CLEAN ENERGY STANDARDS: STATE 

AND FEDERAL POLICY OPTIONS AND 

IMPLICATIONS

U.S. POLICY

November 2011

CES: State and Federal Policy Options and Implications i

by

Center For Climate And Energy Solutions

Regulatory Assitance Project

November 2011

CLEAN ENERGY STANDARDS: STATE 

AND FEDERAL POLICY OPTIONS AND 

IMPLICATIONS
ii Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications iii

CONTENTS

FOREWORD IV

EXECUTIVE SUMMARY VI

I. INTRODUCTION 1

II. STATUS AND OUTLOOK FOR CLEAN ENERGY 3

III. BENEFITS OF EXPANDING CLEAN ENERGY GENERATION 7

IV. WHAT IS A CLEAN ENERGY STANDARD (CES)? 13

V. ADVANTAGES AND DISADVANTAGES OF A CES 15

A Flexible, Market-based Policy 15

Investment Guidance for Utilities and Other Power Generators 15

Broad Political Appeal 16

VI. FEDERAL CES PROPOSALS 19

VII. STATE AND REGIONAL CES OPTIONS 21

Michigan 21

Ohio 22

Pennsylvania 22

West Virginia 23

Indiana 23

VIII. CES POLICY DESIGN OPTIONS AND IMPLICATIONS 25

Exemptions Based on Utility Size 26

Exemptions Based on Ownership Structure 27

Nominal vs. Effective Targets 27

Uniform vs. Differentiated Targets 27

Timetable Options 27

Target-Setting 31

Incentives for Incremental Output 31

Windfall Profits 31

Unintended Incentives 31

Regional Impacts 32

Bonus Credits 34

Carve-Outs 34

Tiers 34

Limits on Compliance via Particular Clean Energy Sources 34
iv Center for Climate and Energy Solutions

Banking and Borrowing 34

Offsets 35

Alternative Compliance Payments and Cost Off-ramps 35

Preempting State Programs with a Federal CES 37

Keeping State and Federal Programs Distinct and Separate 37

Allowing States to Define Clean Energy 38

IX. CONCLUSIONS 41

LIST OF ABBREVIATIONS 43

APPENDIX 45

ENDNOTES 61
CES: State and Federal Policy Options and Implications v

FOREWORD

EILEEN CLAUSSEN, PRESIDENT, CENTER FOR CLIMATE AND ENERGY SOLUTIONS

Transitioning from conventional fossil fueled electricity generation to cleaner sources is an importantpolicy goal with 

numerous benefits—the growth of new clean energy industries, diversification of energy supply, and reductions in 

harmful greenhouse gases and other pollutants. 

A clean energy standard (CES) is one approach to increase the proportion of our electricity generated by clean 

sources, and has recently received bipartisan support at the federal level. Several Republican Senators sponsored CES 

proposals in the last Congress, and President Obama endorsed a federal CES in his 2011 State of the Union address. 

Many states continue to be policy innovators in this area, enacting and strengthening both renewable and clean energy portfolio standards and goals.

We would like to thank the Regulatory Assistance Project (RAP) for collaborating with us on this discussion paper 

and bringing important insights from their extensive experience working with state public utility commissions. The 

authors introduce the concept of a CES, explaining how it works, the benefits that a CES can deliver, and federal and 

subnational options for CES policies. This paper also explores some of the nuances of CES policy design and the implications of different design choices. This discussion and the conclusions reached aim to help policymakers, regulators, and other stakeholders decide whether a CES is an appealing option and to help such stakeholders understand 

the potential impacts of a CES.

The paper points out that absent significant new policies to promote clean energy, the share of total U.S. electricity generation obtained from clean energy sources will likely not increase by more than a few percentage points over 

the next 25 years. Such a reality will mean the U.S. would forgo substantial important benefits, including growth of 

new industries, diversification of the energy supply to limit exposure to fuel price volatility and regulatory risk associated with particular energy sources, and the mitigation of environmental and public health impacts from electricity 

generation. A CES warrants consideration by policymakers at all levels as a potential tool for achieving the many 

benefits of a clean energy transition. 
vi Center for Climate and Energy Solutions

FOREWORD

RICHARD SEDANO, DIRECTOR OF U.S. PROGRAMS, REGULATORY ASSISTANCE PROJECT

At RAP, we take an interest in practically every kind of public policy affecting the electric power sector. Electricity 

portfolio standards are particularly interesting and important to us because these policies directly support policymakers’ efforts to define and to plan for desired outcomes for power sector resources while letting markets work to 

find the best means to achieve them. Environmental quality has always motivated government to adapt utility regulation in important ways to further the public interest.

At the time that RAP was founded in 1992, only one state (Iowa) had enacted an electricity portfolio standard. 

Today, more than half of the states have adopted this kind of policy. But as we often see with policymaking, states 

did not merely replicate Iowa’s groundbreaking policy, which focused exclusively on electric generation from renewable resources. Instead, the idea of a portfolio standard evolved, state by state by state. Clean energy standard (CES) 

policies are the latest stage in this evolution. These are policies that favor not just renewable energy, but also lowemission, non-renewable energy resources. Although only a handful of states have enacted a CES, there is reason to 

think this idea could spread. Of the last six states to enact an electricity portfolio standard, four have opted for a CES 

rather than the more common renewable portfolio standard (RPS). The states with CES policies also seem to have a 

lot in common with the remaining minority of states that have no electricity portfolio standard at all – suggesting that 

the CES idea has room to grow. And finally, many of the most promising proposals for a national portfolio standard 

have tended toward the CES approach rather than the RPS approach.

RAP has enjoyed having the opportunity to collaborate on this paper with the Center for Climate and Energy Solutions. We feel that this partnership allowed two very different organizations to combine their strengths. The Center 

is an influential and thoughtful advocate for national and international climate change policies, and has its finger 

on the pulse of Congressional debate. RAP, on the other hand, works primarily at the invitation of U.S. state governments and does not advocate for legislation. Furthermore, all of RAP’s principals and senior associates are former 

energy or environmental regulators. We felt we could contribute a state-level perspective and a regulator’s perspective 

to some of the key issues that arise in designing CES policies, including issues that go beyond climate change considerations.

We hope that this paper will facilitate a broader and better-informed discussion of clean energy standards, at both 

the state and federal levels. Cleaning up the electric power sector is a challenge of monumental proportions, but 

we’ve already seen the power of RPS and CES policies and feel certain that even more progress can be made.
CES: State and Federal Policy Options and Implications vii

EXECUTIVE SUMMARY

A transition from conventional fossil fueled electricity generation to clean energy offers several benefits—particularly 

the growth of new clean energy industries and associated jobs, diversification of energy supply, and reductions in 

the public health and environmental damages (especially from air pollution) associated with conventional electricity 

generation. 

The current status of clean energy generation depends on how one defines clean energy. While there is no universally agreed upon definition of clean energy in the power sector, various stakeholders endorse some or all of the 

following as at least partially clean energy options: highly efficient natural gas combined cycle generation; fossil fuel 

use coupled with carbon capture and storage (CCS); nuclear power; renewables; and electricity savings from energy 

efficiency and conservation. These generation sources provide about half of U.S. electricity today. While market 

dynamics and current state and federal policies have led to recent growth in clean energy generation—such as the 

growth in renewable generation driven in part by state renewable electricity portfolio standards—projections for the 

power sector indicate that, absent significant new policies to promote clean energy, the status quo in terms of power 

generation will continue largely unchanged for at least the next quarter century.

Given the benefits of clean energy and the dependence of substantial growth in clean energy generation on new 

policies, policymakers have lately turned their attention to the idea of a clean energy standard (CES). A CES is a type 

of electricity portfolio standard that would set aggregate targets for the level of clean energy that electric utilities 

would need to sell while giving electric utilities flexibility by: (1) defining clean energy more broadly than just renewables, and (2) allowing for market-based credit trading to facilitate lower-cost compliance. As a concept, a CES builds 

on the successful experience of the majority of states that have implemented renewable and alternative energy portfolio standards and draws on a history of federal policy deliberation regarding national electricity portfolio standards.

States could pursue new CES policies singly or jointly to create multi-state programs. State CES programs could 

complement existing state renewable portfolio standards, and a CES may be a promising option in states where more 

narrowly defined renewable electricity policies have had less appeal. A handful of states have already enacted electricity portfolio standards that have many of the attributes of a CES. 

The federal government could also enact a national CES. A federal CES has recently received bipartisan support, with several Republican Senators sponsoring federal CES proposals in the last Congress and President Obama 

endorsing a federal CES in his 2011 State of the Union address. While the prospects for near-term enactment of a 

federal CES are uncertain, a federal CES has received substantial attention and warrants close consideration by stakeholders.

This paper introduces stakeholders to the concept of a CES, explains how a CES works, describes the benefits that 

a CES can deliver, and explores federal and subnational options for CES policies. This paper also explores some of 

the nuances of CES policy design and the implications of different design choices. This discussion can help both state 

and federal policymakers, utility regulators, and other stakeholders decide whether a CES is an appealing option and 

to help state stakeholders understand the potential impacts of a federal CES on their states so that they might formulate and communicate federal CES policy design preferences.

Several of the paper’s key points are summarized below.

•	 Absent significant new policies to promote clean energy, the share of total U.S. electricity generation obtained 

from clean energy sources will likely not increase by more than a few percentage points over the next 25 years. 

•	 Substantial increases in clean energy generation can offer important benefits, including:

•	 Growth of new clean energy industries and associated jobs—e.g., wind turbine manufacturing, solar 
viii Center for Climate and Energy Solutions

panel installation, and nuclear power plant construction;

•	 Diversification of energy supply to limit electric utilities’ and ratepayers’ exposure to fuel price volatility and regulatory risk associated with particular energy sources;

•	 Mitigation of environmental and public health impacts from electricity generation—including criteria and hazardous air pollutants, greenhouse gases emissions that contribute to climate change, and 

other impacts.

•	 A CES is a promising policy for spurring a transition to clean energy in the power sector.

•	 As a type of electricity portfolio standard, a CES sets requirements for the percentage of electricity 

sales that must be supplied from qualified clean energy sources and allows electric utilities to demonstrate compliance via tradable credits that they earn themselves for their own generation or buy 

from other electric utilities or clean energy generators.

