Federal versus State Management of Intrastate and Interstate Renewable Energy Development
Regulation of renewable energy development in the United States varies from state to state, because there is no federal policy or federal renewable portfolio standard. Renewable Portfolio Standards have been adopted in 30 of the 50 U.S. states, and the District of Columbia.There is little or no uniformity across the United States regarding these Renewable Portfolio Standard’s. Renewable energy development has been dealt with differently in each State because every state is different and has different goals for the diversification of their energy portfolios. Most States and investor-owned utilities are opposed to a Federal RPS. Some of their reasons include that a Federal RPS would conflict with and preempt existing RPS programs passed in many states. Also, they fear that it wouldn’t adequately consider the uneven distribution of renewable resources across the country, and it could create inequities among states and utility customers.In this paper I will focus on two basic questions that need to be answered to resolve this debate. First,which Government entity is best suited to regulate intrastate renewable energy development? Second, is the best option feasible to implement?
Indeed, the federal government has been involved in the development of renewable energy sources in various ways. For example, through the American Recovery and Reinvestment Act of 2009 (ARRA), which was passed as a response to the global recession, the government allocated $4.5 Billion towards the modernization of the national transmission grid, particularly to build a smart grid. The congress has also since then provided considerable funding to support extensive multiregional planning efforts that extend beyond individual systems operators and individual utilities. And more recently, the Obama Administration established the Interagency Rapid Response Team for Transmission (RRTT), which would “better coordinate the siting of interstate transmission lines to increase grid reliability, integrate new renewable energy into the grid”. Already, in October 2011, the RRTT announced its plans to expedite the construction of seven transmission line projects through 12 states: Wisconsin, Colorado, Arizona, Oregon, Nevada, New Mexico, Idaho, Minnesota, Utah, Wisconsin, Pennsylvania and Wyoming. This would involve a close coordination of state and federal review processes.
In more specific terms, there are statutes through which the federal government governs electricity transmission siting. For example, the federal Power Act of 1935 (FPA) lays the statutory base for regulating the transmission and sale of electricity across state lines. These roles have since been transferred to the Federal Energy Regulatory Commission (FERC).
In recent years, however, there have been increased calls from scholars for greater federal involvement in the renewable energy development, especially in relation to the regional siting authorities. Heeding this call, the US Congress has continued debating the need for a federal RPS that would require utilities to buy a percentage of or generate their electricity from renewable sources. Currently, the main federal policy on renewable energy sources is the Volumetric Ethanol Excise Tax Credit (VEETC), which accounts for 41.6 percent of federal subsidies for all renewables in 2006.
This paper will explore the possibility of the federal governments involvement in the renewable energy development and what role (interstate versus intrastate regulations) the federal and state governments should have in the process.
- Why America Needs Renewable Energy Development
In the 1970s and 1980s, the United States experienced major oil shocks that spurred a national wave to decrease dependence on petroleum by developing other sources of energy. However, around the same time, the production of oil and gas in Texas peaked. Although the role was relatively small, the industry still played an important role in the economy of Texas. Afterward, the energy price fell and naturally the national interest in renewable energy sources died. However, in recent years, the world has experienced dramatic rises in oil prices, as well as increased environmental concerns. These have led to “heightened interest in renewable sources of energy, such as solar and wind energy, biomass, hydropower and geothermal power”. These are relatively clean and virtually inexhaustible.
The development of renewable energy sources will provide a number of benefits to the US: it will be good for the economy and facilitate US’s energy independence (which curbs the potential long-term consequences of US’s dependence on foreign countries for energy and oil, especially in the face of continued rise in oil prices).
- Good for the Economy
Although the US holds a meager 3 percent of the world’s oil reserves, its economy consumes 25 percent of global oil production. In other words, the US imports over half of its oil consumption. This great imbalance is costing the country about $1 Billion per day. By investing in renewable energy development, energy efficiency, as well as other clean energy technologies (such as electric vehicles), the US would cut its oil imports and, consequently, save hundreds of billions annually. Secondly, it would also stabilize the country’s trade balance. According to statistics of the US Department of Energy, “every $1 Billion of trade deficit costs America 27,000 jobs”. The US’s oil imports represent over half of its trade deficit, which is a major contributor to unemployment. For example, if the US invests in buildings’ energy efficiency upgrades, it “could create 625,000 sustained jobs over the next decade”.
