September 2, 2010Blog

Federal Renewable Portfolio Standards Program

Legal arguments that arise from state-by-state implementation of energy policies designed to reduce carbon emissions and reliance of fossil fuels may further drive a federal renewable portfolio standards (RPS) program superseding state policies. I see the following as the important legal challenges we are facing:

  • In several states, ambiguities within RPS statutes and unclear expiration targets have created confusion among regulated utilities, and a trend toward use of in-state renewable restrictions has resulted in protracted and expensive litigation.

  • The legal morass generated by state-based RPS strategies also can discourage renewable energy investments by creating risky and unpredictable markets.

  • In the years since ratification of the Constitution, the U.S. Supreme Court and other lower courts have consistently repealed state legislation that may hinder or prohibit interstate trade. The conflict created by having state RPS policies regulate an interstate electricity market could create a legal house of cards that could collapse at any time.

    • The smooth functioning of the national market requires the federal government to prevent states from adopting protectionist policies that would attribute a product’s market share to its geographic origins rather to market mechanisms. The courts have ruled that the “Commerce Clause” means that a state cannot “needlessly obstruct interstate trade or attempt to place itself in a position of economic isolation” In other words, regulations and/or State RPS statutes that set geographic restrictions or otherwise limit the interstate trade of RECs could be violative of the Commerce Clause of the US Constitution.

  • In spite of these past successful court rulings, almost half of the RPS states now impose either an in-state generation requirement or provide incentives for in-state generation or both (this imposes restrictions on the use of out-of-state renewables). While the in-state approach often wins the favor of local companies, it also has raised red flags for larger energy suppliers that transmit electrons across state boundaries.

Taking these legal challenges into account one could argue a national RPS would be a better approach than the current patchwork of state-based standards because it could: 1) eliminate ambiguities within RPS statutes; 2) avoid expensive litigation; and 3) eliminate creation of risky and unpredicatable markets generated which discourages renewable energy markets. By establishing a consistent, national mandate and uniform trading rules for RECs, a federal RPS can create a more just and more predictable regulatory environment for utilities and renewable energy developers while jump-starting a robust national renewable energy technology sector.

Opponents of a national RPS argue that a federal mandate would increase utility rates and they also reject the national RPS mandate on the grounds that it would create "winners and losers" among regions of the country and hardships for areas where renewable resources are not as prevalent. In fact, the legal challenges discussed above demonstrate the state-by-state approach increases utility rates and create winners and losers.

Although states can be regarded as laboratories for policy innovation and there is a time for accepting the pitfalls of state experimentation now is the time to model the best state RPS programs and craft a coherent national policy that protects the interests of regulated utilities and consumers.

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