Emissions Reductions from Senator Lugar’s “Practical Energy and Climate Plan Act”

PECPA is unlikely to achieve estimated future emissions reductions.

Senator Lugar’s Practical Energy and Climate Plan (PEPCA; S.3464) includes several policy options that have proven effective for reducing energy use and greenhouse gas pollution throughout the economy, including measures for energy savings in households, major power plants, vehicles and manufacturing. The Senator’s legislation also includes some provisions that could move us in the opposite direction, in terms of environmental and public health impacts. Some provisions would have little or no effect at all, if policies are not locally enforced or if future Congresses do not appropriate the billions of dollars needed for new grant and loan programs.

Without a doubt, the Senator is to be commended for introducing legislation that aims to achieve important goals: to “reach measurable gains in reducing dependence on foreign oil, saving Americans money, improving energy security, and cutting greenhouse gas emissions.” However, based on our assessment of S. 3464 and supporting documents available on Senator Lugar’s website, we find that the most likely “measurable gains,” in terms of economy-wide greenhouse gas emissions reductions catalyzed by this legislation, fall considerably short of estimates put forward by the bill’s author and fall even shorter of the environmental imperative to reduce economy-wide U.S. greenhouse gas (GHG) emissions in line with the President’s commitment of 17% below 2005 levels, by 2020.

Assumptions & Likely Emissions Reductions Outcomes

What follows is a mostly qualitative assessment of the most likely emissions outcomes from each of the bill’s three main policy categories: efficiency measures, the electric power sector, and the transportation sector. The basis for this analysis draws on results from economic modeling of the bill conducted by ClimateWorks, which concluded that S. 3464 could achieve an 8% reduction in U.S. GHG emissions below business as usual (BAU), by 2020, and a 21% reduction below BAU by 2030. What where the assumptions behind the modeling and how likely are those to be realistic?

To state our conclusions upfront: we estimate that this legislation could reliably be expected to result in as few as 2.5% of reductions in U.S. emissions by 2020. By 2030, the lowest end of the range of potential emissions reductions is estimated at 12.6% below BAU. It is also worth noting that these reductions are all presented relative to a BAU baseline, which is somewhat unusual and makes comparability difficult since the convention in U.S. policymaking has typically been to place emissions reduction targets in the context of emissions levels in 1990 or 2005, as opposed to higher, future BAU emissions levels.

1. Energy Efficiency

The first policy category includes common-sense energy efficiency measures that target cost effective energy savings from buildings, appliances and industrial facilities. More specifically, this includes a program that authorizes $2 billion for loans and other approaches to retrofit commercial and residential buildings. A $2.5 billion revolving loan program for industrial efficiency, funded via federal-state partnerships, is authorized to be established over 5 years. Also, national “model” efficiency building codes for new and renovated commercial and residential buildings are established; these are technically required, but enforcement is left up to the states. Finally, there are mandatory appliance efficiency standards, enforceable by the U.S. Department of Energy.

Within this category, the modelers made two key underlying assumptions leading to the conclusion that these programs could directly reduce total, economy-wide U.S. emissions by roughly 4% by 2020 and 7% by 2030. The first assumption is that the industry and building retrofit programs will be fully funded by Congress. So even though experiences in U.S. states suggest that revolving loans can provide effective low cost financing for clean energy project investment, the important point is that this legislation as it is currently written would not actually provide such funding. Assuming that this, or any other multi-billion dollar new program authorized by Congress, will be fully funded in future years is speculative in the context of historic budget deficits.

The other important assumption is that the national model building codes will be fully implemented and enforced by states. States have a mixed history of compliance with national “model” building codes. For instance, a 2008 assessment of state efficiency policies and practices compared to best practices found that 40 of the states scored below 46%. Either way, being out of compliance with the model national building codes in PEPCA would carry no legal consequences for states, except that the Secretary of Energy would be required to take a state’s non-compliance into “consideration” when evaluating whether or not to provide them with DOE grants.

