EPA’s New and (Mostly) Improved Clean Energy Incentive Program

Posted by Caitlin Marquis on Jul 18, 2016 6:24:17 PM


On June 30, the proposed Clean Energy Incentive Program (CEIP)—an early action program under EPA’s Clean Power Plan—was published in the Federal Register, initiating a 60-day comment period. It’s enough to give us a case of déjà vu, as EPA has already taken comment on CEIP twice before. The program was first introduced last August alongside the final CPP and proposed Federal Plan rulemaking. EPA asked for comments on the entire Federal Plan rule, including CEIP, by January 21, 2016. Then, on October 21, 2015, the Agency issued a separate “Clean Energy Incentive Program Next Steps” document that asked stakeholders for input on specific elements of the CEIP by December 15, 2015, and opened a non-regulatory docket to receive responses to these questions. On the basis of that input, EPA developed the latest proposed CEIP rulemaking. That’s a lot of bureaucratic process. What’s important, however, is that, over the course of all this, the CEIP has evolved. For now, we’ll hold our opinions on what does and doesn’t work in the revised proposal, but you can read on for an overview of what the proposal actually says.

Both the original proposal and the latest rulemaking follow the same basic structure: The CEIP is a voluntary program that states can elect to participate in and earn rewards for early action toward compliance with the CPP. Eligible projects and programs earn credits (either emission rate credits, ERCs, under a rate-based plan; or allowances, under a mass-based plan) for electricity generated or saved during the two years prior to the start of the compliance period. Half of the credits for each project come from a participating state, with EPA providing a limited pool of “matching” credits for free. It’s a win-win-win for states, utilities, and eligible projects.

While the overall goals and basic structure of the CEIP remain in place, many key elements have been changed or clarified. One big difference is the project categories. In the original CEIP, projects were split into two categories: renewable energy projects (restricted to wind and solar), and low-income energy efficiency, with the later receiving double credit. In the revised proposal, the renewable energy category has been expanded beyond wind and solar to include geothermal and hydropower, while the low-income category has been expanded beyond energy efficiency to also include solar energy projects that provide direct benefits to low-income community ratepayers. All projects in the low-income category receive double credit.

A second key change is the timeline for project eligibility. Originally, projects in a given state were eligible to participate in the CEIP only if they commenced construction (in the case of renewable energy) or commenced operation (in the case of energy efficiency) after state plan submittal, or September 6, 2018, whichever came first. In the revised proposal, EPA decoupled project eligibility from plan submittal, and clarified the definitions for project initiation. As currently proposed, renewable energy projects (including solar projects in low-income communities) are eligible for the CEIP if they commence commercial operation on or after January 1, 2020, while low-income energy efficiency projects or programs are eligible if they commence operation on or after September 6, 2018. All projects earn credits for electricity generated or saved during 2020 and 2021, with the earlier eligibility date for energy efficiency intended to allow these projects or programs to ramp up prior to 2020. EPA makes clear that both the crediting dates and the eligibility dates are subject to change if the CPP deadlines are delayed by the court. But at least now the timeline for eligible project development is not dependent on state plan submission.

Third, EPA proposed some clarifications to the division of matching credits between the two project categories. As in the original CEIP proposal, EPA would provide matching credits equal to 300 million short tons, and would split this pool of matching credits evenly between the two project categories. EPA has proposed not to allow re-designation between the two pools if one gets used more quickly than the other, and requests input on some alternatives, such as giving 40% of the credits to both categories and leaving the remaining 20% at the discretion of participating states.

Fourth, EPA has proposed some changes to the apportionment of matching credits to participating states. As before, credits would be distributed to states pro-rata, based on states’ required reductions under a mass-based plan. In the revised proposal, EPA has decided to retire any credits allocated to states that do not participate, rather than re-apportioning them—a change that would shrink the size of the program should a number of states decide not to participate. While these EPA matching credits are “free,” states must account for any state CEIP credits given out during the program. Under mass-based plans, as initially proposed, states can simply create a set-aside equal to the pool of state credits distributed under the CEIP. Under rate-based plans, EPA has proposed, as a presumptively approvable method, that states could  discount the output from all ERC-generating resources during the first interim step period to make up for the number of ERCs issued by the state under the CEIP.

Fifth, EPA has provided additional clarity on eligibility. The most notable clarification is the definition of “low-income” for the purpose of determining whether a given energy efficiency or solar project or program is eligible under the low-income category, which receives double credit. EPA has decided to allow states to make use of multiple existing definitions (established prior to October 23, 2015), including federal, state, and local definitions, ranging from federal poverty level guidelines to local municipal utility program definitions. This would also allow states to use geography-based definitions of low-income community (such as HUD’s Qualified Census Tracts), such that facilities and institutions located within those geographic areas would be able to benefit from CEIP projects, not just residents.

EPA has also clarified the meaning of “benefit a state,” a critical element for projects whose impacts straddle state lines. Eligible projects must either be located in or benefit a participating state—but in the original CEIP description, the term “benefit” was undefined. In the revised CEIP, EPA proposes that to benefit a state a project must generate or save electricity “with the intention to meet or reduce electricity demand in the participating state.” Finally, EPA has explained that eligible “projects” include programs that result in deployment of eligible technologies, and that applications can represent multiple projects.

Overall, the new CEIP proposal is an improvement over the original. But it’s certainly not perfect, and the CEIP is not set in stone just yet. EPA is requesting comments on all of these changes, and is also seeking input on items not yet included in the proposal, such as whether renewable energy projects eligible for either the production tax credit (PTC) or the investment tax credit (ITC) should be excluded from participation in the CEIP. AEE will be weighing in on the major changes—and some finer details that we’ve not gone into here—prior to the August 29 deadline.

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Topics: EPA GHG Regs