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US House panel recommends 4% annual clean energy gains in budget reconciliation measure

15 September 2021 Amena Saiyid

The US House of Representatives Energy and Commerce Committee pushed through a proposal on 14 September requiring utilities and other retail power suppliers to make 4% annual increases over a 10-year period in their clean energy portfolios to receive federal payments or face penalties.

Over the opposition of Republicans, the Democrat-controlled committee voted 30-27 to recommend that a Clean Electricity Performance Program (CEPP) be created under the Build Back Better Act legislation that the committee released 9 September to implement President Joe Biden's climate goals. The recommended provisions from this legislation will be folded into the $3.5 trillion budget reconciliation measure that the full House plans to take up by 27 September.

The recommendations now head to the House Budget Committee enroute to a full vote before the full House.

"The Build Back Better Act will create a clean energy future that produces millions of good paying jobs right here at home," Committee Chairman Frank Pallone, Democrat-New Jersey, said at the start of the committee's debate and vote on the bill.

In contrast, the committee's top Republican, Representative Cathy McMorris Rodgers of Washington, slammed the legislation, calling it a "Build Back More Inflation Act," and stopped short of acknowledging the climate change-related causes of hurricanes that Pallone said one-in-three Americans are experiencing already.

Instead, Rodgers focused her remarks on the recovery from Hurricane Ida, which slammed Louisiana and Mississippi in late August, warning the American public to expect more "blackouts, unaffordable electricity bills, tax hikes, entire American industries and jobs destroyed" as a result of the legislative guidelines.

The Democrats' legislation also includes billions of dollars for expanding the transmission grid, boosting adoption of electric vehicles (EVs), improving the energy efficiency of buildings, and reducing GHGs through pollution reduction programs backed by state and local financing institutions.

In addition, the bill includes a methane emission fee, which the committee recommended 13 September, again along party lines, as part of the Build Back Better Act. Biden sought this methane emission fee and it is similar to legislation approved 9 September by the House Natural Resources Committee, again over the opposition of committee Republicans.

The fee, if adopted, would be imposed on drillers, pipelines, and other oil and natural gas facilities that fail to plug leaks of methane, a GHG that is at least 80 times more potent than CO2 over a 20-year period. That bill also would increase fossil fuel royalty rates and repeal the Arctic oil and gas leasing program the Trump administration pushed through.

Carrot and stick

However, it is the centerpiece of the energy provisions—the $150 billion CEPP—that attracted the fiercest ire of Republican lawmakers. The CEPP is designed to reduce carbon emissions from the power sector between 2023 and 2030 and is part of efforts to meet Biden's goal of an 80% emissions-free generation sector by 2030 and a zero-carbon one by 2035.

Utilities and other retail power suppliers would receive federal payments of $150 for each megawatt-hour (MWh) of "certified" clean electricity produced—or pay a penalty of $40/MWh—starting in 2023, based on how much qualified clean electricity each supplier provides to customers.

Overall, the bill directs electricity suppliers to increase the amount of clean electricity they supply by at least 4% from the previous year, with each supplier's baseline set at the average percentage of clean energy in its portfolio in 2019 and 2020.

"The grant amount will be $150 for each MWh of qualified clean electricity between 2.5% above the baseline and its 2023 certified clean energy percentage," according to a memorandum and fact sheet provided by House Energy and Commerce Committee Democrats.

Exclusive use of CEPP grants for ratepayers

The grants are to be used exclusively for the benefit of utility ratepayers, such as direct bill assistance, investments in qualified clean electricity, energy efficiency, and worker retention. For those that do not meet the 4% annual progress threshold, a penalty would be paid to the US Department of Energy (DOE), calculated at $40/MWh of qualified clean electricity below the 4% year-on-year increase.

The CEPP provisions define certified clean electricity as power plants that produce no more than 0.10 metric tons (mt) of CO2-equivalent per MWh. Notably, that would exclude natural gas-fired power plants, unless they have carbon capture equipment installed, which currently is very costly.

During the committee debate on the bill, Representative David McKinley, Republican-West Virginia, pointed out that not one utility has said it can meet the 80% GHG reduction goal by 2030, and 100% reduction goal by 2035. He said no utility can build enough wind and solar capacity to meet that goal, let alone have a grid that can support this capacity.

"Is anyone listening?"

"The electrical grid will collapse! Is anyone listening?" McKinley said, adding that Congress should instead be investing more in carbon capture and advanced nuclear technologies, as well as streamlining permitting.

Agreeing with McKinley was Representative Michael Burgess, Republican-Texas, who criticized the methane fee, which he said is "a tax" that will hurt an oil and gas industry that directly supports 2.5 million jobs in the state he represents.

Countering the Republican critique, Representative Anna Eshoo, Democrat-California, said "any society that doesn't move away from fossil fuels will have a heavy price to pay."

Gas groups were critical of the bill's treatment of gas-fired power, which is strongly opposed by environmentalists and green-leaning congressional Democrats.