2. Electric Power Sector

The second policy category covers the electric power sector, including the establishment of a “diverse energy standard.” This standard would require utilities to generate 20% of electricity from diverse energy sources – including renewables, efficiency, coal with carbon dioxide capture and storage (CCS) and new nuclear– through a flexible, tradable credit market-base system by 2020. It also prescribes a conventional coal plant retirement program, which offers existing plants an alternative compliance mechanism for conventional pollutants under the Clean Air Act, if the plant owner voluntarily enters into a binding agreement with the EPA to retire the plant by December 31, 2018.

While the coal plant retirement provision in PECPA is credited with reducing economy-wide emissions by nearly 2% each year between 2015 and 2020, it is important to first recognize the economic realities currently facing 60-year old coal-fired power plants. There is reason to conclude that many of these plants will likely retire within the next few years under any future regime of air and water pollutant regulation (e.g., from new coal ash regulations to pending mercury rules, both key protections for the public health and welfare). For example, Citigroup estimates that there will be 21 GWs¹ worth of old coal plant retirements as new regulations are put in place during the next few years. In other words, Senator Lugar’s proposed four year waiver of conventional pollutant rules in exchange for a promise to shut down in 2018, could just as easily be extending the life of several extremely old and inefficient coal plants that would have otherwise retired sooner. Because these future scenarios are difficult to predict and, therefore, somewhat tricky to model, these realities are not reflected in the modeled future baseline (i.e., the BAU scenario); as a result, the modeling results from PECPA “take credit” for emissions reductions achieved by many coal plant retirements that would have likely occurred anyway.

3. Transportation

The third policy category includes two specific policies in the transportation sector: one requires automakers to manufacture dual-fuel vehicles (that use both traditional and alternative fuels) and the other amends existing national Corporate Average Fuel Economy (CAFE) standards for passenger vehicles, light trucks and heavy-duty vehicles. Under the proposed vehicle efficiency measures, the National Highway Traffic Safety Administration (NHTSA) is required to raise fuel economy standards by 4% each year, starting in 2016, for passenger cars and light trucks. However, the legislative text provides broad discretion for the program administrator to lower the standard due to technological, safety or cost reasons. Furthermore, the bill’s fuel economy standards for medium- and heavy-duty trucks do not specify the fuel savings or emissions reductions that should be achieved through updated regulations. Yet the modeling assumes that fuel economy improvements will occur.

Recent history teaches us that having the authority to increase fuel economy standards does not necessarily lead to doing so; NHTSA had the authority to increase CAFE standards between the years 1985 and 2005 and yet four consecutive Presidents decided against using that authority. Rather, it was an act of Congress in 2007 and California’s legislative advances that spurred the recent increases in national CAFE standards.

Conclusion

Senator Lugar’s Practical Energy and Climate Plan Act sets goals that represent important national priorities for America. Yet, due to policy details contained in the bill and tenuous assumptions embedded in the economic modeling, this legislation is unlikely to achieve the estimated future emissions reductions put forward by its author. We conclude that a more reliable estimate of this bill’s potential GHG emissions reductions below BAU is 2.5% by 2020. Though possible reductions can be estimated in the range of 2.5% to 8% in 2020, we believe that reaching 8% is very unlikely due to the reasons outlined above. To reach this conclusion, we simply subtracted from the total model emissions reduction estimates that we found to be based on tenuous assumptions (see table, above). More accurate and directly comparable conclusions would require additional modeling, conducted with a range of underlying assumptions to better bound the most likely outcome of the legislation.

The stakes are very high for the U.S. Senate to enact meaningful and comprehensive solutions. As the catastrophic oil disaster worsens by the day on our southern shores, the Senate has an historic opportunity not just to nudge the U.S. in the right direction but to set the nation on a new trajectory. A more certain and direct way to achieve these important objectives is to cap carbon and other GHG emissions.