The following is an article from Fredrich Kahrl, Managing Partner at 3rdRail and Jim Williams, Associate Professor at the University of San Francisco
Achieving the Biden administration’s ambitious plans to decarbonize the U.S. electricity sector will require a historic political compromise between states. The logic of this large market has become increasingly clear over the past decade. This requires a stronger federal role in the electricity sector and greater regionalization of electricity markets which will anger state lawmakers, but the opportunities outweigh the risks.
From an external perspective, it appears the Biden administration has spent a lot of time and effort setting endpoints for ambitious climate goals, but less time navigating the politics of incremental steps. This does not match the experience of the past decade: Long-term federal goals and signing policies will change with the vagaries of political cycles, but incremental changes in technologies, transmission topologies, and power system operations. will have real durability.
The fundamental political challenge of decarbonizing the US electricity sector probably comes down to the need for a compromise between states that have long-term greenhouse gas (GHG) emission reduction targets and those that do not. have not. At the start of 2021, about half of U.S. states had some form of long-term emissions target. Many states that are not are in wind-rich parts of the Midwest and solar-rich parts of the southeast and southwest.
Wind and solar PV dominate the mix of future generations in recent analyzes of technological pathways to achieve net zero CO2 emissions in the United States by 2050. These analyzes assume some form of national electricity grid, with expansion two to three times the interstate transmission capacity that brings wind and solar generation from resource-rich regions of the Midwest and South to the rest of the country and facilitates the national balance of those resources. Achieving this vision involves huge investments in production and transmission in the Midwest and parts of the South.
The progressive steps towards this vision will have six key elements:
- Congressional support for interstate transmission, possibly in the form of a federal investment tax credit
- Coordinated efforts by the federal government to streamline federal and state transportation licensing processes
- Greater FERC leadership on transport planning and regional transport cost allocation methods, whereby importing states would pay a substantial share of the incremental costs of new interstate transport
- Greater FERC leadership on ISO / RTO market design changes and potentially some consolidation of ISO / RTOs (e.g. ISO-NE, NYSIO and PJM; SPP and MISO) that would reduce or eliminate market seams , would facilitate the national balancing of wind and solar production, and encourage investments between States in these resources
- FERC’s leadership in resolving recent deadlocks over states’ ability to count ‘policy-driven’ resources into resource adequacy requirements in ISO / RTO capacity markets
- New combinations of federal policies and regulatory tools to incentivize a 50-100 GW per year expansion of wind and solar generation and withdraw existing coal production, including legislative cores (e.g. tax credits ) and EPA regulatory sticks (e.g., regional emission caps, clean energy standards) that complement interstate resource sourcing
These six elements contain multiple levels of federal-state and interstate counterpart, with states ceding authority to FERC in exchange for federal action that further their environmental and economic development goals.
Some states with aggressive emission reduction targets might balk at federalization, arguing for local control, local resources and a more participatory role for FERC. Indeed, many state energy and climate policies have been designed around local job creation and some states have threatened to pull out of RTO markets due to perceived federal attempts to suppress state energy and climate policies.
But localism is short-sighted. It ignores the limitations of âgo it aloneâ approaches to tackling a global environmental problem and the need to negotiate with states that do not want any part of federal climate policy. From a global climate perspective, California or New York meeting their mid-century emissions targets makes virtually no sense if other states and countries don’t do the same.
So the big deal is this: A handful of key states that have resisted federal climate policies are dropping their opposition, in exchange for what is expected to represent billions of dollars of investment in production and transportation over the next two years. decades. States that have pursued semi-autarkic energy and climate policies are opening their doors to imports of electricity and paying a larger share of the additional generation and transmission costs in other states, in exchange for federal legislation on electricity. weather.
There are things that not all parties will like about this market, but the rewards, in terms of both economic development benefits and breaking the political deadlock on federal climate policy, may be sufficient to facilitate the process. compromise.
The Biden administration has a narrow window in which it can make lasting changes in the decarbonization of the U.S. electricity sector and the economy as a whole. It should focus on a large market, with a well-articulated value proposition that resonates with enough states to form a lasting majority.