Clean Energy Standard: Summary and Analysis of S. 2146

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Clean Energy Standard: Summary and

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Clean Energy Standard: Summary and Analysis of S. 2146

Summary

U.S. policymakers have considered and deliberated on several policy designs that could

potentially reduce energy-related carbon emissions. In his 2011 State of the Union address,

President Obama proposed the concept of a Clean Energy Standard (CES) that would result in

80% of U.S. electricity generation from clean energy sources by 2035. In March of 2012, the

Clean Energy Standard Act of 2012 (S. 2146) was introduced in the Senate.

The primary goal of S. 2146 is to reduce carbon dioxide (CO2) emissions from the U.S. electricity

sector, which represents approximately 41% of total U.S. CO2 emissions. Generally, the approach

used to achieve this goal is to require certain utility companies to source a portion of their

electricity generation from qualified clean energy generators. Utilities located in either Alaska or

Hawaii are exempted from CES requirements.

Some utility companies that sell electricity directly to consumers (retail sales) would be required

to comply with the CES. Determining which utilities have to comply is based on each utility

company’s total amount of annual retail sales. Starting in 2015, a utility company that sold more

than 2 million megawatthours (MWh) of electricity to consumers would be required to comply.

The retail sales level for compliance decreases by 100,000 MWh each year until 2025, where it

remains constant at 1 million MWh. These thresholds represent a minority of electric utilities but

a majority of U.S. electricity sales.

Utilities required to comply with the CES would need to obtain a percentage of their electricity

from qualified clean energy generators. In 2015 the minimum percentage is 24% and rises to 84%

by 2035. The percentage is applied to a utility company’s total retail sales; however, all electricity

obtained from hydropower and nuclear power facilities placed in service before 1992 can be

deducted from the sales base, potentially making compliance easier.

The bill provides a four-part definition of electricity that would qualify as “clean energy”: (1)

electricity from renewable energy, biomass, natural gas, hydropower, nuclear power, or waste-toenergy facilities placed in service after 1991, (2) electricity from combined heat and power (CHP)

systems or any non-biomass energy source that emits less than 0.82 metric tons of CO2 per MWh,

(3) certain efficiency or capacity additions to nuclear or hydropower facilities that were placed in

service before 1992, and (4) electricity from facilities that capture and store CO2.

Utility companies can comply with the CES requirement by submitting clean energy credits,

making alternative compliance payments (ACP), or a combination thereof. The ACP design

element essentially caps the cost of CES compliance. ACP levels start at three cents per

kilowatthour in 2015 and increase by 5% annually thereafter.

Analysis by the Energy Information Administration (EIA) projects that enactment of S. 2146

could result in the following changes to the U.S. power sector in 2035, compared to EIA’s

reference case projections: (1) CO2 emissions from electric power facilities decline 44%, (2)

electricity from coal decreases by 54%, (3) nuclear power and non-hydro renewable electricity

increases by 62% and 34%, respectively, and (4) average electricity prices increase by 18%. EIA

also notes that regional price disparity among exempt and non-exempt utilities could range

between 3% and 30%. However, it should be noted that any projections over such a long time

frame are difficult to accurately predict due to uncertainties associated with assumptions used to

make such estimates.

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Clean Energy Standard: Summary and Analysis of S. 2146

Contents

Introduction...................................................................................................................................... 1

Policy Design Elements ................................................................................................................... 2

Entities Required to Comply ..................................................................................................... 2

Clean Energy Compliance Requirements .................................................................................. 4

Qualified Electricity Generation................................................................................................ 6

Clean Energy Standard Compliance .......................................................................................... 8

Clean Energy Credits .......................................................................................................... 8

Alternative Compliance Payments ...................................................................................... 9

Other Design Elements ............................................................................................................ 10

Combined Heat and Power ................................................................................................ 10

Biomass ............................................................................................................................. 11

Civil Penalties ................................................................................................................... 11

Interaction with State Programs ........................................................................................ 11

Other Energy Sources........................................................................................................ 11

Natural Gas........................................................................................................................ 12

EIA Analysis of S. 2146................................................................................................................. 12

Potential Areas for Further Clarification........................................................................................ 14

Is the carbon intensity metric (0.82 metric tons per MWh) on a gross or net basis?............... 14

How do utilities that operate in multiple states calculate their aggregate retail sales for

determining if they are required to comply with the CES? .................................................. 15

Policy Question: How to Define Clean Energy? ........................................................................... 15

Figures

Figure 1. Preliminary Analysis of Potential Utility Company Exemptions ..................................... 3

Figure 2. Estimated Number of Utilities Required to Comply with S. 2146 ................................... 4

Figure 3. Clean Energy Standard Compliance Requirements .......................................................... 5

