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30 ELR 10933 | Environmental Law Reporter | copyright © 2000 | All rights reserved Moving the Climate Change Debate From Models to Proposed Legislation: Lessons From State ExperienceJohn Dernbach and the Widener University Law School Seminar on Global WarmingJohn Dernbach is an Associate Professor at Widener University Law School. The students participating in the Seminar on Global Warming were Jennifer Cole, Valerie Faden, Susannah Lee, Chris Lovecchio, Sean Quinlan, Jessica Reenock. David Shumway, Kimberly Smith, Matthew Williams, David Wortman, and Brian Zulli. The seminar, which was led by Professor Dernbach, was held in the spring semester of 2000. Brenda Bishop, Valerie Faden, and Jason Schibinger provided additional research assistance. Don Brown, Alan Miller, Sonny Popowsky, Bob Power, John Rohrbach, and Kathy Yorkievitz provided helpful comments on an earlier draft. Duncan Austin and Andrew Kleit patiently answered questions on economic issues. Professor Dernbach is responsible for any errors. Please send any comments or questions to john.c.dernbach@law.widener.edu. The United States is a party to the United Nations Framework Convention on Climate Change (Framework Convention),1 which requires parties to implement programs and measures to reduce net greenhouse gas emissions. Greenhouse gases, including carbon dioxide (CO2), trap solar energy in the atmosphere in proportion to their concentration, rather like the way glass windows in a greenhouse or a parked car trap solar heat.2 Their increased atmospheric concentration from human emissions is believed to be affecting the earth's climate. In 1997, in Kyoto, Japan, the parties agreed to a protocol under which developed countries would reduce their net emissions by at least 5% below 1990 levels by 2008-2012, and the United States would reduce its emissions by 7% below 1990 levels.3 Since that time, there has been a vigorous debate in the United States about the Kyoto Protocol. To a great degree, this public debate is a case study in asking the wrong questions: 1. Are we certain that global warming is "real"? This question reduces the many science questions to just one and ignores the virtual certainty that CO2 and other gases warm the atmosphere, that their atmospheric concentrations are increasing, and that humans are causing the increase. The question also stands common sense on its head because we nearly always act on incomplete information and avoid or minimize public risks as much as we can. We may not know precisely what effects increased greenhouse concentrations can have, or precisely when these effects will be felt, but we know enough to take prudent action. The precautionary principle stated in the Framework Convention itself recognizes this, stating that lack of complete scientific information is not a reason to avoid taking cost-effective measures.4 2. How much will it cost us? Because the Framework Convention's primary goal is stabilizing greenhouse gases to prevent dangerous human interference with the climate, and because we have already ratified the Framework Convention, a better question is how we can accomplish that goal at the lowest total cost. Many studies of the economic impact of the Kyoto Protocol do not appear to examine whether their projected costs are the lowest possible costs. Another question would inquire about potential benefits and opportunities. Many of these same studies do not look carefully at numerous economic and other benefits, including the substantial benefits of avoiding climate change. 3. Should we ratify the Kyoto Protocol? Ratification of the Protocol, without more, would subject the United States to a serious international legal obligation without the statutory authority to meet it. The right question, therefore, is what types of legislative measures would meet the Kyoto Protocol target? If we better understood the answer to that question, we would also better know the benefits and costs of implementing the Protocol and whether we should ratify it as we adopt those measures. Because the benefits of many specific legislative measures exceed or greatly offset their costs, we would also recognize that the level of scientific certainty about global warming is not necessarily the most important issue in determining how the United States should respond. The debate, in other words, should not simply be about science and economics; it also should be about law. Despite the centrality of law to climate change, we have not had a real debate about the legal measures necessary to reduce greenhouse gas emissions in the United States. Instead, the law is sidestepped or legal options are artificially reduced by assumptions in studies. Perhaps the closest the U.S. Congress has come to such a debate occurred in July 1997, approximately five months before the Kyoto meeting was even held. By a vote of 95 to 0, the Senate passed a resolution sponsored by Senators Robert Byrd (D-W.Va.) and Chuck Hagel (R-Neb.) expressing the sense of the Senate that the United States should not sign any protocol to the Framework Convention unless the protocol met several key conditions.5 According to the resolution, the protocol must not "mandate new commitments to limit or reduce greenhouse gas emissions" for developed countries unless it also "mandates new specific scheduled commitments to limit or reduce greenhouse gas emissions for Developing Country Parties within the same compliance period."6 In addition, the protocol should not "result in serious harm to the economy of the United States."7 The resolution's preamble suggests that the Senate's core concern is with binding greenhouse gas emission limits on developed countries (including the United States) if developing countries are not also subject to binding limits. The "disparity of treatment," the preamble states, "could result in serious harm to the United States economy, including significant job loss, trade disadvantages, increased energy and consumer costs, or any combination thereof."8 The Senate's position is plain enough, but the Byrd-Hagel Resolution does not take a position on any proposed legislation, nor does it refer to any. The Kyoto Protocol that was later negotiated contains virtually no limitation on the legal instruments that a country may employ domestically. Resolution language concerning effects on the United States was based on economic models and studies that made assumptions about the laws that would be used. Most of the national studies of the impact of the Kyoto Protocol on the United States assume that the country will rely primarily on a narrow range of legal instruments, especially emissions trading and taxes on CO2 emissions.9 Because the major models generally have been prepared by economists, legal tools that do not involve price changes (such as those employed by states) tend to be excluded from consideration, at least in part because economists have difficulty modeling their effects.10 Nor do these models appear to give much credence to the overall role that states could play in achieving effective and geographically tailored emissions reductions. The results of those studies, in turn, have been widely disseminated with little if any explanation of their assumptions concerning the choice of legal instruments. Such use of studies tends to conceal some of the very questions that most require debate: What are those assumptions, and what other legal instruments would be equally effective or more effective? This Article is intended to help focus the Kyoto Protocol debate on the legal measures needed to reduce greenhouse gas emissions, to suggest a framework for considering legal tools or instruments, and to suggest the value of legal tools now being employed by states. The United States and other nations may choose from many dozens of different legal instruments, alone or in conjunction with others, to reduce net CO2 emissions.11 The United States should employ instruments that achieve most of their reductions within American borders. Because of the magnitude and complexity of the task, the country should use a suite of tools or instruments rather than rely on one or two. In addition to reducing greenhouse gases, moreover, these tools should foster economic development, job creation, technological innovation, environmental protection, and even national security. This approach is consistent with U.S. international commitments to sustainable development, but it also reflects the political reality that the country is not likely to undertake any greenhouse gas reduction effort [30 ELR 10935] that it believes will hurt its security, economy, or society. Finally, these tools should be cost effective. This Article began with a basic question in my seminar on global warming in the spring of 2000: To what extent can the United States implement the Kyoto Protocol by making more widespread use of measures that states are already implementing?12 In general, each student wrote a paper about a particular type of tool being used at the state level that reduces net greenhouse gas emissions. The tools studied in the seminar are customer choice of electricity providers, environmental labeling requirements for electricity sources, building codes requiring energy efficiency, demand-side management, system benefit charges, cap-and-trade programs, tax credits, net metering, planning and siting preferences for renewable energy facilities, CO2 limits for new power plants, and renewable energy portfolio standards. These tools focus on CO2 emissions because CO2 is responsible for more than one-half of the projected effects of global warming, and because states have significant authority for regulating fossil fuel-fired burning facilities.13 This Article synthesizes and summarizes the student papers as well as other information14 and then evaluates these tools. While many of these tools are generally recognized as useful in reducing greenhouse gas emissions, a great many other tools were excluded. The analysis of tools here is illustrative, not exhaustive. Two broad conclusions emerge from this analysis. First, these tools have considerable potential to reduce greenhouse gas emissions under the Kyoto Protocol. They achieve reductions primarily within the borders of the states that enacted them, not elsewhere. These tools are often used in mutually reinforcing combinations, not as stand-alone measures. While no one of these tools is necessarily capable of achieving great reductions, the careful combination of many tools is likely to have significant effects. To be sure, the effect of state actions so far is relatively modest. Few of these instruments have achieved widespread use in states, and many of them have not been in effect for very long. Still, they have considerable potential to reduce net emissions. These tools also provide a variety of benefits in addition to mitigating climate change. Rarely are these tools accompanied by a statement of purpose that includes reducing greenhouse gases. Instead, they are intended to conserve energy, limit other air pollutants, foster local economic growth, lower energy costs on the poor, and serve other purposes. Indeed, they are notable in part because these other benefits likely equal or even exceed their benefits in reducing greenhouse gases. Finally, these tools appear to involve negligible costs. Second, a strong case can be made for applying these tools at the national level. Many state tools result from, or work within the framework of, federal energy or environmental law. National use of these tools is likely to result in deeper reductions in net greenhouse gas emissions than state-by-state action. National uniformity in rules, particularly for market-based approaches, is likely to enhance the effectiveness of such approaches. Indeed, this Article identifies some of the elements that should be contained in national legislation to address the Kyoto Protocol. National use of these tools is also more likely to reduce national security risks from climate change. If these tools can work at the state level, they surely can do so nationally. Because states have historic police power roles that are relevant to climate change, moreover, any national legislation should enlist the states in creative and effective ways. This Article outlines the risks to the United States raised by climate change and describes both the Framework Convention and the Kyoto Protocol. The Article then explains the importance of instrument choice and provides a framework for assessing legal instruments or tools. Next, 11 different state legal instruments are described and the importance of state actions is discussed. The Article then suggests basic lessons from state experience, explaining the value of these and other tools and proposing their consideration by more states and the federal government. It is increasingly recognized that climate change will be "one of the biggest challenges facing the world in the next century."15 As the late Elliot Richardson observed, the risks of increasing greenhouse gases should be treated in a manner that is similar to the risks of other pollutants.16 The United States has a history of acting to protect human health and the environment based on the risk, rather than certainty, of harm. Even when those risks are relatively small (for example, a risk of cancer of 1 in 10,000 or 1 in 1,000,000), they are considered serious enough to justify regulation. For climate change, by contrast, the risk of adverse effects and the potential magnitude of those effects is much greater. In the past century, average global surface temperatures have increased between 0.3 and 0.6 degrees Centigrade (C°) (or a little more than 0.5 and 1.0 degrees Fahrenheit (F°)), according to the Intergovernmental Panel on Climate Change (IPCC), a world body of experts organized under [30 ELR 10936] the auspices of the United Nations.17 This warming has occurred at the same time that humans have emitted large concentrations of greenhouse gases into the atmosphere. CO2 is the principal greenhouse gas, and its human sources are primarily the burning of fossil fuels (coal, natural gas, and gasoline) for energy.18 Other greenhouse gases include methane and nitrous oxides.19 Atmospheric concentrations of these gases in the atmosphere are much higher now than they were before the industrial revolution, and they continue to grow each year.20 In early 1996, the IPCC concluded that the "balance of the evidence" shows "a discernible human influence" behind the observed atmospheric warming.21 With moderate population growth and no focused international effort to reduce emissions of these gases, the IPCC said, average surface temperatures will rise 2 C° (or almost 4 F°), and sea levels will rise by 0.5 meters (or 1.5 feet) in the next century.22 Increases in the concentration of these gases will have the effect of doubling pre-industrial concentrations of CO2 by about the middle of the next century under a "business as usual" scenario, and quadrupling pre-industrial CO2 concentrations soon after 2100.23 In the first six months of 2000, the evidence that humans are contributing to global warming continued to build.24
[] Customer Information. These added complexities may make it difficult for customers to even understand their bill, much less consider alternative electrical sources. For instance, Utility Y, a competitor to Utility X in the example above, may offer electricity at 6 cents per kwh. A customer may believe that Utility Y is offering a better deal than Utility X because his or her bill is now 8 cents per kwh. But Utility Y can only compete for generation, not transmission or distribution. Thus, the proper price to compare on the current Utility X bill is the generation charge of 4 cents per kwh, not the total charge. A customer who does not understand that, and chooses Utility Y to obtain a lower electrical bill, will be frustrated and unhappy when his or her bill actually increases. To address such issues, the National Association of Regulatory Utility Commissioners adopted at its 1996 annual meeting a resolution supporting customer "right-to-know" laws for retail marketing of electricity.224 The National Council on Competition and the Electric Industry, a joint effort of state utility regulators and state legislators, then sponsored research and drafted model legislation.225 Information disclosure lets customers make the decisions they seek to make, enhances consumer protection by allowing direct comparison of information about competitors, and makes the market more efficient by rewarding those who provide what customers want.226 The Council's research shows that customers want and need all electricity suppliers to provide standard information, including information that will allow effective price comparisons.227 Among other things, the model legislation requires each electricity product sold at retail to show the average price, length of the contract period, and the type of rate (fixed or variable) "in a succinct and easily understood format."228 Because a customer who chooses another electrical supplier will ordinarily be asked to sign a terms-of-service agreement or contract with the new supplier, the length of that contract is important. Many (but not all) state restructuring laws require suppliers to provide such information.229 These state laws vary in the extent to which they require disclosure of this information. The model act requires that [30 ELR 10954] the labels appear on all written retail marketing and advertising materials as well as the terms-of-service agreement with the electricity supplier.230 California requires the disclosure labels to be included in all product-specific written marketing materials but excludes advertisements in the general media.231 The state also requires quarterly disclosure by a supplier to its customers.232 In Massachusetts, suppliers must provide disclosure labels before the initiation of service, with the customer's first bill, and quarterly thereafter. Written advertisements do not need to contain the label but they need to say that it will be provided on request.233 State restructuring laws also require utilities to implement customer education programs to enable customers to make informed decisions.234 These programs surely make customers more aware of their ability to make choices. But labeling and education programs, without more, do not provide any information about the energy sources relied on by particular electricity generators or the environmental effects of those sources, including their greenhouse gas emissions. In fact, they may suggest that the only issue that matters in customer choice is cheaper costs. [] Actual Competition and the Transition Charge. While these customer choice laws authorize retail competition for electrical generation, that authorization comes with a catch. The catch is a transition system for electric utilities. Because of significant differences in the price of electricity within and between states, some utilities would be unable to compete effectively in this new market. Retail customers would migrate to lower cost utilities, and leave the higher cost utilities with significant investments in plant and equipment that they could not recover. These unrecoverable investments are known as stranded costs. Every state restructuring law has allowed utilities to recover the bulk of their claimed stranded costs.235 State legislatures have evidently been persuaded by the notion that states have a "regulatory compact" with utilities because their state regulatory commissions previously approved these investments under a pricing structure that was designed to let utilities recover their costs.236 Thus, each state law allows electric utilities to recover their stranded costs in the form of a competitive transition charge or competition transition charge. The charge is non-bypassable, which means that every customer within the service territory of Utility X must pay it, even if the customer is purchasing electricity from another source. This result is consistent with the "regulatory compact" because it means that the utility can recover its stranded costs from persons who would otherwise be its customers. But it has a profound effect on the willingness of individuals and firms to choose other providers of electricity. The transition charge means that a customer may not obtain electricity from another provider at that provider's market rate; the customer must also pay the transition charge. The transition charge increases the cost of electricity from all other electrical providers, including providers that rely on renewable energy for much or all of their energy. Because electricity from wind and solar power is often still more expensive per kwh than electricity from fossil fuels,237 the transition charge makes it more unlikely that providers of such electricity will be selected. To be sure, some people will choose renewable energy even if it is more expensive, and electricity will be so expensive in some utility service areas that renewable energy providers will be able to offer cheaper electricity. Others will be persuaded that the energy conservation services made available by a different provider will make that provider less expensive, either right away or over several years. But the general effect of the competitive transition charge is to favor existing utilities. In addition to reducing the likelihood that utility customers will choose other electricity providers, stranded cost recovery through the transition charge has another adverse effect on competition—it operates as a barrier to market entry by potential competitors. Even if these potential competitors can offer better prices and little or no greenhouse gas emissions, they must still bear the weight of the transition charge for the electric utility with which they intend to compete. There are two ways of responding to theadverse effects of stranded cost recovery. One is to wait until these costs have been recovered. Pennsylvania's law, for example, generally requires that stranded costs be recovered by January 1, 2006 (nine years from its effective date).238 In other cases, utilities have recovered their costs earlier than projected by, for example, selling their electric-generating facilities to other companies. Where this has occurred, competition, including competition by renewable energy providers, is likely to be more vigorous. The second and more immediate way of responding is for states to ensure that the competitive transition charge is no higher than necessary. Because a basic purpose—probably the basic purpose—of these laws is to reduce electrical costs for customers, it follows that these laws should not increase prices. In fact, the Massachusetts and California laws involve up-front rate reductions of 10% or more.239 Essentially, as long as overall rates are capped,240 the higher the transition charge, the less room there is for price competition. The distribution and transmission charges are based on the natural monopoly of electric lines and are set without reference to generator competition. The only two other charges are the generation charge and the transition charge. Because the overall rate cannot ordinarily [30 ELR 10955] exceed the rate before retail price competition, higher transition charges mean a lower generation charge. The lower the generation charge, the more competition is inhibited. Consider these examples, which are intended only to illustrate two differences between the actions of the Pennsylvania and California utility commissions in response to their restructuring laws:
