Biden Must Sustain Laser Focus To Meet Lofty Green Goals

Although the election is barely in the rearview mirror, President-elect Joe Biden has no time to waste in beginning to act to achieve his aggressive announced goal of having a carbon-free power sector by 2035 and net-zero emissions, economywide, by 2050.¹

Biden has already announced climate change as one of his top four priorities, and, even if the Democrats cannot flip the Senate, the administration is expected to take a number of executive actions to try to meet its goals in the power sector, including a shift in messaging, executive orders and rulemakings.

Biden is not the only one to focus on addressing the power sector's carbon emissions.

In the last several years, a growing number of states and businesses alike have adopted decarbonization targets and committed to stronger emissions reductions to address the impact of climate change.²

Despite this trend, as of 2019, approximately 11% of the US generation supply was sourced from renewable resources, including geothermal, solar, wind, hydro-electric, and biomass, according to the US Energy Information Administration.³

The balance of domestic supply was produced using approximately 37% petroleum, 32% natural gas, 11% coal and 8% nuclear energy as fuel.

Given the myriad issues that will need to be addressed, getting to carbon-free by 2035 in a mere 15 years' time is a lofty goal.

To have a chance of bringing the decarbonization goal to fruition in that time frame, new technologies and infrastructure, an overhaul of wholesale electric market rules and progressive legislation are expected to play important roles.

Incremental and aggressive progress in the form of carbon reductions will need to be made annually between now and 2035.

Challenges in Infrastructure and Emerging Transformational Technologies

To meet the decarbonization goals, we will need an enormous amount of new infrastructure and capital to be deployed over the next 15 years.

Not only will this require new, carbon pollution-free generation facilities, but accommodating the integration of substantial new renewable electric generation resources will require investments in transmission infrastructure to deliver renewable generation supply, such as remote offshore and onshore wind and hydro-electric power, to load centers and to facilitate the growing reliance of distributed energy resources, such as distributed generation and flexible load sources.

Recent experience demonstrates it can take upward of a decade to bring a new, multistate transmission line to fruition, given the roles both state governments and the federal government play in the permitting process.⁴

Cooperation and coordination among these entities will be essential, and the environmental review process may need to be streamlined to accelerate the buildout of the necessary energy infrastructure.

Otherwise, delays in these processes would easily translate into missed opportunities to meet the decarbonization goals.

Deploying energy storage technologies on a broad scale also will be essential to meeting the president-elect's decarbonization goals.

Whereas historically the bulk of the nation's energy supplies have been generated and delivered in real-time based on demand, the deployment of large-scale batteries will accommodate the production of energy from certain clean energy resources that depend on favorable weather conditions, such as wind and solar power, and their later use.

Carbon capture and other emerging technologies also are expected to play a role.

Yet the US has only 10 operational large-scale carbon capture and sequestration/storage facilities to date.⁵

The US Department of Energy's Carbon Capture Program forecasts transformational technologies in this space are expected to be ready for demonstration-scale testing around 2030.

If the 2035 target is to be met, and these technologies are to play a role, those targets will need to be accelerated through increased investment from both the private and public sectors.

Wholesale Electric Market Rules

Our country is divided into multiple organized wholesale electric markets that are run by regional grid operators known as regional transmission organizations or independent system operators.⁶

RTOs are involved in operating the electric markets, controlling flows in the power system by directing generator output, and planning new infrastructure for the power sector, making their participation crucial to meeting Biden's decarbonization objectives for the power sector.

PJM Interconnection is one such RTO that coordinates the movement of electricity through all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Washington, D.C.

PJM, like the other regional grid operators, has market rules designed to dispatch the most cost-effective generation to serve regional needs.

These market rules were not designed to consider the cost of environmental externalities in making dispatch decisions, a consideration deemed crucial to accelerating the transition to cleaner, renewable fuels.

While RTOs are presently not required to consider the cost of environmental externalities, such as the social cost of carbon, the tide may shift under the Biden administration.

In fact, the Federal Energy Regulatory Commission already has started to lay the groundwork by issuing a proposed policy statement asserting it has jurisdiction over wholesale market rules that incorporate a carbon price.⁷

The move came despite the jurisdictional mandate of the Environmental Protection Agency to protect the environment and asymmetric state views on carbon pricing.

Even the PJM member states do not have a uniform approach to carbon reduction, as can be seen by the participation of some in the Regional Greenhouse Gas Initiative and the desire by others not to have any approach.

The lack of uniform adoption of carbon reduction approaches has raised complex issues that RTOs like PJM must address.