Figure 4. Analysis of Placed-in-Service Dates for U.S. Electric Power Capacity ........................... 7

Figure 5. Distribution of Existing Qualified Clean Energy Generating Capacity ........................... 8

Figure 6. Alternative Compliance Payment Levels: 2015-2035 .................................................... 10

Figure 7. Projected Impact to Electricity Generation Fuel Mix..................................................... 13

Figure 8. EIA Projections for Non-Hydro Renewables ................................................................. 13

Tables

Table 1. Hypothetical Example of How Nuclear and Hydro Deductions Might Impact

CES Requirements ........................................................................................................................ 5

Table 2. Comparison of Carbon Dioxide Emission Intensity ........................................................ 14

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Clean Energy Standard: Summary and Analysis of S. 2146

Contacts

Author Contact Information........................................................................................................... 16

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Clean Energy Standard: Summary and Analysis of S. 2146

Introduction

Policymakers have several options when considering legislation that would result in reducing

carbon dioxide (CO2) emissions from the U.S. electricity sector. Some policy options might

include a carbon tax or a carbon cap-and-trade approach. A federal clean energy standard (CES),

such as that proposed in the Clean Energy Standard Act of 2012 (S. 2146), is an alternative

approach that requires certain utility companies to provide a prescribed amount of electricity from

qualified clean energy sources based on a percentage of each utility company’s annual electricity

sales to consumers.1 Several CES policies have been proposed in the past, although none have

become law.2

According to the Energy Information Administration (EIA), the electric power sector represents

approximately 41% of U.S. energy-related CO2 emissions.3 The remaining 59% of CO2 emissions

are from the transportation (33%) and buildings/infrastructure (26%) sectors. Unlike previous

carbon reduction policy proposals, S. 2146 is focused only on CO2 emission reductions in the

U.S. electric power sector.

The concept of a U.S. clean energy standard was proposed by President Barack Obama in his

2011 State of the Union address, and the White House subsequently published a proposed

framework for a federal CES.4 In March of 2011, the Senate Energy and Natural Resources

Committee (SENR) released a Clean Energy Standard white paper that solicited feedback on

several CES policy design questions.5 On March 1, 2012, the Clean Energy Standard Act of 2012

(S. 2146) was introduced in the Senate. This report provides a summary and analysis of the CES

proposed in S. 2146.

S. 2146 proposes to amend Title VI of the Public Utility Regulatory Policies Act (PURPA) of

1978 (16 U.S.C. 2601 et seq.)6 by adding a new section, Section 610, titled “Federal Clean

Energy Standard.”7 According to the proposed bill, the stated purpose of the Federal Clean

Energy Standard is:

Generally, there are many different opinions about what energy sources should be considered “clean energy.” As a

result, the definition of “clean energy” for different policy proposals typically varies.

For additional background on CES policy design elements and a comparison of previously proposed CES legislation,

see CRS Report R41720, Clean Energy Standard: Design Elements, State Baseline Compliance and Policy

Considerations, by (name redacted).

“Annual Energy Outlook 2010,” U.S. Energy Information Administration, April 2010, available at

http://www.eia.gov/oiaf/archive/aeo10/pdf/0383(2010).pdf.

White House Office of Media Affairs, “President Obama’s Plan to Win the Future by Producing More Electricity

Through Clean Energy,” February 3, 2011, available at http://www.whitehouse.gov/the-press-office/2011/02/03/

president-obama-s-plan-win-future-making-american-businesses-more-energy.

Senators Jeff Bingaman and Lisa Murkowski, White Paper on a Clean Energy Standard, Committee on Energy and

Natural Resources, United States Senate, March 21, 2011, available at http://www.energy.senate.gov/public/index.cfm/

files/serve?File_id=d9286e01-b2ea-0c97-971a-6b9d16ef32ef.

For background information about PURPA, see CRS Report 98-419, Electricity Restructuring Background: The

Public Utility Regulatory Policies Act of 1978 and the Energy Policy Act of 1992, by (name redacted).

The Energy Policy Act of 2005 included several PURPA modifications. For more information see CRS Report

RL33248, Energy Policy Act of 2005, P.L. 109-58: Electricity Provisions, by (name redacted).

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Clean Energy Standard: Summary and Analysis of S. 2146

to create a market-oriented standard for electric energy generation that stimulates clean

energy innovation and promotes a diverse set of low- and zero-carbon generation solutions in

the United States at the lowest incremental cost to electric consumers.

Policy Design Elements

The Clean Energy Standard Act of 2012 includes a number of design elements that define the

CES structure, methods of compliance, and other aspects. This report describes the proposed

policy, based on the following general questions: (1) Who is required to comply? (2) What are the

compliance requirements? (3) What types of electricity generation would qualify for the CES?

and (4) What mechanisms are available as a means of CES compliance? Additional design

elements are also briefly discussed.