•	 As a market-based policy, a CES can effectively increase clean energy generation and achieve associated benefits while offering substantial compliance flexibility for electric utilities thus minimizing 

impacts on electricity consumers.

•	 By broadly defining clean energy, a CES provides opportunities for utilities, states, and regions to 

exploit their unique mix of clean energy options.

•	 A CES program can build upon the success of existing electricity portfolio standards that a majority 

of states have already implemented, provided that the percentage targets are increased in proportion to the potential of newly eligible resources. If additional clean energy resources are allowed to 

qualify for an existing portfolio standard without increasing the targets, the mix of resources used 

to meet the standard and the resulting compliance costs may change, but the total amount of clean 

energy generation will not increase and the goals of the policy may not be furthered.

•	 At the state and federal levels, CES policies have attracted bipartisan support, including CES proposals from President Obama and Republicans in Congress.

•	 CES programs enacted by the federal government or by states singly or in coordination could spur incremental clean energy generation and deliver associated benefits.

•	 Federal CES proposals have attracted bipartisan support in previous years, but it is not clear if or 

when legislation to create a federal CES will move forward.

•	 States have already proven themselves to be policy innovators with respect to renewable electricity 

portfolio standards, and states may seek to reap the benefits of clean energy for themselves by implementing new CES policies—either singly or as part of multi-state programs.

•	 At least four states (Michigan, Ohio, Pennsylvania, and West Virginia) already have electricity 

portfolio standards that credit cleaner, non-renewable energy sources, and Indiana has a similar 

but voluntary program. These states offer several lessons for future state or federal CES programs, 

including:

•	 Utilities tend to comply with electricity portfolio standards by deploying the lowest-cost 

qualified resources, so policymakers may need to include special provisions in a CES if 

they hope to provide a meaningful incentive for less commercially mature and higher-cost 

technologies.

•	 Policymakers can design CES programs that have very modest impacts on electricity rates.

•	 A combination of factors—including the policy’s target and the types of energy sources 

that qualify—determine how much incremental clean energy generation a CES program 

will deliver beyond “business as usual,” and policymakers should consider the interaction of 

such factors in developing a CES to ensure the program can meet their goals for additional 

clean energy generation.

•	 The net effects of a CES policy are a function of interrelated policy design decisions. Policymakers and stake-
CES: State and Federal Policy Options and Implications ix

holders should understand CES policy design options and their interactions and implications. Policymakers 

and stakeholders might usefully evaluate a CES in terms of key criteria and think about implications of different policy design decisions in light of these criteria.

•	 Effectiveness – What is the magnitude of the policy’s desired impacts?

•	 CES targets set the requirements for overall clean energy generation.

•	 The degree to which a CES delivers the benefits associated with clean energy depends on 

how policymakers define qualified clean energy under the program.

•	 Certain policy design options (e.g., exemptions for certain utilities and alternative compliance payments) can have the effect of reducing a CES program’s effective target for incremental clean energy deployment. 

•	 Policymakers may include provisions in a CES to provide particular incentives to certain 

technologies—e.g., less commercially mature or higher cost ones—in order to reap particular clean energy-related benefits.

•	 Cost-effectiveness – how efficiently does the policy achieve its intended aims?

•	 As a market-oriented policy, a CES is an inherently cost-effective program.

•	 Policymakers have several options for providing electric utilities with compliance flexibility 

under a CES (e.g., banking and borrowing of credits).

•	 In general, the more flexibility that utilities have for meeting clean energy targets (e.g., the 

more broadly clean energy is defined), the more cost-effective a CES program will be.

•	 Fairness – does the policy lead to any undue burdens or unearned windfalls for particular utilities, 

power generators, or regions and customers?

•	 Owing to a variety of factors, different electric utilities supply their customers with electricity from widely varying existing generation mixes. In addition, utilities, states, and regions 

have different cost-effective options for increasing clean energy generation (e.g., because of 

different renewable resource endowments).

•	 How policymakers set CES targets, treat new vs. existing clean energy generators, and 

define qualified clean energy sources determine how the effects of a CES program vary 

among different utilities, power generators, or customers.
x Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 1

I. INTRODUCTION

This paper is intended to inform debate and deliberation among policymakers and stakeholders regarding 

state and federal clean energy standards (CES) for the 

electric power sector. A CES is still a relatively new policy 

option for increasing the role of “clean” energy in the 

power sector and realizing the associated benefits. This 

paper seeks to promote understanding of what a CES is 

and how policymakers might best design such a policy to 

achieve particular goals.

A word is in order regarding use of the word “clean,” 

both in this paper and in the larger debate. There is no 

commonly accepted definition of “clean” energy. Indeed, 

one person’s definition of “clean” can differ dramatically 

from another’s if their objectives for energy policy differ. 

Renewable energy, nuclear power, natural gas, coal with 

carbon capture and sequestration, energy efficiency, and 

emissions offsets all have their advocates as falling under 

the definition of clean. Unless otherwise noted, this paper will use the term “clean” to refer to these options and 

“conventional” to refer to all other electricity generation. 

When referring to the share of total electricity obtained 

from clean energy sources, this paper will, unless otherwise noted, count natural gas generation as half clean for 

reasons that will be explained later. This paper does not 

choose what options should be considered clean. Rather, 

this paper explores issues pertaining to clean energy 

broadly and looks at the specifics of a policy mechanism 

(i.e., a clean energy standard) whose workings and implications are largely separate from the choice of how to 

define clean energy. 

This paper is organized as follows. Sections II and 

III describe the current status of and outlook for clean 

energy absent new policies and the benefits of expanding 

clean energy generation through new policies. Sections 

IV and V explain what a CES is, and what advantages and 

disadvantages a CES policy might have for promoting 

clean energy. Sections VI and VII provide an overview 

of recent proposals for a national CES, relevant state 

experience with CES-like programs, and options for new 

state or multi-state CES programs. Section VIII takes an 

in-depth look at the particular policy design elements of 

a CES and the implications of different design choices. 

Finally, Section IX offers conclusions.
2 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 3

II. STATUS AND OUTLOOK FOR CLEAN ENERGY

Some context regarding the status and outlook for clean 

energy in the power sector can help inform the discussion of a CES. The following observations are of particular relevance:

•	 The United States currently obtains nearly half of 

its electricity from traditional coal-fired electric 

power plants (see Figure 1).

•	 Natural gas has dominated new capacity additions 

in the power sector over the past two decades, and 

renewables, particularly wind power, have seen 

strong growth in the last decade (see Figure 2).

•	 The latest projections from the U.S. Energy 

Information Administration (EIA) of “business 

as usual” trends for the power sector (from EIA’s 

Annual Energy Outlook 2011, AEO2011) suggest 

that the share of total U.S. electricity generation 

obtained from several clean energy sources is unlikely to increase by more than a few percentage 

points over the next quarter century. 

•	 Absent a new energy policy, natural gas is projected to be the dominant technology choice for 

new electricity generation.1 This is projected to be 

the case even when taking into account sensitivity 

to such factors as forthcoming EPA regulations, 

natural gas prices, and extension of federal tax 

incentives for renewables (see Figure 3).

•	 A majority of states have adopted binding renewable and alternative energy portfolio standards 

to drive increases in clean energy generation (see 

Figure 4), but the expansion of such policies to 

new states may be slowing (see Figure 5).

•	 In the absence of supportive financial incentives 

and policies, renewables and other clean energy 

technologies (with the exception of energy efficiency technologies) are generally more costly 

than new natural gas combined cycle power 

plants, the least costly and cleanest fossil fuel 

technology (see Figure 6) for new capacity additions. Clean energy technologies may also face 

other challenges, as detailed in Appendix on 

“Challenges Facing Clean Electricity Technologies.”

The observations above suggest that, absent significant new policies to promote clean energy, the United 

States will not see a substantial shift toward clean energy.
4 Center for Climate and Energy Solutions

FIGURE 1: Electric Power Sector Net Generation, 1990-2010.2

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1990 1995 2000 2005 2010

TWh

Fuel/Technology

(% of 2010 Gen.)

Coal

(46%)

Natural Gas

(23%)

Nuclear

(20%)

Hydro

(6%)

Other Renewable

(4%)

Petroleum

(1%)

FIGURE 2: U.S. Electric Generation Capacity by In-Service Decade and Fuel/Technology3

0

50,000

100,000

150,000

200,000

250,000

300,000

Pre 1940s 1940s 1950s 1960s 1970s 1980s 1990s 2000s

Nameplate Generating Capacity (MW)

Wind Oil

Other Nuclear

Natural Gas Conv. Hydro

Coal
CES: State and Federal Policy Options and Implications 5

FIGURE 3: Projected Electric Power Sector Generation Mix from AEO2011 Reference Case and 

Sensitivity Cases4

46% 47% 42% 47% 44% 39%

45% 42% 46% 41% 37%

22% 19% 24% 19% 21% 26%

22% 26% 20% 26% 31%

21% 20% 20% 21% 21% 21% 19% 18% 19% 19% 19%

10% 13% 12% 13% 13% 12% 12% 12% 14% 12% 12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 Reference

Case

Low Gas

Prices

No Sunset TR + Hg TR + Hg

(Low Gas)

Reference

Case

Low Gas

Prices

No Sunset TR + Hg TR + Hg

(Low Gas)

2025 2035

% of Total Electric Power Sector Generation

Coal Natural Gas Nuclear Renewables Other

FIGURE 4: 31 States and the District of Columbia Have Renewable or Alternative Energy 

Portfolio Standards5

Renewable Portfolio Standard

Alternative Energy Portfolio Standard

Renewable or Alternative Energy Goal
6 Center for Climate and Energy Solutions

FIGURE 5: Timeline of State Renewable Portfolio Standard Adoption6

FIGURE 6: Estimated Levelized Cost of Electricity by Fuel/Technology (2016 Online Year) from 

AEO20117

$0 $50 $100 $150 $200 $250 $300 $350 $600 $650

Energy Efciency

Hydro

Biomass (dedicated)

Geothermal

Solar Thermal

Solar PV

Wind (Offshore)

Wind (Onshore)

Advanced Nuclear

Advanced NGCC with CCS

Advanced Coal with CCS

NGCT

NGCC

Conventional Coal

Renewables CCS and Nuclear

Conventional

Fossil

Total System Levelized Cost (2009$ / MWh)
CES: State and Federal Policy Options and Implications 7

III. BENEFITS OF EXPANDING CLEAN ENERGY GENERATION

Growing the share of electricity provided by clean energy 

sources can provide a range of important benefits—chief 

among them fostering clean energy industries and jobs, 

diversifying the energy supply, and improving the environmental and public health profile of electricity generation. A CES designed to maximize one of these benefits, 

however, might not maximize another. This section discusses the range of benefits. Section VIII discusses how 

the particular design elements of a CES might be more 

productive in achieving one benefit than another. 

