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Tax incentives, R&D needed to encourage power sector emissions reductions, panel says

Published on March 06, 2019 by Joanna Marsh, Daily Energy Insider

Tax incentives and continued support for research and development are two ways that Congress and the federal government can address climate change and further reduce emissions from the power sector, industry leaders told the U.S. Senate Energy and Natural Resources Committee on Tuesday.

 “Having a forward-looking policy that hopefully is long-term enough…and allows all technologies to participate is key,” said Lisa Jacobson, president of the Business Council for Sustainable Energy, at the committee hearing that examined the electricity sector in a changing climate. 

The policy has to be in line with market trends and the private sector’s investment cycle, Jacobson said.

Senate committee members sought testimony from power sector leaders because of the electricity sector’s ability to reduce CO2emissions over the last decade. Burgeoning domestic production of natural gas and shale gas in recent years pulled natural gas prices lower, making it more economical for utilities to switch to gas-fired generation from coal-fired generation. Significantly lower production costs for solar and wind also made renewable energy more affordable for utilities.

U.S. Sen. Lisa Murkowski (R-AK), chairman of the committee, said that amid an expansion in renewables and a changing mix of baseload power, “Our committee will focus on maintaining grid reliability and resiliency. We will prioritize keeping energy affordable. And we will also be working to advance cleaner energy technologies that can help reduce greenhouse gas emissions. “

Senators used Tuesday’s hearing to define what additional measures need to be taken at the federal level to enable the power sector to reduce emissions even further. 

“I believe the focus must be on the path towards innovative power generation, technologies that will keep the lights on and our economies humming, and achieving the emissions reductions we so desperately need,” said U.S. Sen. Joe Manchin (D-WV), the committee’s ranking member.

Although market factors served as the primary impetus in driving the power sector’s feedstock decisions, federal and state policies aimed at reducing CO2emissions and greenhouse gases also contributed, hearing witnesses said. 

“The evidence strongly suggests that the primary factor driving retirements [of coal-fired generation] has been market fundamentals, not regulatory policy, and there is no evidence to suggest the retirement of uneconomic generation poses a threat to electric reliability,” said hearing witness Joseph Kelliher, executive vice president of federal regulatory affairs at NextEra Energy, in written testimony.

Nonetheless, the federal government can address emissions reductions through crafting tax policies that incentivize businesses towards energy efficiency and reducing emissions, witnesses said. Another avenue is to establish tax incentives to develop and utilize innovations in battery storage so that utilities can generate electricity from wind and solar sources during times of peak use. 

“The tax code is one of the most important drivers that the federal government has to direct investment,” Jacobson said.

Other ways that the federal government can encourage emissions reductions is through developing building codes and standards that emphasize energy efficiency, working with the Federal Energy Regulatory Commission to ensure that their actions align with climate change initiatives, and reconsidering market-oriented policies such as cap-and-trade, which provide incentives for businesses to lower emissions via a marketplace trading scheme. Establishing voluntary load reduction programs and increasing grid interconnectivity are other avenues, witnesses said.

In addition to tax incentives, hearing witnesses stressed continued federal support for research and development, which they said would benefit the United States both domestically and internationally. Support for R&D initiatives can help utilities modernize their older units, while giving the U.S. leverage when working with countries such as China and India, both of which are using fossil fuel energy sources such as coal to ramp up their power output and meet surging demand.

Coal-fired capacity in the United States is aging, which is serendipitous for natural gas and renewables, said Kenneth Medlock, senior director for the Center for Energy Studies at Rice University. As such, “generators and utilities have a choice: they can retire and replace, or they can upgrade and retrofit. And economically, that’s a really easy decision to make right now,” he said.

Meanwhile, the United States can encourage China and India to reduce their emissions through ensuring that research and development initiatives are also economically attractive, Medlock said.