Entities Required to Comply

Some utility companies that sell electricity to consumers in U.S. states, except Alaska and

Hawaii, plus the District of Columbia and Puerto Rico, would be required to obtain a certain

percentage of electricity sales from qualified clean energy generators.8 Whether or not a utility

company is required to comply with the CES depends on the total amount of its annual electricity

sales to consumers, in megawatthours (MWh). Beginning in 2015, S. 2146 requires utilities that

sold 2 million MWh or more the previous calendar year to comply with the CES. The annual

sales threshold for utility compliance declines by 100,000 MWh each year from 2015 to 2025,

after which the level remains constant at 1 million MWh of annual electricity sales.

This electricity sales threshold exempts the majority of utility companies from having to comply

with the CES. According to EIA data, there are more than 3,500 utility companies operating in the

contiguous 48 United States. Preliminary analysis based on 2010 electric utility sales data

indicates that just over 300 utility companies would be required to comply with the CES starting

in 2015 (see Figure 1). However, these 300 utility companies required to comply with the CES

would represent approximately 81% of total national electricity sales.

According to PURPA definitions: “The term ‘State’ means a State, the District of Columbia, and Puerto Rico.” S.

2146 specifically excludes Alaska and Hawaii from CES compliance requirements.

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Clean Energy Standard: Summary and Analysis of S. 2146

Figure 1. Preliminary Analysis of Potential Utility Company Exemptions

(Based on S. 2146 Clean Energy Requirements in 2015)

Source: CRS analysis of Energy Information Administration Form 861 survey data for 2010. EIA’s Form 861 data

can be found at http://www.eia.gov/cneaf/electricity/page/eia861.html.

Notes: EIA Form 861 includes annual retail sales (in megawatt hours) for more than 3,500 utility companies in

the U.S. CRS categorized each utility based on annual retail sales being either more than or less than 2 million

megawatt hours per year. Electric utilities located in Alaska and Hawaii were excluded from this analysis. Many of

the 3,266 exempt utility companies include electric cooperatives and municipal utilities. Utility companies

included in EIA’s Form 861 survey data may include wholly owned subsidiaries of a parent company that may

have retail sales less than 2 million megawatt hours. The parent company of these subsidiaries may have

aggregate retail sales of more than 2 million megawatt hours. However, an assessment of parent and subsidiary

companies is beyond the scope of this report. EIA performed a regional analysis of exempt retailer sales as a

percentage of total sales in each region. Results from EIA’s analysis are provided in Appendix B of “Analysis of

the Clean Energy Standard Act of 2012,” U.S. Energy Information Administration, May 2012, available at

http://www.eia.gov/analysis/requests/bces12/pdf/cesbing.pdf.

As the threshold sales level decreases from year 2015 to 2025, the number of utility companies

required to comply gradually increases to nearly 500 in 2025 (see Figure 2), at which time

approximately 87% of national electricity sales would be subject to CES requirements.

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Clean Energy Standard: Summary and Analysis of S. 2146

Figure 2. Estimated Number of Utilities Required to Comply with S. 2146

(2015–2025)

Source: CRS analysis of S. 2146 and Energy Information Administration Form 861 survey data for 2010.

Notes: The estimated number of utilities required to comply increases over time as the retail sales threshold

for compliance decreases from 2 million MWh per year in 2015 to 1 million MWh per year in 2025. Also, see

Figure 1 notes above.

Clean Energy Compliance Requirements

Starting in 2015, S. 2146 would require non-exempt utilities, as described above, to obtain a

percentage of their total electricity sales to consumers—less applicable deductions of certain

hydropower and nuclear power electricity—from qualified clean energy generators. (Definitions

for qualified clean energy are discussed and provided in the next section.) Clean energy includes

electricity generated from facilities using renewables, nuclear, natural gas, and other specific

energy sources, that were placed in service after 1991, plus other technologies described in the

next section of this report.

The standard requires a minimum of 24% clean energy by 2015. The percentage requirement

increases an additional 3% each year until 2035, when 84% of electricity sold from non-exempt

utilities must be sourced from clean energy generators (see Figure 3). Non-exempt utility

companies can deduct their hydropower and nuclear power electricity generation, as long as the

electricity is generated from facilities placed in service before 1992, from their applicable sales

base. This deduction could potentially make it easier for certain utilities (especially those with

large amounts of hydropower and nuclear power in their portfolio) to comply with the standard as

a result of decreasing the total amount of qualified clean energy needed to meet annual CES

compliance requirements (see example in Table 1).