Also, the National Rural Electric Cooperative Association, which sold 466 billion kWh, or 12% of the US electricity delivered in 2019, said the clean energy targets in the bill were "too aggressive."

In a 13 September statement, NRECA President Jim Matheson said "a year-over-year 4% increase in clean electricity deployment is not attainable for many of our members."

The exclusion of gas-fired generation also may draw opposition from moderate Democrats, most notably Senate Energy and Natural Resources Committee Chairman Joe Manchin (Democrat-West Virginia), who has touted carbon reductions from gas-fired plants replacing carbon-heavy coal plants.

'Makes no sense'

In a 12 September Meet the Press interview on NBC, Manchin made his opposition to the CEPP clear, as well as his refusal to support the $3.5 trillion reconciliation measure.

"It makes no sense to me to pay utilities to do what they are going to do anyway," he said.

Noting that coal's share of the US power generation mix is down from 52% in 2000 to 19% in 2021, while that of gas is up from 16% to 40%, and renewables' slice of the pie has more than doubled 9.5% to 20%, Manchin said "the transition is happening."

However, Senator Tina Smith (Democrat-Minnesota), a leading CEPP advocate in that chamber, said the House Democrats' language is similar to what she and other Democratic senators have been crafting for a clean electricity program that would be included in the Senate's budget package, according to news reports. Smith has vowed to work with Manchin, a key swing Democratic vote on the budget bill, to craft a workable CEPP.

If the clean electricity standard provisions are passed through budget reconciliation, many of the costs of the clean energy transition would shift to the federal government and utility bill impacts for customers would be cushioned, according to think tank Resources for the Future that co-authored a study with Syracuse University.

The CEPP as planned by the House Democrats would provide more time for utilities with heavier carbon emission profiles to move to cleaner electricity resources, while those with clean profiles already can continue to make progress and improve the emissions profile for the US as a whole, environmental groups and others said.

Methane fee

The legislation would have the US Environmental Protection Agency establish a methane emission fee that would be applied to producers of offshore and onshore oil and gas, including LNG, and other sectors of the industry involved in storing and transporting the fossil fuels at different emission intensity levels.

For instance, the producing sector would have the fee applied to CO2-equivalent mt of methane emissions that exceed an intensity threshold of 0.2% of gas sent to sales, while non-producing industry segments—such as pipelines—would have the fee applied for methane emissions above an intensity threshold of 0.5% of gas sent to sales.

EPA is to establish methane fee regulations within two years under the plan.

"After that period, [the bill] imposes a fee of $60/mt CO2 [equivalent] on applicable facilities' reported emissions above the intensity thresholds in 2022," according to the memo.

During the debate, Representative Kathy Castor, Democrat-Florida, said the methane fee would "incentivize companies to find and fix methane leaks," which saw a huge increase in 2020.

In contrast, McKinley called the fee "an unadulterated assault on the oil and gas industry." He said this "tax" would negatively affect West Virginia, which holds the fourth largest gas reserves of any state and is the sixth largest producer in the country.

Gas groups disappointed

The Natural Gas Supply Association (NGSA), American Gas Association (AGA), and other industry groups once again objected to the Energy and Commerce Committee measure. A week earlier they opposed the methane fee language when House Natural Resources Committee Democrats released their draft language for the budget reconciliation package,

NGSA spokesperson Hinson Peters said the producer group supports an economywide price on carbon as the most efficient approach to meeting clean energy targets. "Although we are disappointed that the conversation on the Hill right now does not include carbon pricing, we nonetheless hope that any legislation appropriately recognizes the contributions of natural gas to a cleaner energy future," Peters said.

AGA spokesperson Jake Rubin said the group examined the legislative text from the Energy and Commerce Committee and calculated that the methane fee "could result in the average customer seeing an approximate increase of 18-34% in their natural gas bill, or $128 to $242 per year for the average American family."

Other elements of the committee legislation provide $27.5 billion for EPA to administer a GHG reduction fund to rapidly deploy low- and zero-emission technologies by leveraging investment from the private sector, with at least 40% of the investments earmarked for low-income and disadvantaged communities.

Funding for grid upgrades, EV infrastructure

The bill also would give DOE $13.5 billion for various EV provisions and charging infrastructure investments; $9 billion for grants to expand long-distance transmission lines; and $100 million to perform transmission planning and modeling analyses for interregional and offshore wind transmission projects.

In addition, it calls for $100 million to go to DOE "for the purpose of providing states with technical assistance and grants to evaluate forming, expanding, or improving organized wholesale electricity markets, and aligning the policies of organized wholesale electricity markets with relevant state policies."

DOE and the US Federal Energy Regulatory Commission would be given $200 million and $100 million, respectively, to provide for more efficient and effective reviews under the National Environmental Policy Act, which Democrats want to tighten for fossil fuel infrastructure.

--Contributions from Tom Tiernan, of the Energy Daily.

Posted 15 September 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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