The 4.0 cents per kwh generation charge in Example A provides the customer with a price to compare with those of competing electrical generators.241 Because it is a significant fraction of the overall bill, the generation charge (or "shopping charge," so called because it is the price not paid to the former utility when the customer is no longer getting electricity from it, and is thus the price against which a customer shops for a better deal) provides a significant opportunity for price competition. Thus, while the electric bill in Example A is higher than the bill in Example B, 4.0 of the 8.0 cents per kwh charge is subject to price competition. By contrast, the 1.2 cents per kwh charge in Example B leaves relatively little room for price competition. Even though the bill is lower at the outset, it is much less likely that a customer's choice of another electrical provider will reduce the bill. These differences in generation charges have significant effects on participation in each of the two state programs. More than 500,000 of Pennsylvania's five million electric customers already have chosen another electrical generator under that state's program. By contrast, only 200,000 of California's 12 million electric customers have done so.242 All of California's electric customers received an up-front reduction in their electric rates, and in that respect receive an immediate benefit from retail competition. On the other hand, Pennsylvania rate payers have greater potential for rate reductions through customer choice. Thus, the size of the generation charge has a major effect on the ability of customer choice to reduce greenhouse gas emissions. At the same time, the relatively small fraction (10%) of Pennsylvania customers who have chosen another electrical provider suggests that the generation charge is not the only reason customers are sticking with their existing utility. [] Incorporating Customer Choice Into a Broader Strategy for Reducing Emissions. Customer choice is provided primarily to let customers reduce their costs. But it is not about cost alone, for these laws also are designed to protect other values, such as the reliability of electrical generation, transmission, and distribution. The challenge is to use electrical restructuring for yet another value—reducing net greenhouse gas emissions. If the price of electricity reflected all of the social and environmental costs of producing it, including greenhouse gas emissions, then price competition by itself would reduce greenhouse gas emissions. That is, unfortunately, not the way that prices now work. The nation's extensive air pollution control laws do not prevent significant emissions from power plants. EPA has concluded that "in terms of the volume and variety of pollutants emitted into our nation's air, no other single category of stationary sources comes close to matching the contribution of electricity generation."243 Although many of these pollutants are directly regulated, but not completely eliminated, by air pollution laws, CO2 is not even directly regulated. Power plant emissions of CO2 thus enhance the risks and costs of climate change. These costs have not been internalized or incorporated into the price of electricity. Retail competition by itself can have both positive and negative effects on net greenhouse gas emissions. On one hand, price competition favors cogeneration plants over power plants that produce only electricity. Electric-generating plants heat water to high pressure steam, and then run the steam through a turbine to produce electricity. Even the best turbines, however, can only convert 38% of the plant's energy into electricity.244 At stand-alone nuclear and [30 ELR 10956] coal-fired power plants, the rest of the plant's heat energy is dissipated in the form of steam from cooling towers or the release of warm water into streams and rivers. Combined heat and power plants, by contrast, use at least 70% to 80% of their energy because, in addition to electricity, they supply heat to factories, office buildings in city centers, and others.245 Because such plants have more energy to market, and waste less energy, they are more economically competitive and produce fewer greenhouse gases for the energy they generate than stand-alone plants. In addition, technological improvements for gas turbines at natural gas power plants allow these turbines to recover 42% to 45% of their energy in the form of electricity, and as much as 90% if the heat is also marketed.246 Natural gas plants also produce far less conventional air pollution and greenhouse gases than coal-fired power plants, and are thus becoming the energy source of choice for the overwhelming majority of new plants.247 On the other hand, price competition has driven many utilities to make greater use of cheaper coal-fired power plants that are also older and less well regulated.248 Moreover, because higher electric rates tend to encourage energy conservation more than lower electric rates, competition could undermine energy conservation and lead to even greater energy use. The issue is thus not whether customer choice is likely to affect net greenhouse gas emissions. The issue, rather, is whether we will structure competition to reduce net greenhouse gas emissions—a result that is consistent with the U.S. obligation under the Framework Convention to take climate change considerations into account in formulating economic, social, and environmental policies.249 That cannot be done by focusing on price and competition alone. In Pennsylvania, for instance, only 80,000 customers have chosen an electric provider that sells greener energy products.250 While electrical restructuring is an important tool for reducing net greenhouse gas emissions, it cannot do that job without the aid of other tools. b. Environmental Labeling Requirements for Electricity Sources Economic competition is more likely to lead to reduced greenhouse gas emissions if customers can make informed choices about the environmental effects of the power supplies used by electricity providers. Many, but not all, states that have authorized customer choice also require energy generators to provide such information to potential and actual customers.251 When required, such information is distributed in the same manner as price information—in written promotional materials, in customer bills, and elsewhere.252 Although price appears to be the most important consideration in choosing an electricity supplier, 82% of the customers surveyed by the National Council on Competition and the Electric Industry believed environmental factors to be very important. In fact, customers tend to believe their utility provides cleaner and greener power than it really does.253 For nearly two decades, Americans have responded to polls by saying that they prefer renewable energy as an energy source; they have even stated a willingness to pay slightly more for renewable energy.254 The National Council's model legislation requires each electricity product sold at retail to show fuel mix and air emissions (for NOx, SO2, and CO2) in the same succinct and easily understood format as price information.255 Such information enables customers to choose suppliers based on the extent to which they use cleaner electricity. It also enables companies to seek a competitive advantage based on their ability to offer such electricity. Because this information is subject to state truth-in-advertising and other laws, it also helps protect customers from fraudulent or misleading claims concerning the environmental characteristics of a supplier's product. In general, these labels display the different sources of a customer's electricity. At present, the overwhelming majority of the nation's electricity is supplied by fossil fuels, principally coal and natural gas. These two fuels are sources of greenhouse gas emissions, although, as previously noted, coal produces more of such emissions per kwh of electricity generated than natural gas. Another significant fraction of the nation's electricity comes from nuclear power, which does not create greenhouse gas emissions. Nuclear power, however, has been relatively expensive and generates radioactive waste whose disposal raises significant public concerns.256 About 12% of the nation's electricity comes from renewable energy sources. Ten percent comes from hydroelectric power, and the rest comes from other renewable sources such as solar energy, wind energy, geothermal energy, [30 ELR 10957] and biomass.257 Except for biomass, renewable energy sources do not generate greenhouse gas emissions. Biomass is plant material in the form of forestry and agriculture residues, or methane from landfills, that is burned to produce electricity. Although burning releases CO2 to the atmosphere, this CO2 was in the atmosphere relatively recently (as opposed to CO2 from fossil fuels). Biomass-produced electricity is thus considered a means of mitigating greenhouse gas emissions. Despite their current minor use in electricity generation, renewable energy resources have enormous potential. Renewable energy resources comprise 93% of the nation's energy resources; solar, wind, and geothermal resources are especially abundant.258 The use of renewable electricity sources other than hydroelectric power is expected to grow.259 Many areas of the country have the kind of steady high winds needed for wind power, others have abundant sunlight, and still others (e.g., California, Hawaii) have substantial geothermal resources. Information about electricity sources could prompt customers to demand, and suppliers to provide, increasing amounts of electricity from renewable sources. Two examples suggest some of the different ways in which environmental information can be displayed in advertising and for other purposes. The National Council recommended an electricity facts label that shows the supply mix and air emissions as follows260:
California has taken a somewhat different approach to labeling energy sources. The label looks like this264:
The California label allows a customer to compare her electric service supplier's fuel mix with the statewide average, and it differs from the National Council label in that respect. In this instance, Product A is offering a supply mix with almost five times more renewable energy than the 1999 California electricity mix or portfolio (identified as 1999 CA POWER MDC).265 That is likely to be an important consideration for many electrical customers. It is even conceivable that many electrical suppliers will want to show that they exceed the California power mix and will increase their percentage of electricity from renewable sources. If enough suppliers do, the California power mix itself will show an increase in the percentage of renewable electricity. Unlike the National Council's label, though, the California label does not show air emissions.266 There appears to be little if any empirical information to date about the effectiveness of such informational requirements. Customers who have never thought about their electricity bill beyond the amount are now, in many states, being provided with information about environmental impacts and choices of electrical suppliers. So it is probably fair to say that electrical customers are at the beginning of a significant learning curve. But environmental information requirements build on similar labeling laws elsewhere that have had a significant educational effect on customers. Perhaps the most prominent example is the "nutrition facts" label on food packages, which states the calories, fat, cholesterol, sodium, carbohydrates, and protein in the product.267 Because food packages are offered for sale, the nutrition label is similar to the environmental information label required in written energy supplier promotional materials and advertising. Both provide product quality information in a format that allows easy comparison with other products. On the other hand, customers receive direct and personal benefits from eating and drinking more healthy food products. Except for the personal satisfaction of using renewable energy, however, the benefits of choosing renewable energy are shared with the public generally.268 As a result, the personal incentive present in nutrition labeling may be weaker for electricity labeling. In time, if customers prefer certain renewable energy sources to others, the labels could also affect the type of renewable energy sources being developed. The labels suggest, but do not make explicit, significant controversy over the environmental effects of some types of renewable energy sources. They do so by the way in which they divide or group renewable energy sources. The California label distinguishes between small hydroelectric and large hydroelectric sources, or essentially between small dams and large dams. Although small dams may or may not have adverse environmental effects, large dams have few environmental defenders. The National Council's label, by contrast, has a single line for all hydroelectric power. The definition of biomass raises another issue. The incineration of municipal waste to produce electricity or steam heat is arguably another form of biomass combustion. The California label puts biomass and waste on the same line. From an environmental perspective, however, it is probably better to recycle the paper and cardboard being burned and to compost the organic materials. Thus, the National Council label groups biomass with solar and wind energy and contains a separate line for waste incineration. Beyond their effect on customer choice, environmental labels educate the public about the extent to which their electricity choices cause the emission of greenhouse gases and other pollutants. A more informed public is likely to support—and seek—public and private decisions that reduce net greenhouse gas emissions. 2. Tools Fostering the Use of Renewable or Low-Carbon Energy States encourage the development of renewable or low-carbon energy by, among other things, allowing retail customers who generate energy to sell their excess electricity to the utility (net metering), by adopting planning and siting preferences for renewable energy and CO2 limits for new power plants, and by using renewable energy portfolio standards to require a steady increase in the overall percentage of electricity provided by renewables. The amount of electricity used in a customer's residence or business is normally measured by a meter that provides the basis for the customer's bill. A growing number of customers are also generators because, for example, they have solar photovoltaic panels on their roofs. At least 18 states now authorize persons with their own energy generation systems to sell electricity they don't use to their local electric utility.269 [30 ELR 10959] Under these laws, a metering system measures electricity going in and out. If the customer's net use of electricity is greater than what it generates, the customer pays a bill based on the difference. If the utility receives more electricity than it provides, it generally pays the customer based on the difference. Net metering laws eliminate a barrier to market participation by enabling customers to sell electricity. Residential customers with their own energy generating technologies pay a reduced bill to the utility, if they pay any bill at all. Net metering thus provides an additional incentive to use small-scale renewable technologies. A study by the Maryland Energy Administration suggests that net metering nearly doubles the monthly cost savings a customer can expect from installing a solar photovoltaic system.270 PURPA provides the basic framework for state net metering laws. Under PURPA, utilities are obliged to purchase electricity from qualifying electric-generating facilities of 80 megawatts or less that are powered by renewable resources, geothermal energy, waste, or biomass (or any combination of these sources).271 A rooftop residential solar photovoltaic system is plainly such a facility. The kind of electricity generation systems amenable to net metering, in fact, are tiny compared to many of the other renewable power sources (such as wind farms and biomass burning facilities) that are defined as small power producers under the Act. Net metering laws generally require utilities to treat customer-generators differently from independent power producers. Ordinarily, for independent power producers, a utility will sign a net purchase and sale agreement and will install a second meter to measure electricity generation.272 Net metering programs can simplify this process. Net metering programs generally use one meter, not two; the single meter moves forward to measure consumption and backward to measure generation.273 Net metering should be easy for customers to use and understand because there is ordinarily no complicated power purchase agreement with the utility.274 Billing can be much simpler and less expensive because it can be done on an annual basis. A monthly bill makes less sense because it would likely have the customer paying the utility some months, and the utility paying the customer in others. Net metering programs also offset electric costs or provide revenue for customer-generators. PURPA regulations require a utility to pay for electricity from such facilities based on the utility's full avoided cost.275 Under PURPA, a utility's full avoided cost is "the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source."276 Utilities are thus required to purchase electricity from these producers at the same price they would obtain it otherwise. Full avoided cost, however, is typically less than the retail price. Most states require the utility to purchase net excess generation at the utility's avoided cost. A few require the utility to pay the customer at retail prices.277 Because utilities are concerned about the loss of customers and the effect of that loss on their rate base, state laws typically limit the amount of energy that utilities are required to purchase through net metering. The California limit, for instance, is 0.1% of a utility's combined peak load demand.278 As tiny as that percentage appears, it provides ample opportunity for growth in the use of small-scale renewable energy technologies. Whatever quantity of energy most utilities obtain from renewable sources, most do not now purchase much electricity from the small-scale sources that rely on net metering. As use of net metering increases, lawmakers can decide whether increasing these caps is appropriate.279 In addition to directly reducing greenhouse gas emissions by using renewable energy, net metering can foster technological innovation in, and market penetration by, small-scale renewable technologies. Moreover, net metering does not require public funding.280 Although net metering can directly reduce utility revenues, these losses may be offset by reduced billing and other costs.281 Utility costs are also reduced by usage caps such as that employed by California.282 [30 ELR 10960] When reductions in environmental externalities and other savings are factored in, net metering may even benefit the utility and its customers.283 Little hard data exists concerning the effectiveness of net metering programs, but anecdotal evidence suggests that relatively few customers have participated in them.284 The great distance between low electricity prices and the high cost of small renewable energy systems evidently has not been overcome by the financial returns from net metering.285 Lack of public awareness and burdensome utility interconnection requirements are also obstacles.286 Utility electric distribution systems are designed to provide power to customers, not to receive it. As a result, interconnection with customer-generators in net metering programs raises safety and reliability concerns.287 Utilities have sometimes reacted by imposing unnecessarily burdensome requirements (such as significant liability insurance) and various interconnection charges.288 These obstacles, however, are being overcome by several factors. The costs of small-scale photovoltaic and wind systems have declined to the point where net metering can make them cost effective.289 In addition, grass-roots groups are advocating net metering as a simple way of increasing the use of renewable energy, and many national renewable energy trade groups are supporting them.290 Nevertheless, a continuing challenge is identifying and responding to legitimate concerns from utilities and simultaneously keeping these programs relatively simple and free of unnecessary burdens. b. Planning and Siting Preferences for Renewable Energy Some states have also established preferences for electrical generating facilities that use renewable energy for new power supplies. Because electrical demand is expected to grow, such preferences should in theory enhance the likelihood that renewable generating facilities will be used to meet that demand. Several different types of preferences exist, and they can be employed in both the planning and facility siting processes. [] Planning Preference. Probably the most common type of planning preference requires utilities to consider the external environmental costs of electrical generation, including CO2 emissions, in choosing new generating facilities. The federal Energy Policy Act of 1992 required states to consider using integrated resource planning.291 Integrated resource planning is a process for determining the extent of future demand for more electricity and the means utilities use to meet it. It requires consideration of all alternatives, including construction of new facilities, purchase of power from another source, energy conservation and efficiency, and renewable energy.292 Minnesota requires utilities to file periodically with the Public Utility Commission a resource plan identifying various options for meeting customer demand.293 The utility commission is required to "quantify and establish a range of environmental costs associated with each method of electricity generation." These costs are to be used by utilities to evaluate and select options for meeting customer needs in resource plans.294 At least 24 other states require the consideration of such externalities in the planning process.295 Inclusion of these additional environmental costs, or "adders," in the planning process gives a preference to renewable energy. The Minnesota Public Utility Commission has established cost ranges for each of five different air pollutants, including CO2.296 It has estimated the cost of CO2 emissions at $ 0.30 to $ 3.10 per ton.297 In their resource plans, utilities need to calculate the costs of CO2 and other pollutants that would be generated from any proposed power plant, using both the high-range and low-range estimates.298 This cost calculation gives renewable energy sources other than biomass a preference over fossil fuel plants, and also gives natural gas plants a preference over coal plants. Adders have modest value in reducing net greenhouse gas emissions, but may backfire. By quantifying the external environmental costs of electric production—costs that exist despite state and federal environmental laws—utility commissions have made an important contribution to the national debate. It is true that these additional external costs are not contained in the bills customers pay and, thus, are at best a substitute for fully internalized costs,299 but that criticism is an implicit endorsement for internalizing those costs. In addition, these external costs are not necessarily [30 ELR 10961] determinative in a resource plan or certificate-of-need proceeding; they are simply one data source that is considered. If their use would push actual electricity costs higher than a utility commission deemed reasonable, for example, they would likely be ignored. While they apply only to new facilities, they may help tip the planning process toward new facilities with lower external environmental costs than would otherwise be the case. On the other hand, they may contribute to pollution by making electricity from older facilities appear less expensive.300 [] Siting Preference. Minnesota also requires that the added environmental costs identified in the planning process be used in the approval process for individual facilities. The state prohibits the siting or construction of large energy facilities unless the utility commission has issued a certificate of need.301 The certificate of need cannot be issued unless, among other things, the applicant demonstrates that "the alternative selected is less expensive (including environmental costs) than power generated by a renewable energy source."302 In addition, the commission may not issue a certificate of need or authorize cost recovery for any nonrenewable energy facility "unless the utility has demonstrated that a renewable energy facility is not in the public interest."303 In one recent case, the commission approved a certificate of need for a natural gas plant because, among other things, the utility showed that "the project is less expensive, including environmental costs, than power generated by renewable energy sources."304 The statute may have pushed new power production toward lower emissions, but apparently did not tip the balance toward renewable energy. c. CO2 Limits for New Power Plants Oregon has taken a unique approach for new electric-generating facilities—a direct limitation on their net CO2 emissions. Since 1975, no person generally has been allowed to construct a new or expanded electric-generating facility of 25 megawatts or more without first obtaining a site certificate from the Energy Facility Siting Council.305 Under legislation adopted in 1997, the Council cannot issue the site certificate for a base load natural gas plant unless, among