The Clean Energy Incentive Program

This article will discuss one element of the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan; the Clean Energy Incentive Program (CEIP). As most of you probably know, early this year EPA released the final version of its Clean Power Plan which is actually the first ever Clean Air Act regulation to limit greenhouse gas emissions from existing fossil fuel fired electric generating units. The Clean Power Plan is currently being challenged in court in what amounts to largely political theater but that is a discussion for another day.

In order to understand the CEIP, one needs to understand on a basic level how the Clean Power Plan functions. The Clean Power Plan is what is known as a cap and trade regulation. It sets a “cap,” that is total amount of allowable emissions of a pollutant, in this case greenhouse gases, allocates credits among the various polluters of that pollutant and then allows the polluters to “trade” their pollution credits. At the end of the day, polluters must hold credits equal to the amount of pollution they actually emit.

That is a very simplified explanation. EPA has once again created a program that is so complicated with options and exceptions that it is bound to reduce its effectiveness but that too is a discussion for another day. One example of the complicated nature is that the Clean Power Plan can either be based on a mass limit, that it overall tons of greenhouse gases emitted, or based on an emission rate, that is tons of pollution emitted per megawatt-hour of electricity generated depending upon what the a particular state chooses. I say what a state chooses because like most Clean Air Act programs, EPA creates a national rule with a specific goal and provides suggestions or options for states on how to achieve that goal. States then develop a plan on how specifically to achieve the goal. The states’ plans are subject to EPA’s review. If a state refuses to develop a plan or develops a plan but EPA disapproves it, then EPA is supposed to create a federal plan for that state to fill in the gap left by the state’s failure.

With that background in mind, we can turn to the CEIP which is supposed to provide additional incentives for solar and wind projects and energy efficiency measures in low-income communities in the two years leading up to the Clean Power Plan compliance period. CEIP is one option EPA has given the states to include in their state plan under the Clean Power Plan. If states opt to include a CEIP in their Clean Power Plan, the states would give credits to solar, wind and energy efficiency measures in low-income communities created prior to the Clean Power Plan’s first compliance period. The solar, wind and low-come EE developers can then trade or more precisely sell those credits to a polluter. The exact nature of the credits varies depending on whether the state opts for a mass based or rate based state plan.

One very important point is that if a state uses a mass based plan, including a CEIP will increase the total
credits available and thus increase the total greenhouse gas emissions during the compliance period. This is so because EPA provides additional credits to states that have a CEIP. For example, if a state’s cap under the Clean Power Plan is 100 tons per year of greenhouse gases, it could create a CEIP with 10 tons of credits per year going to solar, wind and low-income EE projects. However, EPA would give the state an additional 10 tons year so that the total state cap would be 110 tons. More pollution is obviously bad. However, the upside to the CEIP is that the solar, wind and low-income EE projects have to come on line before the Clean Power Plan’s cap comes into effect. Thus, the solar, wind and low income EE projects may be reducing greenhouse gas emissions earlier than the Clean Power Plan requires. Another advantage of a CEIP is that without it, utilities and developers may delay clean energy projects until after the Clean Power Plan’s cap becomes effective, so that they can gain all the advantages those projects will have in helping the state keep its emissions under the cap.

Many states are currently beginning the multi-year process of developing their state plan to comply with the Clean Power Plan including deciding whether to include a CEIP. These processes are open to the public both through formal public comment periods and informal opportunities to discuss issues with state pollution agencies officials and elected leaders. Getting involved earlier generally leads to better chance of achieving your desired outcome so renewable energy and energy efficiency advocates should jump in.