Clean power play
The EPA’s Clean Power Plan could either make or break the state’s economy.
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From the pages of In Business magazine.
When it comes to reducing carbon emissions, the Environmental Protection Agency is demanding that states like Wisconsin clean up their act, but will the agency’s controversial Clean Power Plan put the state’s economy in a straightjacket?
As is the case with many environmental policies, the CPP will impact the state’s economy because Wisconsin generates about 62% of its electricity from the very coal-fired power plants that CPP would phase out. The plan and its related rules are designed to reduce emissions for existing fossil fuel power plants with options such as increasing coal power plant efficiency, eventually replacing coal-fired plants with natural gas-fired plants, and increasing renewable forms of energy such as wind and solar.
Environmentalists hailed the rule as a necessary step to arrest climate change caused by CO2 emissions, but Wisconsin and other states and energy industry groups have sued to block the plan from moving forward. Although EPA Administrator Gina McCarthy insists Rule 111(b) of the federal Clean Air Act gives the EPA the authority to regulate carbon emissions, opponents question the EPA’s authority to proceed without Congressional approval. Last month, opponents got a reprieve when the U.S. Supreme Court, on a divided 5–4 vote, halted implementation of the plan until all legal challenges could be resolved. Following the Feb. 13 death of Justice Antonin Scalia, Gov. Scott Walker issued an executive order prohibiting state agencies from developing a state plan to comply with the 111(b) Rule until expiration of the stay issued by the Supreme Court.
By 2030, the CPP requires Wisconsin to reduce carbon emissions by anywhere from 34% to 41%, depending on the approach the state adopts, from a 2012 baseline. Under the plan, individual states can collaborate with other states or take part in multi-state approaches, including emissions trading. Initial state plans were to be submitted to the EPA by September of this year, with a more detailed plan due in September 2017, and a final plan due in September 2018. If a state fails to submit a plan or puts forth a plan that does not comply, the EPA is authorized to come up with a federal implementation plan for that state.
With the plan being challenged in the courts, we spoke to Clean Power Plan opponent Lucas Vebber, director of environmental and energy policy for Wisconsin Manufacturers and Commerce, and to CPP advocate Keith Reopelle, senior policy director for Clean Wisconsin.
Opponents claim the plan will increase electricity rates to the point where companies in their respective states have a distinct competitive disadvantage against international competitors. Wisconsin’s Public Service Commission estimates the CPP will cost the state $13 billion and 20,000 jobs, and Vebber says WMC views the plan as nothing short of an “economic and jobs disaster” for Wisconsin. He asserts it will cause energy costs to significantly rise — up to 20%, according to an estimate from NERA Economic Consulting in a study prepared for the American Coalition for Clean Coal Electricity. As electric bills rise, Vebber says Wisconsin manufacturers, whose average electricity bill already is about $31,000 per month, will be less competitive against national and international competition.
“In Wisconsin, manufacturers account for about .15% of all utility customers but they use one-third of the total electricity,” Vebber notes. “Manufacturing is heavily electricity-intensive, and it’s our number one industry. It’s what we do.”
Vebber notes that since the EPA’s emission goals are based on a 2012 baseline, they will be even harder to meet because that year featured low natural gas prices and therefore lower carbon emissions compared to other years. “That’s one of the reasons it’s going to be even harder to comply with than it looks on paper,” he states.
Both Vebber and Reopelle acknowledge that with or without the CPP, state utilities plan to decommission coal-fired plants over the next decade and beyond, but they disagree about who should make these decisions. “As they find other sources that are more reliable or more cost effective for them, those are decisions that should be made at the state level by state regulators, not from Washington,” Vebber opines.
Perhaps it’s no surprise that an organization called Clean Wisconsin would support a plan called Clean Power, but the organization believes it represents an opportunity for economic transformation here. Based on the EPA’s modeling, Reopelle says there would be a small decrease, on the order of 7% to 8%, in electric bills by the year 2030. That assumes a certain amount of compliance through the energy-efficiency piece, “and that’s really key,” Reopelle says.
Even before the governor’s executive order (see below), the Walker administration’s approach to crafting a plan was a mystery. Wisconsin is one of the states suing to block the plan and a legal resolution is unlikely before the September 2016 deadline. A Clean Wisconsin analysis urges the state to address efficiency through doubling the current $96 million annual allocation for the Focus on Energy program because every $1 invested in the program yields $3 in savings on electric bills.
The Clean Wisconsin approach also incorporates emission reductions from the planned retirement of coal plants and a modest 5% increase in renewables by 2030, but the Focus on Energy piece represents the largest chunk of the required carbon emission reduction — 6.6 million tons. Increasing renewable generation by 5% accounts for another 5 million tons, and boosting the efficiency at coal-fired plants by 1.5% provides the smallest sliver.
With this approach, Clean Wisconsin estimates the EPA target is met by 2030 with a $55 million reduction on the energy bills of homes and businesses. “The point of our analysis is basically that if we rely on energy efficiency, we can do this not only at a low cost but at a negative cost,” he says. “We can actually save money.”
According to Reopelle, economic development potential exists in expanding markets for the roughly 500 Wisconsin companies that operate in the renewable supply chain, “but only to the extent that we comply through renewable energy.” Instead of sending an estimated $12 billion for our energy needs out of state, meeting some portion of Wisconsin’s energy demand with renewables would shift a portion of that to companies like Tower Tech in Manitowoc, to reimburse more farmers for devoting land for wind turbines, and supporting energy-efficiency companies such as Johnson Controls in Milwaukee and Franklin Energy Services in Port Washington.
“The Clean Power Plan presents an opportunity that should be a no-brainer in terms of what it can do for Wisconsin businesses and what it can do for Wisconsin’s economy,” Reopelle says. “As long as we keep the price down by relying on energy efficiency, we can see a lot of our businesses grow as a result of this shift.”
Vebber argues that renewable energy is “not a great power source” because if the wind stops blowing and the sun stops shining, you don’t have electricity. “We do have solar and wind and as the wind dies down and as the sun doesn’t shine, coal plants can ramp up their electricity generation to ensure that we have that base-load power,” he notes. “As we get rid of coal plants, as they come off line, our electrical grid is going to become less reliable and it’s going to mean that manufacturers need to take additional steps to ensure they have enough energy, and they will need to plan further on that. That’s all very expensive.
“Those are things that are not only going to harm manufacturing within our state, but it’s also going to make us a less attractive place for anybody to come and start a new business, so it will impact new job creation and impact businesses that are looking to expand.”