other things, its net CO2 emissions do not exceed 0.70 pounds per kwh of electricity generated.306 Thus, the state imposes a direct limitation on CO2 emissions as a prerequisite to the operation of new electric-generating facilities. Oregon is evidently the first state to impose such a limit.307 The limitation is also stringent and designed to become more stringent as technology improves. In essence, if the Council finds that the most efficient natural gas plant operating and demonstrated in the United States emits less CO2 per kwh of electricity than authorized by this limitation, the Council is authorized to adopt a regulation reducing the CO2 emissions limit 17% below those of this plant.308 The Council acted on this authorization in 1999, issuing a regulation reducing the 0.70 pounds limit to 0.675 pounds of CO2 per kwh.309 The catalyst for this change is a natural gas facility located in Vancouver, Washington.310 If the Council determines from the design of the facility and its likely emissions that the standard is met, it can issue a site certificate with conditions ensuring compliance with the standard.311 An applicant can meet the CO2 emissions limit in one or more of three basic ways. First, the applicant can show that the proposed facility will produce both electricity and heat, and that the heat will displace another CO2 source that would otherwise have continued.312 Second, the applicant can offset the additional emissions by sequestering carbon or by having a third party do so.313 Third, the applicant or a third party can fund sequestration activities by paying $ 0.57 for each ton of CO2 emissions.314 By giving applicants these choices, the statute enables them to comply in a more cost-effective manner than if the statute limited their compliance options. If the applicant chooses the third approach, funding carbon sequestration, it must identify an appropriate nonprofit organization to carry out the sequestration activities and post a performance bond to ensure that the activities are both funded and carried out.315 Like the Kyoto Protocol, the Oregon legislation requires that carbon sequestration activities result in new and genuine reductions. The Council is to determine the amount of the likely reduction based on the level of certainty that the predicted reduction will occur, the ability of the Council to quantify the reduction, and the extent to which the sequestration would occur anyway.316 In 1997, [30 ELR 10962] the Oregon Climate Trust was set up to contract for carbon sequestration projects under this legislation.317 The first two site certificates under this legislation were issued to natural gas plants.318 The first, in Klamath Falls, is a 500 megawatt natural gas cogeneration facility that will produce both electricity and industrial steam.319 The plant will offset its CO2 emissions by at least 30% by reforesting 6,250 acres in Oregon, providing funds to the Oregon Climate Trust to develop alternate energy, providing solar energy in developing countries, and helping to develop geothermal energy in Klamath Falls.320 The second certificate went to a 536 megawatt natural gas plant in Hermiston that will achieve the emissions standard by improving efficiency and paying an estimated $ 3.6 million to the Oregon Climate Trust.321 The Oregon statute shows that states can directly reduce CO2 emissions from new facilities. While the statute does not require complete offsets for CO2 emissions, the partial offset requirement provides additional domestic experience quantifying and verifying carbon sequestration projects. The CO2 limit for new facilities also provides a potential opportunity for carbon trading—not emissions for emissions, but CO2 emissions for carbon sequestration. The statute's requirement for lower net emissions than the most efficient U.S. plant also provides a means to force either continual improvements in technology or continual reductions in net emissions. d. Renewable Energy Portfolio Standards Instead of relying only on procedural options and choices, states using a renewable energy portfolio standard specify the percentage or amount of renewable energy generation they want operating by a specific date. Each state has a particular mix, or portfolio, of types of energy sources. Renewable energy portfolio standards set a standard or target for renewable energy in these portfolios that is ordinarily greater than the current percentage of renewable energy.322 Thus, a state with 2% renewables in its existing portfolio might set a standard of 5% that must be met by a specified date several years in the future. The standard is usually accompanied by a legal mechanism for achieving it. States typically require every power provider to have renewable energy credits equal to some percentage of its annual sales.323 Providers can have their own renewable energy sources or purchase credits from other generators. The standard, in sum, comes with a trading system for meeting it.324 The state certifies these credits, monitors for compliance, and imposes penalties when necessary.325 At least eight states have renewable energy portfolio standards.326 From the standpoint of fostering renewable energy and reducing greenhouse emissions, the most significant question is the extent to which the standard raises the level of renewable energy use in the state. Maine's 30% standard327 appears to be much higher than that in any other state, but 45% of Maine's electricity already comes from renewable energy sources (mostly hydroelectric dams and wood-fired generating facilities).328 Many states chose an initial level that seems to be slightly above its current level of renewable energy, and then require that level to be increased over time.329 By gradually scaling renewable production upward, these states will likely be able to keep electricity prices from increasing and take advantage of projected reductions in renewable energy costs as the use of renewable energy expands. Eventually, higher standards may displace existing fossil fuel sources that are less efficient and more costly. Another issue is the type of renewable energy that qualifies for the standard. Arizona, which had limited its portfolio standard to new solar energy, has recently modified its portfolio standard to include other sources of renewable energy.330 Others recommend the exclusion of certain sources (such as municipal waste incineration) in order to promote the development of new renewable energy technologies.331 Renewable energy portfolio standards are attractive for many reasons. They set a legally binding statewide target for the use of renewable energy. The other tools that can foster renewable or low-carbon energy—net metering, planning and siting preferences, and CO2 limits for new facilities—do not set such a standard. The standards also apply to both new and existing power production; the other three tools apply only to new production. In addition, they provide a market mechanism for achieving that target, allowing buyers and sellers in the marketplace to find the least expensive way of complying with the standard.332 They also serve as a kind of "market-friendly proxy" for integrated resources planning,333 a legal tool that will likely require reformulation after retail price competition. Finally, and perhaps most fundamentally, portfolio standards create a growing long-term market for renewable energy, which is likely to reduce renewable energy costs substantially over time.334 Portfolio standards may even lead to reduced electric prices.335 Because the standards set only a floor, electricity providers can still market a greener product to customers who want to exceed the standard.336 Other states require that a specific amount of new generating capacity, rather than a percentage of the total portfolio, be based on renewable energy. Texas is using that approach to plan what appears to be more new renewable energy than any other state, including those with portfolio standards—2,000 megawatts of new renewable energy by 2009.337 Texas will use a trading/credit system to implement this requirement.338 Minnesota also is requiring a specific amount of new renewable capacity. Instead of trading, it plans to allow competition to work in a different way. The state has required utilities operating nuclear power plants within its boundaries to put in place wind power systems capable of producing 225 megawatts of electricity by the end of 1998, and an additional 200 megawatts by the end of 2002.339 The state also required utilities operating nuclear plants within the state to put in place 50 megawatts of biomass electric-generating facilities by the end of 2001, and 75 more megawatts by the end of 2002.340 Because of winds and agriculture in Minnesota, both required forms of renewable electricity production are suited to the state.341 Minnesota also has created a rebuttable statutory presumption in favor of additional renewable energy. Utilities operating nuclear plants in Minnesota are obliged to operate or obtain the use of 400 megawatts of wind power generating facilities in addition to the wind power described above. This obligation for an additional 400 megawatts, however, is explicitly subject to statutory least cost and resource planning requirements.342 In seeking approval for its resource plan for 1998-2012, Northern States Power Company opposed the additional 400 megawatts, arguing that the cost of wind power would exceed the cost of natural gas. The Minnesota Public Utilities Commission disagreed and ordered the 400 megawatts of wind energy to be added during the utility's planning period.343 The commission found that the utility's projected cost difference between wind and natural gas was only 0.2% to 1.0% of annual costs and concluded that this difference was too small to outweigh the statutory presumption for additional wind energy.344 The remedy portion of the commission's order allows wind energy to compete for a broader market. Northern States Power had planned to obtain new electricity through competitive bidding, not construction of its own facilities. Instead of requiring the company to bid competitively for 400 megawatts of wind energy, though, the commission took a different and more far-sighted approach. It ordered Northern States Power to develop an [30 ELR 10964] all-source competitive bidding process that is unbiased in its treatment of renewable energyand that is not limited to the additional 400 megawatts.345 For a variety of reasons, wind contracts and fossil fuel contracts historically have been written differently. As a result, the decision whether to use renewable energy or fossil fuels for new power is often made when the bidding process is designed. If a proposed fossil fuel contract is the basis for the bidding process, for example, wind producers cannot even bid. The commission's challenge to the utility and other parties was to write a contract and bidding process that would apply to both. Such a contract would mean that wind will have to compete successfully with natural gas to get any additional megawatts, but it also means that fossil fuels must compete with renewable energy. The commission believed wind should compete on its own, rather than having its own specialized track, if it is to be mainstreamed into the utility's energy portfolio.346 The commission was encouraged to take that view because the cost of wind power is declining, there is a now a relatively small cost difference between wind and natural gas, and the utility can implement this decision on an ongoing basis over the next decade or so.347 The commission, in sum, is attempting to use competition to foster the use of renewable energy. The cost savings inherent in using less energy provide an obvious but underutilized incentive for energy conservation. Spurred by Congress, states have had some success using energy conservation in building codes. State utility commissions also have had limited success in encouraging utilities to control demand for the electricity they sell, but demand-side management will not likely survive the end of retail price regulation. a. Building Codes Requiring Energy Efficiency More than one-third of the energy used in the United States heats, cools, lights, and otherwise provides energy to buildings.348 Energy efficiency in buildings thus provides a large opportunity to reduce greenhouse gas emissions. Energy efficiency standards in building codes can also foster sustainable development by reducing energy costs and greenhouse gas emissions simultaneously. Improving energy efficiency in buildings makes economic sense much more often than not; the cost of installation is often offset in five years or less by reduced energy bills.349 Cost-effectiveness studies for residential building codes indicate that increases in monthly mortgage payments are offset by monthly energy savings and that homeowners receive a good return on their investment.350 States have been relatively active in adopting and implementing such provisions. In fact, energy efficiency provisions in state building codes have been described as "one of the most successful energy-efficiency policies at the state and local level."351 Much of the impetus for such provisions, though, comes from Congress, and there is abundant evidence that more can be done. Building codes typically divide buildings into a low-rise residential category and a commercial category that includes high-rise residential buildings. These codes generally allow compliance by either a prescriptive method or a performance-based method. In the former, a person follows highly detailed standards for insulation, windows, heating and cooling equipment, and other things. Under the performance-based method, a person can demonstrate compliance by showing that a particular structure consumes an amount of energy that is less than or equal to the amount of energy consumed by a comparable building that uses the prescriptive standards.352 The Energy Policy Act of 1992 required each state to review the energy efficiency provisions of its residential building codes. Each state was also obliged to determine within two years whether it should adopt the 1992 Model Energy Code published by the Council of American Building Officials.353 The Model Energy Code, the most widely used energy efficiency code for residential buildings in the United States, sets minimum insulation standards as well as standards for heating, cooling, lighting, and ventilation.354 Each state was to make this determination in writing after providing public notice and a hearing. If a state decided not to revise its building code, it was to provide the U.S. Department of Energy (DOE) a written explanation.355 The Model Energy Code is revised annually through a privately run process that is open to interested and affected persons.356 Thus, whenever this code (or any successor to this code) is revised, the Act requires the Secretary of Energy to determine whether it "would improve energy efficiency in buildings." If so, the Secretary is to publish a notice of that determination in the Federal Register.357 States are then obliged to determine, using the same process as their original determination, whether to revise their codes to conform to the new version.358 The 1995 Model Energy Code is the most recent code for which the Secretary has made that determination for low-rise residential buildings.359 The Energy Policy Act contains a more stringent procedure for energy conservation in commercial building codes. It requires each state to certify to the Secretary of Energy within two years that the energy efficiency provisions in its commercial building code "meet or exceed the requirements of ASHRAE Standard 90.1-1989," which was published by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE).360 Unlike residential building codes, states were not given a choice whether to conform their commercial building codes to this standard. The Secretary is also required to determine whether any revision to ASHRAE 90.1-1989 (or any successor to this code) "will improve energy efficiency in commercial buildings." If so, the Secretary must publish a notice in the Federal Register. States then have two years to certify that they have upgraded their codes accordingly.361 ASHRAE recently published a new standard, ASHRAE 90.1-1999, which revises the 1989 code,362 but the Secretary of Energy has made no determination concerning this revision. The Energy Policy Act authorizes DOE to provide financial and technical assistance to states to upgrade their codes.363 In Fiscal Year 1999, for example, DOE awarded $ 4 million in grants on a competitive basis to 20 states and territories to establish or upgrade the energy efficiency section of their building codes.364 Such federal assistance has helped states that are interested. California and Minnesota are among the states with the most advanced energy-efficient building codes. California's standards for residential and nonresidential buildings are probably the most advanced in the world.365 Savings from reduced energy costs under California's standards are estimated at $ 15.8 billion and are projected to grow to $ 43 billion by 2011.366 The state adopted these standards to save money, reduce emissions of regulated pollutants, and reduce the state's dependence on foreign oil, but they also are responsible for significant reductions of CO2 emissions.367 Minnesota's code is generally more stringent than the Model Energy Code and ASHRAE 90.1-1989.368 It is based on state legislation requiring the state's energy code to equal or exceed the codes of other states and requiring energy savings to exceed costs of installation amortized over the life of the building.369 The Energy Policy Act's different approaches to residential and commercial buildings do not appear to have had much overall effect on state efforts. About one-half of the states have adopted residential standards that meet or exceed the Model Energy Code, and about one-half of the states have commercial codes that meet or exceed ASHRAE Standard 90.1-1989.370 The Energy Policy Act does not appear to have motivated other states, however. There does not appear to be political opposition at the state level to commercial energy efficiency codes; legislators simply have not focused on it.371 There is political opposition to residential energy efficiency codes, however, and Michigan even repealed its code.372 Homebuilder associations claim a preference for voluntary codes, but relatively few homes are built according to such codes.373 Unlike many federal environmental laws, the Energy Policy Act does not require a state to choose between implementing its code to meet a national standard or having the federal government implement the standard within that state's boundaries, does not provide federal grants to implement the standard once it is adopted, and does not seem to require rigorous state enforcement of the standard. This latter point is particularly important because code enforcement requires significant time and personnel commitments.374 In addition, although home purchasers believe energy efficiency is an important factor in the house they buy, they assume (often wrongly) that new homes are energy efficient.375 The absence of an across-the-board public information or labeling requirement about energy conservation in residential and commercial buildings hinders informed customer choices. While energy efficiency provisions in building codes provide a relatively successful example of state effort that has the effect of reducing greenhouse gas emissions, such codes have much greater potential. b. Electric Utility Demand-Side Management The traditional state energy conservation tool for electric utilities is demand-side management. In a system where utilities have no competitors and receive a fixed rate of return for every kwh of electricity they sell, the regulatory structure tends to encourage utilities to sell more and more electricity. To counteract this, Congress and state regulators have put into place a set of restrictions that essentially oblige electric utilities to control demand for electricity. These laws have worked to some degree, particularly where the economic interest of utilities coincides with these restrictions. It is not clear how well these laws will work after the advent of retail price competition. In 1978, as part of PURPA, Congress required state regulatory authorities to consider requiring electric utilities to offer load management techniques to their customers.376 Load management techniques are methods other than time-of-day or seasonal rates that reduce the peak demand load for electricity.377 From day to day and season to season, customer demand for electricity varies. Demand is greatest, or peaks, during the work day when electricity is used for business and on hot summer days when air conditioners are used. Load management techniques move at least some peak demand to off-peak times by, for example, energy storage devices, interruptible electric service, and even energy conservation.378 The Act does not require the use of these load management techniques, but it does require states to consider techniques they determine to be cost effective. That is, these techniques are to reduce a utility's maximum demand and have long-run benefits to the utility that exceed their long-run costs.379 Load management can reduce a utility's costs when it is cheaper for a utility to reduce peak-load demand than to build and operate a new power plant for peak load alone. In 1996, energy efficiency programs were responsible for almost half (47.6%) of actual peak load reductions achieved by electric utilities.380 The remainder of the peak load reductions were achieved by means other than energy conservation. While demand-side management includes load management, it also includes a variety of energy conservation measures that utilities and other power generators can use to reduce all demand, not just peak-load demand. In 1992, as part of the Energy Policy Act, Congress required state utility regulatory authorities to consider energy conservation more directly in the ratemaking process. Essentially, states were required to consider incorporating utility investments for "energy conservation, energy efficiency resources, and other demand-side management measures" into their utility rates.381 The measures considered by states are to be at least as profitable as lost income from reduced sales of electricity.382 These measures have greater potential to reduce greenhouse gas emissions than load management alone, and they are often referred to as "negawatt [negative megawatt] acquisition programs" to distinguish them from load management.383 The 1992 legislation coupled energy conservation with a requirement that the states consider integrated resource planning. Integrated resource planning thus includes planning for demand-side management. More than 40 states require utilities to use integrated resource planning.384 Load management and negawatt acquisition programs, therefore, are formally incorporated into state utility laws. Essentially, negawatt acquisition programs oblige the utility to pay some or all of the price of electricity-demanding equipment (e.g., light bulbs, motors) or energy conservation equipment (e.g., attic insulation, double-pane windows).385 The utility does so by paying the customer to purchase the equipment, buying the equipment and giving it to the customer or selling it at a discounted price, or paying an independent company to purchase and install the equipment for a customer for free or a reduced price.386 States then allow utilities to recover the costs of these programs in the rate base. States also tend to require that utilities earn at least as great a rate of return on these programs as they would have earned if these programs had not been implemented.387 When these programs work, customers pay lower bills because they are consuming less energy, even though their electric rates are somewhat higher to account for the cost of the programs.388 Demand-side management has had a real but modest effect on demand. In 1998, these programs saved an amount of energy equal to 1.74% of electricity sales.389 By contrast, [30 ELR 10967] electricity demand in the United States is expected to continue growing between now and 2020 by more than 1% per year.390 Thus, demand-side management reduces electrical demand only slightly and is not preventing significant growth in demand. The varying effort and effectiveness of state programs appear to be part of the reason. In 1998, the state of Washington saved an amount of energy equal to 9.2% of electric sales, while Kansas saved almost no electricity.391 If all states achieved the same level of energy savings as the top five states, national energy savings would have been four times greater.392 Another and perhaps more fundamental reason is an outgrowth of traditional utility regulation. Here, the state, in effect, requires or encourages a utility whose primary business is power production and sale to compete with itself. Every kwh of electricity conserved is a kwh that the utility does not sell. Even when state utility commissions structure rates so that utilities earn a better return on energy conservation than on the sale of electricity, one part of a utility's business is cutting into another—and from its perspective, more fundamental—part. Demand-side management is thus an inherently limited legal tool for achieving energy conservation.393 As a practical matter, the transition to competitive electricity markets is undermining demand-side management. The integrated resource planning model on which demand-side management is based may make it difficult for utilities to compete in a retail electricity market with independent power producers whose long-term plans are not subject to this type of public review.394 In addition, retail price competition removes the state price-control authority on which these programs also have been based. Pressure to reduce costs within utilities is leading to cutbacks in demand-side management programs. Utility spending on such programs dropped from $ 2.74 billion in 1993 to $ 1.57 billion in 1998.395 That leaves two questions: how can states protect the energy conservation gains they have already made, and how can states use the newly developing market for electricity to foster even greater gains in energy efficiency and conservation? 