Electricity Charges, Mandates, and Subsidies
| Author | Jim Rossi |
| Pages | 598-618 |
Page 598 Legal Pathways to Deep Decarbonization in the United States
I. Introduction
Consistent with the long-term greenhouse gas (GHG)
emissions goals set by the U.S. government in 2009, the
Deep Decarbonization Pathways Project (DPPP) envisions
reducing net U.S. GHG emissions 80% below the 1990
level by 2050. is will require reducing carbon emissions
from fossil fuel combustion to 1.7 metric tons per capita
in 2050, an order of magnitude below recent U.S. levels.
Achieving an 80% emi ssions reduction by 2050 is a par-
ticularly daunting cha llenge for the electric power sector.
In 2017, emissions of carbon dioxide by the U.S. electric
power sector accounted for 34% of the total U.S. energy-
related emissions,1 with nearly 90% of these coming from
natural gas a nd coal power plants. Given the DDPP’s
anticipated growth in electricity usage for transportation,
the electric power sector will be cha llenged to expand the
availability of energy whi le also reducing its carbon emis-
sions footprint. e mix of energy resources in any of the
various DDPP energy sector scenarios for achieving c arbon
emissions targets thus w ill require massive new investment
1. See U.S. Energy Information Administration (EIA), Frequently Asked Ques-
tions—How Much of U.S. Carbon Dioxide Emissions Are Associated With
Electricity Generation?, http://www.eia.gov/tools/faqs/faq.cfm?id=77&t=11
(last visited July 9, 2018).
in non-fossil fuel electric power supply infrastructure, as
well as improved eciency and conservation by customers.
A shift toward lower carbon sources of electric power
supply and more ecient customer energy use will not
happen overnight but will require decades of nancia l
commitments. As modeled in the DDPP, future scenar-
ios for the decarbonized energy sector include the Mixed
Scenario, comprised of a shared combination of renew-
able energy, nuclear power, and natural gas with carbon
capture and sequestration (CCS); the High Renewables
Scenario, which envisions renewable power from solar
and wind providing more than 75% of the energy on the
grid; the High Nuclear Scenario, which would envision
nuclear power more than doubling to meet its share of
power needs; and the High CCS Scena rio, which would
envision gas and coal, along with CCS, providing more
than half of the nation’s power needs.2 Taking the Mixed
Scenario as a star ting point, where both nuclear power
and renewable energy plants would be added to the grid as
existing fossil f uel resources are retired, annual electricity
generation investments would need to increase $15 billion
2. J H. W ., P D D
U S, U.S. 2050 R, V 1: T R 19-20
(Deep Decarbonization Pathways Project & Energy and Environmental
Economics, Inc., 2015), available at http://usddpp.org/downloads/2014-
technical-report.pdf.
Chapter 23
Electricity Charges, Mandates, and Subsidies
by Jim Rossi
Summary
While the Deep Decarbonization Pathways Project (DDPP) reports identify clear emissions targets and energy
resource scenarios that can meet them, they do not tell us which policy levers to pull to get there. is chapter
focuses on specic policy changes to electric power mandates, subsidies, and retail customer charges that can help
to facilitate the transition to deep decarbonization. Existing state and federal policies regarding these tools dem-
onstrate their potential for balancing economic, consumer welfare, and environmental goals as the electric power
system adapts to various DDPP scenarios. It will be necessary to signicantly scale up and recalibrate electric
power mandates, subsidies, and retail customer charges to successfully arrive at any of the DDPP scenarios in the
electric power sector. While no one change to these tools will be sucient on its own to achieve the DDPP’s goals,
state regulators, Congress, and federal agencies are well positioned to design a package of reforms to ensure that
the transition to deep decarbonization does not impair economic eciency or consumer welfare.
Page 599
per year from 2021-2030, more than $30 billion per year
from 2031-2040, and, by 2050, more than $50 billion per
yea r.3 e High Renewables Scenario would require more
than $70 billion per year of new generation investments by
2050.4 High Nuclear or High CCS Scena rios would also
require investments at a level of $50 billion per year or even
hig her.5 Novel private sector approaches to nancing new
generation investments will no doubt prove important to
this power supply shift.6
Meeting deep decarbonizat ion’s emissions targets will
not only require a favorable investment environment.