FOSTERING NEW CLEAN ENERGY INDUSTRIES

By most definitions, clean technology is one of the fastest 

growing industries of the 21st century. John Doerr, a partner at the leading venture capital firm Kleiner Perkins 

Caufield & Byers, described green technologies, including clean energy, as “the next great global industry” in 

2009 testimony before the United States Senate Committee on Environment & Public Works.8

A recent report finds that global clean energy finance 

and investment grew significantly in 2010 to $243 billion, 

a 30 percent increase from the previous year. The clean 

energy sector is emerging as one of the most dynamic 

and competitive in the world, witnessing 630 percent 

growth in finance and investments since 2004. The 

United States had been leading the world in clean energy 

investment until 2009, when it was surpassed by China. 

Subsequently, the U.S. fell to third after being passed 

by Germany in 2010. When clean energy investment is 

viewed as a percentage of gross domestic product, the 

U.S. is outspent by China, Canada, Australia, Brazil, 

and nearly all of Europe.9 Some form of national clean 

energy standard is in place in all of these except Canada. 

Since these countries already invest more than the U.S. 

in clean energy, it is difficult to argue that U.S. clean energy policies create an unfair burden on U.S. companies 

relative to these overseas competitors.

New policies to promote clean energy in the United 

States would stimulate research, development, and investment and accelerate clean technology deployment at 

scale – by accelerating “learning by doing,” innovation, 

competition, and increased rationalization of emerging 

supply chains – allowing the United States to keep pace 

with global competitors. Policies that create a predictable, steadily growing demand for clean energy provide 

motivation and reduce uncertainty for investors, financiers, merchant power companies, and regulated utilities. As demand for clean energy grows, innovation and 

competition follow, and these factors lead to significant 

reductions in cost per kilowatt-hour (kWh). 

History supports these assertions. A 2010 study by IHS 

Emerging Energy Research found that 90 percent of the 

non‐hydro renewable capacity built in the United States 

since 2004 was built in states with a mandatory renewable 

portfolio standard (RPS) policy. IHS further asserts that 

RPS policies will be the most critical driver determining the pace of U.S. renewables growth going forward.10

And analyses by the National Renewable Energy Laboratory (and others) have consistently shown that the cost 

per kWh of various renewable energy technologies has 

decreased, steadily and significantly, over the past three 

decades.11 Continued large-scale deployment can drive 

these costs down to where consumers, businesses and 

utilities increasingly choose clean energy.

CREATING NEW CLEAN ENERGY JOBS

Increasing the level of electricity supplied by clean 

energy sources could stimulate domestic job growth in 

clean energy industries.12

Clean energy jobs represent a small but growing 

fraction of U.S. employment. A 2009 study by the Pew 

Charitable Trusts found that from 1998 to 2007, clean 

energy jobs grew by 23 percent.13 Substantial increases 

in clean energy generation would spur growth in U.S. 

clean energy technology manufacturing jobs (e.g., wind 

turbine and solar panel manufacturing, and large manufactured components in advanced technology (CCS or 

nuclear) power plants) and in non-manufacturing jobs 

related to clean energy technologies (e.g., construction, 

installation, and operation). State experience with electricity portfolio standards suggests that such standards 

can lead to economic growth in clean energy technology 
8 Center for Climate and Energy Solutions

manufacturing. For example, a 2011 report from Michigan’s Public Service Commission found that the state’s 

RPS, enacted in 2008, had already led to the first in-state 

production of utility-scale wind turbines.14

Wei et al. (2010) reviewed and synthesized the results 

from 15 studies published between 2001 and 2009 on 

the job creation potential of renewable energy, energy 

efficiency, and other clean energy technologies such as 

nuclear power and coal with carbon capture and storage 

(CCS).15 The authors suggest that solar photovoltaics, 

landfill gas-to-energy projects, and energy efficiency create the most jobs per unit of energy, and generally found 

that the clean energy resources analyzed create more 

jobs per unit of energy delivered than conventional fossil 

fuel technologies.

DIVERSIFYING ENERGY SUPPLY

Construction of new electricity plants raises concerns 

about the possible overreliance on natural gas. As shown 

in Figure 1, the United States currently obtains about 

20 percent of its electricity from natural gas. In the 

last decade, however, natural gas has accounted for 81 

percent of total generation capacity additions.16 There is 

reason for caution regarding the current projections of 

low natural gas prices: natural gas prices have historically 

exhibited a large degree of price volatility; there have 

been four major price spikes in the last decade alone.17

As shown in Figure 1, the United States obtains roughly half of its electricity from coal-fired power plants (without CCS). Some states use more than others: according 

to EIA data from 2009, eight states obtained more than 

80 percent of their electricity from coal. Furthermore, as 

shown in Figure 7, about 80 percent of all U.S. coal-fired 

power plants are at least 30 years old and more than a 

third are at least 50 years old. In addition, the implementation of new safety, health or environmental standards 

pertaining to coal may have significant impacts on electricity prices in areas so heavily reliant on coal. 

These facts raise questions about the extent to which 

the United States is vulnerable or could become vulnerable to price shocks and supply disruptions due to 

FIGURE 7: Age Distribution of U.S. Coal-Fired Power Plants18

23

7 5

50

57

87

116 112

126

114

153

191

50

11

2 0 1

0

50

100

150

200

250

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85

Number of plants

Plant age bin (years)
CES: State and Federal Policy Options and Implications 9

overreliance on any given energy source. A CES could 

be designed to address these concerns by diversifying 

the nation’s energy supply by explicitly requiring greater 

use of other technologies, none of which are currently 

producing half as much electricity in the United States 

as coal. One of the benefits of a more diverse generation 

portfolio is that it could lessen the country’s vulnerability 

to temporary fossil fuel supply disruptions and associated price spikes, skilled labor stoppages or shortages, 

and problems in quickly obtaining needed equipment or 

replacement parts.19

PROTECTING PUBLIC HEALTH AND THE 

ENVIRONMENT

Electric power plants (particularly older, less-efficient 

coal plants that lack a full suite of modern pollution controls) are major sources of air pollutants that have significant negative effects on public health and the environment. According to the U.S. Environmental Protection 

Agency (EPA), more than 125 million Americans live 

in areas with unhealthy levels of air pollution.20 Replacing conventional fossil fueled electricity generation with 

new clean energy generation can reduce pollution and 

protect public health and the environment.

Electric power plants are the leading U.S. source of 

emissions of sulfur dioxide, mercury and many other 

metals, and acid gases. The electricity sector also ranks 

third among all U.S. sources of nitrogen oxide emissions 

and fourth in emissions of fine particulates. As shown in 

Figure 8, the vast majority of the emissions in this sector 

are associated with coal-fired power plants.

Most of the renewable energy technologies, as well 

as nuclear power and energy efficiency, do not release 

any of the kinds of air pollutants that most often cause 

immediate and direct public health impacts: criteria 

air pollutants such as fine particulates, sulfur dioxide, 

and nitrogen oxides, as well as hazardous air pollutants 

(HAPs) such as mercury, other metals, and acid gases. 

Highly efficient natural gas combined cycle (NGCC) generation emits less particulate matter than conventional 

coal-fired generation, and virtually no sulfur dioxide or 

metals (see Appendix on “Air Emissions from Natural 

FIGURE 8: Power Sector Contribution to Air Pollution21

Other 

Sectors

40%

Coal

97%

Electric

Power

60%

Sulfur Dioxide (SO2), 2009

9.5 Million Tons

Other 

Sectors

96%

Coal

95%

Electric 

Power

4%

Particulate Matter (PM10), 2005

14.8 Million Tons

Other 

Sectors

54%

Coal

>99%

Electric

Power

46%

Mercury (Hg), 2005

114 Tons

Other 

Sectors

87%

Coal

85%

Electric

Power

13%

Nitrogen Oxides (NOx), 2009

15.3 Million Tons

Other 

Sectors

60%

Coal

83%

Electric

Power

40%

Carbon Dioxide (CO2), 2008

6.5 Billion Tons

Source: Sources: SO2 and NOx - NEI Trends Data and NEI 2005 Version 2 (2009) and CAMD Data & Maps (2010); PM10 - NEI Trends Data (2009); Hg - NEI 

2005 Version 2 (2009); CO2 - Inventory of U.S. GHG Emissions and Sinks: 1990-2008 (2010) and 1990-2007; “Other” sources include transportation, other 

mobile sources, and industrial sources.
10 Center for Climate and Energy Solutions

Gas vs. Coal-Fired Electricity Generation”).

According to U.S. EPA, the electricity sector also 

accounts for about 33 percent of total U.S. greenhouse 

gas (GHG) emissions and 40 percent of carbon dioxide 

(CO2) emissions.22 U.S. power sector GHG emissions are 

larger than those of any other economic sector. As shown 

in Figure 8, over 80 percent of GHG emissions associated 

with electricity generation are from the combustion of 

coal. 

Nearly all renewable energy technologies either do 

not emit GHGs at all, or only emit GHGs that would eventually be released to the atmosphere anyway.23 Nuclear 

power is also a non-emitting energy source, and energy 

efficiency reduces emissions by avoiding electricity generation. And while there are GHG emissions associated 

with electricity fueled by natural gas or coal with CCS, 

both of these technologies have a significantly smaller 

carbon footprint than traditional coal-fired power plants. 

To improve air quality and address pollution-related 

public health problems, EPA is now in the process of 

tightening several federal standards. Although these 

standards implicate all sources of air pollution, many analysts believe that more cost-effective emission reductions 

can be achieved in the power sector than in other sectors 

of the economy; it is not surprising then that EPA is also 

proposing a suite of new regulations that specifically 

focus on the power sector.24 Utilities and state regulators 

are likely to find that in some cases it is cheaper in the 

long run to replace old coal-fired power plants with new 

clean energy generation than it is to install the pollution 

control equipment that will be necessary to comply with 

emission standards.25
CES: State and Federal Policy Options and Implications 11

IV. WHAT IS A CLEAN ENERGY STANDARD (CES)?

This section explains what electricity portfolio standards 

are, how a CES is a particular type of electricity portfolio standard, and how a CES is similar to and different 

from other policy options for promoting clean energy in 

the electric power sector. Section VIII below presents a 

detailed discussion of particular CES policy design decisions and their implications.