4. Tools Providing Financial Incentives Many legal instruments provide financial incentives for energy conservation, the use of renewable energy, and carbon sequestration. Three such instruments are public funding programs, cap-and-trade programs, and tax credits. At least two kinds of state public funding programs can reduce net greenhouse gas emissions. One is based on electricity surcharges, and the other builds on historic public support for forestry programs. [] System Benefit Charges. System benefit charges, public goods charges, and similarly named charges provide a way of collecting revenue from electric utility customers to support various programs. These programs can include renewable energy, energy conservation, low-income assistance, and research and development.396 Such programs, particularly rate assistance and weatherization for low-income persons, existed before restructuring. For other purposes, though, they did not exist as such. System benefits charges provide an obvious potential vehicle for replacing demand-side management because money collected from the surcharge can directly support the same kind of energy conservation and energy efficiency programs that have been supported by utilities through demand-side management programs. More broadly, funds from the surcharge can over-come market barriers to renewable energy and energy conservation and can help commercialize new technologies. Because the surcharges are relatively small, however, they do not likely have any direct effect on energy usage. In that respect, they are different from carbon taxes.397 At least 17 states have authorized or put in place system benefits for energy efficiency, research and development, renewable energy, rate assistance, and weatherization.398 Many state restructuring laws establish the surcharge as a separate nonbypassable component of a customer's electric bill.399 Like the transition charge, the customer cannot avoid the public goods charge by his or her choice of an electricity provider. Under these laws, state utility commissions determine the amount of the charge. In states that have already determined funding levels, the charge is quite small, ranging from 0.004 cents per kwh (Illinois) to 0.089 cents per kwh (Connecticut).400 In states with a public goods charge, the customer might be billed like this: [30 ELR 10968] 0.5 cents/kwh (transmission) 1.9 cents/kwh (generation) 2.4 cents/kwh (transition) 0.03 cents/kwh (system benefit) 7.33 cents/kwh (TOTAL) In general, these state laws are intended to ensure that funding for energy programs, at least initially, is not reduced below the level that was available with demand-side management.401 In practice, states seem to be increasing funding for energy conservation, renewable energy, and related purposes.402 A major reason appears to be the cost-effectiveness of existing programs. Utility energy conservation programs in California in the mid- to late- 1990s, for example, returned more than two dollars for every dollar spent.403 Despite the state's aggressive energy conservation program, large opportunities for cost-effective energy conservation remain.404 Total annual funding in states that have determined funding levels ranges from nearly $ 9 million in Maine to $ 415 million in California.405 According to one estimate, these programs could lead to the development of 1,000 megawatts of new renewable energy generation by 2010.406 The challenge for such programs is to precisely determine market limitations and to correct those limitations. If particular activities do not require government financial support, or cannot be helped by it, there is no point in funding them. The effectiveness of these programs thus depends on the manner in which funds are allocated and distributed.407 California requires the state's Energy Commission to allocate the funds for "cost-effective" energy conservation, "research and development not adequately provided by competitive and regulated markets," and "new and emerging" renewable energy technologies, not established technologies.408 The Energy Commission has identified the small commercial market as deserving of financial assistance, for example, because it "has been chronically under-served by previous utility [demand-side management] programs."409 Such funds could also play an important role in supporting renewable energy technologies for which there is long-term promise. [] Public Funding for Forestry. Many states provide financial and other support for tree planting and reforestation and have done so for decades.410 While carbon sequestration to mitigate climate change is not one of their stated purposes, they can and do have that effect. Where financial incentives are offered, of course, it is important that they stimulate activity that would not have occurred in their absence; otherwise, the money is wasted.411 Some newer programs directly link tree planting with reductions in atmospheric carbon. Minnesota provides matching grants to nonprofit organizations and communities to plant trees and protect forest health.412 Oregon allows utilities to incorporate the costs of small-scale tree planting programs into their rate base and thus recover those costs.413 More ambitiously, a 1991 Arkansas statute is intended to result in the planting of 10 million trees each year until 2001 and to enlarge the state's forested area by 1 million acres.414 The challenge for states here is to enhance already existing programs and to combine the purposes of those programs with carbon sequestration. The evidence to date is that states are beginning to recognize the potential of this approach, but have not aggressively pursued this opportunity. Few legal tools to address climate change have received more attention than emissions or carbon trading. Trading is specifically mentioned in the Kyoto Protocol, and two other Kyoto Protocol mechanisms—joint implementation and the Clean Development Mechanism—are based at least in part [30 ELR 10969] on forms of trading. Cap-and-trade programs have two basic forms. One is limited to emissions and appears to be the instrument often assumed (with a carbon charge) in economic models of the impact of the Kyoto Protocol. The other, called carbon trading, includes emissions trading as well as trades of CO2 emissions for sequestered carbon. Most of the academic and public conversation about trading, however, has focused on international trading. Although often overlooked, trading within the United States offers significant opportunities for cost-effective reduction of greenhouse gases. Some states have taken highly visible actions—authorizing a registry for early reductions such as those based on trading, and initiating a trading process with another country. They also have experience trading other pollutants. Still, state registries do not appear to add significantly to what already exists at the federal level, and there is little legislation authorizing emissions or carbon trading. The voluntary trading that is already occurring would likely increase and be more credible if there were legislative ground rules. [] Registry for Early Reductions. Trading systems do not work particularly well unless an operator has some incentive to trade. That incentive is ordinarily provided by a cap on its emissions. Because it is most politically feasible to set caps based on existing emissions, the prospect of a cap-and-trade program for CO2 creates a problem for many industries that want to reduce their greenhouse gas emissions now. If they do so, they do the right thing but risk the possibility that their baseline emissions in a future cap-and-trade program will be set at the reduced level, which will force them to make still more reductions. Because these additional reductions are likely to be more expensive than the reductions required at a comparable facility that did not make any reductions, the company that reduced its emissions early might be at a competitive disadvantage. To help counteract that possibility, Congress and at least one state have provided companies with an opportunity to voluntarily report early reductions in greenhouse gas emissions. The Energy Policy Act of 1992 requires DOE to establish guidelines and voluntary reporting procedures for persons who reduce, sequester, or avoid greenhouse gas emissions, and to establish a database comprised of such information.415 This information, which has been reported since 1993, may include reductions based on trades, and recording a claim under this program provides some evidence of its validity. In 1998, 187 U.S. companies claimed that they had taken part in 1,507 projects that reduced or sequestered an amount of CO2 equivalent to 3.2% of U.S. emissions for the year.416 The program has taught staff at many companies how to estimate greenhouse gas reductions, has educated companies about what other companies are doing, and has fostered learning in accounting for emissions reductions that will be useful in a future trading program.417 On the other hand, recording a claim does not mean that the claim will eventually be recognized in law, does not mean that the person claiming the reduction actually "owns" it, and does not factually validate the claim.418 At least one state, New Hampshire, has authorized the creation of a voluntary greenhouse gas reductions registry to provide state recognition of early reductions and a base-line against which federal reduction requirements may apply.419 The state's legislation, adopted in the fall of 1999, appears to provide additional encouragement to New Hampshire businesses to voluntarily report their reductions, and it appears to help strengthen claims for such reductions. The existence of the federal registry, however, means that state programs such as that in New Hampshire play at best a supporting role. [] Emissions Trading. States are developing considerable experience with emissions trading for volatile organic compounds, NOx, and other pollutants under the nonattainment provisions of the CAA. Although these trades do not ordinarily include CO2 because it is not a regulated pollutant under that Act, state experience with trading of other emissions will likely be extremely useful in any future trading program. In areas of the country where concentrations of criteria pollutants such as ozone and NOx exceed federal air quality standards, states may not issue permits for new or modified major sources of those air pollutants unless the facility's operator obtains reductions at sources within the region to sufficiently offset the added pollutants from that facility.420 Because a company can offset its new emissions by retiring its own equipment or obtaining reductions from other sources, the offset program relies to a significant extent on emissionstrading.421 The nonattainment program is run primarily by states. Thus, states with significant nonattainment problems are also likely to have developed considerable experience and expertise with emissions trading that could be employed in CO2 trading. At least one state, New Jersey, is preparing to conduct international trading to support its goal of reducing greenhouse gas emissions. In late 1999, the state signed an agreement with the government of the Netherlands to, among other things, identify possible greenhouse gas emission trading projects "in both directions."422 The two governments agreed to evaluate two types of pilot projects—private-sector-to-private-sector [30 ELR 10970] trades facilitated by the two governments, and private-sector-to-government trades.423 In taking this step, both governments intend to obtain "early experience" in emissions trading that will likely be of great value to them.424 [] Carbon Trading. State laws do not yet authorize carbon trading, but at least one state—Oregon—allows carbon sequestration to partially offset CO2 emissions. Carbon trading is more complex than emissions trading. Emissions trading involves credit for a ton of CO2 emission reductions in one place based on a ton of CO2 emission reductions elsewhere. By contrast, carbon trading involves credit for emissions reductions based on carbon (not CO2) that is removed from the atmosphere and then stored or sequestered. Carbon trading requires the comparison of atmospheric CO2, a molecule made of one carbon and two oxygen atoms, with elemental carbon, the material that is actually sequestered. For this purpose, one ton of CO2 is equivalent to 0.273 tons of carbon, and one ton of carbon is equivalent to 3.67 tons of CO2.425 Carbon trading is also more complex because carbon sequestration is difficult to measure and implement effectively. The amount of carbon sequestered by trees varies by species, local climate, and other factors; reliable quantification methods are not widely available. In addition, the permanence of carbon sequestration is a potential problem. A tree might remove a ton of carbon from the atmosphere over its lifetime, but what happens when the tree dies or is harvested? How long will it take before the carbon contained in the tree is released to the atmosphere through burning or decay? A recent report by the IPCC concluded that carbon sequestration is likely to make only a limited contribution to reducing net greenhouse gas emissions under the Kyoto Protocol and that current experience with carbon sequestration is limited to a small number of projects.426 Carbon sequestration is also constrained by the reality that trees absorb CO2 most readily while they are young and much less readily when they are mature.427 As a result, the ability of specific forested areas to absorb CO2 is effectively limited in time. In addition, basic definitional and operating rules under the Kyoto Protocol for carbon sequestration have yet to be formulated.428 As already explained, Oregon has taken a step toward carbon trading with a law that limits CO2 emissions from new power plants and that allows facility operators to meet that limit in part through carbon sequestration.429 Because the statute authorizes third parties to conduct carbon sequestration to offset emissions, it provides experience that will likely be useful in any subsequent trading system. Despite the lack of broad legislative effort, many voluntary carbon sequestration projects are being undertaken. More than 100 forestation, reforestation, or forest preservation programs were reported in 1998 to DOE's registry for early reductions.430 These programs tend to involve financial assistance to private landowners to replant and manage forest lands. The landowners, in turn, sign and record a conservation easement preventing the harvesting of trees for a specified period. Power companies then use the carbon sequestered under these agreements to offset their CO2 emissions.431 Such agreements provide environmental benefits for forestry and climate; they also provide economic benefits to landowners. Similar approaches are being considered for agriculture, particularly carbon storage in soil. This form of sequestration places carbon in the soil itself, not in trees. Scientific studies suggest that carbon sequestration in soil could reduce net greenhouse gas emissions in the United States by up to 8.5% annually.432 Although a great deal of carbon is stored in soil, much of that carbon has been released because of cultivation. It is estimated that 13 tons of carbon per acre could be returned to U.S. cropland with proper management.433 Significantly, practices that sequester carbonalso "are practices that build soil quality and reduce soil erosion."434 These practices include conservation tillage, which involves planting and weed control without use of a plow. Planting is done by cutting a slit into the soil, placing the seed in the slit, and then replacing the ground as it was. Conservation tillage also reduces soil erosion and operating costs.435 Another time-honored means of ensuring and restoring soil health—placement of organic matter into soil—simultaneously moves carbon into the soil. Such practices coincide nicely with a variety of state and federal environmental laws directed toward these same goals.436 Soil-based carbon sequestration could thus supplement forest-based sequestration.437 If carbon credits were available to farmers, they could also provide an additional financial [30 ELR 10971] incentive for activities that benefit the environment in many ways.438 Perhaps not surprisingly, the Iowa State Association of Conservation Districts is exploring the idea of combining conservation tillage with carbon credits.439 Tax law, including state tax law, has a significant yet mostly unrealized potential to protect and restore the environment.440 About one-half of U.S. states have tax provisions that encourage the use of renewable energy, but only a handful have energy efficiency provisions.441 Among the many state tax tools available to address climate change,442 tax credits can and do encourage energy conservation, the use of renewable energy, and carbon sequestration. To be effective, tax credits must be used in conjunction with legal tools other than tax law and they must be written and administered to achieve actual reductions in net greenhouse gas emissions. A tax credit is an allowance against (or reduction of) the tax that would otherwise be paid. Unlike deductions, which reduce the amount of income subject to the tax, credits "directly reduce tax liability."443 As a practical matter, they are a type of government subsidy. If a person uses a $ 2,000 tax credit, the credit offsets that person's tax liability by $ 2,000. If a person whose income would otherwise be taxed at 29% uses a $ 2,000 tax deduction, though, the reduction reduces that person's tax liability by only $ 580. Thus, tax credits offer stronger incentives to taxpayers than deductions, but also reduce government revenue by a greater amount.444 Two types of tax credits are generally considered. Investment tax credits help offset the cost of financing projects and provide up-front benefits. If they lack performance standards and effective enforcement, though, they do not ensure that the project will actually operate effectively.445 Production credits are available for part or all of the facility's life. While they help ensure that the facility will operate as intended, they do not provide investors with immediate benefits.446 Investment credits help promote the development of riskier and less mature technologies, while production credits can help more developed technologies that still face competitive obstacles.447 Significant federal tax credits for energy conservation and renewable energy were enacted by Congress in 1978 and 1980 during the Carter Administration, but most of these credits, including the most generous, ended in the mid-1980s.448 There is still a 10% investment tax credit for solar energy equipment that is used to generate electricity, to heat or cool the structure, and for other purposes, as well as for certain geothermal energy equipment.449 Although the federal income tax system is generally separate from state tax systems, state tax credits can target the same technology or equipment as the federal tax laws, and thus provide taxpayers who purchase or use such technology or equipment with greater cost reductions than the Internal Revenue Code alone. Of course, states may also provide tax credits for energy conservation and renewable energy that are different from those authorized under federal law. States have adopted a variety of tax credits to foster energy conservation and renewable energy.450 For instance, states have provided tax credits of 25% of the cost of installing solar energy equipment (up to $ 3,750).451 They have authorized tax credits to landlords of low-income persons to offset part of the cost of insulation and other energy conservation projects.452 States have even authorized tax credits [30 ELR 10972] for 50% of the additional cost of an alternative fuel car (up to $ 5,000).453 Some allow tax credits for part of the cost of certain reforestation projects.454 Oregon has used an investment tax credit since 1979 to offset part of the cost of facilities that generate renewable energy or conserve substantial amounts of energy.455 The tax credit is generally available only if the state has certified that the project was constructed and is operating in accordance with state requirements.456 The state has approved credits for about $ 500 million in investments since the law went into effect. About one-half of these projects would not have gone forward or would have involved less energy conservation had the tax credit not existed.457 California's experience with tax credits for wind energy illustrates both the strengths and weaknesses of this tool. The state adopted investment tax credits for residences in 1976, expanded them to commercial applications one year later, but then allowed these tax credits to expire at the end of 1986.458 In response, many wind turbines were erected in the early 1980s, often on windy mountain passes visible from major highways. Wind technologies were still at a relatively early stage of development, and some of these projects would have failed regardless of investor intentions. Because these projects were funded by investors who were simply seeking tax benefits, however, many had no hope of succeeding. The highly visible failure of these wind turbines led to the end of the tax credit.459 Still, wind energy generation in California increased dramatically during that period. Both wind energy companies and a California Energy Commission study conclude that federal and state tax credits made much of the difference.460 With the demise of tax credits for wind and similar credits for solar energy, renewable energy generation by primary energy source declined by an average of 7.3% annually between 1988 and 1998.461 Even so, California produced more electricity by solar and wind energy than any other state in 1997.462 As such experiences suggest, tax credits for renewable energy and energy conservation can be justified on several grounds. They can stimulate the development of new technology by stimulating sales and attracting private capital. Such technology, in turn, can reduce the cost of basic services (e.g., electricity) and stimulate productivity improvements. Tax credits can also lead to reductions in emissions of greenhouse gases and other pollutants.463 To be effective, though, tax credits must stimulate activity that would not have occurred in their absence.464 States can do so by writing tax credit legislation narrowly to fit certain types of projects that would not otherwise be undertaken. States can also require taxpayers to demonstrate that they qualify for the credit (as opposed to simply claiming it), and draft legislation to ensure that subsidized projects are effectively carried out. California's experience has helped move tax credits in that direction. Finally, tax credits are most effective when used in conjunction with other legal instruments.465 Tax credits do not ordinarily offset the full cost of renewable energy or energy conservation; they only offset part of the cost. Even in those cases where a tax credit by itself makes purchase of the energy product or service attractive,466 tax credits will likely produce greater public benefits if they are coupled with other tools that are directed toward the same goal. Thus, while state tax credits are a useful part of any state strategy to reduce net greenhouse gas emissions, they need to be employed carefully and used in combination with other tools. In California, for instance, the renewable energy industry in the state benefitted not from one or two instruments, but from a "particularly comprehensive set of policies."467 These included tax credits, electric utility restructuring, and the aggressive manner in which the state Public Utilities Commission implemented PURPA, which was intended to foster the development of renewable energy and cogeneration from independent power producers. Its role in implementing PURPA included rate decisions and standard contracts that facilitated market entry by these producers.468 IV. Lessons From State Experience A. Consistency With Instrument Choice Framework In general, the legal instruments discussed here can produce significant reductions of greenhouse gases, are best employed in portfolios or suites, can generate significant benefits in addition to climate change reduction, and are either cost effective or involve negligible costs. The continuing vitality of several instruments, particularly demand-side management and adders, is questionable. But most fit this framework, or can be drafted to meet this framework. These instruments, moreover, are only a fraction of the legal instruments available to reduce greenhouse gas emissions. This is obviously a different picture than that painted by those opposing action to address climate change. It is available by [30 ELR 10973] looking at the laws themselves and experience with those laws rather than assumptions about the laws that might be employed. 