Developing renewable energy would mean that much of the money the US spends on importing oil would stay home. This would create jobs in millions, spur innovation, as well as help safeguard the US’s national environmental and economic security.
- Environmental Benefits
Conventional (non-renewable) sources of energy used in energy-intensive industries and transportation cause major pollutions and greenhouse gas emissions. The exploration of fossil fuel and uranium, production and extraction has had major impacts on water and land resources.
On the other hand, renewable energy sources produce few or zero gas emissions during the manufacturing of fuels and/or equipment or when they are used. They also produce few water and air pollutants, as well as wastes and land disruption. Careful location of renewable energy equipment (such as locating biofuel crops on marginal land or solar collectors on building) would cause fewer land use conflicts.
- US Energy Independence
By maximizing renewable energy and energy efficiency on both regional and national levels will reduce the US’s dependence on imported fuels.
This can be of great benefit to domestic energy security, such as by reducing energy price volatility. In other words, renewable energy can help stabilize energy pricing. Mostly, the cost of renewable energy is related to the repayment of invested capital. Equally, such costs do not depend on “the fluctuating and increasing cost of an international resource such as oil or uranium”. Developing renewables, which have low environmental and health effects, eliminates future financial liabilities. This is important with respect to the volatile prices of crude oil, as well as the instability of prices in the deregulated electricity and natural gas markets. It is, therefore, important for governments and businesses to increase the fraction the energy they buy from renewable sources. This is a socially responsible gesture, but can also act as a cushion against high prices of energy.
One way in which this can happen is through providing a degree of local control, security and reliability for renewable energy produced and used locally. As it were, the systems for generating distributed power and flexible local grids can be owned and controlled by communities (which can decide to link with other grids when necessary). “Biofuels can be produced from local agricultural crop, forest products or wastes”. On the contrary, conventional energy production from non-renewables will always need large distribution and centralized management infrastructures, which are overwhelmingly owned and/or controlled by a few corporations and countries. They are, therefore, more prone to security threats and impacts of system disruptions and/or breakdowns are greater.
- State Versus Federal Renewable Portfolio Standards
- State Rps
Historically, only a small proportion of electricity produced in the US comes from renewable energy sources. Between 1989 and 2004, non-hydro renewable energy accounted for only 2 to 2.5 percent of electricity produced. Most of this energy was generated from municipal solid waste, biomass combustion and geothermal energy. Wind and solar comprised only a smaller fraction. After 2004, the development of renewable energy sources has increased, albeit only to a small extent. For example, wind power (which has experienced the highest growth) has increased at the rate of over 12 percent every year. By 2007, therefore, non-hydropower renewable energy represented 3 percent of all electricity nationally and more than 10 percent in several states.
The increased national concerns about US’s energy portfolio, energy reliability, and environmental hazards (among other factors) related to current electricity generation technologies prompted the belief by many that a policy change would be necessary to increase reliance on renewable energy. In this respect, government policies have been used to encourage the development, as well as deployment of renewable energy sources.
Even then, a comprehensive federal policy to promote the development of renewable energy and ensure the reduction of greenhouse gas emission has been lacking. Consequently, states have taken the initiative to develop their own policies to promote the development of renewable energy sources.
Several US states, in this respect, have set ambitious targets for the use of renewable energy. Consequently, they have provided various production and investment incentives that have spurred renewable energyindustry growth. They have done this through the Renewable PortfolioStandards (RPS).
“An RPS is a statutory requirement to achieve a renewable energy goal by a certain date”.Essentially, RPSs have provided regulators with the authority to create necessary structures for administration assign requirements and ensure the compliance of the states. The RPSs have taken many forms including “some percentage of retail electricity consumption, or a specified amount of nameplate capacity”. The many state RPSs that exists have responded to different policy drivers and incorporated various features. A vast majority of RPSs were developed through a ballot initiative or legislation. This reflected a broad political support for them. Several states have already adopted RPSs. Only Iowa had RPS just 20 years ago. Today, according to, a total of 39 states have adopted RPSs, voluntary goals or alternative energy portfolios to enhance additional renewable energy development.