Simply put, a CES is a policy to increase the share of 

electricity demand met via clean energy sources (and perhaps electricity savings from energy efficiency). Given the 

range of benefits of increasing clean energy generation 

noted above, policymakers and other stakeholders have 

shown interest in pursuing CES policies. In states that 

already have electricity portfolio standards to promote 

renewables, a CES could promote further increases in 

clean energy generation beyond just renewables. States 

without electricity portfolio standards might be interested in a CES that broadly defines clean energy to include 

more options than just renewables. Beyond the interest 

of individual states, a CES could be the focus of multistate cooperation.

As reviewed in detail in Section VI, the idea of a federal 

CES has attracted attention from national politicians 

from both parties in recent years. 

This paper discusses issues relevant to a CES implemented in a single state, as a multistate program, and as 

a national program. Certain issues will only be relevant 

in the case of a multistate or federal CES.

ELECTRICITY PORTFOLIO STANDARDS

A CES is a type of electricity portfolio standard. Electricity portfolio standards are flexible, market-based 

policies that typically set requirements for the percentage of electricity demand that must be met via qualified 

energy resources—e.g., by 2025, 25 percent of electricity 

sales must be met via renewable electricity generation. A 

majority of states have already enacted some type of electricity portfolio standard (see Figure 4), and members 

of Congress have proposed federal electricity portfolio 

standards.

As with the definition of “clean,” electricity portfolio 

standards go by different (and sometimes confusing) 

names, in large part depending on what types of energy 

resources count toward the requirements. Typically, an 

electricity portfolio standard that sets a requirement only 

(or primarily) for renewable electricity is called a renewable portfolio standard (RPS) or renewable electricity 

standard (RES). The nomenclature gets more complicated when electricity portfolio standards allow for nonrenewable electric generation or savings from energy 

efficiency measures to qualify toward compliance with 

the policies’ requirements. Policymakers have referred to 

such policies as “alternative,” “advanced,” “diverse,” and 

“clean” energy (portfolio) standards. Moreover, there 

is no clear distinction between an RPS/RES and these 

other types of electricity portfolio standards since some 

policies that are called an RPS/RES – because they primarily require an increase in renewable electricity – also 

allow for at least some limited compliance via nonrenewable electricity generation or energy efficiency.26

For the purposes of this paper, the term clean energy 

standard or CES will refer to an electricity portfolio standard that sets a requirement for the amount of electricity 

sales to be met via qualified resources where those sources include at least some non-renewable electric generation technologies. Again, rather than specifying which 

technologies should be considered “clean,” the authors 

assume that policymakers will determine for themselves 

which technologies should qualify. But for illustrative 

purposes, a number of technologies that have been defined as “clean” in actual state laws or proposed federal 

laws are used throughout this paper (e.g., nuclear power, 

fossil fuel use coupled with CCS, natural gas, etc.).

HOW DOES A CES WORK?

It is important to recognize the context in which a CES 

would operate. There is no completely free market in 

electricity generation; the market is subject to a host of 

regulations, including electricity price regulation in all 

states and a variety of state and federal environmental 

regulations. Subject to regulatory and policy constraints, 
12 Center for Climate and Energy Solutions

utilities will generally choose to obtain new capacity 

from the resource with the lowest life-cycle levelized cost, 

including all quantifiable environmental compliance 

costs, costs of integration, incremental transmission, etc. 

In today’s market, renewable resources seldom offer the 

lowest life-cycle levelized cost, as demonstrated in Figure 

6. For this reason, objectives beyond maintaining the lowest cost electricity require policy measures.

As a type of electricity portfolio standard, a CES works 

much like the electricity portfolio standards already in 

place in a majority of states and the District of Columbia. Under a CES, an electric utility faces a requirement 

to supply a certain fraction of its electricity sales to 

end-use customers from qualified clean energy sources 

(potentially including electricity savings from energy 

efficiency).27,28 Electric utilities demonstrate compliance 

with the CES requirement by either owning or contracting for delivery from clean energy generating assets, or 

by purchasing tradable credits. Each clean energy credit 

(CEC) represents one unit of clean energy generation (or 

potentially electricity savings from energy efficiency. For 

example, one CEC might correspond to one megawatthour (MWh) of output from a qualified clean energy facility (e.g., a wind farm or a nuclear power plant) or one 

MWh of energy savings. Thus, if a utility sells one million 

MWh of electricity to retail customers in a given year, 

and its CES obligation is 50 percent, it must somehow 

obtain 500,000 CECs and surrender those credits to the 

CES program administrator to demonstrate compliance.

Qualified clean electricity generators earn credits in 

proportion to their output and may earn these credits at 

different rates. In other words, the owner of a qualified 

clean energy facility will earn some number of CECs for 

each MWh generated and this number of CECs may vary 

depending on the type of clean energy facility. Importantly, the tradable credits are “unbundled” from the 

clean electricity to which they correspond—i.e., they can 

be sold separately. This means that a generator may sell 

the electricity to one party, and sell the CEC to the same 

party, or keep it, or sell it to a third party.29 By allowing 

this kind of trading, the CES is an inherently flexible way 

to promote clean energy.

Electric utilities that own qualified clean energy 

facilities receive the CECs associated with their generation. Electric utilities can also buy CECs from qualified 

generators or other electric utilities. The reliance on unbundled credits means that some utilities might deliver 

more clean electricity than specified by the standard and 

others might deliver less. The CEC market price provides 

a financial incentive for deployment of clean electricity 

technology. Recent modeling analysis suggests that a 

properly designed CES, compared to “business as usual” 

policies, can increase electricity generation from a broad 

portfolio of clean energy technologies.30 Appendix on “A 

CES in Traditionally Regulated and Competitive Electricity Markets” discusses how a CES works in traditionally 

regulated and competitive electricity markets.
CES: State and Federal Policy Options and Implications 13

V. ADVANTAGES AND DISADVANTAGES OF A CES

A CES offers advantages and disadvantages compared 

both to alternative means for increasing clean energy 

generation and to the policy status quo.

ADVANTAGES OF A CES

A Flexible, Market-based Policy

A CES is a flexible, market-based policy for increasing 

investment in and generation from clean energy technologies (and potentially increasing energy efficiency as 

well). This flexibility makes a CES a cost-effective policy 

for promoting clean energy and provides electric utilities 

with a wide array of compliance options.

A CES sets a target for clean energy for a state, a 

region, or the entire country (depending on the scope 

of the program) and creates a market signal (the credit 

trading price) to guide the decisions of electric utilities, 

merchant generators, regulators, and other entities about 

investments in new generation, retirements, retrofits, 

utilization, and energy efficiency programs. This market 

signal under a CES directs these myriad actors to seek 

the least-cost approach for achieving the policy’s aggregate goal for clean energy.

The use of tradable credits to demonstrate compliance gives electric utilities substantial compliance 

flexibility and keeps costs low since no electric utility 

needs to generate or deliver any specific quantity of 

clean energy itself. Rather, electric utilities can generate 

or deliver more or less clean energy themselves and sell 

or buy credits accordingly depending on whether they 

have relatively more or less access to cost-effective clean 

energy sources. Beyond this basic degree of compliance 

flexibility, a CES can also include other forms of flexibility such as a broad array of qualifying energy sources, 

temporal compliance flexibility (banking and borrowing 

of credits), and various policy options for keeping costs 

manageable (see Section VIII below for more details on 

the flexibility mechanisms).

Investment Guidance for Utilities and Other Power 

Generators

A CES policy can create a more predictable regulatory 

future for power generators. In today’s policy environment, utilities and merchant generators are in a bind. 

For the most part, there is an expectation that future 

regulatory requirements will demand a transition to 

clean energy and much lower emissions of air pollutants in coming decades. EPA air pollution regulations, 

state and regional GHG cap and trade programs like the 

Regional Greenhouse Gas Initiative (RGGI) in northeastern states, and state RPS policies are already pushing in 

this direction. New state, regional, and federal programs 

will likely require even greater emission reductions and 

clean energy generation than these policies; however, the 

total amount of clean energy required and the schedule 

on which it is needed is mostly unknown. The same can 

be said for the stringency of future air pollution requirements. 

All of this uncertainty makes it very difficult, and 

risky, to determine when and how much to invest in 

clean energy, pollution controls, or conventional fossil 

fueled power plants. On the one hand, utilities cannot 

be certain that regulators will allow them to recover the 

costs of clean energy investments if investment decisions 

are based purely on speculation about future requirements, and merchants that invest too much or too soon 

could lose a lot of money. Merchants may also find that 

their access to capital is reduced because of regulatory 

uncertainty. On the other hand, delaying action until the 

policy issues become resolved has its own risks, financial 

and otherwise, and in some cases isn’t even an option. 

Some utilities need to make decisions about capacity 

additions, power plant retirements, or pollution controls 

immediately or in the very near term. These decisions 

frequently come with a price tag of tens or hundreds of 

millions of dollars, or even billions, and deciding what 

is best requires the utility and the regulator to make as-
14 Center for Climate and Energy Solutions

sumptions about future regulatory requirements. If those 

assumptions turn out to be wrong, somebody – shareholders, ratepayers, or both – will pay the price. 

One of the underappreciated effects of regulatory 

uncertainty is that it can, over time, create capacity and 

reliability problems. If regulatory uncertainty makes 

utilities and merchants unwilling or unable to invest in 

new power plants or pollution controls, natural demand 

growth may eventually put pressure on existing capacity. This phenomenon was experienced in some parts of 

the country in the 1990s, when uncertainty about the 

deregulation of electricity markets caused a slow-down in 

new power plant construction.

With a long-term CES policy in place, utilities would 

have a much better sense of what is expected of them, 

and they could make investment decisions that regulators are more likely to view as necessary, prudent, and in 

the public interest. Merchant generators would have the 

knowledge about supply and demand that they need to 

make investment decisions that are best for their bottom 

line.

