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Market Rules For Clean Power Need to Change, States Say

The federal government’s Clean Power Plan aims to compel states to cut carbon emissions from fossil fuel-fired power plants, but two states that have made the most progress in cutting emissions say other factors are the main drivers of climate-friendly innovation in their states.

Regulators from California and New York, speaking Tuesday at New York University’s Institute for Policy Integrity forum on energy policy, said the Clean Power Plan may be useful for getting states to work together to cut pollution, but public policies that favor new markets for renewables and other low-carbon technologies are critical if states are going to be successful at cutting greenhouse gas emissions.

Dillon Wind Power Project in Palm Springs, Calif.
Credit: Tony Webster/flickr

Mary Nichols, chairwoman of the California Air Resources Board, said California is already ahead of the Clean Power Plan by urging other Western states to participate in a regional power market. California created its own cap-and-trade system three years ago and is aiming to slash both its carbon emissions and petroleum consumption in half by 2030.

Nichols said climate change presents a “huge challenge” for California as it suffers its hottest year on record, worst-ever wildfire season and an ongoing extreme drought. Those factors make it imperative for California to help other states reduce their emissions.

“It’s becoming interesting to other states in the West facing the need to comply with the Obama administration’s Clean Power Plan to take a serious look at whether some form of linkage through regional electrical markets could be a more efficient way to comply with the need to decarbonize our electricity sector,” Nichols said. “We want to see the Clean Power Plan work because we want to see Wyoming and Montana and New Mexico reducing their reliance on coal.”

While California agitates for cooperation among Western states, New York has been part of the Regional Greenhouse Gas Initiative cap-and-trade program for years and is in the process of re-imagining how its electric power grid can operate more efficiently to reduce greenhouse gas emissions.

Richard Kauffman, chairman of the New York State Energy Research and Development Authority (NYSERDA), said that New York is trying to overcome one of the major structural challenges facing the U.S. power sector — markets and public policy that often favor traditional technology, such as the existing electric power grid, which is not built to handle a wave of renewables and other low-carbon technology.

The market structure is stacked against new technology while conventional energy sources enjoy a tremendous scale advantage that renewables can’t compete with, he said.

David Littell, a principal with the Regulatory Assistance Project and a former Maine Public Utilities commissioner and RGGI officer, said that while technology may lead to change within the energy industry, public policy enables that change.

“Market rules were set up to favor the incumbents,” he said. “It’s the incumbents vs. the innovators. The rules work for those that are there.”

An example of that, Kauffman said, is the recent global drop in solar panel prices.

“We enjoy the solar industry cost reductions not because of U.S. policy, but because of other countries’ policies where they took new technology and created markets,” Kauffman said.

Powerlines in Canton, N.Y.
Credit: Decaseconds/flickr

New York’s focus is to get the alignment between the market and innovation just right by creating markets for new energy technology, he said.

“Innovation alone isn’t going to do it,” he said.

Kauffman said the Clean Power Plan may not be as much of a driver of change in states’ electricity systems as it may seem.

Clean energy is an engine for economic growth, and developing low carbon energy technologies has already proven to be a major economic boon for both California and New York, he said.

“States can fight this, (but) energy should not be a partisan issue,” he said.

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