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Clean Energy Standard: Summary and Analysis of S. 2146

Figure 3. Clean Energy Standard Compliance Requirements

(Percentage of annual electricity sales to consumers)

Source: S. 2146.

Table 1 provides an illustrative example of how the pre-1992 nuclear and hyropower deduction

might affect the amount of qualified clean energy needed by three hypothetical utility companies

in order to comply with the CES. In this example, three hypothetical utility companies with

different generation fuel mixes, but the same amount of total electricity sales (2 million MWh

annually), are compared. As Table 1 indicates, CES compliance requirements for different

utilities can vary depending on the fuel sources used for generation. While the total retail sales for

each utility might be the same, adjusting the applicable sales base by deducting nuclear and hydro

electricity from facilities placed in service before 1992 results in varying amounts of qualified

clean energy needed for compliance.

Table 1. Hypothetical Example of How Nuclear and Hydro Deductions Might Impact

CES Requirements

(All numbers in annual megawatthours)

Nonqualified

Fossil

Pre-1992

Nuclear &

Hydro

Post-1991

Renewables

Total Elect.

Sales Base

A+B+C

Adjusted

Sales Base

D-B

2015 CES

Requirement

E x 24%

Utility 1

1,000,000

500,000

2,000,000

1,500,000

360,000

Utility 2

500,000

1,000,000

500,000

2,000,000

1,000,000

240,000

Utility 3

1,500,000

300,000

200,000

2,000,000

1,700,000

408,000

Source: CRS.

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Qualified Electricity Generation

In order to comply with proposed CES requirements, electric utilities that sell electricity to

consumers would need to generate or purchase electricity that is qualified as “clean energy.”9 S.

2146 provides a four-part definition of the term “clean energy.”

1. Electricity generation from facilities placed in service after 1991 that use the

following energy sources: renewable energy,10 renewable biomass,11 natural

gas,12 hydropower, nuclear power, or waste-to-energy.13

2. Electricity generation from facilities placed in service after the date of enactment

that use either combined heat and power or non-biomass energy sources that emit

less than 0.82 metric tons of CO2 per MWh.14 Additional information about

qualified CHP is discussed below in the section titled “Combined Heat and

Power.”

3. Electricity generation that results from efficiency or capacity additions made

after 1991 to nuclear or hydropower facilities that were originally placed in

service before 1992.

4. Electricity generation from facilities that capture and store CO2 regardless of

each facility’s placed-in-service date.

Regarding item 1 above, according to EIA, approximately 1.1 million megawatts (MW) of

electricity generation capacity exists in the lower 48 United States.15 Roughly 400,000 MW of

electric power capacity was installed during the years 1992 to 2010. Approximately 93% (nuclear,

natural gas, and renewables) of this electric power capacity would qualify under the “clean

energy” definition (see Figure 4).16 Most of this qualified “clean energy” capacity is natural gas

facilities—although natural gas generation is only eligible for partial CES credits based on the

For additional discussion about qualified clean energy, see CRS Report R41797, Clean Energy Standard: Potential

Qualifying Energy Sources, coordinated by (name redacted).

S. 2146 defines renewable energy to include the following energy sources: (1) solar, (2) wind, (3) ocean, (4) current,

(5) wave, (6) tidal, and (7) geothermal.

S. 2146 defines qualified renewable biomass as follows: “The term qualified renewable biomass means renewable

biomass produced and harvested through land management practices that maintain or restore the composition, structure,

and processes of ecosystems, including the diversity of plant and animal communities, water quality, and the

productive capacity of soil and the ecological systems.”

While natural gas facilities are included as qualified generators, electricity derived from natural gas would receive

partial CES credits based on the carbon dioxide intensity of each natural gas generator.

S. 2146 defines qualified waste-to-energy as follows: “The term qualified waste-to-energy means energy produced

from the combustion of—(i) post-recycled municipal solid waste; (ii) gas produced from the gasification or

pyrolization of post-recycled municipal solid waste; (iii) biogas; (iv) landfill methane; (v) animal waste or animal

byproducts; or (vi) wood, paper products that are not commonly recyclable, and vegetation (including trees and

trimmings, yard waste, pallets, railroad ties, crates, and solid-wood manufacturing and construction debris), if diverted

from or separated from other waste out of a municipal waste stream.” S. 2146 also requires that waste-to-energy

facilities have annual certifications and be in compliance with all applicable federal and state environmental permits.

Carbon dioxide emissions of 0.82 metric tons per MWh-net are typically equivalent to CO2 emissions from a

Supercritical Pulverized Coal (PC) electricity generating facility. Additional discussion about MWh-net versus MWhgross can be found in this report under the section titled “Potential Areas for Further Clarification.”