Broad Political Appeal

State and federal policymakers have enacted or at least 

considered a variety of policies other than a CES that 

would have the effect of increasing clean energy generation. The other policy options include renewable portfolio standards, cap-and-trade programs, and traditional 

emission performance standards (see Appendix on 

“Comparison of a CES to Other Policy Options” below 

for a comparison of a CES to these other policy options).

A CES policy offers the promise of a way forward 

on a long-term policy for promoting clean energy and 

reducing pollution from the power sector that minimizes regional disparities and is less politically charged 

or controversial than many alternatives. This is borne 

out by the fact that a substantial majority of U.S. states 

have enacted renewable or alternative energy portfolio 

standards already under the leadership of both major 

political parties.

If renewable and alternative energy portfolio standards have proven popular among the states, there is 

reason to think a CES could be even more popular. Many 

of the states that have thus far eschewed renewable portfolio standards policies are fossil fuel exporters, and may 

view renewable energy as a threat to those industries. 

However, some of these states may be more receptive to 

policies that encourage natural gas, coal with CCS, and 

nuclear power. 

For example, in terms of the percentage of electric 

generation fueled by coal in each state, the top five states 

are West Virginia, Indiana, Kentucky, Wyoming, and 

North Dakota. All five of these states also rank in the top 

10 states for coal production, producing nearly 70 percent of U.S. coal. Kentucky, Wyoming, and North Dakota 

do not currently have a mandatory RPS policy. (North 

Dakota has a non-binding 10 percent RPS goal.) But West 

Virginia, which ranks number one in coal generation 

percentage and number two in coal production, enacted 

a Renewable and Alternative Energy Standard in 2009 

that provides credit to a wide range of energy sources—

including renewables, natural gas, and advanced coal 

technologies. And more recently, Indiana enacted a voluntary clean energy goal that recognizes natural gas and 

nuclear power. The West Virginia and Indiana examples 

demonstrate that a broadly defined CES can appeal to 

states that might not be receptive to renewable energy 

standards. This appeal might also hold at the federal 

level.31

The CES is a relatively new idea, only recently attempted by a few states and only recently attracting federal 

attention, but it may offer a politically palatable way for 

states that already have an RPS as well as those that do 

not to spur clean energy deployment and for federal policymakers to find common ground to establish national 

goals for clean energy.

DISADVANTAGES OF A CES

Any given CES may also have its disadvantages. Several 

disadvantages are worth mentioning, and deserve further 

exploration. For example, a key challenge is defining 

“clean energy,” for which there is no universal definition. 

One person’s preferred CES may not promote the technologies preferred by another person. Determining what 

technologies qualify as “clean” under a CES has implications for achieving the policy objectives, and for the costeffectiveness of the program. Another challenge is that 

the diversity of state electricity portfolio standards – with 

different clean energy definitions and target goals – may 

complicate efforts to harmonize the state standards or 

to create harmony between a federal standard and state 

standards. This could lead to higher CEC prices than 

under a harmonized approach.

For those who view reducing pollution as a key objective of a CES, one disadvantage of a CES may be that 

it increases the portion of generated electricity that is 
CES: State and Federal Policy Options and Implications 15

clean, but does not guarantee an absolute level of pollution reduction. Given that the amount of electricity generated by each facility varies with supply and demand, it 

would not be practical for policymakers to use a CES to 

guarantee a specific absolute level of pollution reduction. Also, since a CES is a power-sector-specific policy 

whose tradable credits are likely denominated in units of 

clean electricity generation instead of absolute pollution 

reduction, it is difficult to link and expand the CES to 

programs focused on other sectors (like transportation 

or manufacturing).The advantages and disadvantages of 

specific design aspects of a CES are further examined in 

Section VIII.
16 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 17

VI. FEDERAL CES PROPOSALS

The idea of a federal CES has attracted increasing attention from policymakers and various stakeholders. This 

section summarizes recent federal CES proposals from 

President Obama and several Senators. Table A2 in the 

Appendix contains more detail on these proposals.

PRESIDENT OBAMA’S PROPOSAL

In his 2011 State of the Union address, President Obama 

called for a CES that would require that 80 percent 

of U.S. electricity come from clean energy sources by 

2035—a target that is based on doubling the share of 

electricity from clean energy sources over the next 25 

years (giving half credit to generation from natural gas 

combined cycle units).32 According to the President’s 

proposal, a CES should:33

•	 Ensure broad deployment and provide maximum 

flexibility in meeting the target by issuing clean 

energy credits for electricity generated from 

renewable and nuclear power, with partial credits 

given for coal use coupled with carbon capture 

and storage (CCS) and efficient natural gas generation;

•	 Be paired with energy efficiency programs, such 

as stronger appliance efficiency standards, tax 

credits for energy efficiency upgrades, and the 

proposed Home Star program;

•	 Include provisions to encourage deployment of 

new and emerging clean energy technologies, 

such as coal with CCS.

RECENT CONGRESSIONAL PROPOSALS

Recent years have seen several proposals for federal electricity portfolio standards. Congress has several times 

debated a federal renewable electricity standard (and 

the House and Senate have even separately passed such 

standards). In 2006, Senator Norm Coleman (R-MN) 

proposed a clean energy portfolio standard that granted 

credits to nonrenewable, low-carbon technologies.34 The 

111th Congress (2009-2010) saw passage in the House 

of Representatives of a federal renewable electricity 

standard as part of a comprehensive climate and energy 

bill (the Waxman-Markey American Clean Energy and 

Security Act of 2009). The Senate saw the introduction of 

three proposals for federal electricity portfolio standards 

in 2010 – one renewable electricity standard by Senator 

Jeff Bingaman (D-NM), and two CES proposals by Senators Richard Lugar (R-IN) and Lindsey Graham (R-SC). 

Most recently, in the 112th Congress (2011-2012), Senators Jeff Bingaman and Lisa Murkowski (R-AK) released 

a CES white paper in March 2011 that solicited feedback 

from stakeholders on the design of a federal CES.35

Comparing the recent Senate proposals for federal 

electricity portfolio standards from the last session of 

Congress and President Obama’s CES proposal, one finds 

several important differences that point to the range of 

potential objectives and designs for a CES. Among other 

things, the CES proposals differed in terms of how they 

defined clean energy, how they treated energy efficiency, 

how they limited the cost impacts of the policy, and how 

much incremental clean energy generation they would 

require beyond “business as usual.”36
18 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 19

VII. STATE AND REGIONAL CES OPTIONS

As of September 2011, 31 states and the District of 

Columbia have adopted some form of mandatory RPS 

policy through legislation, regulation, or public utility 

commission order (shown in Figure 4). Another eight 

states have adopted non-mandatory renewable portfolio 

goals.37 In addition, 23 states have established mandatory 

long-term energy savings targets through an Energy Efficiency Resource Standard (EERS), with two other states 

having a non-mandatory energy savings goal.38 In some 

of these cases, the state RPS policy is combined or linked 

to the EERS policy.

Although many of these state policies have only been 

recently adopted, it is not too soon to learn some basic 

lessons from the results achieved. Some of the lessons 

learned are summarized in this section. Based on these 

lessons, this paper also considers some fundamental 

questions about how to transition from dozens of individualized state RPS policies into a more consistent set of 

regional or national CES policies.

LESSONS LEARNED FROM STATE ELECTRICITY 

PORTFOLIO STANDARDS

Perhaps the most important lesson to be learned from 

state RPS programs is that they succeed in accelerating 

the deployment of renewable resources. As noted earlier, 

90 percent of the non‐hydro renewable capacity built in 

the United States since 2004 was built in states with a 

mandatory RPS policy. Another clear (and expected) lesson is that state RPS policies tend to result in the deployment of the cheapest available renewable energy options. In most states, this means utility-scale wind power 

projects. State RPS policies are given a good deal of the 

credit for establishing a viable wind turbine supply chain 

in the United States, along with training and credential 

programs and some domestic manufacturing facilities. 

A third key lesson is that the impact of RPS policies on 

electricity rates is difficult to isolate from other factors 

that influence prices, but in most states modest RPS targets appear to have resulted in only modest impacts.39

While these broad lessons are useful, this subsection 

further examines five-states (Michigan, Ohio, Pennsylvania, West Virginia, and Indiana) that have adopted 

electricity portfolio standards or goals that provide credit 

for non-renewable electric generation technologies and 

are most similar to recently proposed federal CES policies.40 Table A3 in the Appendix summarizes these state 

programs.

Michigan

In 2008, Michigan enacted what it calls a Renewable 

Electricity Standard. Michigan’s standard, however, 

meets this paper’s definition of a CES because it actually allows for some compliance via non-renewable 

generation. Michigan’s standard requires 10 percent 

of electricity to come from qualified energy resources 

by 2015. Michigan’s law allows utilities to meet up to 10 

percent of their compliance obligation through the use 

of “energy optimization” credits (i.e., energy efficiency) 

or “advanced cleaner energy credits,” if approved by the 

public utility commission.41 The following technologies 

qualify as advanced cleaner energy facilities: coal with 

CCS, coal gasification, and industrial combined heat and 

power (CHP) facilities. Advanced cleaner energy credits 

are issued at a severe discount in most cases, such that 

10 MWh of generation from these facilities are equal to 

one MWh of renewable generation or energy efficiency. 

The only notable exception is for generation at industrial 

CHP facilities, which is not discounted. 

The Michigan Public Service Commission published 

a status report on the implementation of its electricity 

portfolio standard in February 2011.42 Although utilities 

do not have a percentage target to meet until 2012, they 

were required to file renewable energy plans that were 

reviewed by the Commission and served as the basis for 

the status report. The Commission found that 71 of the 

74 electric providers in the state, representing 97 percent 

of statewide load, have a feasible plan to meet the 10 

percent by 2015 standard without exceeding rate impact 

caps that were established as part of the law. For the two 

largest utilities in the state, the average cost of renewable 

generation is more than seven times the average cost of 

energy optimization (i.e., energy efficiency). Only one 
20 Center for Climate and Energy Solutions

utility registered advanced cleaner energy credits in the 

first year of implementation. 

The Commission report indicates that the 10 percent 

cap on compliance via non-renewable resources is not 

proving to be a barrier to the development of advanced 

cleaner energy credits for any utility, thus far. The reported cost advantage of energy optimization, however, 

underscores this important point: if a CES has only modest targets and it includes energy efficiency without a cap 

or discounting mechanism, the policy will substantially 

favor energy efficiency over renewable or alternative energy due to the price differential between the two types 

of resources.

