Eastern States Harness Clean Energy to Promote Air Quality
Feature article in the July-August 2007 edition of the State Energy Program's bimonthly newsletter, Conservation Update.
by James M. Ferguson and Debra A. Jacobson
States are including renewable energy and energy efficiency in their air quality programs. They are motivated by federal requirements to reduce pollution and by the potential to provide long-term sources of revenue to clean energy projects through emissions trading.
Many states will encounter opportunities to bolster provisions for renewable energy and energy efficiency when they revise their air quality programs in the coming years and if the scope of cap-and-trade program expands to include other pollutants. Read what states are doing in the following sections of this article:
- The Clean Air Interstate Rule Cracks Open the Door
- Metro Washington Coordinates Multi-State Wind Purchase, Efficiency
- Eastern Seaboard States Reduce Emissions on Days When Demand for Electricity Is Highest
States have an opportunity to include measures that promote renewable energy and energy efficiency every time they revise their state implementation plans for air quality.
States can use renewable energy and energy efficiency projects to improve air quality through emissions trading under cap-and-trade programs. To do so, states must assign emissions allowances — each of which represents the authorization to emit one ton of a criteria pollutant — to the owner of a renewable energy or energy efficiency project, who then retires the allowances. In this case, the total number of allowances is reduced and air quality improves.
Another option is for the owner of the allowances to sell them to a fossil fuel generator and use the revenues to finance renewable energy and energy efficiency projects. In this case, air quality does not improve immediately, but the additional incentives will spur the development of renewable energy and energy efficiency projects that will improve air quality over the long term.
To better understand why some state regulations reduce pollution and provide financing for renewable energy and energy efficiency, we'll take a look at how cap-and-trade air quality programs work.
Use Renewable Energy and Energy Efficiency Projects to Reduce Pollution
States have to establish air pollution reduction programs if areas within a particular state violate the National Ambient Air Quality Standards for certain air pollutants. As of June 2007, the U.S. Environmental Protection Agency (EPA) has designated areas in 391 counties as nonattainment for the eight-hour ozone standard and 208 counties as nonattainment for fine particulate matter (see map).
Most of the major population centers in the East, Midwest, California, and Texas lie in nonattainment areas for ozone, affecting 150 million people, or fine particulate matter, affecting 90 million people.
Credit: U.S. Environmental Protection Agency
States with nonattainment areas are required to develop and submit to the EPA a state implementation plan (SIP) to reduce emissions of the specified pollutants. The EPA reviews the plan, which establishes a series of measures that are designed to achieve the required reductions.
Beginning three years ago in Maryland, states began to include provisions for renewable energy in their SIPs. And in 2007, a number of states proposed energy efficiency measures in their SIPs for addressing the eight-hour ozone standard.
Currently, seven states — Indiana, Maryland, Massachusetts, Missouri, New Jersey, New York, and Ohio — have set-asides for renewable energy and energy efficiency projects that would allow project owners to retire allocations for nitrogen oxides (NOx) and allow the states to seek EPA approval for corresponding emission reductions.
Finance Clean Energy Programs through Cap-and-Trade
Cap-and-trade emissions programs that use market mechanisms to reduce emissions of criteria pollutants have been very successful in the United States. They help minimize the total costs of meeting emission reduction targets and have become the preferred method for reducing emissions among many members of the power industry.
Unfortunately, some emissions trading programs provide little or no value for energy efficiency and renewable energy technologies. For example, Congress specifically allocated all allowances for sulfur dioxide emissions to fossil fuel generators under Title IV of the Clean Air Act Amendments of 1990. Although the law includes a provision to benefit renewable energy, it proved ineffective. As a result, renewable energy and efficiency projects are excluded from receiving sulfur dioxide allowances.
The Clean Air Act allows much greater flexibility for providing incentives to renewable energy and energy efficiency projects in the NOx emissions trading program; this flexibility provides an opening for clean energy providers.
NOx pollution is a precursor to ground-level ozone and to fine particulate pollution. Read about the harmful effects of breathing ozone on the Ozone Transport Commission's About Ozone page.
Most states with NOx cap-and-trade programs (except for those with set-asides) allocate all NOx allowances to fossil fuel generators. Nevertheless, the EPA does not require this approach. In fact, the EPA allows states to include renewable energy and energy efficiency in their SIPs to reduce NOx emissions. And since 2005, the EPA and the U.S. Department of Energy (DOE) have helped several East Coast states include renewable energy and energy efficiency in their SIP requirements through the DOE Clean Energy/Air Quality Integration Initiative.
Cap-and-trade programs can provide significant revenues for renewable energy and energy efficiency projects. In recent years, allowances for NOx emissions have been trading at $1,000 to $3,000 per ton. At these prices, developers of renewable energy and energy efficiency projects could expect to earn $0.74 to $6.00 per megawatt-hour from trading NOx emissions credits, depending on the technology and location.
You can read more about regulatory approaches to energy and air quality and find fact sheets published by DOE about state air quality programs on the National Renewable Energy Laboratory Web page titled Protecting Domestic Air Quality.