Energy Information Administration, Form EIA-860 Data Files for 2010, available at http://www.eia.gov/cneaf/

electricity/page/eia860.html.

Ibid.

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Clean Energy Standard: Summary and Analysis of S. 2146

amount of CO2 emissions per MWh of electricity produced. This qualified clean energy

generating capacity is distributed throughout the United States. Figure 5 shows the amount of

qualified clean energy capacity located in each state.

Figure 4. Analysis of Placed-in-Service Dates for U.S. Electric Power Capacity

(Total Contiguous U.S. Electric Power Capacity = 1.13 million MW)

Source: CRS analysis, Energy Information Administration, Form EIA-860 Data Files for 2010, available at

http://www.eia.gov/cneaf/electricity/page/eia860.html.

Notes: It is important to realize that electric power capacity (MW), represented in this figure, is different than

electricity generation (MWh). S. 2146 places a clean energy requirement on annual electricity generation (MWh).

Data contained in this figure only represents the potential for electricity generation from qualified clean energy

generators, per S. 2146, and may not be representative of actual electricity that may be produced.

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Figure 5. Distribution of Existing Qualified Clean Energy Generating Capacity

(Megawatts)

Source: CRS analysis of Energy Information Administration Form EIA-860 Data Files for 2010, available at

http://www.eia.gov/cneaf/electricity/page/eia860.html.

Notes: See notes in Figure 4 above.

Clean Energy Standard Compliance

Utility companies required to comply with the CES have two compliance options: (1) submit

clean energy credits to the Secretary of Energy, and/or (2) make alternative compliance payments

to the Secretary of Energy.

Clean Energy Credits

Clean Energy Credits would be issued by the Secretary of Energy to qualified electricity

generation facilities owned by an electric utility.17 Generally, clean energy credits are issued

based on the CO2 emission intensity, as determined by the Secretary of Energy, of qualified

electricity generation compared to the CO2 emission intensity of a pulverized coal plant—which

is estimated to be approximately 0.82 metric tons of CO2 per MWh. Whether or not this CO2

intensity metric is on a gross or net basis is not specified in the bill. Additional discussion about

gross vs. net emission intensity is discussed in the section below titled “Potential Areas for

Further Clarification.”

PURPA defines the term “electric utility” to mean “any person, State agency, or Federal agency, which sells electric

energy.” This definition could include both wholesale and retail electricity sales. As a result, electricity generated by

both vertically integrated utility companies and independent power producers (IPPs) could be eligible to receive CES

credits based on the qualification criteria described in the proposed bill.

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The formula used to calculate the per-MWh CES credit amount for qualified electricity generators

is as follows:

CES CreditMWh = 1 – [(Metric Tons of CO2 per MWhqualified generator)/0.82]

For example, a qualified clean energy generator that uses a renewable energy source with a CO2

emission intensity of 0 would receive 1 CES credit per MWh of electricity generation. However,

a qualified generator that uses a fossil energy source with a CO2 emission intensity of 0.41 would

receive a partial, in this case 0.5, credit for each MWh of electricity generated.

Once CES credits are issued, they can be (1) used to comply with annual CES requirements, (2)

sold to other entities, or (3) held in reserve (also known as ‘banking’) and used for compliance in

future years (i.e., CES credits do not expire). For qualified clean energy sold under contract—in

effect on the date of enactment of the proposed bill—into the wholesale market, CES credits for

the electricity generated would be issued to the purchaser of the electricity; unless the contractual

terms for wholesale electricity transactions include other conditions regarding title to CES credits.

The Secretary of Energy is required to establish a Federal Clean Energy Trading Program to

facilitate, document, and track CES compliance. The Secretary of Energy also has the option of

delegating the market function of CES credit trading to qualified entities.

Alternative Compliance Payments

Another CES compliance option for non-exempt utilities is making alternative compliance

payments (ACP) instead of generating or purchasing CES credits. The ACP design element

essentially places a cap on the cost of CES compliance. S. 2146 sets the initial ACP level at three

cents ($0.03) per kilowatthour in 2015. The ACP increases 5% per year—adjusted for inflation

(see Figure 6). All ACP collections, and any civil penalty payments (discussed further below),

would be used for a State Energy Efficiency Funding Program, which would distribute 75% of all

collections to states for energy efficiency initiatives.18 Distribution amounts to each state are

proportional to the percentage of collections received from each respective state.