Policies and Accomplishments of State RPSs
Evidence shows that RPSs have achieved a number of accomplishments in the states that have adopted them:
- Considerable Renewable Energy Generation
Current RPSs requires the addition of 3-5 gigawatts (GW) of RE capacity to the nation’s electricity supply annually between 2013 and 2010. Furthermore, according to Leon, “67% of the 69 GW of non-hydro renewable additions from 1998-2012 (46 GW) occurred in states with active/impending RPS compliance obligations”. Admittedly, this statistic is an imperfect criterion for measuring the impact of RPSs as some of the RE projects may not be directly be attributed to RPSs. Nonetheless, since most RPSs permit RE generators outside state borders to qualify for an RPS, it cannot be ignored that additional- if not most- projects have become possible because of state RPS policies. For example, the wind farms in Wyoming (which is a non-RPS state) participate in the Oregon RPS. Other examples are North Dakota (another non-RPS state) whose wind farms participate in the Minnesota RPS and Vermont (also non-RPS) whose landfill gas facilities participate in the Massachusetts RPS.
In other words, while it is impossible to quantify with precision the exact contribution of RPS policies to the growth of RE capacity in the US, there is no doubt the contribution has been significant. 15 out of 23 RPS program administrators in the states with RPS policies agreed that RPS was the most important policy, with the rest thinking it was “one of the most important policies”. Moreover, 7 out of 23 state representatives believed RPS was “the most important policy advancing the installation of distributed generation”
- Changes and Altered Decision-making and Operations of Energy Industry, Electricity Regulators, Utilities and Other stakeholders
The RPS has catalyzed wide range changes in several states. The institution of RPS’s requirements, such as the requirement that 10 percent of state electricity supply come from designated clean energy sources, it alters the mind and behavior of various players who participate in the process of supplying and overseeing state’s electricity. For example, towards meeting the RPS requirements, businesses, organizations and individuals adopt a number of initiatives. These may include changes in how electricity suppliers and utilities contract for electricity, how project developersprioritizeprojects and public utility commissions plan for new capacities of transmission. Consequently, RPS has led to the creation of new systems aimed at tracking the production and sale of electricity from renewable sources, as well as modifying the existing systems.
- Laying Foundation for National Market for Renewable Energy
Third, RPSs have prompted market players to consider RE development in contexts that transcend state boundaries. For example, today, almost all states use RE certificates (RECs) to ensure compliance with RPS. The RECs are created “every time a qualifying renewable energy facility generates one megawatt-hour of electricity”.Tracking RECs helps to verify that states have generated correct RE quantities to satisfy RPS. They have a common mechanism for measuring RE generation. They, therefore, act as building block for the national RE market.
Moreover, since most RPSs permit beyond-state-border RE generation, a state must be concerned about the RECs produced outside its borders. Tracking systems used also facilitate regional trading of RECs.Some of tracking systems are sufficiently compatible with each other so that expanded inter-regional trading would be relatively easy. North Carolina and Missouri, for example, allows projects in any part to qualify for their RPS policies. As a result, APX, a firm that administers the tracking systems in the regions involved have since developed procedures by which to transfer RECs across the regions.
State RPSs, through their beyond-state-borders compliance feature, encourages state energy policymakers to consider projects beyond the state borders and potential RE resources throughout the region.
If a federal government should decide to establish a national RPS or even broader clean energy standard, such a standard can borrow from the experience with state RPSs. There is infrastructure already in place (used by state RPSs) that makes it easier for such a national standard to work.
- Job Creation and Contribution to Local Economic Development
It is obviously difficult to ascertain the exact number of jobs that have been created because of RPSs. Still, many jobs can be attributed to the policy. For example, in relation to solar, RPS provisions and solar carve-outs have resulted in a rapid increase in the number of solar installers in the states with RPSs. Arizona, California, Massachusetts and New Jersey are the top four solar states. All these state have RPSs and have played a key role in incentivizing solar. High share of solar jobs in these states are in project development and installation.
