TODAY’S STUDY: VERMONT’S 100 PERCENT NEW ENERGY FUTURE

Policy Options for Achieving Vermont’s Renewable Energy and Carbon Targets

Introduction

The purpose of this report is to provide an overview of the most promising technologies and policies available to Vermont as it crafts a plan for achieving the state goals referred to in Act 170 of 2012: 90 percent of the energy consumed across all sectors of the economy in the state will be renewable energy by 2050, and the state will reduce its greenhouse gas emissions by 75 percent from 1990 levels by 2050. The report is intended for use by the Department of Public Service to facilitate a stakeholder process in which discussions will be held about these goals and the means to reach them.

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a. Vermont’s Goals

The global scale of the climate change challenge, together with health, environmental, and other concerns associated with heavy dependence on fossil fuels, requires significant actions to resolve. Accordingly, Vermont established in the 2011 Comprehensive Energy Plan the goal of sourcing 90 percent of its energy from renewable resources by 2050 as a way to meet the statutory goal, established in Act 168 of 2006, of achieving a 50 percent reduction in carbon levels from a 1990 baseline by 2028 and a 75 percent reduction by 2050. Vermont’s goals appear to be consistent with the scale of the global challenge. Vermont now needs to complement its statutory ambition with equally strong, effective policies to achieve these goals. To respond adequately, the policy interventions will need to be early, significant, and sufficient to ensure that the course corrections Vermont makes are consistent with the scale and scope of the challenges ahead.

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Vermont’s statutory initiative comes at a critical time, as the climate challenge is well established. In 2007, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) concluded, “[w]arming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level.” These changes over the past 50 years are very likely due to anthropogenic greenhouse gas increases and are likely have had a discernible influence at the global scale on many physical and biological systems. The IPCC conclusions have been reinforced by widespread consensus among the scientific community:

(i) 97–98 percent of the climate researchers most actively publishing in the field support the tenets of ACC [anthropogenic climate change] outlined by the Intergovernmental Panel on Climate Change, and (ii) the relative climate expertise and scientific prominence of the researchers unconvinced of ACC are substantially below that of the convinced researchers.

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However, despite the apparent international scientific consensus on the challenge, current baseline projections by the United States Department of Energy (DOE) and the United States Energy Information Administration (EIA), as shown in Figure 1, continue to put the United States on a path of continued reliance on carbon-emitting fuels exceeding climate targets through the foreseeable future.

A number of factors will make this dramatic change even more challenging. For example, the slow turnover of the building and transportation vehicle fleet and the cumulative and persistent nature of carbon in the atmosphere underscore the need for decisive action now. Most transportation emissions come from passenger vehicles, with transportation accounting for approximately 28 percent of greenhouse gases nationally and about 47 percent for Vermont. The average life of a car on the road today is 10.8 years. According to the most recent inventory, fuel use in buildings accounts for about one third of greenhouse gas emissions in Vermont, and the average life of the building stock is quite significant. While it is clear that these sectors require significant changes because of the scale of their impact on the environment, it is equally clear that the required transformation of such long lived and expensive items will be a challenge to achieve. To meet the state’s energy and climate goals, the existing building stock will probably require new heating technologies and energy sources, and Vermont may need a significant electrification of the light duty vehicle fleet, coupled with a virtually complete shift from fossil fuel to biofuels for the remaining light vehicles using internal combustion engines (ICE). Biofuels or natural gas may become viable fuel options in the future for ICE-powered heavy duty vehicles.

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The magnitude of the problem gives an indication of the scale and timing of the needed changes. It is important to recognize that the nature of Vermont’s contribution to climate change is cumulative. Carbon dioxide molecules persist in the atmosphere for 50 to 200 years.

Thus, significant, concerted change is required earlier rather than later. Earlier changes are much more impactful than later changes because they prevent further cumulative damage to the environment. Significant steps early also help to reduce the impacts from the lock-in of highly polluting and inefficient capital items that later must be scrapped or retrofitted to maintain a path of achieving the 2050 objectives. Additionally, regional, widespread change is preferred over individual or local change because of the greater scale of impact that can be derived from regional efforts.

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Once the scale and urgency of the challenge is understood, the type of policy nterventions that make sense to pursue come into greater focus. Not all of the policy pathways to cleaner energy are equally grounded in the public interest. The costs and cost-effectiveness of these strategies will vary. Some of the pathways simply do not address the scale of the challenge, no matter how favorable the economic case. Other strategies leave Vermont more exposed to different types and magnitudes of financial risk. Some pathways are not well suited to pursuing at a municipal or state level due to scale diseconomies. In such instances, Vermont may need to play either the cooperating partner or advocate in the move to affect needed change at the regional, national, or even international level. Further, change cannot happen overnight. Government is advised to resist quick improvement schedules that meet public approval but may not allow the economy to adjust in an orderly way.