1. Significant Domestic Reductions This analysis indicates that states can accomplish domestic reductions with these and other tools. On the other hand, this analysis also shows that the effect of state tools in reducing net greenhouse gas emissions so far is modest. Every state (including California) could do much more to reduce net greenhouse gas emissions. The best evidence of what can be done is provided by the most active states. California's experience comes up over and over in this analysis because it has sought to foster renewable energy and energy conservation for several decades through a variety of legal instruments, including customer choice of electricity providers, environmental labeling for electricity advertising, energy efficient building codes, system benefit charges, and tax credits. But California is by no means the only state that has addressed these issues aggressively. For each of these instruments, and for other instruments not discussed here, there are state leaders. Pennsylvania and California are considered to have the most competitive markets; California, Massachusetts, and Connecticut provide the most total funding for renewable energy; Minnesota has made the biggest commitment to new wind and biomass energy.469 If all state did as much as these states, greenhouse gas emission reductions would be impressive. As explained earlier, for example, national energy savings from demand-side management would be four times greater if all states did as much as the top five states. States are more likely to achieve significant reductions if they inventory their greenhouse gas emissions, develop a plan for addressing them, and set numerical goals for emissions reductions. As already noted, state greenhouse gas action plans would reduce emissions by 2% over otherwise projected 2010 levels. This figure would likely be higher if all states had such plans, rather than half of them. If New Jersey succeeds in reducing its emissions by 3.5% below 1990 levels by 2005, it will provide furtherevidence of what states can achieve. To the extent reductions are projected from current state use of the tools discussed in this Article, however, the reductions are relatively small. Indeed, relatively few states use the legal tools described here. Many of these tools are being used by roughly a dozen states, and some are used by only a handful or less. Perhaps the most widely used tools discussed in this Article are energy conservation provisions in building codes and demand-side management. The latter, of course, may not survive electric utility restructuring. Another reason for modest reductions is that some of these tools have not been in effect long enough to show significant effects. This is particularly true of tools that are based on electric utility restructuring. Customer choice of electric providers and environmental labeling requirements for retail advertising, for example, are only recently under way. As customers gain experience with retail competition, and as the transition charges end, these tools may play a much greater role in facilitating the use of renewable energy. Others, like cap-and-trade programs for CO2 or carbon, have very limited statutory authorization at present and are being employed on a voluntary basis, mostly to offset CO2 emissions. Tools that have been around longer have shown better results. Building codes with energy efficiency provisions have been in effect in some states for several decades. Across the country, demand-side management programs reduce demand to retail customers by about 2%. If system benefit charges effectively replace demand-side management programs, they should be able to protect and perhaps improve on that achievement. The higher level of funding shown in many state system benefit programs suggests that they may be able to reduce energy use even more. Public funding for forestry has probably made a significant contribution to carbon sequestration, even if it was not intended for that purpose. This analysis indicates that greenhouse gas reductions can best be achieved by using a suite of legal and policy tools that are specifically tailored to various greenhouse gas sources and economic sectors. Energy efficiency standards in buildings, for example, focus on an important source of greenhouse gas emissions and achieve results that would be difficult to achieve as directly with other legal instruments. Other instruments affect only electricity generation and are specifically tailored to that industry—including customer choice of electricity providers, environmental labeling requirements for electricity, net metering, and renewable energy portfolio standards. Cap-and-trade programs, moreover, must be specifically tailored to the particular economic sectors they are intended to cover. A domestic cap-and-trade program limited to large sources of CO2 emissions, for example, will be quite different from a program that includes smaller CO2 sources. Carbon trading through carbon sequestration will require laws with specific provisions for forestry, agriculture, and other economic sectors. This approach to instrument choice is also pragmatic. Instead of narrowing legal options to specific types of instruments (such as economic instruments or regulatory instruments), it looks at whatever instruments might be effective in particular situations. Many of these instruments, moreover, have both regulatory and market-based elements. Some tools, like net metering, remove a barrier to market entry. The most market-oriented tools (cap-and-trade programs) limit CO2 emissions even as they authorize trading for carbon or CO2. Some of these tools grow out of reduced regulation of the electric utility industry (customer choice, environmental labeling, system benefit charges). Many of the regulatory tools, particularly demand-side management and energy-efficient building codes, return more dollars in savings than they cost. Other regulatory tools, such as renewable energy portfolio standards, can be implemented through market mechanisms. Still others, particularly those directed at new electric-generating facilities, are intended to reduce external environmental costs. Combinations of instruments may achieve specific goals better than individual tools. The combination of tax credits for renewable energy and net metering, for instance, is more likely to increase the use of certain renewable energy technologies than the use of either tool alone. Tax credits can [30 ELR 10974] also make other renewable energy technologies more competitive with fossil fuels and enhance the likelihood that energy conservation will be used. The combination of renewable energy portfolio standards, net metering, and siting and planning preferences for renewable energy facilities, moreover, would likely have a greater effect than any one tool alone. In fact, much state leadership on renewable energy comes from combining instruments. Only three states (Connecticut, Massachusetts, and New Jersey) have renewable energy portfolio standards, system benefit charges for renewable electricity, net metering, and environmental labeling requirements for electricity sources.470 If air pollution control laws are written or enforced to internalize more of the negative environmental costs of electricity, retail price competition will more likely favor renewable or perhaps natural gas providers. On the other hand, achieving these synergies requires care in design and drafting. Renewable energy portfolio standards will foster the use of readily available renewable technologies that are relatively inexpensive. System benefit charges used to fund the same renewable energy technologies, however, are unlikely to provide additional benefits. System benefit charges are more likely to provide added benefits for renewable energy if they are used to fund promising renewable energy technologies that are not yet ready for the market.471 Laws should also lead to new renewable energy capacity, for example, and not support activities that would occur anyway. They should also be written to enable renewable energy to compete effectively over the long run, even after these laws have been repealed.472 Even the legal form of state-level decisions is relevant to their ability to reduce net emissions. State energy laws, like state environmental laws, are contained in statutes, regulations, and cases. State utility commission decisions, though, might apply to one utility service area within a state but not in another utility's service area. Moreover, utility commission decisions of statewide scope only apply to utilities, not independent power producers or rural electric cooperatives. A publicutility commission decision requiring net metering, for example, will likely not apply to many rural customers even though it is probably easier to install wind turbines in rural areas.473 Legislation and regulations are thus likely to be broader in scope than utility commission decisions. 3. Multiple-Purpose Instruments In addition to reducing greenhouse gases, states are using these tools to save money, foster economic growth, reduce negative environmental externalities from electricity generation, keep energy prices manageable for the poor, create new jobs, and foster technological innovation. In fact, it can be argued that their primary purpose and effect is to provide such benefits because the climate change benefit to individual states of reducing their emissions is minor. States using these tools also foster economic growth for companies that manufacture, construct, install, sell, and maintain renewable energy technologies and more energy-efficient or energy-conserving equipment. These tools can also provide additional economic benefits to farmers, foresters, and others who sequester carbon. As know-how, technological expertise, and product quality improve, the potential for international sales of products and services increases. Indeed, every one of the tools discussed in this Article provides, or can provide, such economic benefits. These tools can also help avert the costs of climate change if they are used aggressively enough. b. Additional Environmental Benefits All of the tools discussed here reduce the negative external costs of energy generation, not only for CO2 emissions but also for other air pollutants such as SO2 and NOx. The reduction of these external air pollution costs would bring a myriad of public health and ecological benefits that are separate from climate change. The use of renewable energy and energy conservation is also likely to have fewer adverse environmental effects than other energy generation facilities. c. Social Equity and Job Creation States that use these tools can help control and even reduce energy costs for the poor and people on fixed incomes. They can also help create jobs and foster economic development. Energy conservation tends to keep fuel bills lower for the poor and people on fixed incomes. It also helps protect them from fuel price increases. Thus, energy efficient building codes can limit the burdens such persons may experience.474 More broadly, tools that foster the development of new renewable technology keep open the possibility of much lower energy bills in the long term if the price of such technology continues to decline. It is possible that adding significant amounts of new renewable energy to a state's electricity portfolio could lead to a present increase in current electricity prices because renewable energy tends to be more expensive now than fossil fuels. Because utility prices are expected to decrease with retail competition, though, renewable energy is likely only to reduce the amount of the price decrease. Expected reductions in the cost of renewable energy, coupled with a program to phase renewable energy in over time, should also help keep prices relatively low. States using these tools to enhance the growth of renewable energy and energy conservation also create jobs. Renewable energy sources tend to create more employment than comparably sized fossil fuel sources.475 Building codes requiring energy efficiency can also generate additional employment for manufacturers and installers of efficient equipment. Demand-side management, system benefit [30 ELR 10975] charges, and tax credits can help create the same type of jobs. Net metering, system benefit charges, and tax credits can also help create jobs for makers and installers of renewable energy products. Because the type of renewable energy chosen will often depend on local conditions (for example, geothermal energy in Hawaii), renewable energy particularly lends itself to the creation of local industries and local jobs. For other tools, significant job creation and retention potential exists. Carbon sequestration could protect and create jobs for farmers, foresters, and others if states developed legal systems that allowed carbon trading or the use of carbon credits. Modest use of these tools is not likely to have much effect on employment in fossil fuel industries because of the expected continued growth in energy demand. More ambitious use of these tools, however—the kind of use required to significantly reduce net greenhouse gas emissions—would likely cost jobs in those industries. These tools directly and indirectly foster technological innovations that have short-term and long-term potential to significantly reduce net greenhouse gas emissions. Many of these tools directly foster the development and diffusion of new renewable energy and energy conservation technologies. System benefit charges for such purposes can help bring these technologies to market. Properly tailored tax credits can have a similar effect. Perhaps of greater importance are renewable energy portfolio standards, net metering, and planning and siting preferences for renewable energy. States that adopt renewable portfolio standards with progressively greater required percentages of renewable energy over time are particularly likely to facilitate technological innovation because of the market commitment they provide and because of the competitive manner in which renewable energy will be introduced. This type of innovation has additional benefits to states because of the large potential domestic and international markets for renewable energy and energy conservation technologies. States using these tools also appear to be facilitating innovations in energy conservation in other ways. Periodic revisions of the model building codes appear to encourage the development of new conservation methods and technologies because these new approaches may then be incorporated into the model codes. Although states generally do not write these codes, they canand often do require compliance with them. Demand-side management supports a market for more efficient motors and other energy-using technologies, as well as energy conservation technologies and methods, that probably would not have otherwise existed. If substitute programs are established through system benefit charges, these markets and the technological innovation they support will likely continue. Many of these tools provide greater opportunities for the development and use of renewable energy technology than has previously existed. By allowing customers to choose electricity providers with "greener" portfolios than their existing utility, and by requiring electricity providers to provide environmental information in their advertising, many states have opened a door for renewable energy. While the technologies being employed may have been ready for market, the growing sale of renewable energy technology allows companies to invest more money in research and development of better and less expensive renewable technologies. States also use these tools to foster other innovation and learning. Oregon's law for new power plants may encourage the development of new natural gas power plants that emit lower amounts of CO2. Early registry programs for net greenhouse gas emissions do not necessarily foster technological innovation, but they do encourage institutional and professional learning as well as sharing of that information with others. Oregon's CO2 limits for new power plants also facilitates learning about carbon sequestration. Because these tools have the potential to reduce net greenhouse gas emissions in the United States, they can also help protect national security. Reductions of greenhouse gas emissions in this country will likely reduce the effect of climate change in the United States, and will encourage other countries to reduce their emissions. As a result, there will be less risk of severe disruptions from climate change. Because climate change has national security implications, however, it is inappropriate for the United States to rely on state-by-state decisions to reduce greenhouse gas emissions. Dependence on foreign energy supplies is another national security concern, but it is not raised in significant ways by the legal instruments discussed in this Article. Most of them are related to the use of coal and natural gas for which this country has ample domestic supplies. Except for energy efficiency in buildings that are heated with oil and utility electric generation based on oil, these particular tools are not likely to significantly reduce dependence on foreign oil. These tools, taken as a whole, appear to be capable of reducing greenhouse gases and achieving other goals at a negligible cost. Indeed, a continuing theme in analyses of many tools is their cost-effectiveness. Many tools, particularly those related to energy conservation, tend to return more in benefits than they cost. Every dollar spent in California's demand-side management program in recent years has saved more than two dollars. Building codes requiring energy efficiency have been shown to be cost effective by paying for themselves in five years or less. Many building codes even allow builders a performance-based alternative to specified means if they can meet a certain level of energy efficiency by using another means. Because building codes raise the initial cost of a new structure, however, their ability to pay for themselves in five years and generate a cost savings thereafter is not always recognized or rewarded. For energy efficiency, regulatory instruments appear to be needed to ensure actions that are cost effective in their own right.476 Drafted properly, electricity restructuring laws could be more cost effective than existing utility regulation and permit or encourage choices that will result in lower CO2 emissions. Alternatively, some customers may choose wind and solar power sources that are currently more expensive than conventional sources. When customers make such choices, it is difficult to conclude that the underlying law is therefore not cost effective. Market-based tools will play a substantial role in reducing costs. Renewable energy portfolio standards and cap-and-trade systems, for example, have enormous potential to reduce the cost of any state climate change effort because of their credit or trading systems. By allowing competition between wind and natural gas for new power production, Minnesota may facilitate cheaper wind energy. Net metering programs allow residential electric customers to sell the electricity they generate and help offset the costs of acquiring and installing renewable energy systems. The Oregon siting law allows prospective facility operators to choose from at least three different means of compliance, enabling the most cost effective choice. Tax credits can help make wind, solar, and geothermal technologies more cost effective by reducing their costs. Net metering gives a boost to cost-effective technologies, and may help other technologies become cost effective. On the other hand, demand-side management uses government-developed price supports, essentially the only means available to foster conservation under traditional utility regulation. While it made more sense under the traditional utility system, demand-side management is not likely to survive the demise of utility regulation. Similarly, "adders" may not survive in the emerging new era of retail price competition. Other laws are or should be drafted to enhance market-based customer decisionmaking by providing relevant information to customers. Many state utility restructuring laws ensure that prospective customers get energy source and emissions information, for instance. On the other hand, customer information about energy conservation in residential and commercial buildings does not appear to be required or provided on a widespread basis. These and other tools can have a profound effect on the potential cost-effectiveness of legal instruments chosen to reduce net greenhouse gases in the United States. These tools indicate that macroeconomic studies on the costs of the Kyoto Protocol to this country likely project higher costs than necessary or appropriate. Thus, it appears that a carefully drafted combination of such instruments could achieve a significant part of the Kyoto Protocol emissions reduction more cost-effectively than a carbon tax and international emissions trading. The size of the potential reduction would depend in large measure on how the legislation is drafted. This analysis also points to a second conclusion: Combinations of these tools with a carbon tax could be more cost effective in meeting the Kyoto Protocol than a carbon tax alone. Assume that a national carbon tax is put in place, as the models suggest. Unlike emissions limitations or caps, carbon taxes and other economic charges do not directly reduce CO2 emissions. Rather, they encourage firms and households to use less-carbon-intensive fossil fuels, renewable energy, and energy conservation. The easier it is to make these changes, the more likely they will occur.477 A significant source of uncertainty about such a tax in the economic models is the extent to which individuals and firms will respond by substituting energy sources and technologies that create lower greenhouse gas emissions or none at all. Another source of uncertainty is the extent to which substitution possibilities will improve over time.478 In general, the "more flexibility the model includes in the choice of technologies, retirement of old equipment, and introduction of new technologies, the lower the economic impacts of emissions reductions."479 On the other hand, it is generally recognized that subsidies encouraging the use of fossil fuels will inhibit the effectiveness of a carbon tax because they discourage substitution.480 The existence of other laws can also enhance or inhibit the responsiveness of individuals and firms to a carbon tax. When the carbon tax becomes effective, for instance, State