Congress & Reconciliation: Why This New Clean Energy Program Matters

Originally published by Union of Concerned Scientists, The Equation.
By John Rogers

With its passage out of a key committee in the House of Representatives last week, the Clean Electricity Performance Program (CEPP) is a step closer to reality, as part of the powerful budget reconciliation bill (the Build Back Better Act). The bill, and that provision, still have a ways to go to get through Congress, as the House and Senate negotiate a final package. But it’s really important for clean energy to have this and complementary pieces moving — and even more important to get strong versions of them across the finish line.

To understand why, consider how the current design of the CEPP component answers the questions we had recently offered for gauging the robustness of the policy. The good news is that there’s a lot to like in what our elected representatives have laid out so far, and a whole lot to want to defend as its legislative journey continues.

And as for those five questions … the answers are very close, quite possibly, check, TBD, and yes. Here’s how the House language stacks up.

Would the targets be as strong as needed? Very close.

While “as needed” is tricky, since we need much more globally than has been put on the table so far, one useful benchmark might be the current US commitment under the Paris climate accord (50- to 52-percent reductions in heat-trapping emissions below 2005 levels by 2030), and specifically the power sector implications of that (approximately 80-percent clean electricity).

The focus of the CEPP is retail electricity providers — investor-owned utilities, municipal utilities, electric cooperatives, and third-party retail electricity providers in states with competitive power markets. The CEPP that passed out of the House Energy and Commerce Committee (E&C) would reward those providers that increased their clean electricity supply by at least 4 percentage points in a given year (or per year, given some multiyear flexibility written into the plan). And it would collect payments from those that missed that benchmark.

That level of annual growth across the board, coupled with other complementary programs moving through the Build Back Better Act, such as clean energy tax incentives, would get us most of the way to the national target of 80 percent by 2030, according to analysis by the Rhodium Group. And the CEPP as envisioned provides a strong incentive for providers to beat that 4-percent-per-year level of growth to get us the rest of the way, together with all the clean energy pushes from states, utilities, companies, institutions, and households.

Would there be enough funding to power the transition? Quite possibly.

The early stages of the budget reconciliation process had the House and Senate approve the key top line number of $3.5 trillion, plus the allocations to the various committees. That resulted in $150 billion carved out for the CEPP within the portion the E&C is shepherding.

Is that sum enough? The performance grants for providers hitting the 4-point target would be $150 per megawatt-hour (MWh) of increased clean energy above a certain level. And that math — $150/MWh times the number of MWh needed to get to 80-percent clean electricity — works out pretty well, coming in close to the $150 billion.

So the next question is whether the resulting credit (including avoided payments for coming in too low) is enough to motivate providers to make the necessary push — and make the transition as easy and affordable as possible for customers. That level of incentive should make the willingness to invest in new renewables (directly or indirectly) at the pace and scale required all the more powerful.

So grants at that level under the CEPP could be a powerful complement to the extensions of the tax credits also included in the House reconciliation package to drive high levels of clean energy deployment.

Would the funding be used well? Check.

The current House text is explicit about what a provider can do with the performance grants it earns: use it “exclusively for the benefit of the ratepayers.” It then includes examples, such as direct bill assistance, clean energy and efficiency investments, and worker retention.

We agree: The CEPP grants should be used for purposes that directly and solely benefit the public by achieving the transition to clean electricity at a low cost and for maximum gain to consumers. So that’s good, strong language.

And it can be built on. We’ve recommended to lawmakers that they further specify allocation of the resources to ensure that this policy is doing its part to meet the administration’s Justice40 effort aimed at getting at least 40 percent of the benefits from federal investments to flow directly to disadvantaged communities.

Another clause in the E&C bill helpfully addresses the penalty portion for providers that don’t make the threshold in a given period: The legislation would let those payments be recovered only from “shareholders or owners.” That stipulation is particularly important in the case of investor-owned utilities.

Will it drive the cleanest sources? TBD.

As I’ve noted before, there’s low-carbon energy and then there’s really clean energy. Wind and solar would be the overwhelming favorites for providing the bulk of the new electrical capacity fueled by the CEPP. But the House does leave the door open to other options.

The E&C bill doesn’t spell out particular sources for inclusion or exclusion, instead setting a carbon intensity target — the maximum carbon pollution (carbon-dioxide equivalent on a 20-year global warming potential basis) per unit of electricity allowed for a source to qualify.

The good news is the House’s carbon intensity target is potentially quite strong, if it includes the emissions from the fuel supply (“upstream” emissions), although that isn’t clear from the current bill language. If upstream emissions are in there (again TBD), any fossil fuel generation would need a pretty high level of carbon capture and storage to count for the CEPP. A colleague has estimated that, with those upstream emissions included, coal or gas plants would need to capture and store at least 80 to 90 percent of their carbon dioxide emissions.

But the legislation needs to be clearer about those upstream emissions indeed being in the calculations. And the Union of Concerned Scientists (UCS) also has recommended other changes to make sure this section is as strong as it needs to be:

• explicitly excluding particular sources, such as municipal solid waste incineration and conventional natural gas generation;
• prorating performance grants for resources that meet the carbon intensity standard but are still above zero; and
• putting in place strong guardrails for bioenergy, hydroelectric, carbon capture and storage, and nuclear projects to address other environmental and fuel-cycle impacts.

Would all electric utilities be covered? Yes!

This one is maybe the most straightforward. The E&C language seems quite clear that all retail electricity providers, regardless of type or size, would be covered. That’s good news, because it means that all electricity customers would benefit from the transition to clean energy.

Stronger is better

So a strong performance by the House Energy and Commerce Committee, with a few things to strengthen and a lot worth defending as this piece continues through Congress.

And all this is in the context of maintaining the crucial top line $3.5-trillion number — and the boldness needed for a “rapid, just transition to clean energy.”

Be assured that UCS will continue to push for the reconciliation package as a whole — and you can, too, by contacting your members of Congress. And we also will continue to weigh in to make sure that the Clean Electricity Performance Program lives up to its full promise and becomes a powerful tool for our clean energy transition.

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