Tapping the Laboratories of Democracy

September 27, 2004 - RE Insider -

The United States' people, are somewhat homogenized in their needs and resources at the very large scale; this is what enables us to make major national policy on things like healthcare and defense with relative ease. However, our national geography is radically divergent; our wide variety of climates and energy resources will always limit the applicability and reach of a domestic national energy policy.

Accordingly, state governments, regional entities such as the Western Governor's Association, and even municipalities like Austin, Texas have stepped into the void, crafting their own pro-renewables policies in what seems to be a steady and growing trend.

This is understandable, as dealing with these sorts of issues has always been one of the reasons behind state government prerogatives. What's more, it could be a real boost to the renewables industry, for two reasons: polls suggest that the average US citizen is "greener" than the current US Congress. There is a structural advantage as well; state governments tend to be more responsive than the federal government to the grassroots support enjoyed by renewable energy, while they receive comparatively less focused and intense lobbying attention from conventional energy interests.

This presents an opportunity for the design of excellent and improving renewables policies, provided we maintain sufficient flexibility as we progress. The key is to resist attempts to calcify existing policy paradigms as "one size fits all" solutions for every state, and to ensure that any new national policies are compatible with aggressive state efforts.

Over the past several years, the desire of state policymakers to advance renewable energy has tended to emerge in the form of renewables portfolio standards (RPS). These policies state simply that utilities must provide evidence of X% renewable generation by date Y, or pay penalty Z. The state then sets a standard of proof of adequate generation (usually in the form of renewable energy credits having specified criteria,) and creates a "compliance market" in which regulated entities and other actors can sell and trade these credits.

The RPS is a very trendy vehicle in large part because it's so easy to understand. There's also an ideological appeal to many of mandating the ends, while letting the market determine the means. In this way, the RPS resembles "cap and trade" mechanisms originally developed for the large-scale air pollutants SO2 and NOx. These mechanisms have had real success in limiting these pollutant output at low prices.

However, the policy as applied to renewables can become incoherent in the absence of careful design. "Cap and trade" mechanisms work because they use the market to do what it does best: optimizing one variable while minimizing another. In the case of air pollutant regulation, this means decreeing an acceptable level of NOx in the atmosphere, and then letting the considerable incentives and resources of the free market push down cleanup cost.

However, a simple "cap and trade", mechanism for renewables assumes that there is one attribute: renewable energy capacity that we wish to maximize. This is not the case. We are not proposing to remove just one pollutant into one global atmosphere, nor are we pushing out one unit of homogenous renewable energy capacity into the electrical grid.

What we are doing is promoting a constellation of attributes commonly associated with renewable energy - public health, peak reduction, transmission attributes, higher associated employment, regional energy economics, energy independence, etc. Since all of these attributes are produced by different technologies at different rates, there is no one variable we are seeking to optimize; it is therefore simply bad design to assume that a "barebones" RPS is the most desirable policy.

We should instead be conscious of each states' individual needs as we design policies, and ensure that we have defined our goals with adequate resolution. Many states' or regions' individual circumstances, (for instance high electrical rates, intense sunlight, a desire for diverse power system attributes, environmental justice or urban power concerns, or even historical bases in certain types of manufacturing) have led them to include a "solar share" in their RPS, or to couple an RPS with other financial incentives for solar. Doing so is an excellent means of serving state and local policy needs.

Unfortunately, all RPS, and specifically those with shares dedicated to the development of specific technologies (in recent examples, solar, fuel cells, and distributed generation in particular,) face strenuous ideological objection. The most frequently encountered objection is that these policies interfere with the free market by "picking technology winners."

Unfortunately, even as the confusing juggernaut of electric deregulation surges forward, there is still nothing like a free market for most electrical customers. Effectively, electric prices are still as likely to be negotiated in the back rooms of a legislature or the chambers of an administrative law judge as they are to be determined in the market. Fuel costs are controlled by governments at every level all the way from transnational cartels (OPEC) to municipal gas taxes. Transmission siting, offshore leases, pipeline assistance, subsidized nuclear disaster insurance; the degree to which the government is involved in "picking winners" in the energy market is a subject far too immense for this column.

As a community, then, we should not be deterred by specious economic arguments from advancing an RPS; or from altering such a standard to ensure that the public receives the full constellation of benefits they desire from renewable energy.

As Justice Louis Brandeis once said, the states are the "laboratories of democracy;" we should employ their full capacity to develop ideal outcomes for the nation. Rather than ignoring states' recent development of unique mechanisms for multi-renewable development, we should extend them to other arenas - putting in technology shares, coupled tax incentives, and SBC-Like Tiers as appropriate so that all renewables truly benefit from an RPS.

The RPS is a young idea at both the state and national level. We should not treat it as a calcified, ideal policy, perfect in its minimalism and immune to examination. We should instead look to the example of innovative states as we determine how best to advance renewables nationwide.

About the author...

Colin Murchie is Director of Government Affairs at the Solar Energy Industries Association, and a 1998 graduate of Cornell University's Natural Resources Policy, Management, and Human Dimensions program. To get away from the stress of the renewables industry, he also works as an improvisational comedian and volunteer EMT.