NCPA - National Center for Policy Analysis

Cap-and-Trade by Any Other Name

January 7, 2011

Now that cap-and-trade is more or less off the table, our politicians are starting to talk about something else -- or, at least, something that looks like something else.  There are various names for this alternative scheme, from renewable energy portfolio standards to clean energy standards to green energy standards.  Those in Congress smart enough to reject cap-and-trade the first time should be smart enough to reject it again, even if it is couched in different language, says Kenneth P. Green, a resident scholar at the American Enterprise Institute.

All of the alternative schemes basically involve the same thing:  The government mandates that a certain percentage of electricity that utilities obtain must come from something other than fossil fuels (wind power, solar power, biofuels, etc.).

  • The New York Times reports that President Obama wants 10 percent of the nation's electricity to come from renewable sources by 2012, and 25 percent by 2025.
  • Currently, 30 states have some form of renewable standard, while an additional seven states have renewable energy "goals."

The question is: Will the incoming Congress understand that a federal renewable energy standard would essentially impose cap-and-trade on utilities, hidden behind a different name?  Because that is essentially what it does, says Green.

  • To comply with the mandated standards, utilities have to submit "renewable energy credits" (REC) to the government, showing that they have met their mandate for using a certain percentage of renewable energy.
  • One REC represents one megawatt-hour of electricity that was generated using eligible sources such as wind or solar power.

So, the government sets a cap on the amount of fossil fuel energy that can be used, and makes utilities purchase renewable energy credits, passing the cost onto consumers.  In other words, cap-and-trade through the back door.

Source: Kenneth P. Green, "Cap-and-Trade by Any Other Name," The American, January 4, 2011.

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