Many RTOs also already initiated task forces to redesign their market rules to accommodate decarbonization objectives. Much work continues to need to be done to avoid asymmetries and ensure rule revisions work as intended.

The Role of Congress and Legislation

Biden's plan to decarbonize the power sector aligns in several ways with recommendations released by Democrats on the House Select Committee on the Climate Crisis⁸ and Senate Special Committee on the Climate Crisis,⁹ which reflect congressional Democratic leaders' policy priorities for carbon reduction.

In particular, all three plans call for: (1) a national clean energy standard to achieve net-zero emissions in the coming decades; (2) incentivizing the improved energy efficiency of homes and buildings; (3) designing market incentives, such as tax breaks, to spur the growth of clean energy while requiring entities to bear the cost of externalities, and (4) investing in research, development, and deployment of advanced technologies, especially carbon capture and sequestration technology in hard-to-abate sectors of the economy.

While many Democrats may view these policies favorably, major legislative changes impacting the power sector may not move beyond the House.

Even if Democrats flip the Senate following the Georgia elections runoff, they will maintain only a narrow majority with Vice President-elect Kamala Harris serving as the tiebreaking vote.

Without changes to the legislative filibuster, and without a 60-member Democratic majority in the Senate, bolder climate-change legislation will face significant obstacles to enactment.

However, whether Democrats flip the Senate or Republicans maintain their majority, lawmakers may succeed in advancing narrow, bipartisan legislation.

For example, the proposed American Energy Innovation Act, or S. 2657,¹⁰ from Sens. Lisa Murkowski, R-Alaska, and Joe Manchin, D-W.Va., which focuses on targeted investments in advanced technology, including carbon capture, and energy efficiency improvements, could advance to the president-elect's desk.

While the bill originally stalled in early 2020 due to disagreements over a hydrofluorocarbon phasedown amendment, the bill could advance once more in the new Congress.

While the bill neither includes clean energy tax extensions nor does it set carbon emission reduction targets, it includes other climate priorities, such as authorization of significant investments in solar and wind power improvements, energy storage, and grid modernization.

The House passed its own energy innovation bill in September 2020, H.R. 4447,¹¹ which includes many similar provisions to the Senate measure. Congress likely will not pass these bills before the end of 2020, so the 117th Congress may take action in 2021.

Given these dynamics, Congress likely will not be able to change dramatically the landscape of the power sector through legislation.

Rather, Congress' role will be driving investment in the transition to a cleaner economy through market incentives, such as favorable tax policies, and appropriated funds. However, even without a mandate from Congress, the Biden administration may be able to take significant steps toward its decarbonization goals.

Biden Can Make Progress Without Congress

Given the prospect of a Republican Senate, and the difficulty of passing legislation even were there a narrow Democratic majority instead, much of the federal decarbonization efforts will be left to the Biden administration.

While campaigning, Biden announced a number of executive actions he would take on his own that would impact the power sector.

First and foremost, the president-elect is expected to rejoin the Paris Climate Agreement and revoke a number of President Donald Trump's executive orders that affect energy and the environment. For example, Trump revoked President Barack Obama's Executive Order 13693,¹² which set a goal of cutting the federal government's greenhouse gas emissions by 40% over 10 years.

Biden is expected to reverse Trump's revocation and issue a new executive order even more ambitious than that of Obama. In addition, Biden likely will issue new executive orders restricting oil and gas permitting on federal lands and waters.

In addition to executive orders, the Biden administration is expected to take a broad range of regulatory actions to address carbon emissions from the power sector.

For example, the administration likely will begin processes to increase the recognized social cost of carbon and create a successor to the Obama administration's Clean Power Plan.

The administration also is expected to require all federal infrastructure investments and permitting decisions to consider the effects of climate change and greenhouse gas emissions, a move that will make approving natural gas pipelines and other traditional fossil fuel infrastructure more difficult.

While the Biden administration is expected to take aggressive executive action as part of its Build Back Better pledge, decarbonizing the power sector by 2035 will remain a lofty goal.

Several factors will need to be addressed, including the decentralized nature of the power markets, certain states' and other constituencies' resistance, the significant public and private sector investment needed to build out the necessary generation and transmission infrastructure, uncertainty around the permitting timelines, and the expected lack of a congressional mandate.

Despite these obstacles, we expect to see significant progress over the next several years, due both to Biden's commitment to the issue and the role climate change played in the presidential election.

If the federal government can lay the groundwork for swift decarbonization, the path to 2035 undoubtedly will be an interesting one.