A National Renewable Electricity Standard

On Tuesday, Senators Bingaman and Brownbacked dropped a bill (S.3813) to establish a national Renewable Electricity Standard or RES.  In the wake of the collapse of climate change legislation earlier this year and considerable soul searching in the environmental and energy communities about what comes next, the RES legislation is a positive sign that there is life after cap and trade.

As I argued this summer when Majority Leader Reid announced the tabling for the time being of climate legislation, there are many ways to advance cleaner forms of energy beyond making carbon-based energy more expensive.  On its face, cap and trade was (and is) a way to price the future social costs of climate change into fuel prices today--and create a market to lower those costs efficiently.  On another level, however, it was (and is) a market intervention to level a playing field already tilted by earlier interventions, notably the highly complex set of rules and regulations that shape energy usage.  Many developing countries subsidize gasoline, setting a gasoline price far below the market one at a huge cost to their treasuries.  In developed countries such as the US, we don't subsidize consumption of carbon fuels but we subsidize production.  In electricity highly complex regulations and the monopoly structure of the business favor incumbent technologies.  Before a price on carbon can ever begin to internalize future damage to the climate, it first must offset these governmental carbon subsidies.

To be fair, besides favorable government policies, the oil and gas industry have benefited from robust R&D investments.   Oil engineers have taken drilling technology so far that no one noticed how difficult it is to drill a mile below the sea until a BP oil rig exploded.  Most recently, the gas industry has had a transformative breakthrough that many believe will alter the energy landscape for decades: namely a new way to produce low cost gas from shale rock.  High R&D spending in oil and gas is a direct result of the high rewards to risk in the sector. 

In contrast, the electricity sector spends almost no money on R&D.  Why?  The regulated rate of return system for setting rates does not reward risk.  Utilities are merly reacting rationally to the system.  Inventors of clean energy technologies and producers of renewable energy face huge barriers to getting their products to market because there frequently is no open market and no reward to risk.

An RES standard of the type proposed by Senators Bingaman, Brownback and their co-sponsors is a simple and proven (at the state level) tool to open up the market for renewable power.  In effect, it creates a market for renewable power equal to the level of the standard - 15% in the Senate Bill.  There is more we can do to open up electricity markets to technology and renewable power.   But a national RES is a start.  Congress can and should move S.3813 this year.