You asked for a summary and discussion of the energy provisions of the proposed climate change action plan. This memo focuses on the plan’s recommendations regarding electric generation and other areas subject to the Energy and Technology Committee’s jurisdiction. The plan and related information is available online at http: //www. ctclimatechange. com/StateActionPlan. html.

SUMMARY

As required by PA 04-252, a steering committee consisting of five state agency heads has submitted its proposed climate change action plan to the legislature. The plan identifies specific measures to achieve the goal established by the New England governors and eastern Canadian provincial premiers of reducing emissions of greenhouse gases (GHGs). Increased emissions of these gases are widely believed to be linked to global warming and other climate changes.

The plan includes 55 recommendations in electric generation and four other areas. The electric generation recommendations include: (1) increasing the amount of renewable energy supplied to the electric grid, (2) implementing a program for electric customers to choose a “green” option, (3) increasing the state government’s purchase of clean energy, and (4) a package of energy efficiency and cogeneration measures. Other

recommendations of interest to the Energy and Technology Committee include establishing oil and natural gas conservation programs and encouraging development of landfill gas-to-energy projects.

The plan describes each of the recommendations in detail and the amount they would contribute to reducing GHG emissions in 2010 and 2020. The plan estimates the costs and benefits of most but not all recommendations. For some recommendations, the plan estimates the cost or net benefit per ton of emissions reduced.

The committee and the governor have designated 38 of the 55 recommendations for immediate implementation. Implementation of these recommendations would not meet the emissions reduction goals, but implementation of all 55 recommendations would.

The plan estimates the costs and benefits of several individual recommendations as a package, e. g. , those dealing with electricity conservation. On the other hand, it is not clear how other recommendations relate to each other. For example, the electric conservation package projects that 314 megawatts (MW) of net new generating capacity would be built in the state by 2015 and 352 MW by 2020. In contrast, the renewable energy recommendations project 817 MW and 1,436 MW in net additions in 2015 and 2020, respectively. The plan does not specify how much new capacity would be built if both sets of recommendations are adopted, or how the implementation of the electric conservation package would affect the feasibility of building new renewable generation. Some recommendations have inconsistent assumptions regarding future electric prices, which presumably would affect electric consumption and thus GHG emissions. It also unclear how realistic some of the assumptions behind other recommendations are, e. g. , the proportion of electric customers who would choose a “green” option.

BACKGROUND

Most scientists believe that the increased levels of carbon dioxide (CO₂) and other GHGs in the atmosphere are contributing to global climate change. They believe this change will cause a wide range of effects, many of them harmful, including hotter summers, more frequent droughts, the melting of polar ice caps and subsequent rise in sea level, impaired air quality and higher rates of respiratory disease.

The Steering Committee has prepared a draft of the 2005 Connecticut Climate Change Action Plan in response to PA 04-252, AAC Climate Change. The committee includes the chairmen of the Connecticut Clean Energy Fund and Department of Public Utility Control (DPUC), the commissioners of the environmental protection, transportation and administrative services departments and the secretary of the Office of Policy and Management.

The act requires the committee to develop a comprehensive climate change action plan containing policies and programs needed to achieve the state’s goals for the reduction of greenhouse gas emissions by 2010 and 2020. The goals are to reduce GHG emissions to 1990 levels by January 1, 2010 (the 2010 goal), and by 10% below 1990 levels by January 1, 2020 (the 2020 goal). The goals are based on recommendations made in 2001 by the Conference of New England Governors and Eastern Canadian Premiers. The committee met with various stakeholders during 2003 to develop the plan.

The committee made 55 recommendations in five areas: (1) transportation and land use; (2) residential, commercial and industrial; (3) agriculture, forestry and waste; (4) electricity generation; and (5) education and outreach. The committee and the governor have designated 38 of the 55 recommendations for immediate implementation, three of which have already been implemented. The other 17 recommendations are still being analyzed. The plan describes each of the 55 recommendations in detail and the amount each would contribute to the reduction in greenhouse gases in 2010 and 2020.

According to the plan, the initial 38 recommendations would reduce greenhouse gas emissions by 3. 65 million tons of CO₂ equivalent (“tons”) in 2010, and by 6. 89 million tons in 2020. This would not be enough to achieve the 2010 and 2020 goals, which are 5. 74 million tons and 17. 99 million tons, respectively. However, implementation of the additional 17 measures that are being analyzed would enable the state to surpass those goals. The plan states implementing all 55 recommendations would reduce GHG emissions by 8. 66 million tons in 2010 and 19. 3 million tons in 2020.