A has a well-drafted law that allows customers to choose their electricity providers, but State B has no such program. Instead, customers in State B are obligated to continue using electricity generated primarily by fossil fuels, the dominant fuel burned by State B's utilities. The carbon tax is likely to encourage greater greenhouse gas emission reductions, at a lower cost, in State A than in State B. This is so because the choices of individuals and firms in State A are market driven and based on individualized calculations of costs. By contrast State B's utilities are likely to be less responsive to the carbon tax because it will have less effect on their market. The absence of individualized choices in State B will also make the carbon tax less cost effective in State B than it is in State A. Many other examples could be used to illustrate the ability of other laws to affect the responsiveness of firms and individuals to a carbon tax.481 1. Current Federal Involvement Although this Article began as an effort to understand what states can do to reduce net greenhouse gas emissions, virtually every tool studied is based on federal law, uses federal law as a framework, or requires the assistance of federal agencies or federal law. To be sure, considerable state innovation has occurred. Yet the federal government's current involvement in state-level energy conservation, renewable energy, and climate change activities is already considerable. Federal energy law is ubiquitous. The Public Utility Holding Company Act and the Federal Power Act provide much of the legal structure in which public utilities operate. PURPA played a major role in introducing competition for wholesale electricity, which in turn has put pressure on [30 ELR 10977] states to open their retail markets to price competition. That Act also makes net metering possible. The Energy Policy Act directed states to consider energy conservation in their building codes. The same Act also required states to consider using integrated resource management in utility planning and to consider using demand-side management to conserve energy. State "adders" are a modification of the integrated resource planning process. System benefit charges are, in part, an effort to protect and enhance the gains of demand-side management. State tax credits are, to some degree, supportive of federal tax credits. Moreover, DOE funds some state efforts to develop and upgrade their building codes. Federal environmental law also plays a role in shaping potential tools. Cap-and-trade programs for carbon and CO2 would borrow directly from the experience with SO2 and other pollutants under the CAA. Renewable energy portfolio standards also borrow from that experience. To some extent, carbon sequestration would build on existing federal environmental programs related to agriculture. EPA funds state efforts to inventory their greenhouse gases and develop action plans. More generally and perhaps more importantly, negative environmental externalities from electricity generation reflect limitations in federal environmental law, particularly air pollution control law. Admittedly, some legal tools appear to be relatively independent of federal law. These include renewable energy portfolio standards and carbon limits for new power plants. While others may have been prompted or affected by federal law, they also appear to be predominantly state creations. These include net metering, tax credits, environmental labeling requirements for electricity advertising, and system benefit charges. While these innovations do not change the considerable influence that the federal government has on the states in this area, they do identify areas of state creativity that should be considered at the national level. 2. The Argument for Greater Federal Involvement Perhaps the greatest weakness of state efforts to date is their limited effectiveness in reducing net greenhouse gas emissions. Broader and more intense state activity could result in greater reductions, of course. An alternative is national legislation that uses these and other state tools. When successful state laws are adopted nationally, the resulting national legislation is often broader and more ambitious than the state law on which it was based.482 National legislation would be consistent with the country's obligation to implement the Framework Convention in good faith. In international law, a national effort to meet a treaty commitment should presumably be just that—a national effort. Because climate change has significant national security dimensions, a national response seems particularly appropriate. There are compelling reasons for this alternative. National legislation would have a much greater impact on greenhouse gas emissions than state laws. Because it would include individuals and businesses in all states, a national effort would more likely reduce net greenhouse gas emissions, and reduce them to a greater degree, than would a collection of state efforts. Unless states can somehow each adopt uniform laws on greenhouse gases or create an interstate agreement or compact to address climate change,483 the scope of any state's law will be limited by its own borders. Some of the major achievements of U.S. energy policy have occurred because of national legislation concerning a national market. Familiar regulatory laws that have long been part of this landscape include the corporate average fuel efficiency (CAFE) standards established under the Energy Policy and Conservation Act of 1975, which now require that passenger automobiles achieve an average fuel efficiency of 27.5 miles per gallon.484 Another important statute is the National Appliance Energy Conservation Act of 1987, which requires DOE to set energy efficiency standards for refrigerators, washing machines, clothes dryers, and other household appliances.485 Although these laws were not enacted to reduce greenhouse gas emissions, they have had that effect. For example, residential appliance efficiency standards are projected to reduce annual carbon emissions between 1990 and 2010 by an amount equal to 4% of 1990 U.S. carbon emissions at a net savings to the U.S. economy.486 More generally, energy consumption per dollar of gross domestic product declined from 20,500 BTUs in 1950 to 13,100 BTUs in 1997, an efficiency improvement of 36%.487 This improvement would not likely have occurred in the absence of national legislation. The potential impact of a domestic CO2 and carbon trading market helps illustrate this point. Any state trading effort would be handicapped by its own boundaries, questions about the extent to which other states would recognize actions performed under that law in another state, and differences among state laws. A domestic trading program at the national level, by contrast, would have one set of rules for the entire country. Such a system would foster technological innovation within the United States, would provide a rich source of experience and expertise in addressing the numerous accounting problems that a trading program entails, and would more likely produce genuine reductions than an initial program that allowed U.S. energy producers and users to [30 ELR 10978] trade in other countries.488 More basically, a domestic trading program would demonstrate that the United States recognizes its responsibility under international law for the effects of private-sector actors operating within its borders.489 The H. John Heinz III Center for Science, Economics, and the Environment has developed four different options for a domestic trading system in collaboration with representatives from industry, environmental groups, government, and universities.490 These options provide a sense of what a domestic program could look like. Option I would include cap-and-trade programs on large fossil fuel plants and apply efficiency standards for smaller energy consumers. The Option I cap would apply to about one-half of the nation's greenhouse gas emissions. An advantage of Option I would be its application to facilities that are already covered under the SO2 limits in the acid rain program and who presumably already have significant expertise with cap-and-trade programs. Option II would cap fossil fuels that can enter the economy from coal producers, oil refineries, and natural gas pipelines, and would require them to purchase permits for the carbon they produce or transport.491 The other two options are more complex variations of the first two.492 Whatever option might eventually be applied, states will have considerable expertise to draw upon in helping administer such a program. But state trading efforts are not likely to have a significant effect without federal leadership. National legislation that includes a domestic carbon trading scheme and is not limited to CO2 emissions could have significant environmental and economic benefits. For both agriculture and forestry, national experience with carbon offsets and carbon trading could be a useful contribution to international knowledge and expertise concerning carbon sequestration. This is particularly important for sequestration methods other than forestry, which are not recognized by the Kyoto Protocol, and which are not likely to be recognized until there is significantly more experience. National legislation would also provide professional expertise to U.S. citizens and corporations that would be invaluable in any international carbon trading system. In addition, the uniformity provided by federal legislation would create or enhance a national market for many energy conservation and energy efficiency technologies and methods. For example, net metering interconnection standards for small-scale renewable energy systems vary from state to state and even within states. The lack of nationally recognized uniform standards reduces market penetration of these technologies and increases costs.493 Indeed, adoption of the National Appliance Energy Conservation Act of 1987 was prompted by differing state appliance standards. When the Reagan Administration refused to promulgate appliance efficiency standards required under the Energy Policy and Conservation Act of 1978,494 states began to adopt their own appliance efficiency standards. Because different state standards made it difficult to market appliances nationally, manufacturers helped convince Congress to adopt the 1987 legislation. In addition to the national market, federal legislation provides an opportunity to draft state tools in a way that addresses net greenhouse emissions more aggressively. State system benefit charges and renewable energy portfolio standards, for example, may increase new renewable energy resources by 4,800 megawatts, but electric capacity nationwide is projected to increase 80,000 megawatts by 2010.495 By contrast, the Clinton Administration has proposed a national renewable energy portfolio standard that would lead to more than 50,000 megawatts of renewable electricity.496 Sen. Jim Jeffords (R-Vt.) has proposed legislation that would move the national renewable energy portfolio standard from 2.5% in 2000 to 20% in 2020.497 National legislation does not raise the dormant U.S. Commerce Clause concerns that may endanger state laws.498 Under a long series of U.S. Supreme Court decisions, the constitutional power of Congress to regulate interstate commerce contains an implicit limitation on the power of states to discriminate against commerce originating in another state, or to unduly burden interstate commerce.499 Many tools that states can use to reduce greenhouse gases require states to create markets for things that did not previously exist, such as credits for carbon sequestration or renewable energy portfolio standards. For perfectly understandable reasons, states may seek to limit those markets to their own boundaries to obtain the benefits of emissions reductions. While the benefits of greenhouse gas reductions are not merely local, they are partly local. This is particularly true because, as already noted, CO2 reductions can also yield reductions in other air pollutants whose effects are more likely to be experienced locally. Yet such limits may run afoul of the dormant Commerce Clause.500 It has been argued that such market-based state environmental actions should be permissible if they retain the benefits of a market the state has created, prevent the loss of state-created environmental benefits to other states, or reduce the flow of conventional economic benefits of state actions to other jurisdictions.501 Whether that view of the dormant Commerce Clause is ultimately adopted or not, this issue creates two kinds of problems for states. It may make actions to reduce net greenhouse gas emissions less attractive because states are less likely to capture the benefits of their actions. It may [ILLEGIBLE SLIP OP. PAGE 10979] 1. United Nations Framework Convention on Climate Change, May 29, 1992, U.N. Doc. A/AC.237/18 (1992), reprinted in 31 I.L.M. 849 (1992) (available in ELR STAT. 50343 [hereinafter Framework Convention]. 2. JOHN T. HOUGHTON, GLOBAL WARMING: THE COMPLETE BRIEFING 22-45 (2d ed. 1997) (describing source and effect of various greenhouse gases). These gases have a natural greenhouse effect, warming the earth to a greater degree than it would be in their absence. Id. at 11-16. Because of CO2, Venus is much hotter and Mars is slightly warmer than it would otherwise be. Id. at 16-17. 3. Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 10, 1997, U.N. Doc. FCCC/CP/197/L.7/Add. 1, art. 3.1 & Annex B, reprinted in 37 I.L.M. 22 (1998) [hereinafter Kyoto Protocol]. See Clare Breidenich et al., The Kyoto Protocol to the United Nations Framework Convention on Climate Change, 92 AM. J. INT'L L. 315 (1998). A protocol is an international agreement that implements a treaty. 4. Framework Convention, supra note 1, art. 3.1. 5. S. Res. 98, 105th Cong. (1997); 143 CONG. REC. S8138 (daily ed. July 25, 1997). 6. S. Res. 98, 105th Cong. § 1(1)(A). During debate on the resolution, Senator Byrd stated several times that the resolution did not mean that developing country commitments would have to be the same as developed country commitments. 143 CONG. REC. S8117 (daily ed. July 25, 1997). "While countries have different levels of development, each must make unique and binding commitments of a pace and kind consistent with their industrialization." Id. at S8131. 7. S. Res. 98, 105th Cong. § 1(1)(B). 8. Id. pmbl. 9. JOHN P. WEYANT, AN INTRODUCTION TO THE ECONOMICS OF CLIMATE CHANGE POLICY 10-14 (2000) (summarizing policy choices in models) (available at http://www.pewclimate.org/projects/econ-introduction.pdf): ROBERT REPETTO & DUNCAN AUSTIN, THE COSTS OF CLIMATE PROTECTION: A GUIDE FOR THE PERPLEXED 2-3 (1997) (summarizing models). See, e.g., ENERGY INFORMATION ADMIN., U.S. DOE, IMPACTS OF THE KYOTO PROTOCOL ON U.S. ENERGY MARKETS AND ECONOMIC ACTIVITY (1998) [hereinafter IMPACTS OF THE KYOTO PROTOCOL]. The debate among academic lawyers has also tended to focus on emissions trading and taxes. See, e.g., Jonathan Baert Wiener, Global Environmental Regulation: Instrument Choice in Legal Context, 108 YALE L.J. 677, 701-35 (1999) (arguing that international allowance trading is presumptively superior to pollution taxes); but see David M. Driesen, Choosing Environmental Instruments in a Transnational Context, 27 ECOLOGY L.Q. 1 (2000) (arguing that international allowance trading is constrained by the need for international agreement on rules and instead suggesting national compliance based on nationally chosen method). 10. COUNCIL OF ECONOMIC ADVISORS, THE KYOTO PROTOCOL AND THE PRESIDENT'S POLICIES TO ADDRESS CLIMATE CHANGE; ADMINISTRATION ECONOMIC ANALYSIS 46-47 (1998) [hereinafter ADMINISTRATION ECONOMIC ANALYSIS]. 11. See, e.g., B.S. Fisher et al., An Economic Assessment of Policy Instruments for Combatting Climate Change, in CLIMATE CHANGE 1995: ECONOMIC AND SOCIAL DIMENSIONS OF CLIMATE CHANGE 402 (1996); NATIONAL ACADEMY OF SCIENCES ET AL., POLICY IMPLICATIONS OF GREENHOUSE WARMING MITTGATION, ADAPTATION, AND THE SCIENCE BASE 468-72 (1992); OFFICE OF TECH. ASSESSMENT, CHANGING BY DEGREES: STEPS TO REDUCE GREENHOUSE GASES (1991). See also Richard L. Ottinger & Mindy Jayne, Global Climate Change—Kyoto Protocol Implementation: Legal Frameworks for Implementing Clean Energy Solutions (2000) (unpublished manuscript, on file with author). 12. Another set of legal and policy options would facilitate adaptation to climate change. These were not considered in the seminar. For an analysis of these options, see, e.g., NATIONAL ACADEMY OF SCIENCES ET AL., supra note 11, at 36-47 & 499-652. See also James G. Titus, Rising Seas, Coastal Erosion, and the Takings Clause: How to Save Wetlands and Beaches Without Hurting Property Owners, 57 MD. L. REV. 1279 (1998) (recommending actions that state and local governments (as well as business) should take to protect publicly owned tidal shorelines from being privatized by rising sea levels from global warming that move these shorelines onto private property). For an argument that the United States and other countries should focus global warming efforts on steps to reduce human vulnerability to extreme weather events, see Daniel Sarewitz & Roger Pielke Jr., Breaking the Global-Warming Gridlock, THE ATLANTIC MONTHLY, July 2000, at 55. 13. STATE AND TERRITORIAL AIR POLLUTION PROGRAM ADMINISTRATORS (STAPPA) & ASSOCIATION OF LOCAL AIR POLLUTION CONTROL OFFICIALS (ALAPCO), REDUCING GREENHOUSE GASES AND AIR POLLUTION: A MENU OF HARMONIZED OPTIONS—FINALIZED REPORT xiii (1999) [hereinafter REDUCING GREENHOUSE GASES]. 14. Students registered for the seminar knowing that an Article like this would be prepared afterwards. They were also asked to comment on a draft of this Article, and most did. 15. Programme for the Further Implementation of Agenda 21, U.N. GAOR, 19th Special Sess., Annex, U.N. Doc. A/S-19-29, & 49 (1997). 16. Elliot L. Richardson, Global Warming and the Risk of Disaster: How Much Do We Care What Happens to the World After We Are Gone?, LOOKING AHEAD (ABA Section of Natural Resources, Energy, and Environmental Law, Chicago, Ill.), Jan./Feb. 1999, at 6 (remarks at section meeting in Hilton Head, S.C., Oct. 9, 1998) (summarizing Intergovernmental Panel on Climate Change (IPCC) findings). 17. INTERCOVERNMENTAL PANEL ON CLIMATE CHANGE, CLIMATE CHANGE 1995: THE SCIENCE OF CLIMATE CHANGE 4 (John T. Houghton et al. eds., 1996) [hereinafter SCIENCE OF CLIMATE CHANGE]. 18. HOUGHTON, supra note 2, at 22, 41; SCIENCE OF CLIMATE CHANGE, supra note 17, at 14-15. Cement production and burning for deforestation are also significant human sources of CO2 emissions. Id. 19. HOUGHTON, supra note 2, at 33-35. See also SCIENCE OF CLIMATE CHANGE, supra note 17, at 22 (listing these and other grecnhouse gases). The Kyoto Protocol focuses on six greenhouse gases: CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Kyoto Protocol, supra note 3, Annex A. 20. SCIENCE OF CLIMATE CHANGE, supra note 17, at 15
223. A variety of other charges may also be included, depending on the state law. The transition charge should not increase customer bills from their level prior to retail competition. As explained below, the charge is a way of allowing utilities to recover costs that they are already allowed to recover. In fact, California prohibited utilities from using the transition charge to increase customer rates. CAL. PUB. UTIL. CODE § 330(v). 224. The Regulatory Assistance Project, The National Council on Competition and the Electric Industry Synthesis Report: A Summary of Research on Information Disclosure (April 1998) (draft) at 2 (visited Apr. 19, 2000) http://www.rapmaine.org/synthesis/SNY2.html [hereinafter Synthesis Report]. 225. Id. 226. Id. at 2-3. 227. Id. at 3-4. For more information on this research, see Edward A. Holt, Information Consumers Want in Electricity Choice: Summary of Focus Group Research (1997) (visited Apr. 19, 2000) http://www.rapmaine.org/focsum.html. 228. Synthesis Report, supra note 224, app. A. § III. 229. E.g., MASS. REGS. CODE tit. 220, § 11.06(3) (2000). 230. Synthesis Report, supra note 224, at app. A, § III(B). Electronic or telephone solicitations must inform the customer that they can obtain a copy of the label if they ask for it. Id. 231. CAL. PUB. UTIL. CODE § 398.4(b) (Dearing 1997). 232. Id. § 398.4(c). 233. MASS. REGS. CODE tit. 220, §§ 11.06(4)(c) & (6)(c) (2000). 234. See, e.g., 66 PA. CONS. STAT. ANN. § 2807(d)(3) (West 1999); CAL. PUB. UTIL. CODE § 392(2)(b) (Deering 1997). 235. Ajay Gupta. Tracking Stranded Costs, 21 ENERGY L.J. 113, 114 (2000). See, e.g., DEL CODE ANN. tit. 26. § 1006 (1999); CAL. PUB. UTIL. CODE § 383.5 (Deering 2000). 236. Gupta, supra note 235, at 113. Opponents of stranded cost recovery have argued that it harms customers because they have to pay higher rates, and that it undermines a utility's incentive to control costs. Id. 237. Energy Information Admin., U.S. DOE, Annual Energy Outlook 2000: Market Trends—Electricity (visited June 2, 2000) http://www.eia.doe.gov/oiaf/aeo/electricity.html#elesale. 238. 66 PA. CONS. STAT. ANN. § 2808(b) (1999). 239. CAL. PUB. UTIL. CODE § 330(w) (Deering 1997); MASS. REGS. CODE tit. 220, § 11.04(9)(b)(3)(a) (2000). See also John Rohrbach, Made in the Keystone State: Pennsylvania's Approach to Retail Electric Competition, ELECTRICITY J., Jan./Feb. 1999. at 26, 27. 240. Because overall rates were not capped, retail customers in San Dicgo and part of Orange County, California, experienced significant price increases in the summer of 2000, apparently because of increased costs of wholesale electricity. See, e.g., California Senate Clears Bill Curbing Power Costs. WALL ST. J., Aug. 11, 2000, at A4. 241. Rohrbach, supra note 239, at 34-36. 242. John Hanger, President, Citizens for Pennsylvania's Future, Presentation to seminar (Mar. 22, 2000). Less than 10,000 customers participate in the Massachusetts program. Id. See also Pennsylvania Office of Consumer Advocate, PA Electric Shopping Statistics (last updated July 3, 2000) http://www.state.pa.us/PA_Exec/Attorney_General/Consumer_Advocate/cinfo/stat.htm. The effectiveness of these programs from a cost-savings perspective should not be judged solely by the number of persons who choose a different electricity provider, however. Among other things, competition should exert downward pressure on prices, which would lower costs for all customers. 243. In re Southern Nev. Water Auth., No. 95-9022, 1996 WL 394357, at *3 (Nev. Pub. Serv. Comm'n May 20, 1996) (quoting EPA comments in a FERC proceeding). Electric-generating facilities were responsible for 36% of all human-caused CO2 emissions, 72% of all SO2 emissions, 33% of all NOx emissions, 32% of all particulate emissions, and 23% of all mercury emissions in 1993. Id. See generally OFFICE OF TECH. ASSESSMENT, STUDIES OF THE ENVIRONMENTAL COSTS OF ELECTRICITY (1994) (analyzing and evaluating eight different studies). Despite an ambitious national program to reduce SO2 and NOx emissions from coal-fired power plants, emissions from these facilities are still causing significant environmental damage. See, e.g., U.S. GAO, ACID RAIN: EMISSIONS TRENDS AND EFFECTS IN THE EASTERN UNITED STATES (2000) (finding a decrease in sulfates in 92% of lakes sampled in Adirondack Mountains, but an increase in nitrates in 48% of these lakes, and suggesting that NOx emissions from coal-fired power plants received insufficient attention in design of that program). Electric utility power plants also emit significant concentrations of mercury and other toxic pollutants. About 1.1 billion of the 7.3 billion pounds of toxic pollutants released into air, water, and land in 1998 were released by electric utilities. U.S. EPA, Summary of 1998 Toxics Release Inventory (TRI) Data (2000) (visited July 31, 2000) http://www.epa.gov/tri/tri98/data/1998datasumm.pdt. 244. CASTEN, supra note 204, at 45-46. 245. Id. at 47-48. 246. Id. at 65-66. 247. The Energy Information Administration forecasts that 92% of the 780 new power plants expected to be constructed in the United States by 2015 will be fired by natural gas. A new 300 megawatt coal-fired power plant would cost $ 330 million and would have a thermal efficiency of about 36%. By contrast, a new 300 megawatt combined-cycle gas plant would cost only $ 173 million and would have a thermal efficiency of about 50%. Colin Sullivan, Murkowski, Bingaman Hope to Overcome Dereg Differences by June 7, ENERGY & ENV'T DAILY, May 29, 2000 http://www.eenews.net/subscriber/search/search.cgi?op'pdf&file'eew.htm (subscription-based news service, article on file with author). 