Ohio

In 2008, Ohio adopted what it termed the Renewable 

and Advanced Energy Portfolio Standard with a target 

of 25 percent by 2025, as well as an EERS with targets 

of 1 percent savings by 2014 and 2 percent by 2019. In 

addition to the types of renewable technologies included 

in most state RPS laws, the Ohio CES allows for up to 50 

percent of the compliance obligation to be met through 

“advanced energy resources.” This term includes demand 

side management and energy efficiency measures in 

excess of those required to meet the EERS, advanced 

nuclear power, distributed combined heat and power 

(CHP) facilities, and coal with CCS.43 The Ohio law also 

includes a small carve-out for solar photovoltaic generation, meaning that part of the requirement must be met 

with this type of resource. Ohio’s CES is currently the 

only mandatory state electricity portfolio standard in the 

country that specifically allows nuclear power to qualify 

for credit.

To date, Ohio utilities have only filed two years of 

compliance reports and the Ohio Public Utilities Commission has not produced any kind of aggregated, 

statewide status report. Individual compliance reports 

from Ohio’s four largest electric utilities (in terms of 

retail sales) did not indicate any use of advanced energy 

resources for compliance with year 2010 obligations.44

It may take several more years before conclusions can 

be drawn about the effects of Ohio’s CES in promoting 

advanced energy resources. One would not expect to 

see those resources deployed and generating electricity 

just one year after the CES took effect; it can take longer 

than a year to construct a CHP facility and many years 

to construct nuclear or coal with CCS facilities. Energy 

efficiency, on the other hand, can be implemented very 

quickly and can save a kWh of electricity for less than the 

cost of generating a kWh via renewable or “advanced” 

energy resources. Given, however, that Ohio only allows 

energy efficiency in excess of its EERS to qualify for the 

CES, and the EERS becomes more ambitious over time, it 

may be that the use of energy efficiency for CES compliance will be less than what might otherwise be expected.

Pennsylvania

Pennsylvania’s electricity portfolio standard (called the 

Alternative Energy Portfolio Standard) was adopted 

in 2004. It requires utilities to increase their use of 

clean energy resources each year, with a final target of 

generating eight percent of all electricity from “Tier I” 

energy resources and ten percent from “Tier II” energy 

resources in 2021. Tier I is similar to the list of qualifying renewable technologies in most state RPS laws, while 

Tier II includes demand side management and energy 

efficiency measures, waste coal, coal gasification, and 

distributed generation.45 As in Ohio, Pennsylvania’s CES 

also includes a small carve-out for solar photovoltaic generation, which is part of the eight percent Tier I target.

The Pennsylvania Public Utility Commission, in its 

most recent compliance report, found that the average 

price of Tier I credits in 2009 was ten times higher than 

the average price of Tier II credits. The Commission also 

reported that there were at least 45 percent more Tier II 

credits created in each of the years from 2005 through 

2008 than will be needed in 2021. The total cost of 

compliance with the CES was equal to about 0.25 percent 

of the cost of electric service.46 These findings suggest 

three major lessons. First, the law has not had a dramatic 

effect on electricity costs. Second, if Pennsylvania had 

not placed renewable and non-renewable resources in 

separate tiers, its CES would provide very little incentive 

for increased deployment of renewables, because the vast 

majority of compliance would come through cheaper 

waste coal generation and energy efficiency measures. 

Third, the fact that more credits have been generated 

than are likely to be needed suggests that the 10 percent by 2021 requirement for Tier II was not sufficiently 

ambitious to provide any meaningful incentive beyond 

business-as-usual. Pennsylvania broke new policy ground 

in 2004 with its CES, but if the state wants to encourage 

additional energy efficiency, coal gasification projects, or 

increased use of other Tier II resources, the current law 

might need to be revised.
CES: State and Federal Policy Options and Implications 21

West Virginia

In 2009 West Virginia established its Alternative and 

Renewable Energy Standard, which requires 25 percent 

of electricity to come from “alternative and renewable 

energy resources” by 2025. The non-renewable alternative technologies that qualify for West Virginia’s CES 

include demand side management and energy efficiency 

projects, waste coal, coal bed methane, coal with CCS, 

coal gasification or liquefaction, natural gas, synthetic 

gas, and GHG offset projects. West Virginia awards two 

credits for each MWh of electricity generated from renewable resources, but only one credit per MWh generated from alternative energy resources or MWh saved via 

energy efficiency measures. Offset projects can also earn 

one credit per ton of GHG reduced. This is currently the 

only mandatory CES in the country that includes natural 

gas as a qualifying technology, but utilities may only use 

natural gas to meet up to 10 percent of their compliance 

obligation. 

West Virginia utilities do not have a CES compliance 

obligation until 2015, but they were required to file compliance plans with the West Virginia Public Service Commission in January 2011. Although the Commission has 

not yet approved these compliance plans, they provide 

an early indication of the effects that the CES law might 

have. The compliance plans proposed by the two dominant companies in the state are illustrative. American 

Electric Power’s plan would result in increased generation from advanced coal technologies and natural gas, as 

well as increased energy efficiency, but would not likely 

result in any new renewable generation capacity between 

now and 2025. Even the increases may not be attributable 

to the CES law, as this company’s plan would vastly overcomply with the standard and bank large numbers of 

credits for sale or future use. Allegheny Power similarly 

reported to the Commission that it can comply with the 

CES through 2025 using currently available resources. 

These two companies provide 99 percent of all retail 

sales in the state.

Thus far it does not appear that the West Virginia 

CES is greatly advancing renewable generation, though it 

may be providing an incentive for cleaner advanced coal 

generation, natural gas, and energy efficiency.

Indiana

Indiana became the most recent state to adopt a clean 

energy policy with the enactment in May 2011 of its 

Voluntary Clean Energy Portfolio Standard. Unlike the 

prior four examples, Indiana’s law creates clean energy 

incentives (described below) rather than requirements 

for public utilities. In order to receive incentives, a utility must apply for the program and be approved by the 

Indiana Utility Regulatory Commission. To be approved, 

the utility must demonstrate to the Commission’s satisfaction that in the year 2025 the utility has a reasonable 

expectation of obtaining from qualified energy resources 

an amount of electricity equal to 10 percent of its total 

base year (2010) retail sales. There are also two multiyear interim targets that the utility must meet in order to 

maintain eligibility for incentives: in the years from 2013 

through 2018, the annual average percentage from qualified resources must equal four percent of base year sales, 

and from 2019 through 2024 the annual average must 

equal seven percent of base year sales.

In addition to a typical list of qualifying renewable resources, Indiana’s voluntary program recognizes electric 

generation or savings from energy efficiency and other 

demand side management programs; energy storage 

systems; distributed generation; coal bed methane; CHP 

and waste heat recovery; nuclear power; and natural gas 

from a facility constructed in Indiana after July 1, 2011, 

which displaces electricity generation from an existing 

coal fired generation facility.

The law is very specific about the incentives that the 

Commission is authorized to provide to participating 

utilities. If a participating utility can attain the stated 

clean energy goals, the Commission has discretion to 

award shareholder incentives in the form of an increased 

overall rate of return on equity, not to exceed 50 basis 

points over the utility’s authorized rate of return. The 

number of additional basis points authorized by the commission may be different for each of the goal periods, as 

the Commission determines appropriate, and may also 

be based on the extent to which the participating utility 

met its goal using renewable resources. Participants are 

also assured of cost recovery through a periodic rate 

adjustment mechanism. 

Because the law is so new, the Commission has not 

yet promulgated implementation rules. In addition, it 

remains to be seen whether any utilities will apply for this 

voluntary program. 

HOW MIGHT EXISTING STATE RPSS BE EXPANDED 

TO/COMPLEMENTED BY CES?

Regardless of the existence of a federal CES, states that 

already have an RPS policy could certainly choose to 
22 Center for Climate and Energy Solutions

expand the list of resources that qualify for their own 

standards. If states wish to increase both renewable and 

non-renewable clean energy, the early results from some 

of the first experiments with a CES suggest that the 

targets and schedule would need to be adjusted accordingly to ensure that the policy change does not result in 

a substitution of one for the other. In other words, a state 

that currently has a 25 percent by 2025 RPS will not promote additional clean energy deployment if it switches 

to a 25 percent by 2025 CES that includes natural gas, 

though it may reduce compliance costs for utilities. 

Instead the state should consider higher targets and/or a 

more aggressive schedule when it expands from an RPS 

to a CES.47

If a federal CES policy is adopted, states may wish to 

retain their RPS policies, especially if the federal policy 

lacks ambition or treats all clean resources equally. This 

would provide a way for states to ensure (and control) the 

amount of renewable energy that is in their clean energy 

supply mix or express local preferences about which 

renewable energy resources are most valued. One way to 

allow state RPS policies to operate concurrently with a 

federal CES policy would be to develop tracking systems 

that assign multiple distinct credits to each unit of clean 

energy generation. For example, a megawatt-hour of 

generation that is considered “clean” under both laws 

would receive one federal CES credit and one state RPS 

credit. The owner of the credit would separately retire 

the federal CES credit for federal compliance purposes 

and the RPS credit for compliance in any one state where 

the credit would qualify for RPS compliance purposes.48

POTENTIAL FOR REGIONAL COORDINATION AND 

MULTI-STATE PROGRAMS

As previously noted, in the absence of a federal CES 

policy states could expand their RPS policies to become 

CES policies. Another option would be for states to pursue coordinated and harmonized multi-state or regional 

policies. These regional programs could be along the 

lines of a traditional RPS, or a CES.

Some regional coordination has already occurred 

with respect to RPS credit tracking systems, and state policies typically allow the use of credits from generation in 

other states. What has not happened, however, is a more 

systematic effort to harmonize across states the types 

of eligible resources, the targets and schedule, or other 

requirements. To the extent that common definitions of 

“clean” are adopted across jurisdictions, credit trading 

programs and tracking systems can be much simpler.