Pursuant to the act, the environment, energy, transportation and commerce committees convened a joint informational public hearing to review the Steering Committee draft plan, and must meet by February 1 to consider endorsing it. The Steering Committee must submit a final plan to the committees by February 15.

ELECTRIC GENERATION RECOMMENDATIONS

The plan’s electricity recommendations would increase the amount of renewable energy supplied to the electric grid, implement a program for Connecticut consumers to choose a “green” option in purchasing electricity, and increase the state government’s purchase of clean energy. The plan also includes a package of energy efficiency and combined heat and power (cogeneration) measures. The law already mandates the establishment of the “green” electricity option, and state agencies have begun to take steps to implement this and the state government purchasing option.

Renewable Energy Strategy

Proposal. The plan proposes a variety of measures to promote the development of renewable energy in the state and the region as a means of reducing GHG emissions in the long term and promoting the renewable energy industry in Connecticut. The measures include replacing part of the fossil-fueled generation capacity in Connecticut and elsewhere with biomass-fired capacity during the 2010-2020 period. During this period the plan projects that 204 megawatts (MW) of biomass capacity would be built (a typical new gas-fired power plant is about 500 MW). During the same period, coal-fired generation would fall 27%. While overall generation in the state would fall slightly (2. 1%) the proportion of generation coming from biomass and other renewable resources would increase from the current 1. 5% to 5. 2%. The plan also is based on (1) adoption of the production tax credit for renewable energy, discussed below and (2) the projected premium paid for renewable power under the current renewable portfolio standard (RPS), which requires that an increasing part of the power sold in Connecticut come from renewable sources.

Anticipated Results. The plan anticipates that these measures will not reduce emissions in the state by 2010 but will reduce emissions by 1. 33 million tons in 2020. The plan anticipates that the measures will reduce emissions across the northeast by 0. 1 million tons in 2010 and 2. 02 million tons in 2020. It anticipates that the measures will increase net electricity expenditures in the state by $ 121 million through 2020 relative to the reference case (the situation that would exist in the absence of any change in policy). In addition, the production tax credit would cost the state $ 133 million during this period.

Discussion. This part of the plan assumes that no new generating plants will be built in Connecticut before 2010 and that CO₂ from the electricity sector will remain flat during this period. This implies that any growth in electricity demand during this period will be met by imports. This may be an unrealistic assumption, in light of the transmission constraints in southwestern Connecticut. While the Phase I and II transmission lines would alleviate these constraints, Phase II will not go in service before 2009, at the earliest. Moreover, the Connecticut Energy Advisory Board, the Independent System Operator-New England, and others believe that additional generation capacity will be needed in this region, even if the lines are built, to ensure system reliability. It is also unclear how realistic it is to assume, as the plan does in this segment, that wholesale electric prices will be essentially flat during the 2005-2020 period.

The plan projects that a substantial amount of biomass-fired generation capacity will be built in the state. Such capacity would reduce GHG emissions and could provide other environmental benefits. However, it should be noted that the last time that there were proposals to develop such capacity the legislature essentially forced the utility that was going to buy power from the biomass projects to buy out the contract with the projects’ developer and cancel the project in response to local concerns with regard to the projects’ impact on the host towns.

Expansion of the Renewable Portfolio Standard

Proposal. Under current law, the RPS requires that 7% of the power sold in the state in 2010 come from class I renewable resources, such as wind, solar, and fuel cell power. There is a cap on the premium utilities and competitive suppliers must pay, with the utility or supplier being required to pay into the Clean Energy Fund to the extent that it is unable to procure renewable energy at prices below the cap.

The plan recommends gradually increasing the RPS so that utilities and suppliers would be required to obtain 20% of their power from class I sources by 2020.

Anticipated Results. The plan projects that the existing RPS would decrease GHG emissions by 1. 3 million tons by 2020. It projects that expanding the RPS, in conjunction with increased state government purchases of renewable energy and the production tax credit, would decrease emissions by 3. 2 million tons in 2020. (It appears that this is a regional emission reduction, since the power used to comply with the RPS can come from other northeastern states as well as Connecticut. ) The model used in the plan does not disaggregate the impact of the expanded RPS, but the plan estimates that the expansion is responsible for 90% of the benefit, i. e. , 1. 7 million of the 1. 9 million tons of the marginal decrease in emissions. The plan does not provide an estimate of the cost of the RPS expansion.