Generally, the reason that only 75% of the value of ACPs is returned to the states is to make this provision revenue

neutral from a federal budget perspective. ACPs can be deducted as an expense by a company that makes such

payments. As a result, a company’s taxable income would be reduced, thereby reducing the amount of federal tax

collections. By retaining 25% of collections from a federal program that collects payments, such as the CES, the federal

government is essentially offsetting any revenue losses that might occur as a result of companies deducting ACP

payments as an expense. For more information about the 25% revenue offset, see “The Role of the 25 Percent Revenue

Offset in Estimating the Budgetary Effects of Legislation,” Congressional Budget Office, January 13, 2009, available at

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/96xx/doc9618/01-13-25percentoffset.pdf. Historically, 25% has

been the general revenue offset percentage used. However, the Joint Committee on Taxation (JCT) released its changes

to revenue offsets used to assess budget impacts of various programs, with the offset percentage rising to approximately

30% in 2022. For more information, see Joint Committee on Taxation, New Income and Payroll Tax

Offsets to Changes in Excise Tax Revenues for 2012-2022 (JCX-23-12), March 6, 2012.

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Clean Energy Standard: Summary and Analysis of S. 2146

Figure 6. Alternative Compliance Payment Levels: 2015-2035

(2015 Dollars)

Source: CRS analysis of S. 2146.

Notes: S. 2146 stipulates that alternative compliance payments in 2015 will be $0.03 per kilowatthour. Each year

thereafter ACPs increase by 5% over the previous year, and this increase is to be adjusted for inflation. This

figure does not assume any inflation adjustments. Therefore, actual ACP levels for each year could vary

depending on the magnitude of annual inflation. According to the proposed bill, ACPs will continue escalating by

5% each year after 2035.

Other Design Elements

In addition to the major policy design parameters in the bill, S. 2146 includes several other design

elements. Some of these additional design elements are briefly discussed below.

Combined Heat and Power

Combined Heat and Power (CHP) systems may qualify for meeting CES compliance

requirements. Unlike other qualified generators that only produce electricity for consumption,

CHP systems produce both electricity and heat for beneficial use. Owners of CHP systems,

typically industrial operations, generally consume a certain portion of the CHP energy (electricity

and heat) for on-site facility and business operations. S. 2146 requires CHP systems to have an

overall energy efficiency of more than 50%, produce at least 20% of useful energy in the form of

electricity, and produce at least 20% of useful energy in the form of thermal energy.

The number of CES credits issued to CHP system owners is based on the amount of electricity

generated by the CHP system, the relative CO2 intensity of the electricity produced, the amount of

electricity used for on-site operations, and the annual CES compliance requirement. Gross CES

credits for CHP systems are calculated using the same CES credit formula discussed above;

however, a certain portion of on-site electricity consumption—determined by the annual CES

requirement—is deducted from the gross CES credit calculation. Additional CES credits may be

issued to CHP system owners based on avoided greenhouse gas emissions that would result from

eliminating the need for a dedicated on-site heat source.

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Clean Energy Standard: Summary and Analysis of S. 2146

Biomass

S. 2146 provides a specific definition for renewable biomass, which includes potential impacts

associated with land use and management practices.19 The bill requires the Secretary of Energy to

issue interim carbon intensity regulations for biomass and to commission a study by the National

Academy of Sciences (NAS) to assess total lifecycle emissions from biomass-derived electricity.

Based on the results of the NAS study, the Secretary of Energy is required to issue final carbon

intensity regulations for qualified renewable biomass. A similar effort to quantify lifecycle

emissions, including those from land use and management practices, for growing biofuel

feedstock was led by the Environmental Protection Agency (EPA) in response to requirements in

the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140).20 Much debate and

controversy in the biofuel community resulted from the life cycle analysis, with some groups

arguing that emissions were understated and some groups taking the position that emissions were

overstated.21

Civil Penalties

Non-exempt utilities that do not meet annual CES requirements would be required to pay civil

penalties equal to twice the value of adjusted alternative compliance payments (discussed above)

for the deficit amount of electricity needed to comply with annual requirements.

Interaction with State Programs

As of April 2012, 29 states plus the District of Columbia and Puerto Rico had established binding

renewable portfolio standard (RPS) policies.22 Generally, RPSs are policies designed to encourage

development of renewable electricity projects by requiring a certain percentage of electricity be

generated from renewable sources. Each state RPS usually has some degree of unique design with

regards to the amount of renewable electricity required, dates for compliance, carve-outs for

certain technologies, and other aspects. The impact of a federal CES on state-level RPS policies

could be a concern to some policy makers. S. 2146 states that the CES does not affect the

authority of states to enforce renewable energy laws or regulations. The bill also indicates that no

state laws or regulations can relieve a utility company from its federal CES compliance

obligations.

