National REC market could be option for Biden: Update

Adds detail about Biden's plans for carbon-free energy standard

President-elect Joe Biden will face huge obstacles getting a Republican-led Senate to sign off on any climate legislation, but a bill to create a national renewable energy certificate (REC) market could be his most feasible option.

Even if a pair of Senate runoff elections in Georgia on 5 January were to hand Democrats control of the chamber, Biden still will "substantially limited to executive and regulatory" measures to curb CO2 emissions, consultancy ClearView Energy Partners managing director Christine Tezak said.

A clean energy standard creating a REC market is "the only thing that might be possible," Tezak said on 6 November webinar hosted by law firm Norton Rose Fulbright.

Winning support for legislation that would limit greenhouse gases through a cap and trade program or a carbon tax would be unlikely even if Democrats held 54 seats in the 100-member Senate "just because of where folks are geographically from producer states and from consuming states," Tezak said.

Biden has called for the creation of a technology-neutral "energy efficiency and clean electricity standard" for utilities and grid operators to meet a 2035 carbon-free electricity target. While Biden campaigned on expanding the wind and solar sectors, he has also said the US should maintain its existing nuclear and hydroelectricity projects.

To bring Republicans to the table, Tezak believes the mandate would have to include nuclear and large hydro on the list of qualifying resources.

But including those two energy sources has been controversial at the state level, where Democratic lawmakers have largely preferred investing in subsidies for new wind and solar over existing nuclear and hydro. But the low cost of natural gas generation has prompted some state legislators to award RECs or similar credits to keep existing carbon-free power like nuclear and hydro in the mix.

To illustrate, Massachusetts includes nuclear and utility-scale hydro in its clean energy standard, a credit trading program layered on top of its renewable portfolio standard to bring the state to 80pc zero-carbon energy by 2050. Illinois, New Jersey and New York give zero-emissions certificates to qualifying nuclear plants, while states like Maryland and Pennsylvania award Tier II RECs to larger hydro projects. Wind and solar in Maryland and Pennsylvania generate Tier I RECs, which typically trade at higher prices than their Tier II counterparts.

Maintaining incentives for the clean energy sector could be easier than a policy overhaul. Federal incentives for the renewables sector – including the investment tax credit (ITC) that has helped drive the solar sector – have considerable bipartisan support. Lawmakers could fold extensions for expiring credits into a possible Covid-19 stimulus package negotiated during the lame-duck session.

But photovoltaic advocates may have to wait until later for the five-year extension for the 30pc credit for which they have been clamoring.

The solar ITC provides a 26pc tax credit through 2020, stepping down to 22pc in 2021 before flattening at 10pc for large projects thereafter. The five-year extension at 30pc would return the credit to its 2019 levels, before it began to ratchet down.

"I think the solar credit, because it is on the books and not expired, will be something that will have to wait to be done later," Joe Mikrut, partner at the District of Columbia tax firm Capital Tax Partners, said. "I think the focus will be on things that expire at the end of this year and go away in 2021."

By Patrick Zemanek