Discussion. It is unclear the extent to which the plan considered the cap on the RPS premium in estimating the impacts of an expanded RPS. Raising the RPS may have the effect of reducing renewable energy production in the region. Expanding the RPS would increase the demand and price paid for renewable energy, and presumably this would prompt an increase in supply. However, if the supply increase did not match the demand increase, the price of renewables could exceed the premium cap, and utilities and suppliers could opt to pay into the Clean Energy Fund rather than purchase renewables.

Government Clean Energy Purchases

Proposal. The plan proposes to increase the proportion of state government energy purchase that come from Class I sources from 1% in 2002 to 10% in 2010 and 50% in 2020. It recommends several strategies for reaching this goal, including using savings achieved from enhanced energy efficiency in state buildings to pay for the program and bidding out the state’s electricity purchases, with bidders being required to exceed the RPS.

Anticipated Results. The plan projects that this measure would decrease GHG emissions by 0. 08 million tons in 2010 and 0. 21 million tons in 2020. It also anticipates that this measure would reduce emissions of other pollutants and increase fuel diversity, among other benefits. The plan projects that the measure would cost the state between $ 1. 2 million and $ 1. 9 million in 2010 and between $ 0. 9 million and $ 3. 9 million in 2020.

Discussion. As the plan notes, Executive Order 32 already requires state agencies to comply with this recommendation and the Office of Policy and Management has retained a consultant to help the state implement it.

Production Tax Credit

Proposal. The plan recommends that the state explore a production tax credit (PTC) of 1. 8 cents per kilowatt-hour for projects in Connecticut that are not eligible for the federal PTC.

Anticipated Results. The plan estimated the effects of the state PTC in conjunction with the expanded RPS and increased state purchases of class I power, as discussed above.

Discussion. Recently adopted federal legislation expands the scope of the federal PTC to include several new types of renewable resources (historically it only covered wind). As a result, it is unclear what effect, if any, the plan’s proposal would have on renewable energy production and thus GHG emissions.

Clean Energy Option

Proposal. The plan recommends that the state launch a clean energy option for all electricity consumers, i. e. , the opportunity to buy electricity generated entirely from renewable resources.

Anticipated Results. The plan sets targets of 3-4% of consumers choosing this option in 2010, 5-10% in 2020, and 11-20% in 2050. It estimates that the resulting emission reductions would be 0. 43 million tons in 2010 and 0. 81 million tons in 2020 (the plan does not estimate emission reductions in 2050). It estimates that consumers would choose to incur $ 14. 5 million in higher electricity costs in this scenario in 2010 and $ 17. 8 million in 2020.

Discussion. As the plan notes, the law already requires the electric utilities to offer such an option, and the DPUC has begun to implement this mandate.

It is unclear that the plan’s targets are realistic. As it notes, two competitive suppliers previously offered “green” options in Connecticut. At their peak, their combined market share was 0. 1% of customers. Moreover, in Oregon, which has had a similar program for several years, participation in the program has been steady at 1-2% of customers.

Renewable Energy Credits

Proposal. The plan proposes to allow the use of tradable renewable energy credits as part of the RPS, the state clean energy purchase program, and clean energy option programs.

Anticipated Results. While the development of trading system would not produce any GHG emission reductions, it would reduce the cost of the RPS and other programs.

Discussion. As the plan notes, the DPUC has begun a proceeding to implement a trading program.

Restore the Clean Energy Fund

Proposal. The plan proposes to restore funding to the Clean Energy Fund to offset the reallocation of part of the fund’s revenues to the General Fund. It suggests using the restored funds to leverage green power purchase by private and public sector entities or promote clean distributed generation (e. g. , fuel cells) in the state.

Anticipated Results. The plan projects that these measures would reduce GHG emissions by 0. 31 million tons in 2010 and 0. 41 million tons in 2020. The proposal would cost $ 8. 6 million per year for the next seven years.

Discussion. It is unclear how feasible the proposal is in light of the current budget situation.

Energy Efficiency and Combined Heat and Power

Proposal. The plan includes a package of energy efficiency and combined heat and power (cogeneration) measures. These include upgrades to the state building code, tighter appliance energy efficiency standards, restoration of the Conservation and Load Management Fund, and a shared savings program for government agencies, among other things.

Anticipated Results. The plan anticipates that these measures would reduce state GHG emissions by 0. 25 million tons in 2010 and 4. 9 million tons in 2020, with larger reductions at the regional level. While the efficiency programs would cost $ 637 million through 2020, they would decrease electricity expenditures by more than $ 1. 1 million during this period.

