Clean-Energy Bill Will Have Little Impact

The proposed American Clean Energy and Security Act, currently being debated in Congress, calls for a 17 percent reduction in carbon dioxide emissions below 2005 levels by 2020 and an 83 percent reduction by 2050. But even though the bill provides $75 billion in direct loans and other financial support for clean-energy projects, it is unlikely to spur much new investment in renewable energy in the near term.

An earlier draft of the legislation required that 25 percent of the electricity produced by most U.S. utilities come from renewables by 2025. The version of the bill that the House passed in June is far less ambitious. Fewer utilities are affected, and they must meet 20 percent of demand with a combination of renewable sources and efficiency improvements by 2020. States can petition to let utilities get up to 40 percent of the way to this target through energy efficiency.

The U.S. Environmental Protection Agency estimates that when these and other potential loopholes are factored in, the portion of electricity that must come from renewables by 2020 might actually fall as low as 8 or 9 percent. Considering that 27 states and the District of Columbia now mandate much greater use of renewables, the result is a bill that “will have no substantial impact on driving renewable-energy demand until, at the very earliest, 2015 or 2016,” says Ethan Zindler of the research group New Energy Finance.

The most controversial part of the bill is a cap-and-trade scheme designed to put a price on carbon emissions. A ceiling will be set on emissions, and emissions rights will be allocated to manufacturers and utilities. The ceiling, or “cap,” will be lowered over time, making allowances scarcer and more valuable. The allowances can be traded, theoretically motivating companies to invest in renewables; those that do so won’t need all their allowances and can profit by selling the excess. Under the House bill, however, the program will begin by giving away more than 80 percent of the allowances, many to coal-burning utilities. That minimizes the incentive for swift investment in zero-carbon energy.

The EPA projects that the scheme will price carbon at $13 per ton by 2015 and $16 by 2020. “Those prices are not going to be high enough to [provide an incentive to] deploy renewables,” says Tom Vinson, director of federal regulatory affairs for the American Wind Energy Association. Instead, he says, it will be cheaper for utilities to manage their carbon emissions by converting from coal-generated power to cleaner fossil fuels like natural gas.

Similar problems have afflicted the European Union’s cap-and-trade scheme, which has failed to demonstrate any significant impact on emissions. With carbon prices below 20 euros a ton, the scheme has produced little additional investment in renewable energy since it was introduced in 2005.

At press time, lobbyists on all sides were focusing on the Senate, which seemed to be even less inclined toward a strong energy bill than the House. One promising sign: a revenue-neutral carbon tax, the proceeds of which would return to taxpayers through payroll-tax deductions, was gaining possible favor as an alternative to the flawed cap-and-trade scheme.