248. See, e.g., Sandra Fleishman, Environmentalists, Industry Air Differences on Pollution, WASH, POST. Oct. 17, 1999, at H7; Edward A. Smeloff, Utility Deregulation and Global Warming: The Coming Collission, 12 NAT. RESOURCES & ENV'T 280 (1998); Alan Miller & Adam Serchuk, The Promise and Peril in a Restructured Electric System, 12 NAT. RESOURCES & ENV'T 118 (1997). 249. Framework Convention, supra note 1, art. 4.1(f). 250. Hanger, supra note 242. 251. See, e.g., CAL. PUB. UTIL. CODE § 398.4 (West 1997); 220 ILL. COMP. STAT. 5/16-127 (West 1999); N.J. STAT. ANN. § 48:3-87(a) (West 1999); MASS. REGS. CODE tit. 220, § 11.06(d) (1999). Pennsylvania, however, does not require the disclosure of such information. States are highly unlikely to require labeling if they do not provide competition. In Colorado, the state utility commission refused to require labeling because the state does not allow customers to choose their own electrical supplier. In re Rules Regulating the Serv. of Elec. Utils., Docket No. 98R-536E, Decision No. C99-151 (Colo. P.U.C. 1999). The commission found that such information would be of little help to customers who had no choice. Id. 252. See supra text accompanying notes 230 through 233. 253. Synthesis Report, supra note 224. 254. Barbara C. Farhar, Energy and the Environment: The Public View (1996) (available at http://www.repp.org/ under "Publications" icon) (conclusion based on synthesis of data from more than 700 polls conducted between 1973 and 1996). The analysis showed a similar preference for energy conservation. 255. Synthesis Report, supra note 224, at app. A. § III. 256. But see Richard Rhodes & Denis Beller. The Need for Nuclear Power, FOREIGN AFF., Jan./Feb. 2000, at 30. 257. ENERGY INFORMATION ADMIN., U.S. DOE, RENEWABLE RESOURCES IN THE U.S. ELECTRICITY SUPPLY ix (1993). The report is available at ftp://ftp.eia.doe.gov/pub/electricity/renewmas.pdf. 258. Id. at 3-4. 259. Id. at x-xi. Hydroelectric power is not expected to grow because most major rivers already have dams. Id. at x. 260. Id. at 5. The generation price and contract parts of the label are omitted here. 261. Illinois requires that information about electricity sources be provided in percentage terms and in a pic chart showing these percentages. 220 ILL. COMP. STAT. ANN. § 5/16-127(a) (West 1999). 262. Environmental Defense (formerly the Environmental Defense Fund) suggests another way of showing annual emissions data—by number of pounds (not a bar graph). Environmental Defense. Sample Electricity Label (visited Jan. 27, 2000) http://www.edf.org/programs/energy/green_power_label.html. 263. REDUCING GREENHOUSE GASES, supra note 13, at 25. * 50% of Product A is specifically purchased from individual supplicra. ** Percentages are estimated annually by the California Energy Commission based on the electricity sold to California consumers during the previous year. 264. California Energy Comm'n, The Power Content Label (last updated June 9, 2000) http://www.energy.ca.gov/consumer/power_content_label.html. 265. The specific percentages of eligible renewable resources is not shown because the supplier may not know the precise mix of renewable resources at that time; the supplier of Product A is required to report that information to customers after year's end when it becomes available. Id. 266. A third approach to environmental labeling, albeit a nongovernmental one, is the Green-e seal developed by the non-profit Center for Resource Solutions. The Green-e seal is a voluntary certification and verification program for electricity suppliers. A company can use the Green-e seal if it uses at least 50% renewable sources to generate its electricity, has nonrenewable sources with lower emissions than nonrenewable sources ordinarily have, and agrees to disclose its electricity sources to customers. It also is obliged to add 5% to its renewable energy mix in the first year following deregulation, and perhaps keep adding to its renewable energy mix over time. Green-e Renewable Electricity Program, Center for Resource Solutions, What Is Green-e? (visited May 26, 2000) www.green-e.org/what/index.htm>. Although voluntary, the Green-e seal program is national in scope. A virtue of the Green-e seal is its simplicity, particularly in comparison to the other two. The logo, a flower with an "e" at its center and lines projecting outwards and upwards from the "e" like the sun's rays, stands by itself. It contains no other information about the electricity product being advertised. There is no need to understand pollutants or types of renewable energy. 267. 21 C.F.R. § 101.9. 268. Kirsten H. Engel, The Dormant Commerce Clause Threat to Market-Based Environmental Regulation: The Case of Electricity Deregulation, 26 ECOLOGY L.Q. 243, 317-18 (1999). 269. California: CAL. PUB. UTIL. CODE § 2827 (Deering 1999); Connecticut: 1998 CONN. PUB. ACTS 98-28, § 43, 45; Idaho: In re Idaho Power Co., No. 26750, 1997 WL 56691 (Idaho Pub. Util. Comm'n Jan. 21, 1997) and In re Rulemaking Proceeding for Consideration of Cogeneration & Small Power Prod., 40 P.U.R.4th 563 (Idaho Pub. Util. Comm'n 1980); Indiana: IND. ADMIN. CODE tit. 170, 4-4.1-1 to -9 (1999); Iowa: Iowa ADMIN. CODE 199-15.11(476) (2000); ME. REV. STAT. ANN. tit. 35-A, § 3210 (West 1999) and In re Customer Net Energy Billing (Chapter 313), P.U.R.4th (Dec. 1998); Maryland: MD. PUB. UTIL. CO. CODE ANN. § 7-511 (1999); Massachusetts: MASS. ANN. LAWS ch. 164, § IG (Law. Co-op. 1999); Minnesota: MINN. STAT. § 216B.164 (1999); Montana: MONT. CODE ANN. §§ 69-8-601 to -604 (1999); Nevada: NEV. REV. STAT. ANN. §§ 704.766-.774 (Michie 1999); New Jersey: N.J. STAT. ANN. § 48:3-87 (Bender 1999); Ohio: OHIO REV. CODE ANN. §§ 4928.01, 4928.67 (Anderson 1999); Pennsylvania: 52 PA. CODE § 57.253 (2000); Vermont: VT. STAT. ANN. tit. 30, § 219(a) (2000); Virginia: VA. CODE ANN. § 56-594 (Michie 1999); Washington: WASH. REV. CODE §§ 80.60.005-.040 (2000). For state-by-state summaries, see The Green Power Network, Net Metering (visited Mar. 2, 2000) http://www.eren.doe.gov/greenpower/netmetering/. 270. Christopher Cook & Jonathan Cross, Maryland Energy Administration, A Case Study: The Economic Cost of Net-Metering in Maryland: Who Bears the Economic Burden? (visited Mar. 2, 2000) http://www.energy.state.md.us/netmtrg.htm. 271. 16 U.S.C. § 796(17). 272. Yih-huei Wan & H. James Green, National Renewable Energy Laboratory, Current Experience With Net Metering Programs 1, Paper presented at Windpower '98, Bakersfield, California, April 27-May 1, 1998 (on file with author). 273. Thomas Starrs, Net Metering: New Opportunities for Home Power 4 (visited June 13, 2000) (available at http://www.repp.org/ under "Publications" icon) [hereinafter Starrs, Net Metering]. Because conventional meters are capable of moving in both directions, special metering technology is not necessarily required. Wan & Green, supra note 272, at 5-6. 274. THOMAS J. STARRS & HOWARD J. WENGER, POLICIES TO SUPPORT A DISTRIBUTED ENERGY SYSTEM 4-5 (1998) http://www.repp.org/articles/pv/3/3.html. In many cases, though, utilities seek to impose on customer-generators the same kind of complex power purchase agreements as they negotiate with independent power producers. Id. at 11-12. 275. 18 C.F.R. § 292.304(b)(2). In adopting the full avoided cost rule, FERC rejected suggestions that the rate paid to independent producers be a fraction of the avoided cost, stating that payment of full avoided costs would encourage renewable energy and cogeneration. American Paper Inst. v. American Elec. Power Service Corp., 461 U.S. 402, 406-7 (1983) (summarizing regulatory history). 276. 16 U.S.C. § 824a-3(d). See also 18 C.F.R. § 292.101(b). 277. See, e.g., MINN. STAT. ANN. § 216B.164(3) (West Supp. 1999-2000) (but limiting retail rate to facilities with less than a 40 kw capacity). Some utilities have challenged this approach, arguing that PURPA prohibits the states from requiring utilities to pay the retail rate. These challenges have thus far been unsuccessful. See Wan & Green, supra note 272, at 4-5 (summarizing decisions). In programs that use two meters, one meter measures customer consumption and the other measures customer generation. In dual metering programs, the customer-generator typically pays the retail price for electricity but produces electricity at the avoided cost rate. Starrs, Net Metering, supra note 273, at 2-3. Dual-meter programs obviously provide less of an incentive to produce renewable energy than single-meter programs. 278. CAL. PUB. UTIL. CODE § 2827(c)(3) (Deering 1999). 279. Starrs, Net Metering, supra note 273, at 7-8. 280. Wan & Green, supra note 272, at 2. 281. Starrs, Net Metering, supra note 273, at 8. Utilities that purchase power generated a long distance from their customers lose a fraction of that electricity in transmission. Locally generated electricity thus may be economically advantageous. Id. at 8-9. 282. Cook & Cross, supra note 270. 283. Id. 284. Wan & Green, supra note 272, at 6-7. 285. Id. at 7. 286. Id. STARRS & WENOER, supra note 274, at 13-16. 287. Wan & Green, supra note 272, at 5. 288. Id. at 5-6. Utilities do not impose all of these requirements. Some derive from private codes and covenants. STARRS & WENGER, supra note 274, at 16-18. 289. STARRS & WENOER, supra note 274, at 9. 290. Id. 291. 16 U.S.C. § 2621(d)(7). 292. Id. § 2602(19). 293. MINN. STAT. ANN. § 216B.2422(1)(d) & (2) (West Supp. 1999-2000). As part of the planning process, utilities also are required to prepare "the least cost plan for meeting 50 and 75% of all new and refurbished capacity needs through a combination of conservation and renewable energy resources." Id. § 216B.2422(2). However, the statute does not categorically require commission approval or utility implementation of such plans. See also Pacific Northwest Electric Power Planning and Conservation Act of 1980, 16 U.S.C. § 839b(e)(1) (energy planning strategy used by Pacific Northwest Electric Power and Conservation Planning Council, which includes Idaho, Montana, Oregon, and Washington, gives first priority to energy conservation (demand-side management) and second priority to renewable energy resources and cogeneration facilities); NEV. REV. STAT. ANN. § 704.746(3)(c) & (4) (Michie 1998) (authorizing utility commission in utility planning process to give preference to renewable energy and energy efficiency). 294. MINN. STAT. ANN. § 216B.2422(3)(a) (West Supp. 1999-2000). 295. U.S. GAO, ELECTRICITY SUPPLY: CONSIDERATION OF ENVIRONMENTAL COST IN SELECTING FUEL SOURCES (1995). See also In re Renewable Resource Dev., 152 P.U.R.4th 84 (Or. Pub. Util. Comm'n 1994) (agreeing to allow utilities short-term recovery of costs for renewable energy in excess of avoided costs to gain experience with renewable sources). 296. In re Quantification of Envtl. Costs, 174 P.U.R.4th 516 (Minn. Pub. Util. Comm'n 1996), aff'd, 578 N.W.2d 794 (Minn. Ct. App. 1998), petition for review denied, 1998 Minn. LEXIS 546 (Minn.). Cost figures were also determined for SO2, particulate matter, lead, carbon monoxide, and NO2. Id. 297. Id. 298. Id. Utilities are also obligated to present cost estimates that do not show these costs at all. 299. Black & Pierce, supra note 204, at 1399. 300. Engel, supra note 268, at 284-85. For a broader and more critical assessment of adders, see Black & Pierce, supra note 204, at 1398-1430. 301. MINN. STAT. ANN. §§ 216B.2421(2) & 216B.243(2) (West Supp. 1999-2000). 302. Id. § 216B.243(3a). 303. Id. § 216B.2422(4). 304. In re Application of Lakefield Junction LLP, 194 P.U.R.4th 248 (Minn. Pub. Util. Comm'n 1999). Because the plant would be used to supply power during peak load times and would replace older and less efficient plants, the commission found it likely that the plant would result in a net reduction in emissions. Id. 305. OR. REV. STAT. §§ 469.300(9), 469.320, & 469.503 (1997). 306. Id. § 469.503(2). Similar limits are imposed by regulation for other types of facilities. See OR. ADMIN. R. §§ 345-024-0590 & 345-024-062 (2000). (A base load plant produces electricity continuously, not just during times of peak demand.) 307. Oregon Office of Energy, Proposed Power Plant Is First in State to Meet Carbon Dioxide Standard (visited June 8, 2000) http://www.energy.state.or.us/office/relrel98a.htm. 308. OR. REV. STAT. § 469.503(2)(a) (1997). 309. OR. ADMIN. R. § 345-024-0550 (2000). For a more detailed explanation of the standard-setting process, see Oregon Office of Energy. Oregon Carbon Dioxide Emission Standards for New Energy Facilities (visited June 8, 2000) http://www.energy.state.or.us/climate/ccnewst.pdf. 310. Electronic mail measage from Laura H. Kosloff, vice president of Trexler and Associates, Inc., to Jennifer Cole (Apr. 4, 2000) (on file with Ms. Cole). 311. OR. REV. STAT. § 468.503(c). 312. Id. § 469.503(c)(A). 313. Id. § 469.504(e)(B). 314. Id. § 469.503(c)(C). The Council is authorized to issue regulations increasing or decreasing this charge based on empirical evidence of the cost of CO2 offsets. Id. In addition to these three ways of offsetting the additional emissions, the Council may adopt regulations specifying other ways of complying with the standard. Id. § 469.503(c)(D). 315. Id. § 469.503(d). In general, the holder of a site certificate must contract to carry out the required offsets within 18 months after beginning construction of the facility. Id. § 469.503(d)(B). 316. Id. § 469.503(d). 317. Oregon Climate Trust, About Us (visited Apr. 3, 2000) http://www.climatetrust.org/aboutus.html. In addition, the trust is to conduct a public outreach and education program concerning climate change and opportunities for action. Id. 318. The second was approved under the 1997 law, but the site certificate for the first facility was issued under a predecessor to the 1997 legislation that allowed a limited exemption from the requirement that an applicant show the need for the facility. 1995 Or. Laws. ch. 505, § 20 (codified at OR. REV. STAT. § 469.501(L)) (modified by 1997 Or. Laws ch. 428). Using a competitive process, the Council awarded a site certificate to the proposed facility that would have the least effect on the environment, including climate change. Oregon Office of Energy, EFSC Awards Need Exemption Based on Carbon Dioxide Mitigation Efforts (visited Mar. 28, 2000) http://www.energy.state.or.us/office/rel/rel14.htm. The effect of this process was to achieve essentially what the 1997 law required. 319. City of Klamath Falls, Oregon, and PacifiCorp, Klamath Cogeneration Project—Overview (visited Mar. 30, 2000) http://www.sobusi.com/cogen/overview.html. The plant's fuel efficiency will be about 62%, much higher than that of a coal-fired plant. Id. 320. Id.; Hal Bernton, Power Plant Tackles Global Warming, OREGONIAN, June 11, 1999. The Bernton article is available at http://oregonlive.com/news/99/06/st061112.html. 321. Oregon Office of Energy, Proposed Power Plant, supra note 307. 322. For a state-by-state summary, see Union of Concerned Scientists, State Minimum Renewable Energy Requirements (as of February 2000) (visited June 20, 2000) http://www.ucsusa.org/. Two similar approaches are conservation portfolio standards and emissions portfolio standards. For conservation portfolio standards, a state could require every retail energy provider to hold energy conservation credits equal to some percentage of its annual energy sales. Each credit would likely be denominated in terms of a specific number of kwhs of electricity saved or avoided. These credits would also be tradable, allowing energy conservation for the least cost. Emissions portfolio standards might be more difficult to implement, but would be based on the same structure. In re Southern Nev. Water Auth., No. 95-9022, 1996 WL 394357, at *15-*16 (Nev. Pub. Service Comm'n May 20, 1996) (explaining concepts). 323. See, e.g., In re Renewable Portfolio Standard, 201 P.U.R.4th 386 (Ariz. Corp. Comm'n 2000); NEV. REV. STAT. § 704.989(3) (1999). 324. For a more detailed explanation of how the standard can work, see American Wind Energy Ass'n, The Mechanics of a Renewables Portfolio Standard Applied at the State Level (1997) (visited Feb. 9, 2000) http://www.awea.org/policy/rpsmechste.html. 325. Nancy A. Rader & Richard B. Norgaard, Efficiency and Sustainability in Restructured Electricity Markets: The Renewables Portfolio Standard, ELECTRICITY J., July 1996, at 43-44. 326. Ryan Wiser et al., Emerging Markets for Renewable Energy: The Role of State Policies During Restructuring, ELECTRICITY J., Jan. 2000, at 13, 15. 327. ME. REV. STAT. ANN. tit. 35-A, § 3210 (West 1999) (requiring that competitive electricity suppliers obtain 30% of their energy from cogeneration or renewable energy). 328. Steven Clemmer, A Powerful Opportunity: Making Renewable Electricity the Standard, NUCLEUS, Spring 1999 http://www.ncusa.org/Nucleus/99sp.opportunity.html. 329. See, e.g., CONN. GEN. STAT. ANN. § 16-245a(a) (West 1999) (requiring electric suppliers to provide 6% of their output from renewable energy sources now, and 13% by July 1, 2009); MASS. ANN. LAWS ch. 25A, § 11F(a) (Law. Co-op. 2000) (requiring retail electric suppliers to increase by 1% the fraction of their sales from new renewable sources by December 31, 2003, to increase that fraction by 0.5% each year until December 31, 2009, and to increase that fraction by 1.0% annually thereafter, until a date determined by the division of energy resources); NEV. REV. STAT. § 704,989 (1999) (requiring that solar and renewable energy be 0.2% of the electricity consumed in the state by January 1, 2001, and increase biannually thereafter by 0.2% until it reaches a total of 1.0%); N.J. STAT. ANN. § 48:3-87(d) (West 1999) (requiring that 0.5% of each supplier's and provider's electricity be from renewable energy by January 1, 2001, and increase 2% to 4% by January 1, 2012). 330. In re Renewable Portfolio Standard, 201 P.U.R. 4th 386 (Ariz. Corp. Comm'n 2000). 331. STEVEN L. CLEMMER ET AL., UNION OF CONCERNED SCIENTISTS, A POWERFUL OPPORTUNITY: MAKING CLEAN ELECTRICITY THE STANDARD xii (1999). An executive summary is available at http://www.ucsusa.org/energy/an.POexec.html. 332. "If policy makers are interested in relying, to the maximum extent possible, on competitive markets to deliver electric services, but want to ensure that those markets deliver a cleaner, more diverse resource base, then portfolio standards may be the most promising mechanism for achieving policy goals." In re Southern Nev. Water Auth., No. 95-9022, 1996 WL 394357, at *19. The commission then added: "However, a combination of strategies may also be appropriate." Id. See also Rader & Norgaard, supra note 325, (arguing that a portfolio standard is more efficient than green marketing or a public goods charge in moving the market toward renewable energy). This mechanism can facilitate the development of a healthy renewable energy industry in the United States, which could then more effectively compete for a large export market. Id. at 44-45. 333. Rader & Norgaard, supra note 325, at 42-43. They can also limit greater use of older and more polluting power plants under electricity deregulation. Engel, supra note 268, at 287-88. 334. Rader & Norgaard, supra note 325, at 43-45. 335. Price is a function of cost and risk. While renewable energy may cost more in terms of kwhs per hour in the short term, it also involves less risk. Risk involves annual fluctuations in operating costs driven primarily by changes in fossil fuel prices. This type of risk does not exist for renewable energy. The other significant risk, equipment failure or breakdown, can be minimized by a diverse portfolio of renewable sources. Because of this greatly reduced risk, the price charged for renewable electricity in a long-term contract may be lower than that for fossil fuels. See Shimon Awerbuch, Getting It Right: The Real Cost Impacts of a Renewables Portfolio Standard, PUB. UTIL. FORTNIGHTLY, Feb. 15, 2000, at 44. 336. Rader & Norgaard, supra note 325, at 45. 337. TEX. UTIL. CODE ANN. § 39.904 (West 1999) (stating legislative intent to have 2,000 additional megawatts of generating capacity from renewable energy technologies installed by January 1, 2009, and requiring the utility commission to establish necessary rules to implement this goal). See also Wiser et al., supra note 326, at 18-19 (estimating that more than one-half of the new renewable energy resulting from all state renewable energy portfolio standards would come from Texas). 338. See, e.g., TEX. UTIL. CODE ANN. § 39,904(b). 339. MINN. STAT. ANN. §§ 216B.2423(1) & 216C.06(12) (1992 & West Supp. 1999-2000). Only one utility operates nuclear facilities in Minnesota—Northern States Power Company. 340. Id. § 216B.2424(5). Among other things, these biomass facilities must burn trees or grasses that are intentionally cultivated for fuel for electrical generation, and they must be located within 400 miles of the cultivation site. Id. § 216B.2424(1) & (5). 341. It is also possible to prohibit the construction of specific types of new facilities; Minnesota has prohibited new nuclear power plants. Id. § 216B.243(3b). 342. Id. § 216.2423(2). 343. In re Application of Northern States Power Co. for Approval of Its 1998 Resource Plan, 1999 Minn. PUC LEXIS 12 (Minn. Pub. Util. Comm'n 1999), amended, 1999 Minn. PUC LEXIS (1999). 344. Id. at 20-21. 345. Id. Order & 9, as amended, 1999 Minn. PUC LEXIS 140. 346. Id. 1999 Minn. PUC LEXIS 12 at 23. 347. Id. at 18-23. 348. Kate McQueen, Promoting Energy Efficiency Through Building Codes, 12 NAT. RESOURCES & ENV'T 122, 122 (1997). 349. REDUCING GREENHOUSE GASES, supra note13, at 163. 350. McQueen, supra note 348, at 124-25. 351. Id. at 182. 352. REDUCING GREENHOUSE GASES, supra note 13, at 182. In many of the most effective states, builders generally comply with energy efficiency provisions in building codes based on performance-based methods, not prescriptive methods. Id. 353. 42 U.S.C. §§ 6832(15) & 6833(a)(1). 354. Notice of Proposed Rulemaking, Energy Efficiency Code for New Federal Residential Buildings, 62 Fed. Reg. 24164, 24164-65 (May 2, 1997). The provisions of the 1992 Model Energy Code regulate the design of building envelopes for adequate thermal resietance and low air leakage, and the design and selection of mechanical, electrical, service water-heating, and illumination systems and equipment that will enable effective use of energy in new building construction. The Model Energy Code provides flexibility to permit the use of innovative approaches and techniques to achieve efficient utilization of energy. Id. 355. 42 U.S.C. § 6833(a)(2)-(4). 356. McQueen, supra note 348, at 123. 357. 42 U.S.C. § 6833(a)(5)(A). 358. Id. § 6833(a)(5)(B). 359. Building Energy Standards Program: Determination Regarding Energy Efficiency Improvements in the 1995 CABO Model Energy Code for Low-Risc Residential Buildings, 61 Fed. Reg. 64727 (Dec. 6, 1996). The 1995 code requires more wall and ceiling insulation in southern locations than the 1992 code, requires recessed-lighting fixtures to reduce heat loss, and makes other changes. Department of Housing and Urban Development, Assessment of the 1995 Model Energy Code for Adoption (visited Apr. 26, 2000) http://www.huduser.org/publications/destech/mec.html(summarizing assessment). 360. 42 U.S.C. §§ 6832(16) & 6833(b)(1). The standard provides minimum requirements for the energy-efficient design of new buildings except low-rise residential buildings, new portions of buildings, and new systems and equipment in existing buildings. It applies to the envelope of buildings (i.e., foundation, walls, roof, windows, doors) as well as heating, lighting, ventilation, air conditioning, and other systems and equipment. ASHRAE, ASHRAE Standard 62 Through 109 Purposes and Scopes (visited May 2, 2000) http://www.ashrae.org/STANDARDS/s62-s109.htm. 361. 42 U.S.C. § 6833(b)(2). 362. Building Code Assistance Project, ASHRAE Publishes Revised Standard 90.1-1999 (visited Apr. 26, 2000) http://solstice.crest.org/efficiency/bcap/ashrae 1999.html. 363. 42 U.S.C. § 6833(d)-(c). See also 10 C.F.R. pt. 420 (regulations governing grants to states). The Energy Information Administration also publishes electricity profiles of each state, including information about primary electricity sources, regulatory policies, and trends. Energy Information Admin., U.S. DOE, State Electricity Profiles (visited June 2, 2000) http://www.cia.doc.gov/cneaf/electricity/st_profiles/toc.html (index to individual state profiles). 364. U.S. DOE, BUILDING STANDARDS AND GUIDELINES PROGRAM, 1999 STATE GRANT SUMMARIES iv (1999). This report is available at http://www.energycodes.org/news/99grant.pdf. In 1998, DOE awarded a similar amount to 22 states and territories. U.S. DOE, BUILDING STANDARDS AND GULDELINES PROGRAM, 1998 STATE GRANT SUMMARIES V (1998). This report is available at http://www.energycodes.org/news/98grant3.pdf. 365. LAWRENCE BERKELY LABORATORY, UNIVERSITY OF CALIFORNIA, FROM THE LAB TO THE MARKETPLACE: MAKING AMERICA'S BUILDINGS MORE ENERGY EFFICIENT 17 (1995). 