The Regional Greenhouse Gas Initiative (RGGI) may 

provide a useful example of how states collaborated on a 

regional policy affecting the electricity sector. Although 

differences do exist in the policies of each state, they 

all fit into a single regional framework for achieving a 

regional GHG reduction target. In addition, the states 

worked with three different regional power pools to 

coordinate consistent tracking systems. The same thinking could be applied to achieving a regional clean energy 

target.
CES: State and Federal Policy Options and Implications 23

VIII. CES POLICY DESIGN OPTIONS AND IMPLICATIONS

This section describes the options for key CES policy 

design parameters and the implications of different 

choices. As described in Section III, increasing the 

share of electricity provided by clean energy sources 

can advance a range of important objectives—including 

fostering clean energy industries and jobs, diversifying 

the energy supply, and improving the environmental and 

public health profile of electricity generation. Choosing 

one policy design over another, however, may have the 

effect of favoring one objective over another.

Design choices may also be evaluated in light of additional criteria, including:

•	 Effectiveness – what is the magnitude of the 

policy’s desired impacts?

•	 Affordability – does the policy balance the benefits associated with increased clean power generation against the cost impacts of the policy?

•	 Cost-effectiveness – how efficiently does the policy 

achieve its intended aims?

•	 Fairness – does the policy unfairly burden particular groups or lead to any undue burdens or 

unearned windfalls for particular utilities, power 

generators, or customers?

Design choices may be further evaluated with Equations 1 and 2 below, which highlight the difference 

between the “nominal” amount of clean energy required 

under a CES and the actual amount of clean energy generated. They also help explain one of the most important 

and least understood facets of CES design: the impact of 

defining “base quantity of electricity sales.”

One can think of a CES as defining a simple equation 

that electric utilities must balance: 

The distinction between the nominal annual percentage requirement of a CES and the total amount of 

clean energy that is actually generated under the CES is 

illustrated by Equation 2.

Equation 2 illustrates the possibility that the nominal 

annual percentage requirement of a CES – the number 

Equation 1 highlights three of the most important policy design decisions for a CES, namely:

1. What is the nominal annual percentage requirement for electric utilities under the CES?

2. What receives credit under a CES as qualified clean energy generation?

3. To what base quantity of electricity sales does the CES percentage requirement apply?

EQUATION 1: Illustration of CES Requirement for an Electric Utility

CES % Requirement = Qualiied Clean Energy Generation

Base Quantity of Electricity Sales

EQUATION 2: Decomposition of Total Clean Energy Generation under a CES into Relevant 

Parts

CES % Requirement = Qualiied Clean Energy Generation+Other Clean Generation

Base Quantity of Electricity Sales + Other Electricity Sales
24 Center for Climate and Energy Solutions

by which the CES is known to most of the public – will 

not be the same as the amount of clean energy that will 

actually be generated under the CES. Policymakers will 

be familiar with the impact that the definition of qualified clean energy will have on the difference between the 

nominal requirement and the actual generation of clean 

energy. What may be less understood is the importance 

of defining the base quantity of electricity sales, as discussed throughout this section, but especially in Section 

VIII on Defining the Base Quantity of Electricity Sales. 

POINT OF REGULATION

The “point of regulation” refers to the entity upon which 

the compliance obligation is imposed under a CES. The 

choice for policymakers is between: 1) regulating electric 

utilities and making their CES compliance obligation 

a function of their electricity sales; and 2) regulating 

generators and making their CES compliance obligation 

a function of their electricity generation.49 A majority 

of states already have renewable or alternative energy 

standards, and all of them have placed this obligation 

on electric utilities. Recent congressional RPS and CES 

proposals as well as the Obama Administration’s proposal call would also place the regulatory obligation on 

electric utilities.50,51

Recently, however, some have argued for reconsidering the point of regulation. In particular Joseph Aldy 

(Harvard/Brookings) and Dallas Burtraw et al. (Resources for the Future, RFF) have suggested that the 

obligation should be on electricity generators rather 

than electric utilities.52,53 Aldy proposes a national clean 

energy standard with a point of regulation on power 

generators rather than electric utilities for the purposes 

of administrative simplicity and to avoid creating an 

incentive for industry to adopt on-site fossil fuel generation to evade electricity price increases associated with 

the CES. Burtraw et al. argue that placing the obligation 

on electric utilities is a “blunt” instrument that treats 

large categories of existing facilities (e.g., all coal plants) 

as a homogeneous group, despite substantial variations 

in heat rates and CO2 intensities, and provides limited 

or no incentives for generators to improve their efficiencies. Burtraw et al. acknowledge, however, that there are 

arguments in support of placing an obligation on electric 

utilities, and that they relate to the unique position 

of electric utilities with respect to promoting end-use 

energy efficiency and network efficiency (in terms of 

transmission and distribution) and to electric utilities’ 

regulated status.

Finally, one additional reason for focusing the requirement on utilities is that any given generator, if made 

the point of regulation, would have fewer compliance 

options.54

COVERAGE

The coverage of a CES refers to the set of entities at a 

particular point of regulation that are subject to a CES. 

This section discusses coverage under a CES with the 

point of regulation on electric utilities. The two issues 

to address are whether small utilities should be exempt 

from requirements, and whether certain types of utilities 

should be exempt based on ownership structure.

Exemptions Based on Utility Size

Previous federal electricity portfolio standard proposals have included exemptions for smaller utilities (see 

Appendix on “Recent Congressional CES Proposals”). 

However, an exemption for small utilities can substantially weaken a CES’s effective target and shift the responsibility for achieving a national goal for clean electricity 

generation to a subset of utilities and ratepayers. Policymakers should evaluate whether such an exemption is 

justified in light of the following considerations. 

By its very nature as a market-based program, a CES 

does not impose disproportionately higher costs on 

smaller utilities simply as a function of their smaller 

scale. This is in contrast to those command-and-control 

environmental regulations which require the installation 

of specific pollution controls on specific sources – requirements that have less impact on electricity costs (in 

$/kW of capacity) at larger plants because of economies 

of scale. For such pollution controls, smaller utilities 

that own or are supplied by smaller power plants, or 

that depend heavily on a few large plants, would likely 

face higher costs than larger utilities. Under a CES, all 

utilities—small and large—can determine the most 

cost-effective strategy for meeting the CES requirements 

through a combination of increased clean generation 

from self-owned facilities, purchase of clean energy 

credits (CECs), or some other compliance means allowed 

under the program. 

Second, the current status of clean energy generation 

suggests that small utilities can successfully deploy clean 

energy technologies.55 While exclusion of smaller utilities 

dramatically reduces the number of regulated entities 

(see Appendix on “Electric Utility Size Threshold under 
CES: State and Federal Policy Options and Implications 25

a Federal CES”), based on the low administrative costs of 

market-based pollution control programs,56 implementing a market-based CES program with a large number of 

regulated entities unlikely to be a significant administrative burden.

Exemptions Based on Ownership Structure

Some state RPS laws only cover investor-owned utilities, 

with municipal utilities, public power marketers, and 

electric cooperatives exempted from all requirements. 

The theory underlying this policy choice in most cases 

appears to be that municipal governments, rather than 

state government, should establish policy for municipal 

utilities, while cooperatives should be governed by their 

members. However, not all states exempt these entities. 

Furthermore, such an approach if adopted in a federal 

CES would fail to cover roughly one third of the electric 

power sector, and could contribute to exaggerated regional inequities. Investor-owned utilities in Mississippi, 

for example, supply over 75 percent of all retail electricity 

while there are no investor-owned electric utilities in the 

entire state of Nebraska.

TARGETS AND TIMETABLES

The targets and timetable for a CES define the level of 

clean electricity generation required and thus the extent 

of clean energy technology deployment and the degrees 

to which associated benefits are realized (e.g., pollution mitigation). This subsection explores three issues 

relevant to CES targets and timetables.

Nominal vs. Effective Targets

As illustrated by Equation 1 and Equation 2 above, electricity portfolio standards can specify aggregate nominal targets and timetables that can differ substantially 

from the actual effective aggregate requirements of the 

standards. 

Two main design parameters determine the difference 

between the nominal targets and the actual effective 

targets. First, any exemptions from compliance (e.g., for 

small utilities) make the overall effective target (across 

all utilities) lower than the nominal target. Second, 

exclusions from the base quantity of electricity sales (i.e., 

the electricity sales to which the nominal target applies) 

can make the effective target lower or higher than the 

nominal target depending on what sort of electricity sales 

are excluded.57,58

Other provisions of a CES can also lower the effective 

target relative to the nominal target, including bonus 

credits for specific technologies (e.g., distributed renewable generation or CCS) and shut-down credits for early 

retirement of certain generators. These types of provisions and their effects are explained later in this paper.

Uniform vs. Differentiated Targets

A CES can have a uniform percentage requirement that 

applies to all covered electric utilities, or can set different targets for different electric utilities. The rationale 

for differentiated targets is that, at the time a CES is 

enacted, electric utilities may supply substantially different fractions of their demand from clean energy 

sources. This is especially the case if a CES is a multistate, regional or federal program. Setting targets that 

vary by individual electric utility, by state, or by region 

may promote more equitable distribution of costs under 

a CES (see Section VIII on Defining the Base Quantity 

of Electricity Sales for more on this topic). An argument 

against differentiated targets is that they can disadvantage early adopters of clean energy.

Timetable Options

A CES may have a primary nominal target tied to a particular year in the future (e.g., 80 percent clean energy by 

2035) that summarizes the policy’s overall level of ambition. The timetable refers to the set of interim requirements that define electric utilities’ annual compliance 

obligations. Policymakers may take one of two approaches to defining a CES policy’s timetable. 

First, policymakers might simply set annual CES 

requirements that ramp up to a long-term target at a constant rate. This might be done linearly—with CES targets 

increasing by a small, constant amount each year—or in 

steps—e.g., with the CES requirement increasing by a 

fixed number of percentage points at five year intervals. 

Policymakers may prefer this approach for its simplicity particularly if they think that the rate of increase is 

consistent with the rate of growth in clean energy that 

the industry can deliver cost-effectively and if the CES 

policy provides electric utilities with substantial compliance flexibility from credit trading and banking (and 

perhaps borrowing). Banking and borrowing concepts 

are explained later in this paper.

A second approach is to define a CES timetable such 

that the CES percentage requirements begin modestly, 

increase slowly at first, and then increase at an accelerat-
26 Center for Climate and Energy Solutions

ing rate. The appeal of this approach is that it gives the 

industry time to ramp up its investments in clean energy 

and allows some time for initial longer-lead projects (e.g., 

new nuclear reactors) to come online. 

