A bill under consideration in the legislature would credit utilities under the state's Renewable Portfolio Standard (I-937) for making investments in projects which reduce greenhouse gas emissions. Expanding the diversity of qualified projects presents a market opportunity for new technologies to reduce carbon while maintaining competitive energy costs for ratepayers. This article explores the concept behind Carbon Reduction Investments and why the Washington Business Alliance believes it’s a strategy worth pursuing.

What is I-937?

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Passed into law in 2006, I-937 requires the state’s largest utilities to gradually increase the amount of electricity they receive from renewable energy sources to 15 percent by 2020. Renewable resources include wind, solar, geothermal, landfill and sewer-derived gas, qualified biodiesel, biomass, and a limited set of hydro projects. Utilities can meet the requirement either by building new renewable capacity, or by purchasing Renewable Energy Credits, also known as RECs.

When I-937 was passed its stated purpose was clean air and energy security. Targets were measured in terms of megawatt hours (MWh) of renewable energy, not metric tons of carbon reduced. Fast forward to the present, growing public support for climate action is motivating governments to consider a suite of policies aimed directly at carbon emissions.

One notable I-937 success is the requirement for utilities to achieve all cost-effective energy conservation. To comply, a utility must develop a target of achievable conservation together with the NWPCC, and update based on a 10-year projection every two years. For the 2012-13 period, the 17 utilities covered by I-937 reported a combined conservation savings of more than 248 aMW exceeding their own targets by 27-35%.

Energy Conservation Revisited

Conventional conservation is focused on decreasing energy use. Shifting the focus to carbon reduction enables utilities to pursue actions of greatest environmental value. It opens the door to the idea of “Positive Load Growth,” where more electricity use is encouraged if it also reduces carbon.

For example, Washington’s predominantly hydro-based grid makes it an ideal market for electric vehicles. However, electric vehicles use more electricity, and therefore rub up against laws governing conservation.

Under current law Washington utilities are not allowed to encourage higher demand for energy via their advertisements. WAC 480-100-223 prohibits “advertising to encourage any person or business to select or use the service or additional services of an electric utility” but allows “advertising which informs customers how to conserve energy or how to reduce peak demand for energy.” This is unproductive at a time when utilities can strengthen their financial health and reduce carbon at the same time through positive load growth.

The Washington State Department of Transportation’s 2014 Washington State EV Action Plan calls for a radical rethink of energy conservation to include replacing oil use in transportation: “Electric kilowatts and barrels of oil can both be measured in BTUs and compared for effectiveness and savings. And since it is cost-effective to replace oil with electricity in transportation, while at the same time producing lower carbon emissions, the broader definition of energy conservation will lead to better public policy.”

Carbon Reduction Pathways

Carbon Reduction Investments would give utilities credit for pursuing carbon reductions both inside and outside of the electric sector. The change would better align investments with the sources of carbon emissions. Some of these investments present opportunities for utilities to make money through distributing electricity and low carbon fuels like natural gas to more customers. The net effect would be the equivalent or more carbon reduced, with lower compliance cost, returning direct benefits to ratepayers.

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Source: EPA State and Local Climate and Energy Program

These projects could include:

  • Electrification of the transportation system, including, installation of electric vehicle chargers and related infrastructure, conversion of public or private fleets to electric propulsion, transmission and distribution infrastructure improvements to support electric vehicle charging, and interactive digital equipment and software that allows electric vehicle batteries to be integrated into utility control system.
  • Conversion of public or private fleets to alternative fuels, including compressed natural gas, liquefied natural gas, biofuels, hydrogen, and renewable natural gas for public or private fleets of motor vehicles, locomotives, and marine vessels, including the Washington State ferries.
  • Energy storage technologies for integration of existing renewables. Without storage solutions to solve load balancing challenges, intermittent wind and solar require backup generation, often met with fossil fuels. Solving the load balancing challenge is key to realizing the full potential of renewable energy.
  • Other alternative energy sources not currently specified in I-937, such as incremental hydropower and anaerobic digestion of food waste.

The Fine Details

Conceptually the merits of the bill are intriguing. It is attractive as a viable strategy for incentivising similar market behavior as a Cap & Trade, or Low Carbon Fuel Standard, without having to implement a new regulatory system. If successful, the model is also scalable to the over two-dozen states which currently have Renewable Portfolio Standards in place.

There are still important implementation details to be worked out, such as:

  • How to establish REC Equivalency
  • Applying Life Cycle Analysis to evaluate investments to assure the expected carbon reduction benefit
  • The process of project audits/approval
  • Standards for ensuring additionality
  • And helpful case study examples

Summary

This bill is an important first step within a broader strategy we’ve proposed, called the  Technology-Enabled Market Strategy.  The Washington Business Alliance identified the major sources of carbon, baseline projections, current policies, and trends and pinpointed the technology-enabled pathways to reduce carbon while driving economic prosperity.

The Strategy has three major pillars:

  1. Build on Washington’s natural advantage in clean, affordable electricity;
  2. Improve efficiency in the built environment, and;
  3. Stimulate the use of low carbon electricity and fuels in transportation.

Carbon Reduction Investments advance this strategy by refocusing an existing policy on the goal of carbon reduction. Today, the greatest opportunity to reduce greenhouse gas emission in Washington is found in leveraging the low carbon intensity of its energy system to reduce emissions in other sectors. Extending an incentive for utilities to play a role in the conservation of carbon emissions like they have for energy efficiency can further distinguish Washington State as a national model for low carbon prosperity.