A report released by the Union of Concerned Scientists cites the various ways in which the development of RE has been consistent with job growth, including case studies of some states. The report, for example, makes a link between the Colorado Renewable Energy Standard (RES) and instate jobs, the report notes:
Wind power is currently the largest contributor to Colorado’s annual RES requirements, with more than 2,300 MW of installed capacity providing enough electricity to power some 500,000 homes. In 2011, Colorado’s wind industry supported 4,000 to 5,000 jobs, made property tax payments totaling more than $10 million, and paid about $5.4 million in land lease payments
It is important to note that states have had full freedom in how they operate their RPSs without any notable or very little- if any-influence from the federal government. In other words, it is the states that set renewable energy policy throughout the country, except for the PTC and the present government’s policy on federal lands. Furthermore, a big proportion of permitting and siting authority for transmission lines remains with the states. Therefore, unless and until the Congress takes a more active role in renewable energy policy, the states virtually govern renewable energy development including interstate transmission. “state public utility commissions have authority to consider, evaluate, approve, and site intrastate and interstate transmission lines”.
However, many find this situation problematic. “Resting so much authority with the states for the siting and operation of what is a regional and national transmission system poses unique federalism challenges”.
- Federal RPS: Why it is Needed
There are a number of strong reasons that support the need for federal RPS. Generally, a federal RPS would ensure uniformity of goals and activities for all states. Currently, state RPSs often recommend that a certain percentage of generation capacity (in MW) or electricity sales (in MWh) come from renewable sources of electricity. In this respect, typically, states require that by rather 2020 and 2030, 15 to 30 percent of electricity sold in each state is produced by a source of renewable energy. However, there remain wide variations from state to state in the renewable technologies allowed, as well the electric utilities allowed to participate in the programs. For example, while some (12) states include only investor owned utilities (IOUs) as part of their RPS programs, others only include municipal utilities or rural electric co-operatives, and others (such as Michigan and Oregon) make exclusions based on sales capacity and/or size. According to scholars, RPSs cover an average of 86 percent of electricity sales. However, in some states RPS covers much less. In Illinois, for example, RPS covers only 30 percent of electricity sales.The resources eligible to be included under RPS also vary. In some states, renewable resources are included. In other states, only new facilities are included and other states only include large hydro facilities. Equally, some technologies (such as tidal energy, wind power and geothermal power) are only available in some geographical locations and not in others.
While some states allow utilities to buy RECs to meet their statutory obligations, as well as meet their RPS requirements from other states, others require that renewable generation remains in-state. RECs make it possible for utilities to meet their statutory obligations, probably at lower cost, “by purchasing the “environmental benefit” of renewable energy out of state. RECs are tradable certificates that create a separate market for the “environmental benefit” of renewable energy”. RECs can be sold in various forms. They can be bundled (sold with electricity) or unbundled (sold independently). 21 of the states with RPS allow the use of RECs.Since nearby or neighboring states may have lower costs in the development of renewable energy sources, RECs purchased by utilities can have significant impact on the deployment of renewable energy in neighboring states. This can, for example, drive the need to more regional transmission projects. This cases shows that stats are not renewable energy and/or policy islands. In other words, what a state does can have significant impact on other states. Therefore, a regional approach to the development of renewable and planning of transmission can be important for the widespread development of renewable energy sources.
A federal RPS can have numerous potential benefits. For instance, a large proportion of electricity generation in the US (88 percent) comes from natural gas, coal and nuclear power. Although these sources are needed to meet the electricity needs of the US, there has been too much reliance on them. In the past several years, there has been dramatic rise in natural gas prices. A federal RPS, some argue, would increase diversification of the sources of electricity generation, which will then decrease the demand for natural gas thereby avoiding the cost fluctuations associated with this high demand.
Some also believe that a federal RPS can provide many environmental benefits, especially the decrease of Carbon Dioxide emissions as “the renewable plants added to meet the RPS would displace plantsfueled with natural gas and, to a less extent, coal that would have been added withoutthe RPS”. In comparison to the reference case, a 10 percent RPS would lead to a 7 percent in CO2 emissions and 20 percent RPS would lead to 18 percent drop. In other words, a federal RPS is expected to result in a net benefit for air quality.