Other Energy Sources

Integrating energy efficiency and thermal energy sources into a federal CES is a topic of interest

to many groups. Technologies that reduce the total amount of electrical load through either

S. 2146 defines Qualified Renewable Biomass as follows: “The term ‘qualified renewable biomass’ means renewable

biomass produced and harvested through land management practices that maintain or restore the composition, structure,

and processes of ecosystems, including the diversity of plant and animal communities, water quality, and the

productive capacity of soil and the ecological systems.”

For additional information, see “EPA Lifecycle Analysis of Greenhouse Gas Emissions from Renewable Fuels,” U.S.

Environmental Protection Agency, May 2009, available at http://www.epa.gov/oms/renewablefuels/420f09024.htm.

For more information about biofuel lifecycle greenhouse gas emissions, see CRS Report R40460, Calculation of

Lifecycle Greenhouse Gas Emissions for the Renewable Fuel Standard (RFS), by (name redacted) and (name

redacted).

http://www.dsireusa.org/documents/summarymaps/RPS_map.pdf.

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efficiency or heat sources could contribute toward CO2 emission reductions in the electric power

sector. However, calculating the amount and qualification of CES credits for such technologies

can be challenging. S. 2146 requires a report that evaluates these technologies and provides

legislative recommendations about how they might be integrated into the CES policy framework.

Natural Gas

The bill also requires a report on natural gas conservation, with the goal of quantifying natural

gas losses during production and transportation and recommending programs and policies to

promote natural gas conservation.

EIA Analysis of S. 2146

At the request of the Senate Committee on Energy and Natural Resources, EIA analyzed the

potential impact of the Clean Energy Standard Act of 2012 on the U.S. electricity sector.23 Results

from EIA’s analysis indicate that the projected electricity generation fuel mix would change when

compared to EIA’s Annual Energy Outlook reference case projections (see Figure 7). Changes to

the electric power fuel mix are projected to reduce electric sector CO2 emissions in 2035 by 44%

when compared to EIA’s reference case scenario.24 As with any long-term forecast, models used

to calculate such estimates are subject to certain economic, cost, technology, market, and other

assumptions that can make the accuracy and reliability of long-range projections questionable.

EIA’s analysis compares two scenarios (Reference and S. 2146) with identical macro-level

assumptions and adds policy parameters defined in the CES to the S. 2146 scenario. While this

approach may not be able to accurately predict what will actually happen in 2035, it does provide

some indication of potential changes to the electric power sector associated with the CES policy

design. However, it is possible that changes to certain underlying assumptions could yield

different results than those provided in the analysis of S. 2146.

“Analysis of the Clean Energy Standard Act of 2012,” U.S. Energy Information Administration, May 2012, available

at http://www.eia.gov/analysis/requests/bces12/pdf/cesbing.pdf.

Ibid.

Congressional Research Service

Clean Energy Standard: Summary and Analysis of S. 2146

Figure 7. Projected Impact to Electricity Generation Fuel Mix

(Each bar represents 100% of U.S. electricity generation for each scenario)

Source: “Analysis of the Clean Energy Standard Act of 2012,” U.S. Energy Information Administration, May

2012, available at http://www.eia.gov/analysis/requests/bces12/pdf/cesbing.pdf.

Coal, nuclear, and non-hydro renewable energy sources would experience the most significant

changes. In 2035, electricity generated from coal would decrease by 54%, nuclear power would

increase by 62%, and non-hydro renewables would increase by 34% relative to reference case

projections. Growth in non-hydro renewable sources of electricity is dominated by wind and

wood/biomass; however, solar electricity is essentially the same as in EIA’s reference case

projections (see Figure 8).

Figure 8. EIA Projections for Non-Hydro Renewables

(Each bar represents 100% of non-hydro renewable electricity generation for each scenario)

Source: “Analysis of the Clean Energy Standard Act of 2012,” U.S. Energy Information Administration, May

2012, available at http://www.eia.gov/analysis/requests/bces12/pdf/cesbing.pdf.

Congressional Research Service

Clean Energy Standard: Summary and Analysis of S. 2146

Natural gas generation is also expected to experience a relatively modest increase of 8% over

2035 reference case projections including natural gas-fired CHP generation, which would

increase by 21% in 2035. EIA’s analysis also indicates that S. 2146 results in essentially no

carbon capture and sequestration (CCS) projects as a means of CES compliance.

With regard to the potential impact on electricity prices, EIA projects that average U.S. electricity

prices would increase, compared to EIA reference case projections, by approximately 4% in 2025

and 18% in 2035. EIA also notes that the provision in S. 2146 to exempt certain utility companies

from CES compliance requirements could create some degree of regional price disparity between

exempt and non-exempt utilities. Using one estimation approach, EIA indicates that by 2030

electricity prices from non-exempt utilities could be 3% to 30% higher than exempt utilities.

