Top ten ideas for developing a sound energy policy

On June 2, President Obama announced his Clean Power Plan for Electrical Generation Utilities. In the plan, EPA proposes to provide states with regulatory flexibility to meet a proposed national goal of a 30% reduction of CO2 emissions from electrical generation utilities by 2030. Given the recent announcement of the Administration’s energy program for carbon reductions, it is a good time to discuss energy policy.

In 1964, Fritz Schumacher, an English energy economist, had this to say about the importance of developing sound energy policy: “There is no substitute for energy. The whole edifice of modern life is built upon it. Although energy can be bought and sold like any other commodity, it is not ‘just another commodity,’ but the precondition of all commodities, a basic factor equally with air, water and earth”.

Given the fact that a significant share of the world’s GNP is now generated in developing economies and significant sources of oil are located in politically unstable areas, the globalization of energy is the new strategic threat for the 21st century. The failure of our political leaders to develop a sound energy policy is troubling given these disturbing world-wide energy trends.

Here are some ideas for developing sound energy policy for our political leaders in Madison and Washington to consider in order to meet the energy policy challenge.

1. “Keep it simple.” Installing renewable energy projects is quite complex and intimidating for interested parties. It would be useful if standard programs could be arranged that take advantage of economies of scale for installation in neighborhoods. An example is the Solar Group Buy Program offered by the City of Milwaukee.
2. “Make Friends, not Enemies.” The strained relationships between advocates of renewable energy, energy efficiency and the utilities need to be repaired. Creative thinking to find “win-win” strategies would help. Examples include allowing utilities to obtain a rate of return on investing in customer renewable energy and energy efficiency projects.
3. Waste Depletion Allowance. This state should award a tax credit in the amount of the avoided tax in tipping fees for landfills if waste material is used to generate electricity in Wisconsin. Waste to energy projects using digester and pyrolysis technologies that convert waste to energy should be accorded tax credits in the amount of the tax assessed against land filling material if this waste material, used in these energy projects would otherwise be land filled. In a way similar to how the oil depletion allowance stimulates oil production through a reduced tax, a Waste Depletion Allowance would stimulate energy projection using waste as a source for energy production.
4. Pipeline to Security. The Keystone pipeline should be approved by President Obama. In the 1980’s, the Alaskan pipeline opened up 2.1 million gallons per day of petroleum and served to blunt the national security concerns presented by reductions in oil imports caused by the Iran/Iraq war. The approval of the Keystone pipeline is critical to secure sources of petroleum from a friendly neighbor to the north; thereby substantially reducing the national security threat presented by our country’s reliance on oil in the in the politically unstable Middle East.
5. “John Maynard Keynes Cleans.” One authorized strategy for States to meet the announced goal of the 30% reduction for CO2 emissions in the June 2, 2014 Clean Power Plan involves trading in carbon offsets to meet carbon caps. Market-based principles for encouraging pollution reduction in clean energy production have been successful. If a company can make money by reducing its pollution more than is required by law, the more efficient pollution reducer should be able to trade the increase reduction to another emitter who will pay for it as an offset against its emission requirements. The VOC trading program for ozone nonattainment and SO2 reductions in the electrical generation segments are good examples of successful, market-based programs that work. More regulatory innovation should take place to encourage market-based trading solutions of this type which would encourage the development of clean energy sources. The proposed strategy for trading carbon offsets in the Clean Power Plan is a step in the right direction.
6. Energy Efficiency is Rate Efficiency. It is much less expensive to encourage efficiency than to build new supply capacity. Programs should be designed to incentivize the utilities to promote energy efficiency rather than just returns on capital intensive base load projects.
7. “There is no such thing as an original idea.” Setting up successful sustainable energy program in Wisconsin should be based upon successful energy programs in other markets. Wisconsin policy makers can learn much from the triumphs and failures in other similarly situated markets.
8. “R&D for IOUs.” The regulators need to find a system in the rate based approach to utility regulation to incentivize investor owned utilities to invest in research and development. Unlike other industries, the “cost plus” model for rate regulation does not provide an incentive to innovate. The boiler and turbine technology used for base load generation has been around for almost a century. A rate system that rewards innovation in the utility sector could be a “game-changer” for promoting clean tech in the industry. The Clean Power Plan’s proposed requirements for a 30% reduction in carbon emissions may also drive much-needed technology innovation in the industry.
9. “Lies, Damn Lies and Energy Lies.” The last time this country tried to formulate a National Energy Policy was when Carter was president. James Schlesinger headed this effort in the first 120 days of the Carter Administration. He quoted the former Chairman of the Atomic Energy Commission with this phrase to describe the amount of misinformation that is introduced in any debate on energy policy. Schlesinger was so frustrated by the special interests that fought against this national effort that he described it as the political equivalent of Chinese Water Torture. It will be interesting to see if the same process applies to the future discussion about the Administration’s Clean Power Plan.
10. “Fed up with the Feds.” A state by state approach to regulation in the energy sector has been a patch work quilt of minor success with little innovation. This country needs a national energy policy that could drive and reward innovation in our states. For example, a national policy that encourages energy efficiency in our buildings through innovative and simple tax law changes could provide enormous returns of reducing energy costs as a percentage of GNP. We cannot move forward as a country without leadership in Washington. The recent announcement by the Obama Administration of the proposed federal Clean Power Plan is a step in the right direction. “Something” is better than “nothing”.

In his seminal book on energy titled “The Prize,” Daniel Yergin highlights the following current trends which, without a sound energy policy to contain them, will result in turmoil in the energy markets: the developing world surge in demand, the ‘internationalization’ of energy companies, climate change and energy insecurity. In the face of these trends, our political leaders must act now to develop a sound energy policy. The development of that policy is critically important not only for our economic, but also for our political security.

Art Harrington is a lawyer at Godfrey & Kahn S.C. and teaches energy law at Marquette University Law School.