Indeed, several states are already implementing RPSs. However, this is not sufficient to develop and promote renewable energy nationally. Current policies that govern renewable energy (such as tax credits and government money for research and development) have indeed provided a number of benefits. Still, these too have not done enough to ensure competitiveness in renewable energy. Even the “green power” programs for customer choices, while getting some support, are not enough to fully lower or remove the cost gaps between renewables sources and other energy sources. Besides, despite poll numbers indicating otherwise, “only a small percentage of consumers are willing to pay for the higher costs of green power”. It is unlikely that green marketing programs will attract many customers unless the costs of renewables become comparable to the costs of conventional energy. “There is a market failure happening in which the market on its own, or even the market coupled with current policies for encouraging renewable energy, is not providing the proper impetus to encourage renewables”.
Best Option: Federal RPS Managing Interstate RED and State RPS Managing Intrastate RED
This paper holds that states should not have as much mandate as they have now. Still, they should retain their autonomy: know their interests best (citizens, renewable resources and businesses) and 10th Amendment Concerns (that is, federal governments cannot/should not tell states how to regulate renewable energy development). In other words, states should be allowed to regulate their intrastate renewable energy development processes.
However, states currently have too much authority. The federal government should, therefore, regulate the development of renewable energy sources across states (that is interstate RED).
- States Rps Governing Intrastate Red And Federal Government Regulating Interstate Red: Feasibility
State RPSs have proved successful in many ways. Besides, states have managed to cooperate and integrate their interstate renewable energy goals. However, such ambitions have had their shortfalls, which is why there have been increased calls for a federal RPS. This section, therefore, focuses on the feasibility of a federal regulation of interstate renewable energy development. This is based on 5 key factors: proper implementation; interaction with state RPSs; cost; technological ability; and economic development.
- Interaction with State RPSs
The federal government in its new role cannot assume the states. Therefore, if the federal (interstate) renewable energy policies are to achieve maximum interoperability, some states would have to change their RPS policies- albeit slightly. It would take careful coordination to transit from a case where there are only state RPS policies to a case where both state and federal policies operate. Preparing for the potential conflicts that are likely to arise from the interaction between the two categories of policies would require time. No doubt, there are likely to be problems: “State RPS policies enacted after a federal policy could, of course, be designed to fit within a federal RPS and would likely face fewer difficulties compared to a pre-federal state RPS policy”.
Passing a federal RPS can either facilitate or hinder the states’ ability to enact and/or enforce their own RPS. The very basic question here is whether the federal RPS would work in conjunction with state RPSs of override them. In relation to the latter, the federal RPS would be written using a ‘savings clause’ which would establish the federal RPS as the foundation upon which states may build. In this case, the federal RPS would be an obstacle to renewable development. Most proposals, however, have emphasized the need for the federal RPS to be a backstop that only applies “to a state’s retail electric suppliers if that state does not meet the minimum national RPS requirements”. In this case, the Congress would give the states the authority to establish their own criteria for renewable energy generation, and whether it has to be done in-state so it counts towards a supplier’s credits. Such a congressional authorization means that states could not violate the dormant Commerce Clause (limiting the ability of the state to regulate interstate commerce).
Credit trading would also need careful consideration. When state and federal credits have shared eligibility, a state can possibly produce surplus credits and sell them to utilities in other state to meet their state/federal RPS requirements. It is important to be careful to prevent double counting.
Another issue that has surrounded the implementation of a federal RPS is cost. There are, for instance, questions regarding what implications this policy will have on the prices of electricity. Those opposed to the policy generally believe it will costs consumers and/or utilities more money. In fact, several analysts point out higher costs as a high possibility under this policy. For example, according to the Energy Information Administration (EIA), a 20 percent RPS by 2020 “would raise the average electricity price by 3.3% in 2010 and 4.3% in 2020. However, the 10% RPS would raise the price by only 0.5% in2010 and slide down to 0.2% in 2020”. On the other hand, a 10 percent by 2020 RPS projects that slightly higher residential electricity costs, with lower natural gas prices due to reduced demand, will result in costs that are 0.1% higher in 2025.
Most of these analyses are based on the assumption that a federal production tax Credit (PTC) is likely to be passed at the same time as a federal RPS legislation. This would considerably lower prices for utilities and dramatically affect the analysis since a PTC offers a cents/kWh credit (1.8 most recently) for the businesses that generate electricity from renewable sources. In all this variability of analyses, the underlying point is that a federal RPS will lead to a decrease in the demand for natural gas and, consequently, either decrease or increase slightly the overall prices of electricity.
