Democrats weigh need for clean energy credit trading

US Senate Democrats' plan for enacting a national clean electricity mandate could end up looking far different from the renewable energy certificate (REC) markets that many states use to pursue their own policy goals.

The $3.5 trillion budget resolution Democrats unveiled yesterday calls for using a "clean electricity payment program" (CEPP) to help push the US grid to 80pc zero-emissions generation by 2030, rather than a national clean electricity standard (CES) proposed by President Joe Biden earlier this year. Democrats hope they can use the resolution to deliver a key climate policy win without forcing the matter through the typical Congressional gauntlet.

The Democrats have yet to detail what the CEPP will look like, with the Senate Energy and Natural Resources Committee, chaired by senator Joe Manchin (D-West Virginia), to fill in the blanks over the next month.

But it may not entail the use of a credit trading market that many CES advocates had hoped for because Democrats are using the budget reconciliation process to enact it. That allows them to pass the program with a simple majority, rather than the 60 votes needed to bypass the filibuster. But that also means the proposal needs to adhere to the budget reconciliation rules, which only allow for bills that change spending or revenue.

The office of senator Tina Smith (D-Minnesota), who has been working on CES legislation for the budget process, said that new program would be analogous to a CES mandate, but it would also differ from past proposals in that it would run on investments, rather than regulations.

For example, utilities would be able to apply for grants to grow the amount of clean energy in their power mixes, with Smith intending for those investments to help shield ratepayers from price hikes from the transition. In essence, the program would rely on some of the same principles that have boosted the industry through federal tax credits like the production and investment tax credits.

There could also be fees or penalties for backsliding or failing to move forward in transitioning away from CO2-emitting fuels.

Through conversations with the Department of Energy, Smith's office anticipates that there could be a credit-trading market involved in the program. Those details might not be defined in the budget bill, but could come about once the agency has funding to develop the program.

It may come down to what Smith and her colleagues believe they can move through the reconciliation process. In the weeks leading up to the release of the budget resolution, some clean energy supporters have offered their own visions of how Democrats could use the budget to support something like a clean energy mandate.

Environmental group the Clean Air Task Force has also suggested using a CEPP, which it says would provide "federal investments and financial incentives" to suppliers to delivery more zero-emissions electricity each year.

"It is not a regulatory mechanism and does not create a binding mandate," the group said.

The federal government would award performance payments to electricity suppliers who exceed an annual threshold for their shares of clean electricity delivered, paid out for each megawatt-hour beyond the mark. The payments would help cover the costs of adding new clean generation to the mix, thereby mirroring the underlying philosophy behind REC markets.

The program would also levy an "underperformance fee" for suppliers who fall below the annual target, according to the group.

Democrats have other CES-like options that could go through budget reconciliation, according to climate advocate Evergreen Action. In one such option, Congress could establish national clean energy credit market, similar to many state initiatives. But doing so would rely on bringing the value of compliance and costs of non-compliance on the federal government's balance sheet to not run afoul of the rules governing reconciliation, according to Evergreen.

The Intergovernmental Panel on Climate Change report released yesterday "underscores the gravity of this moment: Congress must step up and pass this budget resolution to deliver the bold action needed on climate," Evergreen executive director Jamal Raad said.

Smith's office admits there is still a hard row to hoe, as any CES-style program will still have to pass muster with all 50 Democrats in the Senate before it can be enacted.

By Patrick Zemanek