit www.ceres.org or follow on Twitter @CeresNews.

Topics: Clean Power, clean power plan, Clean Air Act, Blue Cross and Blue Sheild of Massachusetts, Adobe Systems, Inc., Mars Incorporated, Ikea

Stay of Clean Power Plan Hampers Innovative Strategies to Reduce Carbon Emissions & Obscures Policy Signals for Investment

Posted by Hayden S. Baker on 2/10/16 9:18 PM

Co-authors Jeffrey M. Karp and Morgan M. Gerard

Clean_Power_Plan_Legal_Challenge.jpg

On February 9, 2016, in a 5-4 decision, the U.S. Supreme Court stayed the Clean Power Plan (CPP), effectively halting the rule’s implementation until the D.C. Circuit and, in all likelihood, the high court itself reach a decision on the merits. The CPP is the principal climate change initiative put forward by the Obama administration, and the primary mechanism meant to achieve the goals agreed to in Paris at COP 21. Whatever else may be said of the CPP, it serves as a default national energy policy that would gradually transition the U.S. power sector to lower-carbon electricity generation. Although not a decision on the merits, yesterday’s ruling nonetheless obscures the clarity of that policy, making it more challenging to evaluate energy infrastructure development and investment opportunities in the near term. Thus, the stay not only has stopped implementation of the CPP, it also may halt the momentum and innovation that was starting to build among policy makers and industry.

Although the Supreme Court’s stay is unprecedented, so too is the magnitude of the CPP litigation before the Court. Hours after the regulation was published in the Federal Register, 27 states filed more than 15 separate cases against the U.S. EPA that were consolidated before the D.C. Circuit Court. Eighteen other states, including New York and California, have joined in the consolidated lawsuits in support of the CPP.  

The stay does not impact the hearing on the merits; indeed, the case is already scheduled for argument before the D.C. Circuit in June and the losing side will certainly petition the Supreme Court for review. Yesterday’s ruling does not affect that timeline or the underlying arguments to be advanced. (It is worth remembering that many were surprised that the CPP was not stayed at the Circuit Court level.) However, it does mean that the CPP’s deadlines are in limbo and states are no longer required to submit their state implementation plans (SIPs) in September of this year (or at least request an extension by that time). 

Even though the SIPs would not require any emission reductions until 2022, the process of preparing the SIPs already has sparked innovation among industry and regulators alike as they begin to think creatively about how to transition to a lower-carbon power sector. The CPP brought together federal and state environmental and energy regulators in a way that quite simply had never before happened. The question now is whether these incremental steps toward more innovative energy policy will continue or whether momentum will be lost without the September 2016 SIP deadline on the horizon.

As so often happens with federal environmental regulations – especially the so-called technology-forcing programs – initial complaints about unreasonable costs and unattainable timelines are followed by constructive policymaking and industry creativity. Prior to yesterday’s ruling we saw progress across the country, as even the states most outspoken against the CPP had started to plot paths toward a lower carbon future. 

Some such initiatives were taken independent of the CPP and will no doubt continue, driven primarily by market forces rather than regulatory programs. Take Xcel Energy as an example. In October they announced an accelerated transition from coal-fired generation to renewables, including 60 percent carbon reductions by 2030 – and this is before the submission of any SIP. However, other novel strategies now may stall out. Take West Virginia, one of the lead challengers in yesterday’s ruling.  Just last month, the governor himself was touting a novel strategy for reducing carbon emissions in his state through reforesting idled coal mines. Without the pressure of the 2016 SIP deadline, little political will may exist to advance that initiative.

Nevertheless, as the White House alluded to today, the bigger driver of clean energy investment in the next few years was expected to be the extended Investment Tax Credit and Production Tax Credit, not the CPP. Previously, those incentives have proven very effective at funneling investment into wind and solar. With the extended tax incentives, a backstop is now in place that may buoy financial and technical innovation in renewables while the CPP works its way through its remaining litigation. Still, the difficulty now for investors will be to deploy the capital enabled by those incentives, given the uncertainty created by the Court’s stay and without the benefit of a clear national policy framework to help guide where infrastructure is most needed.   

Topics: Renewable Energy, United States Supreme Court, Investment Tax Credit, clean power plan, renewable energy investment, clean power plan delay, united states energy policy, Climate change, Clean Air Act, scotus, clean power plan stay

U.S. EPA Earns Early Victory in Opponents' Challenge to Clean Power Plan

Posted by Jeffrey Karp on 1/22/16 5:47 PM

Co-authors Van Hilderbrand and Morgan M. Gerard

On January 21, the United States Environmental Protection Agency (U.S. EPA) won an initial victory as the D.C. Circuit refused to grant opponents a stay of the Clean Power Plan (CPP or Rule).

Clean_Power_Plan_Legal_Challenge.jpgThe Rule, promulgated pursuant to section 111(d) of the Clean Air Act (CAA), limits carbon dioxide emissions from existing fossil fuel fired electric generating plants (generating units).  The CPP’s goal is to cut emissions by 32 percent from 2005 levels by 2030, and each state is provided an emissions reduction target. Qualifying state emissions reductions under the Rule generally prompt the retirement of coal plants and the greater adoption of natural gas and renewable resources.  States must submit their implementation plans (SIP) in 2016 demonstrating that they will achieve the requisite emissions reduction by 2022, or request a two-year extension. However, if a state fails to submit an adequate implementation plan by the 2016 due date or request an extension for plan development until 2018, U.S. EPA will assign a federal implementation plan (FIP) that will enable that state to meet its emissions reduction target.

The timing of SIP submittal is a critical element in achieving the Rule’s objective of curbing emissions.  Thus, if the challengers had obtained a stay of the Rule’s effective date, the Agency’s ability to demand compliance by states with the SIP submittal date may have been jeopardized.

Hours after the regulation was published in the Federal Register, 27 states filed more than 15 separate cases against the U.S. EPA that were consolidated before the U.S. Court of Appeals for the District of Columbia Circuit. Eighteen other states, including New York and California, have joined in the consolidated lawsuits in support of the CPP. Although the final disposition of the Plan is still uncertain, the Rule remains in effect unless and until it is set aside by a court.

The opening maneuver of the Rule’s opponents was to request a stay with the goal of halting SIP submittal and U.S. EPA’s authority to enforce deadlines until the court ruled on the merits. The Agency and its allies prevailed in this initial squirmish, as the court found the Rule’s challengers “did not meet the stringent standard to grant a stay pending court review.” The result of the Court’s ruling is that all states must begin preparing to meet the CPP’s requirements or risk EPA’s imposition of a FIP.

Topics: Carbon Emissions, CPP, Clean Power, clean power plan, Environmental Protection Agency, EPA, State of West Virginia v. EPA, EPA Victory, West Virginia, Stay of the Rule, Climate change, Clean Air Act, Section 111(d), Global Warming, Greenhouse Gas Emissions, Stay

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