Assuming electricity price will go up, a federal RPS will obviously make consumers even more aware of the environmental issues associated with power generation. This may result in more conservation, thereby countering- to an extent- the aspects of cost cited.
Others have also questioned whether research and development- not or more than a government mandate such as an RPS- can drive down the costs of renewable energy. The implication here is that giving extra money for research and development of renewable energy sources may in the future result in cost reduction, which will also reduce or eliminate the cost gaps between traditional fuels and renewable energy sources. True, research and development have led to a number of benefits. Still, a number of reasons support the need to implement an RPS.
For example, a federal RPS will lead to large-scale renewable energy development, as well as nationwide standards would leader to cost reductions (such as installation and general product costs) owing to the advantages of the economies of scale). The economies of scale spoken of will result from the differences in the funding given towards the development of renewable energy and what is spent (investment) in fulfilling an RPS. Second, renewable energy boom and bust cycles (that is inconsistent government funding) that may not be conducive to the process of developing a strong renewable energy sector can be avoided. Finally, it can facilitate research and development funding that may go a long way in helping companies find more cost-effective methods of meeting federal mandate.
- Environmental Benefits
Environmental benefit (especially Carbon Dioxide emission) is another factor that has been associated with renewable energy. Since the 1970s, environmental costs have been taken into consideration. For example, firms that use fossil fuel have since had to pay extra to compensate for the full price of use.
The question, however, remains as to whether the rice that would need to be paid meet federal RPS would be consistent with the incremental net benefits expected to arise from reduced pollution. Some argue that it costs more renewables costs more than traditional fuels (such as fossil fuels) so that externality considerations hardly- if ever- overcome the difference. While it is hard to substantiate this argument from an economic point of view, there is some validity to it. Indeed, it is necessary to remember the goals of the federal RPS program. The goal is to reduce pollution, as well as subsidize the renewable energy industry with the intention of ensuring that large-scale implementation will draw overall costs into more competitive context.
- Economic Development
A major obstacle to the development of a federal RPS has to do with the fact that not all states have the same capacity for the generation of renewable energy. Under a federal RPS, first, the country’s best energy sites will be used as they have the most money and economic benefits. In other words, money will flow from the states that have best potential. In such a case, the energy sites for absolute lowest cost would be pointed out and developed and there would be credit trading between states. Second, states will use their own RPSs to control the sites for the generation of renewables. This would lead to economic development throughout the country. In other words, the renewable-poor states would still benefit from a federal RPS as the materials and production use to make renewable generators could be done in any state.
The implication here is that a federal RPS would address the potential inequities that may arise between renewables-rich and renewables –poor states. This can be done through, among other strategies, using tax breaks to encourage manufacture of equipment in some states to meet RPS in other states.
The US has been successful at managing national goals at both the federal and state levels. The only difference could be that, while in other areas state laws have built on federal policy, here federal policy will be building on state policy (RPSs). The federal government, therefore, has a hard task convincing individual states to answer to a common authority that seemingly takes away some of their autonomy. Still, as already stated, no state is independent of another. Yet, no state can state with certainty that it will act more in favor of interstate than intrastate goals. As it were, cross-border activities are still driven by intrastate ambitions. It is only the federal body that can surely act for the benefit of all states. Even then, like in many other cases, states must be allowed to retain their intrastate autonomy. The federal government should only be involved in cases where a state’s actions can have notable impact on other states. There will be several challenges (cited). Ultimately, though, this arrangement is feasible as long as the federal authority does not lose sight of its primary focus (that is, it does not take too much task, which would be running both interstate and intrastate renewable energy development).
In conclusion, this paper has emphasized (either explicitly or implicitly) the need to distinguish the responsibilities of the federal government and state in renewable energy development. In this respect, this has asserted that the federal government should only concern itself with the interstate renewable energy development while intrastate renewable energy development. In this respect, there should be a federal RPS works in conjunction with state RPS- the latter based on state autonomy.
RPS dictates the type and amount of renewable energy that should be produced,
who must comply, as well as the timeframe for meeting these standards. The RPS
has wide flexibility in relation to compliance mechanisms, coordination, and
enforcement of other policies, as well as administrative duties. A federal RPS
can be implemented successfully by recognizing the unique needs and interest of
states, as well as the resources they have to help meet the uniqueneeds.
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