Discussion. While the renewable energy strategy projects a significant increase in renewable energy generation in the state (primarily from biomass plants), this package anticipates that renewable generation would be flat through 2020. As a result, one cannot simply add the emission reductions contained in the two plan components. Moreover, it is unclear how feasible the proposal is to restore funding for the Conservation and Load Management Fund in light of the current budget

Regional Cap-and-Trade Program

Proposal. The plan proposes that Connecticut work with other northeastern states to adopt a cap-and-trade program for GHG, similar to the ones that exist for other pollutants.

Anticipated Results. The plan projects that such a program will reduce GHG emissions by 1. 9 million tons in 2010 and 3. 9 million tons in 2020. The program could also reduce emissions of other pollutants.

Discussion. Unlike other components of the plan, this proposal assumes that wholesale electric prices will increase significantly in the 2005-2020 period (the other components assume that prices will be generally flat). It also assumes that the price for CO₂ allowances will increase substantially over time, although this has not been the experience with other cap-and-trade programs.

OTHER ENERGY RECOMMENDATIONS

Heating Oil and Natural Gas Conservation Fund

Proposal. The plan recommends the establishment of heating oil and natural gas conservation funds, based on a 3% surcharge on consumption. The oil and natural gas surcharges would raise $ 20 million and $ 30 million per year, respectively. The revenues would be used in conjunction with the money from the existing 3% electricity conservation charge to address energy efficiency on a fuel-blind basis. In other words, the money raised from the charges on electricity, natural gas, and oil would be pooled for energy conservation investments, independent of the type of energy used in the particular project that receives funding. Funding recipients would be eligible for matching grants for energy efficiency investments.

Anticipated Results. The plan projects that the oil provisions would reduce GHG emissions by 1. 02 million tons by 2010 and 1. 89 million tons by 2020. They would cost $ 131 million through 2010 (not including the recipients’ match) and $ 320 million through 2020. They would provide a net benefit of $ 184 and $ 787 per ton in 2010 and 2020, respectively. They would also (1) increase Gross State Product by $ 266 million through 2020 and state government revenue by $ 66 million through this period, (2) decrease air pollution, and (3) provide health benefits.

The natural gas provisions would reduce GHG emissions by 1. 44 million tons by 2010 and 2. 07 million tons by 2020. They would cost $ 205 million through 2010 and $ 462 million through 2020 (not counting the recipients’ match). They would provide net benefits of $ 360 and $ 1,450 per ton in 2010 and 2020, respectively. They would (1) increase Gross State Product by $ 1. 8 billion through 2020, (2) decrease air pollution, and (3) provide health benefits.

Discussion. The Energy and Technology Committee has considered similar proposals in the past, which were not enacted. As a footnote in the plan notes, the benefit/cost ratios presented in the plan would be cut in half if the recipients’ match were counted in the cost of the program.

Energy Star Home Programs

Proposal: Energy Star Home Programs provide rebates for those who purchase newly constructed homes that meet efficiency standards set by the U. S. Environmental Protection Agency and Department of Energy’s Energy Star program. The DPUC is considering incorporating an expanded version of the program into its conservation and load management budget plan for 2005.

Anticipated Results. The plan anticipates that this measure will reduce emissions by . 018 million tons in 2010 and . 044 million tons in 2020. It projects that meeting the requirements of the programs increases the cost of a home by $ 2,150, but this increase is more than offset by lower energy costs.

Discussion: It is unclear how the anticipated results would be achieved if DPUC does not incorporate the programs into future budget plans.

Support Landfill Gas-to-Energy Projects

Proposal: The committee recommends a program to encourage an increase in the number of landfill gas-to-energy projects. The Clean Energy Fund is currently investigating several possible projects in Connecticut.

Anticipated Results: The committee estimates that the measure will reduce emissions by 0. 447 million tons in 2010 and 0. 452 million tons in 2020.

Discussion: The committee did not estimate the cost of this measure.

Other Energy Conservation Recommendations

The plan also recommends (1) improving the energy conservation loan program, which provides low-interest loans for energy saving measures; (2) doubling the number of households receiving weatherization assistance (estimated emissions reduction of . 006 million tons in 2010 and . 006 million tons in 2020, at an estimated annualized cost of $ 265 per ton); and (3) promoting energy efficiency and energy improvement mortgages, which encourage people to buy energy efficient homes or improve their current homes (estimated emissions reduction of . 005 million tons in 2010 and 0. 14 million tons in 2020, providing an annual benefit of $ 33 per ton).

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