366. California Energy Comm'n, Title 24 Part 6 California's Energy Efficiency Standards for Residential and Nonresidential Buildings (visited June 5, 2000) http://www.energy.ca.gov/title24/index.html. The estimates include savings from standards for energy-efficient appliances not covered under federal law. Id. 367. REDUCING GREENHOUSE GASES, supra note 13, at 183. 368. Id. 369. See MINN. STAT. ANN. §§ 216C.19(8) & 216C.27(1) (West Supp 1999-2000). 370. McQueen, supra note 348, at 124. For a summary of individual state efforts, see Building Codes Assistance Project, Status of State Energy Codes (visited Apr. 26, 2000) http://solstice.crest.org/efficiency/bcap/update.html. The summary is updated bimonthly. 371. McQueen, supra note 348, at 124. 372. Id. See MICH. STAT. ANN. § 5.2949(4)(6) (LEXIS 1999) (which also repealed the energy efficiency code for commercial buildings). 373. Id. 374. REDUCING GREENHOUSE GASES, supra note 13, at 182-83. States also must provide manufacturers with significant lead times before these codes go into effect. Id. at 183. 375. McQueen, supra note 348, at 124. 376. 16 U.S.C. §§ 2621(a) & (d)(6)(A). Like the duty to consider residential building codes, this duty to "consider" is not trivial. The state's obligation to consider these techniques is backed by requirements to consider them after public notice and a hearing, and to make a determination in writing based on evidence produced at the hearing. Id. § 2621(b). Any person who participated in the state proceeding is authorized to seek judicial review of the state's determination in an appropriate state court. Id. § 2633(c)(1). In Federal Energy Regulatory Comm'n v. Mississippi, 456 U.S. 743, 761-72, 12 ELR 20896 (1982), the Supreme Court upheld these and related portions of the statute against a challenge that they compel the exercise of sovereign state power in violation of the Tenth Amendment. The states, the Court reasoned, can simply refuse to adopt the standard after considering it. Id. 377. 16 U.S.C. § 2602(8). 378. Id. 379. Id. §§ 2621(d)(6) & 2625(c). In addition, the load management techniques must be reliable and help utilities manage their energy and capacity. Id. §§ 2621(d)(6)(B) & (C). 380. ENERGY INFORMATION ADMIN., U.S. DOE, U.S. ELECTRIC UTILITY DEMAND-SIDE MANAGEMENT 1996 31 (1997) [hereinafter DEMAND-SIDE MANAGEMENT 1996]. 381. 16 U.S.C. §§ 2621(d)(8) & 2622(b). 382. Id. § 2621(d)(8). 383. Black & Pierce, supra note 204, at 1354. 384. In re Southern Nev. Water Auth., No. 95-9022, 1996 WL 394357, at *1 (Nev. Pub. Serv. Comm'n May 20, 1996). See, e.g., 66 PA. CONS. STAT. ANN. § 524 (West 2000); S.C. CODE ANN. §§ 58-37-10(2) & 58-37-40 (West Supp. 1999). 385. Black & Pierce, supra note 204, at 1354. 386. Id. at 1355. 387. See, e.g., 66 PA. CONS. STAT. §§ 523 & 1319 (1999); Pennsylvania Indus. Energy Coalition v. Pennsylvania Pub. Util. Comm'n. 653 A.2d 1336, 1350-52 (Pa. Commw. Ct. 1995), aff'd per curiam, 670 A.2d 1152 (Pa. 1996) (upholding Public Utility Commission orders requiring utility implementation of demand-side management programs containing financial incentives). See also S.C. CODE ANN. § 58-37-20 (if adopted, demand-side management programs "must be at least as financially attractive as construction of new generating facilities"). See also Black & Pierce, supra note 204, at 1355-56 & 1357-58 n.61 (stating that allowed rate of return on such investments typically exceeds rate of return on other investments, and providing numerous examples of state utility commission decisions). 388. Black & Pierce, supra note 204, at 1354. In 1996, most utilities with demand-side management programs spent between 0.1% and 1.0% of their sales revenue to retail customers on those programs. DEMAND-SIDE MANAGEMENT 1996, supra note 380, at 61. 389. STEVEN NADEL ET AL., AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY, STATE SCORECARD ON UTILITY ENEROY EFFICIENCY PROGRAMS 7 (2000). 390. Market Trends—Electricity, supra note 237. Projected annual increases in demand are 1.5% (residential), 1.2% (commercial), and 1.3% (industrial). Id. 391. NADEL ET AL., supra note 389, at 7. Five other states—Minnesota, Oregon, Rhode Island, Vermont, and Wisconsin—reported savings of at least 4% of sales. Id. 392. Id. at vii. 393. These programs also are open to another set of market-based criticisms. In essence, these critics argue that governmental efforts to create a market for energy conservation cost too much, generally produce little environmental or energy conservation benefit, and distort utility and customer behavior in unproductive ways. See, e.g., Black & Pierce, supra note 204. 394. In re Southern Nev. Water Auth., No. 95-9022, 1996 WL 394357, at *11 (Nev. Pub. Serv. Comm'n May 20, 1996). 395. Id.; NADEL ET AL., supra note 389, at 2. 396. In re Southern Nev. Water Auth., 1996 WL 394357, at *16. See also Engel, supra note 268, at 295-6. 397. See Frank Muller & J. Andrew Hoerner, Greening State Energy Taxes: Carbon Taxes for Revenue and the Environment, 12 PACE ENVTL. L. REV. 5 (1994) (advocating that states adopt carbon taxes in conjunction with other state tools to address climate change). See also Engel, supra note 268, at 305-07 (describing and explaining the difference between facility emission taxes and consumption taxes at the state level). 398. Energy Programs Consortium, National Energy Assistance Directors' Ass'n et al., The Role of System Benefit Charges in Supporting Public Benefit Programs in Electric Utility Restructuring (last updated Sept. 9, 1999) http://www.naseo.org/energy_sectors/power/system_benefit.htm. 399. See, e.g., CAL. PUB. UTIL. CODE § 381(a) (Deering 1999): CONN. GEN. STAT. ANN. § 16-2451(1)(a) (West 1999); MONT. CODE ANN. § 69-8-402(1) & (2)(a) (1999); N.J. STAT. ANN. § 48:3-60(a) (West 2000); N.M. STAT. ANN. §§ 62-3A-3(BB) & 62-3A-6(A)(10) (Michie 1999). See also N.H. REV. STAT. ANN. § 374-F:3(VI) (1999) (authorizing but not requiring non-bypassable system benefit charge). 400. STEVEN CLEMMER ET AL., UNION OF CONCERNED SCIENTISTS, CLEAN POWER SURGE: RANKING THE STATES 17 (2000) (available at http://www.ucsusa.org/ under "Publications" icon) [hereinafter CLEAN POWER SURGE]. 401. See, e.g., N.J. STAT. ANN. § 48:3-60(a)(3). 402. Memorandum to Interested Legislators from David L. Lovell, Senior Analyst, Wisconsin Legislative Council 5 (June 23, 1999) (on file with author). Much of the Lovell memorandum is based on Energy Programs Consortium, supra note 398. The only exception is Maine, which adopted a renewable energy portfolio standard. The state appears to have reduced public funding for renewable energy as a consequence. Id. Although much of this money is spent for renewable energy and energy conservation, public goods funds can also be allocated for other purposes. These include, for example, decommissioning costs for nuclear power plants. See, e.g., N.J. STAT. ANN. § 48:3-60(a)(2). 403. CALIFORNIA ENERGY COMM'N, THE ENERGY EFFICIENCY PUBLIC GOODS CHARGE REPORT: A PROPOSAL FOR A NEW MILLENNIUM 17 (1999). The report is available at http://www.energy.ca.gov/reports/1999-12_400-99-020.PDF. 404. Id. at app. A. 405. Lovell memorandum, supra note 402, at 3. Other annual funding levels are Connecticut ($ 109 million), Massachusetts ($ 200 million), Montana ($ 12.5 million), New York ($ 67.4 million), and Rhode Island ($ 17 million). Id. 406. Wiser et al., supra note 326, at 15-16 407. Id. 408. CAL. PUB. UTIL. CODE § 381(b) (Deering 1997). 409. THE ENERGY EFFICIENCY PUBLIC GOODS CHARGE REPORT, supra note 403, at 17. 410. See, e.g., LA. REV. STAT. ANN. §§ 3:4410-4412 (West 2000) (authorizing a portion of state funds received from timber severance tax to be used for forestry productivity program that includes grants and assistance to landowners); VA. CODE ANN. § 10.1-1173 (Michie 2000) (authorizing state forester to provide tree seedlings and other materials to landowners without charge, and authorizing payment to landowners of part of their costs for reforestation projects). On the other hand, some states require reforestation after logging. See, e.g., WASH. REV. CODE § 76.09.070 (2000). 411. R.A. Kluender et al., The Use of Forestry Incentives by Nonindustrial Forest Landowner Groups: Is it Time for a Reassessment of Where We Spend Our Tax Dollars?, 39 NAT. RESOURCES J. 799 (1999) (survey and analysis of nonindustrial private forest landowners in Arkansas shows that reforestation incentives—tax investment credits, early credits, early amortization of reforestation costs, and cost-share programs—produce no additional timber for sale). 412. MINN. STAT. ANN. § 88.82 (West 1999) (establishing Minnesota releaf program "to reduce atmospheric carbon dioxide levels and promote energy conservation"); Minnesota Department of Natural Resources, Minnesota ReLeaf: New Grant $$ Available to Help Your Trees (visited June 16, 2000) http://www.dnr.state.mn.us/forestry/releaf/. 413. OR. REV. STAT. § 757.266 (1997) (authorizing recovery to allow utility to gain experience in offsetting CO2 emissions). 414. Arkansas Reforestation Act of 1991,1991 Ark. Acts 375 & 384, reprinted immediately following ARK. CODE ANN. § 15-31-101 (Michie 1999) (identifying atmospheric CO2 removal as one of its purposes); Arkansas Forestry Comm'n, AFC Seedling Program (visited June 16, 2000) http://www.forestry.state.ar.us/seedling.html (stating intent to plant 10 million pine seedlings and 6 million hardwood seedlings in the 1999-2000 planting season). 415. 42 U.S.C. § 13385(b). 416. Energy Information Admin., U.S. DOE, Voluntary Reporting of Greenhouse Gases 1998: Executive Summary (visited May 28, 2000) http://www.eia.doc.gov/oiaf/1605/vrrpt/index.html. The annual reductions may be based on actions such as "fuel switching, forest management practices, tree planting, use of renewable energy, manufacture or use of vehicles with reduced greenhouse gas emissions, appliance efficiency, methane recovery, cogeneration, chlorofluorocarbon capture and replacement, and power plant heat rate improvement." 42 U.S.C. § 13385(b)(1)(B). 417. Energy Information Admin., U.S. DOE, Voluntary Reporting of Greenhouse Gases 1998: An Overview (visited May 28, 2000) http://www.eia.doe.gov/oiaf/1605/vrrpt/chapter1.html. 418. Energy Information Admin., U.S. DOE, Recording Transfers and Retirement of Greenhouse Gas Reductions in the Voluntary Reporting Program (visited Jan. 5, 2000) http://www.eia.doc.gov/oiaf/1605/trade.html. 419. N.H. REV. STAT. ANN. §§ 125-L:1 to L:3 (Bender 1999). 420. 42 U.S.C. §§ 7503(a)(1)(A) & 7503(c), ELR STAT. CAA § 173(a)(1)(A) & 173(c). 421. One of the most sophisticated and well-known programs is the Regional Clean Air Incentives Market (RECLAIM) program operated by the South Coast Air Quality Management District in the Los Angeles basin. See Hoong N. Young. An Analysis of a Global CO2 Emissions Trading Program, 14 J. LAND USE & ENVTL. L. 125, 133-35, 139-41 (1998) (describing that program). 422. Aide Memoire, New Jersey Department of Environmental Protection and Netherlands Ministry of Housing, Spatial Planning and the Environment (Dec. 7, 1999) (on file with author). 423. Id. 424. Letter of Intent Between The Ministry of Housing, Spatial Planning and the Environment, the Netherlands, and The Department of Environmental Protection, the State of New Jersey (June 5, 1998) (on file with author). 425. Land Use, Land Use Change, and Forestry, supra note 73, at 18. 426. Id. 427. Id. at 4. The effect of carbon sequestration forestry projects also can be reversed in a variety of ways, including disease, fire, premature cutting, and even climate change. Id. at 9. 428. Id. at 11. 429. See supra notes 306-22 and accompanying text. 430. Energy Information Admin., U.S. DOE, Voluntary Reporting of Greenhouse Gases 1998: Agriculture and Forestry, tbl. 11 (visited June 19, 2000) http://www.eia.doc.gov/oiaf/1605/vrrpt/table_11.html. 431. MONTANA CARBON OFFSET COALITION, MONTANA CARBON OFFSET COALITION PROGRAM SUMMARY 3-5 (Jan. 15, 1999) (on file with author). 432. R. LAL ET AL., THE POTENTIAL OF U.S. CROPLAND TO SEQUESTER CARBON AND MITIGATE THE GREENHOUSE EFFECT 83 (1998) (U.S. cropland has the potential to annually sequester carbon in an amount equal to 8.5% of annual CO2 emissions); L.E. Drinkwater et al., Legume-Based Cropping Systems Have Reduced Carbon and Nitrogen Losses, 396 NATURE 282 (1998) (describing specific practices that, if applied in the major maize/soybean growing region in the United States, would increase soil carbon sequestration by an amount equal to 1% to 2% of U.S. CO2 emissions). 433. REDUCING GREENHOUSE GAS EMISSIONS, supra note 13, at 239. 434. Id. at 240. 435. Id. at 240-42. 436. See generally K. Jack Haugrud, Agriculture, in ENVIRONMENTAL LAW FROM RESOURCES TO RECOVERY (Celia Campbell-Mohn et al. eds., 1993 and 1997 Supp.). 437. In the first 10 years of a new forest's life, agricultural practices that sequester carbon in soil will remove more atmospheric carbon than the forest. For the next 70 years, the forest will sequester more carbon than the soil. After 80 years, as the amount of carbon sequestration by trees declines, agricultural practices remove more CO2 than the forest. Interview by Matthew Williams with Gerald F. Talbert, consultant for National Ass'n of Conservation Districts, in Relsy, Md. (Feb. 10, 2000). 438. See, e.g., Gregg Hillyer, Cash for Carbon, PROGRESSIVE FARMER, Oct. 1999, at 25. 439. Talbert interview, supra note 437. 440. J. Andrew Hoerner, Harnessing the Tax Code for Environmental Protection: A Survey of State Initiatives, 14 STATE TAX NOTES 1197 (1998). 441. Id. at 1220-21. 442. Tax deductions, lower tax rates, and property tax exemptions are among the other tax tools that states can use to reduce net greenhouse gas emissions. Although tax credits are discussed here, these other tools may also be effective. For examples relating to carbon sequestration, see MD. NAT. RES. CODE ANN. § 5-219 (1999) (authorizing income tax reduction for landowners participating in reforestation program); MINN. STAT. ANN. §§ 270.33(14) & 270.36(2)(1) (West 1999) (taxing land being reforested at same rate as land that cannot be used for growing commercial timber because of rock outcrops, marshes, and similar natural features); N.Y. REAL PROP. TAX LAW § 480 (McKinney 1999) (authorizing property tax exemption for certain private forested land). See generally Thomas Lundmark, Methods of Forest Law-Making, 22 B.C. ENVTL. AFF. L. REV. 783, 797-802 (1995) (describing tax incentives for forestry on private lands). 443. ROBERT S. SMITH, WEST'S TAX LAW DICTIONARY 195 (1999). 444. Tax credits also are easier to use than deductions because taxpayers ordinarily can use deductions only if they itemize their expenses. Peter A. Friedmann & David G. Mayer, Energy Tax Credits in the Energy Tax Act of 1978 and the Crude Oil Windfall Profits Tax Act of 1980, 17 HARV. J. ON LEGIS, 465, 469 (1980). But tax credits (and deductions) tend to favor upper and middle income taxpayers because lower income taxpayers tend to lack the income necessary to pay for qualifying improvements and the income necessary to take full advantage of the credits. Id. Another alternative to tax credits is direct governmental payments to qualifying persons. See, e.g., 42 U.S.C. § 13317 (authorizing DOE to pay 1.5 cents/kWh of electricity generated to the owner or operator of certain renewable energy-generation facilities during the 10-year period after the facilities are put in service). For a comparative assessment of tax credits and direct governmental payments in the context of President Clinton's Climate Change Technology Initiative, see Dylan Golden, The Polities of Carbon Dioxide Emissions Reduction: The Role of Pluralism in Shaping the Climate Change Technology Initiative, 17 UCLA J. ENVTL. L & POL'Y 171 (1998-1999). 445. Frank Muller, Tax Credits and the Development of Renewable Energy in California, in GREEN BUDGET REFORM: AN INTERNATIONAL CASEBOOK OF LEADING PRACTICES 30, 43 (Robert Gale et al. eds., 1995). 446. Id. 447. Id. at 52. 448. Starrs, supra note 217, § 11.2(B)(1)(c); see also Friedmann & Mayer, supra note 444 (summarizing and explaining 1978 and 1980 legislation). 449. See I.R.C. §§ 38(b)(1), 46, & 48(a). 450. In the late 1970s, at least 25 states provided tax credits, tax deductions, or property tax exemptions for solar energy equipment. John Minan & William Lawrence, State Tax Incentives to Promote the Use of Solar Energy, 56 TEX. L. REV. 835 (1978). Many states allowed their tax credits to expire in the 1980s, but state interest is increasing again. Starrs, supra note 217, § 11.2(B)(2)(c)(iii). 451. N.Y. TAX LAW § 606(g-1) (LEXIS Supp. 2000). See also HAW. REV. STAT. § 235-12(b) (1998) (tax credits to offset part of cost of solar and wind energy systems as well as heat pumps and ice storage systems); MASS. GEN. LAWS ANN. ch. 62, § 6(d) (West 2000) (tax credit to offset part of cost of solar, wind, or other renewable energy costs). 452. See, e.g., CONN. GEN. STAT. § 12-635 (West 1999). See also OKLA. STAT. tit. 63, §§ 2357.6 & 2901 (1999) (authorizing tax credit of 50% of amount contributed to Energy Conservation Assistance Fund, which is used to assist low-income homeowners with energy conservation). See also OR. REV. STAT. § 469.207 (1997) (authorizing tax credit up to $ 5,000 of actual installed costs of energy conservation measures in certain rental housing units). 453. N.Y. TAX LAW § 606(p)(2). 454. OR. REV. STAT. § 315.104. 455. E.g., id. §§ 469.185-225. 456. Id. § 469.215 457. Hoerner, supra note 440, at 1212 (describing survey by Oregon State University). 458. Muller, supra note 445, at 41 (summarizing history of California tax credits for renewable energy). 459. Id. at 47. 460. Id. at 47-48. Electricity generation from wind rose from 52 million kwhs in 1983 to 2,707 million kwhs in 1992, or 1.1% of the state's electricity. Id. at 47. See also Peter Gray & Erica Rosenberg, Turning on Wind Power, ENVTL. F., Sept./Oct. 1991, at 16, 21 ("The California experience has established wind as a reliable and low-cost form of energy."). 461. Energy Information Admin., U.S. DOE, State Electricity Profiles: California (visited July 11, 2000) http://www.eia.doe.gov/cneaf/electricity/st_profiles/california.pdf. In the same period, hydro-electric generation grew by an average of 8.4% annually. Id. 462. ENERGY INFORMATION ADMIN., U.S. DOE, RENEWABLE ENERGY ANNUAL 1998 WITH DATA FOR 1997 (1998) http://www.eia.doe.gov/cneaf/solar.renewables/rea_data/html/front-l.html#chapter1a. 463. J. ANDREW HOERNER & AVERY P. GILBERT, ASSESSING TAX INCENTIVES FOR CLEAN ENERGY TECHNOLOGIES: A SURVEY OF EXPERTS APPROACH 3 (rev. 2000); Starrs, supra note 217, § 11.8. 464. Richard A. Westin, Understanding Environmental Taxes, 46 TAX LAW. 327, 346-47 (1993) (explaining that 12 GAO studies indicate tax credits must be relatively high to be effective). 465. HOERNER & GILBERT, supra note 463, at 1. 466. Westin, supra note 464, at 346-47 (federal tax credit tohomeowners of 40% of the purchase price of renewable energy devices for heating and cooling water had significant effect on consumer behavior; elimination of that credit sharply reduced demand for solar hot water devices). 467. Muller, supra note 445, at 52. 468. Id. at 38, 52. 469. CLEAN POWER SURGE, supra note 400, at 6. 470. CLEAN POWER SURGE, supra note 400. 471. Wiser et al., supra note 326, at 21. 472. Id. 473. Wan & Green, supra note 272, at 3 (explaining that rural customers are "less constrained by issues such as zoning, noise, lack of space, visual impact, and safety"). 474. The poor, on the other hand, likely have insufficient income to make use of tax credits. 475. BENNTHAM PAULOS ET AL., UNION OF CONCERNED SCIENTISTS, POWERFUL SOLUTIONS FOR ILLINOIS: SEVEN WAYS TO SWITCH TO RENEWABLE ENERGY 4 (explaining that "renewable energy investments produce over three times more jobs, income and economic activity than the same amount of electricity generated from coal and natural gas power plants"). The document is available by accessing the Illinois link at www.ucusa.org/energy/an.PSexec.html. 476. See Stephen J. DeCanio, The Efficiency Paradox: Bureaucratic and Organizational Barriers to Profitable Energy-Saving Investments, 26 ENERGY POL'Y 441, 453 (1998) (data from EPA's Green Lights energy efficiency program "reinforce the view that there is a large potential for profitable energy-saving investments that is not being realized because of [non-economic] impediments that are internal to private and public-sector organizations"). 477. REPETTO & AUSTIN, supra note 9, at 18. 478. WEYANT, supra note 9, at 44-45. 479. Id. at 45. 480. See, e.g., WEYANT, supra note 9, at 13. 481. To use just one more, assume that State C has a net metering statute when a national carbon tax goes into effect, and State D has no such statute. All other things being equal, State C is likely to see greater reductions in greenhouse gas emissions than State D. Electricity customers in State C will be more likely to install renewable energy technologies in their homes or firms than customers in State D because State C customers can recoup their costs through sale of extra electricity. The carbon tax will prompt customers in both states to seek alternatives, but customers in State C will be more responsive because they will receive a greater economic benefit. 482. See, e.g., John C. Dernbach, Pennsylvania's Implementation of the Surface Mining Control and Reclamation Act: An Assessment of How "Cooperative Federalism" Can Make State Regulatory Programs More Effective, 19 U. MICH. J. L. REF. 903 (1986) (explaining major changes required in Pennsylvania law by federal legislation that was ostensibly based on Pennsylvania's program). 483. Rick Valliere, Air Pollution: OTC Targets Six Ozone Sources for Action, Endorses EPA Diesel Engine, Fuel Proposal, Nat'l Env't Daily (BNA), June 2, 2000 (describing proposed interstate cooperative agreement on greenhouse gas emissions by New Jersey Environmental Protection Commissioner Robert C. Shinn). 484. 49 U.S.C. § 32902. See also Robert Bamberger, Congressional Research Service, Automobile and Light Truck Fuel Economy: Is CAFE Up to Standards?, (visited Jan. 5, 2000) http://www.cnie.org/nle/air-10.html (explaining history of CAFE standards and policy options for further improving fuel economy). 485. Pub. L. No. 100-12, 101 Stat. 103, codified at 42 U.S.C. §§ 6291-97, 6299, 6302, 6303, 6305, 6306, 6308, & 6309. The Act was amended in 1988. Pub. L. No. 100-357, 102 Stat. 671. For a supportive assessment of these standards, see David B. Goldstein, Appliance Efficiency Standards: A Success Story of Economically Beneficial Environmental Protection, July 25, 1996 (visited Jan. 5, 2000) http://www.nrdc.org.nrdcpro/testim/dg072696.html. 486. Jonathan G. Koomey et al., Projected Regional Impacts of Appliance Efficiency Standards for the U.S. Residential Sector (Feb. 1998) (visited Jan. 5, 2000) http://enduse.lbl.gov/Info/39511-abstract.html. 487. U.S. COUNCIL ON ENVIRONMENTAL QUALITY, supra note 64, at 169. 488. David M. Driesen, Free Lunch or Cheap Fix?: The Emissions Trading Idea and the Climate Change Convention, 26 B.C. ENVTL. AFF. L. REV. 1, 35-55 (1998). 489. Id. at 68-70. 490. Designs for Domestic Carbon Emissions Trading (visited Feb. 11, 2000) http://www.heinzctr.org/Programs/gcexec.html. 491. Id. 492. Like Option II, Option III limits the carbon entering the economy. In addition to allocating emission permits to producers (like Option II), Option III also allocates emission permits to companies operating large coal-fired power plants and certain other fossil fuel consumers. Option IV expands the Option I emissions cap, which applies to large fossil fuel combusters, to auto manufacturers. Id. 493. STARRS & WENGER, supra note 274, at 9-11. 494. See Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 15 ELR 20781 (D.C. Cir. 1985) (invalidating DOE decision refusing to adopt new appliance energy efficiency standards). 495. Wiser et al., supra note 326, at 20. 496. Id.; see supra note 128. 497. S. 1369, 106th Cong. (1999). 498. See Engel, supra note 268; Margaret Tortorella, Will the Commerce Clause "Pull the Plug" on Minnesota's Quantification of the Environmental Externalities of Electricity Production, 79 MINN. L. REV. 1547 (1995). 499. See, e.g., Philadelphia v. New Jersey, 437 U.S. 617, 8 ELR 20540 (1978). 500. This issue is explored in detail in Engel, supra note 268. 501. Id. at 250. 30 ELR 10933 | Environmental Law Reporter | copyright © 2000 | All rights reserved |