Finally, EIA’s analysis estimates that the use of alternative compliance payments as a means of

CES compliance is minimal throughout the projection period.

Potential Areas for Further Clarification

S. 2146 includes a number of policy design elements that are integrated to create a structure for

the Clean Energy Standard policy. The proposed CES raises some areas that Congress may decide

to further clarify during future deliberations about the proposed bill.

Is the carbon intensity metric (0.82 metric tons per MWh) on a gross

or net basis?

S. 2146 specifies a carbon intensity metric of 0.82 metric tons per MWh as the basis for

calculating partial CES credits for fossil energy generators. However, the bill does not specify if

this metric is on a gross or net basis. Table 2 compares the CO2 emission intensity of subcritical

and supercritical pulverized coal plants under certain operating conditions. Whether or not carbon

intensity is on a gross or net basis could determine if certain plants qualify for partial CES credits

and this determination could also affect the magnitude of partial credits issued to qualified natural

gas generators.

Table 2. Comparison of Carbon Dioxide Emission Intensity

(Subcritical and Supercritical Pulverized Coal)

Subcritical Pulverized Coal

Supercritical Pulverized Coal

CO2 Emissions (lb/MWhgross)

1,783

1,675

CO2 Emissions (lb/MWhnet)

1,888

1,768

CO2 Emission intensity (gross)

0.81

0.76

CO2 Emission intensity (net)

0.86

0.80

Source: “Cost and Performance Baseline for Fossil Energy Plants Volume 1: Bituminous Coal and Natural Gas

to Electricity,” National Energy Technology Laboratory, November 2010.

Notes: Gross emissions represent the total amount of CO2 emissions divided by the total amount of electricity

generated. Net emissions represent the total amount of CO2 emissions divided by the net amount of electricity

available for sale after deducting electricity required for plant operations. Emission intensity numbers are

calculated by dividing CO2 emissions (lbs per MWh) by 2,200 (lbs per metric ton). CO2 emission estimates from

Congressional Research Service

Clean Energy Standard: Summary and Analysis of S. 2146

this study are based on bituminous coal. However, CO2 emissions per MWh of electricity generated can vary

based on coal type (bituminous, sub-bituminous, lignite, etc.), plant location, and local environmental conditions.

How do utilities that operate in multiple states calculate their

aggregate retail sales for determining if they are required to comply

with the CES?

The clean energy requirement in S. 2146 indicates that non-exempt electric utilities that sell

electricity to consumers “in a State,” are required to comply with annual CES requirements. S.

2146 also indicates that the calculation of total electricity sold by a utility, for determining

whether or not a utility is exempt from the CES requirement, should include electricity sold by all

affiliates and associated companies. Utility companies that operate in multiple states may

question whether they should aggregate company, affiliate, and associated company sales within

each state or aggregate electricity sales from electric power operations in all states when

calculating their total sales to determine if they are required to comply with the CES.

Policy Question: How to Define Clean Energy?

Should Congress choose to continue evaluating the possible implementation of a Clean Energy

Standard for the U.S. electric power sector, future debate about the proposed policy may include

various topics associated with defining “clean energy.” S. 2146 defines clean energy based on

carbon dioxide emissions at the point when electricity is generated. However, S. 2146 generally

does not take into account potential emissions, waste, or other environmental impacts that might

occur throughout the entire lifecycle of electricity generation from various energy sources. Some

may argue that the entire lifecycle (energy extraction, transportation, land use, etc.) should be

considered when defining clean energy, while others may argue that a CES focused on reducing

electric power CO2 emissions is a sound approach to reducing greenhouse gas emissions.

Every energy source for electricity generation has benefits and drawbacks. Nuclear power can

provide carbon-free, reliable, and baseload electricity, yet there are concerns with disposal of

spent fuel and weapons proliferation. Natural gas generation emits roughly half the amount of

CO2, compared to coal, per MWh of electricity generated; however, there are environmental

concerns with natural gas extraction. Hydropower could be considered a carbon-free and

renewable source of electricity, but there are fish, wildlife, and water quality concerns associated

with hydropower development. Non-hydro renewable electricity, with possibly the exception of

biomass, is generally considered to be the cleanest source of power generation; however, there are

concerns with endangered species, animal habitat, land use, and other issues associated with

renewable electricity development.25

For more information about renewable electricity resources and challenges, see CRS Report R41954, U.S.

Renewable Electricity Generation: Resources and Challenges, by (name redacted) and (name redacted).

Congressional Research Service

Clean Energy Standard: Summary and Analysis of S. 2146

Author Contact Information

(name redacted)

Specialist in Energy Policy

[redacted]@crs.loc.gov, 7-....

Congressional Research Service

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