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What's a Clean Energy Standard? Democrats try carrots and sticks on climate change

Lacking the Republican support needed, Democrats are trying to make changes to climate policy in their $3.5 trillion spending bill.

WASHINGTON — The Democrats’ plan to rapidly shift the U.S. toward climate-friendly sources of electricity centers on a carrot-and-stick approach of paying utilities that ramp up their use of clean energy, while levying fines to punish those who don’t.

Unable to get major climate provisions into the smaller infrastructure deal struck with Republicans, President Joe Biden and Senate Democrats loaded up their separate, Democrats-only package with far-reaching provisions aimed at meeting the goal of 80 percent clean electricity by 2030 and 100 percent by 2035.

Among them is a potential tariff on carbon-intensive foreign goods imported from countries that aren’t taking sufficient steps to cut their own emissions, a bid to ensure U.S. companies aren’t disadvantaged.

The meat of the plan is the “Clean Electricity Standard,” which would force power companies to increase how much power they derive from climate-friendly sources like wind, solar and hydropower. The hope is that the more power generated from those sources, the less from greenhouse gas-emitting sources like coal and natural gas, until eventually the power sector becomes emissions-free.

A line of wind turbines catch the breeze at sunrise in the western Maine mountains on July 26, 2017, in Weld, Maine.
A line of wind turbines catch the breeze at sunrise in the western Maine mountains on July 26, 2017, in Weld, Maine.Robert F. Bukaty / AP

But Democrats' attempt to change the rules around energy without any Republican support could face procedural hurdles in the Senate. The arcane rules being used to circumvent a filibuster prohibit changing any part of law that’s not strictly taxes and spending.

A federal mandate that power companies use a particular energy source may not meet that definition. But climate advocates and Democrats who support a clean energy standard have long argued there are plenty of ways to do it without running afoul of the “only money stuff” rules.

“This clean electricity standard is about investing in clean energy. It is a budget-based plan. And so it clearly fits within a budget bill,” Sen. Tina Smith, D-Minn., said Wednesday in describing the plan. Ultimately, it will be up to the Senate’s parliamentarian to make that call.

If utilities meet their goal or come close, the federal government will pay them a “direct incentive payment” — effectively a subsidy for increasing their renewable generation.

If they fall short, they’ll be hit with a penalty. Those fees would then be turned around and invested by the federal government in clean energy technologies.

“You build clean stuff at the pace and scale that’s necessary, you get money. You don't build clean stuff at the pace and scale that’s necessary, you have a fee,” said Leah Stokes, who teaches political science at University of California, Santa Barbara. “Money and fees, that's the budget. That's how it works.”

Under the plan, every utility would be given a target for what percentage of their electricity they must generate from renewable sources by a certain date, relative to how much they generate now. That way, Smith said, parts of the U.S. that aren’t as far along yet won’t be penalized.

Smith described that case-by-case starting point as ensuring “regional flexibility” — an approach that seems designed to appeal to Democrats, like West Virginia's Joe Manchin, who represent fossil fuel-producing states. Democrats need every one of their senators to vote yes for the bill to pass without Republicans, and Manchin said this week that some of the language “concerned” him.

“I'm talking about anybody moving in a direction where they think they can walk away and just not have any fossil in play,” Manchin said. “That's just wrong. It won't happen. It can't happen.”

Although many climate hawks have urged an even more far-reaching plan to put a federal tax or “price” on carbon emissions, the White House settled on the clean energy standard as its preferred approach.

A pricing scheme, in which the government would make polluters buy credits for their emissions to incentivize them to pollute less, is similar to the cap-and-trade climate plan that collapsed in 2010 and contributed to Democrats’ devastating losses in that year’s midterm elections.

One sticking point was figuring out exactly what types of electricity should count as “clean.”

Some environmentalists who oppose nuclear energy argued it shouldn’t be incentivized. Although it produces no direct emissions, nuclear energy isn’t “renewable” because it relies on a finite resource, and produces toxic waste. But White House National Climate Advisor Gina McCarthy signaled earlier this year that nuclear energy would be eligible.

The Edison Electric Institute, which represents electric companies, lobbied for natural gas to be eligible for “partial credit” under the standard. Natural gas burns far cleaner than coal but is still a greenhouse gas-producing fossil fuel. But Senate Majority Leader Chuck Schumer, D-N.Y., made clear natural gas won’t count under the standard.

Senate Democrats are also trying to add “polluter import fees,” but did not include details. Also known as a “border adjustment mechanism,” the fees are designed to level the playing field for the U.S. in global trade by putting a tariff on imports from countries that aren’t working to reduce their emissions.

The goal would be to discourage “carbon leakage” — when businesses shift production and operations to countries with weaker emissions rules to save costs, thus erasing any global emissions-reducing benefit. The Senate Democrats’ announcement came the same day that the European Union made waves by unveiling its own proposal to tax imports from more lenient countries.