Energy, Policy and Markets

By Charles McKeown

Office of the Hannah Professor in Land Policy, Agriculture, Food, and Resource Economics

Michigan State University

Electricity markets are strange things. In fact, they often don’t resemble markets much at all. The generation, transmission and delivery of electricity in the U.S. are highly regulated and subject to significant oversight from a true alphabet soup of agencies including: the federal Energy regulatory Commission (FERC), the Independent System Operators (ISO’s), state Public Service Commissions (PSC’s), the U.S. Environmental Protection Agency (EPA), state environmental agencies (DNR’s, DEQ’s etc.) and the list goes on…. 

Why is all this government in a market? It is due to the fact that, to a large extent, the success of the U.S. economy is predicated on reliable, available, and inexpensive electricity. These goals are balanced against the climate crisis, the desire to reduce harmful emissions such as mercury (coal fired power plants are far and away the greatest source), sulfur oxides, nitrous oxides and other harmful emissions, the creation of economic development opportunities, and providing for U.S. energy security, and by extension, national security. When taken as a whole, understanding energy “markets” is akin to untying a Gordian Knot. None of it is simple, and anyone who says that is likely selling something. 

Electricity choices are long term (30 years or more for most baseload power plants) and expensive, regardless of the generation technology. These are the reasons that energy policy plays a key role in electricity technology development and deployment. The policy choices we make now have very lasting effects. Up until now, we have been largely reliant on fossil fuels to spin turbines to generate electricity. While nuclear and renewables are in the mix, coal is king, and energy policy has evolved to support the current mix of generation sources in the portfolio. 

Coal has largely powered the last 100 years of economic development in the U.S; however, newer imperatives have entered the energy policy arena, and our choices now need to be balanced against the next 100 years. The impending climate crisis and the emissions of carbon and other pollutants attendant to current generation technologies have spurred renewables to the forefront of the policy debate. That isn’t to say that current technologies won’t be part of the portfolio; they will be, and indeed, must be as there is no “silver Bullet” solution to our generation needs, but it does beg the need for low carbon, low cost energy sources like wind. Here is where policy becomes a vehicle for moving toward a more secure and sustainable energy portfolio; examples of such policy include Renewable Energy Standards, Feed in Tariffs, production incentives, and investment in technology R&D. 

The renewable energy policy front has been quiet as of late. With the recent high profile bankruptcy of Solyndra, the Keystone Pipeline decision, the current climate in Washington and a presidential race, the energy policy debate in the U.S. is at a low ebb. There has been a general acceptance that this congress will not be amenable to wind or other renewable energy legislation, and little activity has been observed on Capitol Hill. That seems to be changing.

·         On March 1^st the Senator Jeff Bingaman D-MN introduced the Clean Energy Standard Act of 2012. The bill calls for 80 percent of electricity in the US to come from low carbon sources by 2035. The technologies include wind, solar, biomass, nuclear, industrial co-generation (heat and power produced at the same time), coal with carbon sequestration and natural gas plants (partial credit).

·         Senator Debbie Stabenow, (D-Mich.), introduced an amendment to the transportation bill that would have extended the Production tax Credit for renewable energy - including wind power - for one year in addition to extending the popular grant in lieu of tax credit program – this was voted down. However two days later another a two year extension was proposed in the Senate by a bipartisan group including Chuck Grassley (R-Iowa), Mark Udall (D-Colo.), Scott Brown (R-Mass.), Tom Harkin (D-Iowa), Dean Heller (R-Nev.), Ron Wyden (D-Ore.), and Michael Bennet (D-Colo.). Also in the US House, a bill seeking a similar extension has garnered 70 bipartisan co-sponsors.

·         At the state level, there are numerous ballot initiatives underway to increase the percentage of renewables like wind in the generation portfolio. In Michigan, for example, there is an initiative being mounted that would increase the mandate for renewable energy to 25% of the portfolio. 

While I’m not going to use this space to advocate for or against any policy, I will use it to encourage folks to understand why policy is an imperative in the energy arena. Further, it is important to understand why policy that is forward looking (remember we are stuck with our choices for at a least a generation), well informed and carefully constructed can lead to a more sustainable electricity supply, more job creation opportunities, less pollution, and lower carbon emissions simultaneously. Of course, a critical factor here is “well informed” policy, and by that I mean policy that is based on sound science, with a thorough understanding of the potential outcomes good and bad. This is where the value of organizations like the Great Lakes Wind Collaborative comes to the fore. By working with a broad base of experts, conducting high quality research and getting the knowledge generated in policy maker’s hands, the Collaborative serves a vital function. I encourage you to take the time to explore the website, read the reports, perhaps attend one of the meetings or conferences and gain a better understanding of the Collaborative and the issues that revolve around wind.