Regulations and policies create incentives to induce private
investment and provide stability to reduce investor uncer-
tainty. Going forward, policyma kers must be attentive to
how their decisions will aect private investment decisions,
aiming for a regulator y environment that encourages them
to invest in the replacement of most existing power gen-
eration with lower carbon options, while simultaneously
growing infrastructure to accommodate electri cation of
transportation w ithout encouraging wastefu l consump -
tion of electricity. At the same time, regulators will need to
carefully a ssess the carbon emission impacts of the transi-
tion in the eet of resources to meet energy needs on the
grid, including monitoring the growth of “bridge fuels”
such as natural ga s.7
is chapter addresses how some traditional regula-
tory tools, such as electric power mandates, subsidies, a nd
customer charges, can better facilitate a transition to deep
decarbonization. Section II of the chapter addresses how
many past and present policies promote carbon lock-in in
the electric power sector. State and federal policies adopted
over the past few decades demonstrate how mandates, sub -
sidies, and charges ca n assist in the impending transition
to deep decarbonization, without sacricing economic
eciency or consumer welfare, as discussed in Section
III. Such mandates include renewable portfolio standards
(RPS), which inuence energy investment decisions in
more than half the states. With respect to subsidies, fed-
eral tax incentives and ratepayer subsidies have also had
a signicant impact. In addition, retail customer charges,
including time-of-day rates and billing approaches like net
3. Id. at 47-48.
4. Id.
5. Id. Each of the various scenarios would involve a decline in fossil fuel invest-
ment of roughly $10 billion per year.
6. Many of these nancing approaches are discussed in Chapter 6 of the
present volume.
7. See Chapter 24 of the present volume, on phasing out fossil fuels in the
electricity sector.
metering, have inuenced customer demand and reduced
the need for large-scale power generation.
Continuation of these regulatory tools will be integral
to the impending decarbonizat ion transition, but they also
must be scaled up and recal ibrated to new goals and policy
changes. Section IV surveys a range of reforms to these
tools that will be necessary to ease this transition. State
regulators will need to continue to focus on new inno-
vative policy approaches, but meeting decarbonization’s
goals will a lso require reforms to federal law. Congress in
particular is well positioned to adopt reforms that better
align private incentives for new infrastructure investment
with social and environmental protection goals . Even with-
out new legislation from Congress, the executive branch
already possesses signicant authority to design better
policies for decarbonization on its own: agencies such as
the U.S. Environmental Protection Agency (EPA), U.S.
Department of Energy (DOE), and Federal Energy Regu-
latory Commission (FERC) must embrace these tools to
ensure that their design complements competitive whole-
sale electric power markets. New federa l policies will need
to facilitate more private investment in low-carbon energy
infra struct ure, encou rage subnational in novations, a nd
promote better governmental coordination in the transi-
tion toward deep decarbonization of the electric power
sector.8 Sec tion V concludes.
II. Past and Present Policies Reinforcing
Carbon Lock-In
Traditional regulatory approaches in energy law favor
preservation of the economic viability of an existing and
dated fossil fuel energy inf rastructure—a problem known
as “carbon lock-in.”9 e current power supply eet has
been built and continues to be sustained by decades of
governmental policy choices that, if left unaddressed,
8. For a discussion of the promise of setting oors for clean energy policy, see
Jim Rossi & omas Hutton, Federal Preemption and Clean Energy Floors,
91 N.C. L. R. 1283 (2013).
9. As Gregory Unruh describes:
[I]ndustrial economies have become locked into fossil fuel-based
technological systems through a path-dependent process driven
by technological and institutional increasing returns to scale. is
condition, termed carbon lock-in, arises through a combination of
systematic forces that perpetuate fossil fuel-based infrastructures in
spite of their known environmental externalities and the apparent
existence of cost-neutral, or even cost-eective, remedies. Rational
corrective policy actions in the face of climate change would in-
clude removal of perverse subsidies and the internalization of envi-
ronmental externalities arising from fossil fuel use.
Gregory Unruh, Understanding Carbon Lock-In, 28 E P’ 817,
817 (2000).
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