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While the challenge is significant, there are some positive notes to sound. The cost of clean energy technologies is decreasing. The electrification of passenger vehicles (the primary source of carbon in transportation) appears both a viable option and, perhaps, an increasingly inevitable pathway accepted by most analysts and pursued by the industry. Further, electric vehicles may prove to be less costly to operate than the current stock of internal-combustion vehicles. Investment in energy efficiency, an essential ingredient in the policy mix, grew dramatically over the last five years. In 2010 alone, Americans spent between $479 and $670 billion on energy efficiency goods and services.10 Targets for energy efficiency investments are also growing rapidly globally. Electricity load growth stabilized in many regions of the U.S., including in Vermont, which has experienced negative load growth in recent years. There is also a growing appreciation that clean energy solutions are not just the right thing from the environmental standpoint, but also make sense from the standpoint of economic development and national security.11 Furthermore, many states have taken up the environmental challenge and are moving forward at an impressive pace. 30 states established targets for renewable energy, and California and other states established carbon targets and participate in cap-and-trade programs. Electricity sector planning initiatives for high levels of renewables are taking place across the nation. All of these activities should give Vermont confidence that the climate challenge can be and is being met.

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b. Impediments to Change

Before considering what policy options to employ in meeting Vermont’s goals, one must first recognize that certain factors contribute to our continued dependence on carbon-emitting fossil fuels. Chief among them are:

• Public understanding: Even while the vast majority of the worldwide scientific community reinforces the conclusion that climate change is a manmade phenomenon largely driven by the use of fossil fuel, there are persistent voices in the United States casting doubt on that claim. In a democratic society like the United States, improving public understanding through quality sources of information and education will be a required step in any effort to take the right path on climate change.

• Market, regulatory, and behavioral failures: A host of market, regulatory, and behavioral failures are associated with the failure of markets to internalize certain “external” costs associated with the extraction, production, generation, and sale of the energy commodity. This dynamic masks the true cost of fossil fuels to our society and globe. These costs are ultimately borne separately by the public in the cost of health care, environmental quality, and national defense, to name only a few.

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• Voter paradox: As members of the global community, we are, in effect, faced with a dilemma analogous to that of the citizen voter or community volunteer. A rational voter acting only in her immediate self-interest might conclude that her vote is unlikely to produce benefits that will make the effort to self-educate and exercise the participation worthwhile. But, in the aggregate, such decisions (or abdications of responsibility) can lead to a general breakdown of the community. In a similar vein, the global community requires effective contributions from each member nation to overcome the shared threat of which they are all, in varying degrees, the cause. But this circumstance also creates a welcome and ironic opportunity. Early in the fight against global warming, the actions of a single nation or of even a single state, already beneficial to itself, can have wider and altogether disproportionate effects. This is the threat of a good example, and one need look no further than Vermont’s leadership role in the development of the Regional Greenhouse Gas Initiative (RGGI) to see ample proof of its power.

• Regulatory oversight: The gas and electricity sectors have long existed as regulated natural monopolies. Sometimes regulators fail to create the frameworks necessary to encourage market participants to perform in ways consistent with the broader public interest. They may, for example, fail to adopt rate designs, planning frameworks, critical standards, or regulatory incentives that fairly align the public interest with consumer interests when making purchases or operator interests when planning for future system needs. This dynamic leads to over-investment in fossil fuel generation.

• Entrenched interests: The nature of any system is that the pre-existing economic interests also have a strong interest in resisting change that may adversely affect the status quo.

Once one recognizes these failures, policy options can be considered with these failures in mind. Well-conceived policy interventions and effective leadership, supported by a strong public commitment, are essential to ensuring markets are properly incented to overcome the failures noted above and deliver outcomes in line with the larger public good…

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Summary and Conclusion

Vermont has visionary renewable energy and climate goals. Significant effort is needed to design and implement the policies to reach them. The 19 policies featured in this report have the potential to be substantive, practical, and cost-effective means toward Vermont’s goals. They warrant considered discussion and feedback from stakeholder groups. Importantly, the featured policies are both specific and actionable. Some represent policies the state is already implementing and should continue or expand, while others represent new or different approaches. Combined with the supplemental list of policies, the state has a multitude of options as it considers how best to meet its climate and renewable energy goals.

One of Vermont’s greatest challenges, its size, also serves to its advantage. With its small area and population, Vermont has the advantage of local engagement, organization, and enthusiasm around energy and environmental concerns. Vermont is also fairly limited in it resource commitments: it relies heavily on outside contracts for power and relatively expensive outside sources of liquid fossil fuels for heating. With its reasonably close proximity to clean resources outside the state, the resource and technology pathways forward look even more promising for the development of distributed resources and those that can be developed locally. As a result, Vermont can be somewhat nimble in its approach to the resource and policy path forward and can act relatively quickly.

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Vermont historically has relied on clean energy resources in the power sector, and the Comprehensive Energy Plan and statutes set clean energy targets across all sectors. Vermont can now translate these goals into actionable policies that put us on a path toward their achievement. In doing so, Vermont can play its part in providing solutions and can also provide some measure of leadership. Vermonters have already demonstrated their support for renewable energy and their desire to mitigate climate change. In such an atmosphere, Vermont can demonstrate to the rest of the country the level of effort and commitment it will take to turn the tide of climate change.

The featured policies are intended to inform, guide, and focus a series of stakeholder meetings occurring over the coming months. These meetings are part of a process to refine a list of resources and policy pathways the state should pursue to meet its goals. The process will also quantify, to the extent possible, the impacts that can be expected from their implementation.

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Vermont has an opportunity to combine the enthusiasm and resourcefulness of its communities with the guidance and expertise of its policymakers and energy regulators to establish a plan of action appropriate to tackle the pressing climate and energy issues of the day. The policies outlined here, refined and edited by the process envisioned can create that action pathway.

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