Entergy and the Environment

One Size Doesn’t Fit All: Why a Renewable Energy Standard is an Ineffective Way to Reduce CO2

“People love to hear that solar and wind are free, fuels from heaven. That is a great vision, and it gives us something to stretch for in the long run. The problem is that we have to live in the short run, especially in our business, and our customers have to live in the short run.”
- J. Wayne Leonard, Entergy Chairman and CEO

Renewable forms of energy have their place in meeting the world’s energy needs, and putting a price on carbon dioxide emissions will make them more economically appealing. However, it makes little sense for Congress to institute a renewable energy standard in the American Clean Energy and Security Act of 2009, also known as the Waxman-Markey bill.

A renewable energy standard, or RES, mandates that a minimum percentage of a utility company’s electrical energy deliveries be supplied from qualified renewable energy resources. Renewable energy consists of electric energy generated from the earth’s natural resources such as wind, sun, water, geothermal and biomass. Renewable energy does not emit greenhouse gases.

Approximately 10 percent of electricity in the United States is generated using renewable resources. Those resources are naturally replenishing but typically flow-limited, meaning they are not available 24/7 to generate electricity. The Edison Electric Institute has noted that renewable resources require backup generation – such as natural gas, coal or nuclear power – to provide reliable, around-the-clock electric service.

Proponents of an RES claim it is needed to stimulate the development of renewable energy technologies. But in practice it is not an efficient, cost-effective way to reduce CO2 emissions because it doesn’t necessarily replace the highest greenhouse gas emitting fuel: coal. In fact, in most cases, an RES would reduce natural gas-fired generation, which emits very low levels of CO2.

Unfortunately, the U.S. currently hides the cost of RES through a variety of subsidies. The developing world, however, cannot afford to replace its coal plants with renewables.

It’s a myth that renewables could replace coal as a fuel source. Coal-fired power plants produce more than 83 percent of the electricity sector’s CO2 emissions. But because coal is cheaper than natural gas or oil, it is the least likely to be displaced by solar or wind power. To replace all of America’s coal-fired power plants with renewable sources of energy would cost nearly $1 trillion.

Even if the U.S. could pay such a price, China and other developing countries that rely on coal could not afford that cost. By 2020, China will have three times as many coal plants as the U.S. has today.

“We can replace all our plants with wind and solar, but if China is producing what we think they are producing with coal, then we are nowhere.”
- J. Wayne Leonard, Entergy Chairman and CEO

Because of its larger price tag, natural gas is most likely to be displaced by renewables even though it emits much less CO2 than coal. Even a renewable energy standard as high as 20 percent would reduce emissions only by a small fraction, because CO2-emitting coal plants would continue to operate due to simple economics.

Entergy believes the provisions for RES in the Waxman-Markey bill should be removed or expanded to include energy efficiency programs and nuclear generation. As the bill is currently written, a RES would reduce some CO2 emissions but at twice the cost per ton of CO2 reduction that could be achieved through a cap-and-trade strategy.

Rather than forcing costly renewable energy supply mandates on states where renewable resources are in limited supply, legislation should focus on placing a declining cap on greenhouse gas emissions and developing technologies specifically aimed at reducing greenhouse gas emissions from existing coal plants. Instead of picking high cost technology winners over lower cost alternatives, which is what an RES mandate does, legislation should allow the market to decide the most cost effective means for reducing greenhouse gases.

An RES mandate by itself does nothing to advance carbon capture technology and would only divert the country’s attention from developing a critically important global solution for reducing CO2 emissions.