DEFINING THE BASE QUANTITY OF ELECTRICITY 

SALES

Perhaps the most important and least understood concept in the design of a CES is how the definition of the 

base quantity of electricity affects the difference between 

the nominal CES target and the actual amount of clean 

energy generated. The base quantity of electricity sales is 

the portion of an electric utility’s annual electricity sales 

to which an electricity portfolio standard’s percentage requirement applies. All else being equal, excluding some 

types of clean electricity sales (e.g., from existing clean 

energy sources) from the base quantity under a CES will 

increase the required level of new clean energy generation and raise a CES’s effective target above its nominal 

target. Conversely, excluding electricity sales that are 

not clean (e.g., from small generators) from the base 

quantity will lower the required level of new clean energy 

generation and decrease a CES’s effective target below 

its nominal target. Finally, the concept of base quantity 

helps explain why utilities could have a natural incentive 

to promote energy efficiency under a CES, even without 

additional incentives. Four examples can illustrate all 

this.

First, consider a situation in which 40 percent of 

electricity is already provided by clean energy sources, 

and a CES is enacted with a nominal requirement that 

50 percent of electricity come from clean energy sources. 

If the base quantity is defined as being equal to the 

total electricity supply (i.e., including the already-clean 

energy), another 10 percent of total electricity will have 

to come from new clean energy sources. 

Second, consider a situation, again with a 50 percent 

nominal CES, but in which the base quantity is defined 

as excluding the 40 percent of electricity that already 

comes from existing clean energy sources. In that case, 

the 50 percent nominal CES will apply to the 60 percent of electricity not already supplied by existing clean 

energy generators. Therefore, 30 percent (50 percent 

of the 60 percent) of total electricity will have to come 

from new clean energy sources. The actual percentage of 

total electricity generated from clean energy sources will 

be 70 percent – 40 percent from existing clean energy 

sources plus 30 percent from new clean energy sources. 

Excluding some types of clean energy from the definition of base quantity raises a CES’s effective target over 

its nominal target.

Third, consider a situation with a 50 percent nominal 

CES in which existing clean energy sources are defined 

as being included in the base quantity, but small nonclean sources which generate 20 percent of total electricity are excluded from the program, and therefore from 

the base quantity. Because the CES will apply only to the 

80 percent of sources that are large, the actual amount 

of clean energy generated will be 40 percent of total electricity (50 percent of the 80 percent). Excluding some 

types of non-clean energy from the definition of base 

quantity lowers a CES’s effective target below its nominal 

target.

Fourth, consider a situation with a 50 percent nominal 

CES in which existing clean energy sources are included 

in the base quantity, and sources of all sizes are included 

in the program, but utilities are deciding whether to 

launch projects to increase their customers’ energy efficiency, which would decrease electricity demand by 10 

percent. If the utilities launch the projects, the actual 

percentage of the originally-generated electricity (i.e., 

before the energy efficiency projects) generated by clean 

energy sources will be 45 percent (50 percent of the 90 

percent). In other words, utilities will see their actual 

CES obligation decrease as a result of their energy efficiency projects. The concept of base quantity helps us understand why a CES would naturally create an incentive 

to increase energy efficiency, even if energy efficiency 

itself cannot directly earn clean energy credits.59

The above examples illustrate the effects of various 

definitions of base quantity on the power sector in the 

aggregate. A given definition of base quantity can also 

have importantly different impacts on different individual utilities, especially if other parameters, such as the 

nominal CES level and whether existing clean energy resources can be used to comply with the requirement, are 

also changed. (Note that whether existing clean energy is 

defined as part of the base quantity and whether existing 

clean energy can be used for compliance are two separate questions). It is beyond the scope of this paper to 

discuss all the possible variations, but two more examples 

will illustrate the possibilities. 

First, consider two utilities (“Coal Utility” and “Nuclear Utility”) operating under the second case above, 

with a 50 percent nominal CES, and in which the base 

quantity is defined as excluding electricity from existing 
CES: State and Federal Policy Options and Implications 27

clean energy sources, but also in which existing clean energy sources can be used to comply with the CES. Clean 

energy sources provide 16 percent of Coal Utility’s electricity and 72 percent of Nuclear Utility’s electricity. Coal 

Utility’s base quantity of electricity will be 84 percent of 

its total electricity sales (100 percent minus 16 percent), 

therefore 42 percent (50 percent of the 84 percent) of 

Coal Utility’s total electricity sales will have to come from 

clean energy sources, and therefore Coal Utility will have 

to add new clean energy or buy CECs for 26 percent of its 

total electricity sales (42 percent effective target minus 

16 percent existing clean energy). Nuclear Utility’s base 

quantity will be 28 percent (100 percent minus 72 percent), therefore 14 percent (50 percent of the 28 percent) 

of Nuclear Utility’s total electricity sales will have to come 

from clean energy sources, and therefore Nuclear Utility 

will actually be able to sell CECs from 58 percent of its 

total electricity sales (72 percent existing clean energy 

minus 14 percent effective target). Some would view this 

as a windfall. 

Second, consider the previous scenario, except with 

a 20 percent nominal CES (rather than 50 percent), and 

with existing clean energy sources not allowed to count 

towards compliance. As before, Coal Utility’s base quantity will be 84 percent, though now only 16.8 percent (20 

percent of the 84 percent) of Coal Utility’s total electricity sales will have to come from clean energy sources. 

Also, as before, Nuclear Utility’s base quantity will be 28 

percent, though now 5.6 percent (20 percent of the 28 

percent) of Nuclear Utility’s sales total electricity sales 

will have to come from clean energy sources. Coal Utility will have to add more clean resources (16.8 percent) 

than Nuclear Utility (5.6 percent) – in other words, there 

will be an advantage to Nuclear Utility in having made 

the earlier clean energy investments – but there will be 

no windfall. This approach – a low nominal CES, with 

existing clean energy not included in the baseline and 

not counted towards compliance – has in fact been taken 

in some legislative proposals.

QUALIFIED ENERGY SOURCES

A CES must specify the types of electricity generation 

(potentially including “negawatt-hours” of electricity savings from efficiency) that qualify as clean and the rate at 

which qualified energy sources earn credits. 

As mentioned above, policymakers and various stakeholders may have different opinions about what ought 

to count as clean under a CES. In deciding whether to 

include a particular fuel or technology as a qualifying 

clean energy source under a CES, policymakers might 

consider the extent to which a fuel or technology furthers the goals they have for a CES. (The same consideration holds for counting electricity savings from energy 

efficiency.) For example, does providing an incentive for 

a particular fuel or technology (or energy efficiency):

•	 Spur growth in clean energy industries and associated employment?

•	 Promote the development and deployment of less 

mature, advanced clean energy technologies?

•	 Diversify the power sector’s energy supply?

•	 Reduce the environmental and public health 

impacts from electricity generation?

It is not always easy to measure or to agree upon the 

extent to which a given clean energy source promotes the 

objectives above; moreover, stakeholders may have different views about how to weigh the objectives above in 

deciding whether a particular fuel or technology should 

qualify as clean under a CES and whether it should 

receive full or partial credit as clean (and if partial, what 

fraction).

Natural gas generation is an important case in point. 

Some CES proposals have included at least partial credit 

for highly efficient natural gas combined cycle (NGCC) 

electricity generation as a qualified clean energy source. 

Such generation does offer benefits, particularly in terms 

of public health and environmental impacts, compared 

to older, less efficient, and more highly polluting electricity technologies. However, NGCC is a mature and 

established technology for generating electricity. Indeed, 

natural gas is the dominant choice for new electricity 

generating capacity and support for it may draw away 

support for other resources that are not already costcompetitive.60 Allowing credits from natural gas generation under a CES may, in effect, disincentivize other 

clean energy technologies, including technologies that 

are less commercially mature or have higher costs in the 

near term. As such, stakeholders may have different views 

about whether or to what extent a CES ought to count 

natural gas as a clean energy source, driven largely by the 

policy objectives they wish to advance.61

The possibility of retrofitting fossil fuel power plants 

with post-combustion CCS provides another case in 

point. When post-combustion CCS is added to an existing power plant, GHG emissions can decrease substantially. However, depending on the technology used, emissions of other air pollutants may not change. In addition, 
28 Center for Climate and Energy Solutions

some of the power generated by the plant must be used 

to operate the CCS equipment, meaning the amount 

available for sale decreases. In some cases the net result 

may be that for a given amount of net electrical generation leaving a power plant, the addition of CCS makes 

GHG emissions decrease but other air pollutant emissions increase. Deciding whether a post-combustion CCS 

retrofit should be considered clean could be very complicated or site-specific, and depend heavily on whether 

a higher priority is placed on reducing GHG emissions 

than reducing other air pollutants.

Given the above, in designing a CES policymakers 

may take different approaches to defining qualified clean 

energy sources and setting the rate at which they earn 

credit under the CES. Policymakers might simply enumerate a list of qualifying clean energy sources and assign each a rate at which it earns credits under the CES. 

A variety of considerations might inform this list and the 

assignment of full and partial credits. 

Table 1 illustrates how a CES might simply list qualified clean energy technologies. This approach has the 

advantage of administrative simplicity, and allows for accommodation of different viewpoints since policymakers 

can negotiate which clean energy sources to include and 

the degree to which each receives full or partial credits. 

However, the simplicity of this approach can lead to less 

efficient incentives for achieving particular policy objectives.62 This is perhaps most easily seen for the objective 

of reducing GHG emissions from power generation and 

the example in Table 1. In the example in Table 1, the 

CES would provide power producers with no incentive 

to exceed thresholds for qualification—for example, by 

decreasing the heat rate of an NGCC plant or increasing 

the level of CO2 capture at a facility employing CCS. 

An alternative approach is for policymakers to define 

a set of performance criteria that clean energy sources 

must meet to qualify for credit under a CES, perhaps 

using a formula for determining eligibility and assigning 

credits to qualified clean energy sources. The benefit of 

this approach is that it is more precise and thus can create more efficient incentives for clean energy producers. 

The drawback of this approach is that it is most suitable 

and practical when policymakers can agree on a single 

primary objective for a CES. If policymakers believe the 

primary objective of a CES is to spur GHG emission reductions in the power sector via expanded clean energy 

generation, they might adopt a formula like that in Equation 3 for assigning credits to clean energy sources.

The fact that existing state policies differ in the 

resources that qualify for credit and in the amount of 

credits awarded to each resource complicates any effort 

to develop multi-jurisdictional trading and credit tracking systems. Although this is not an insurmountable 

problem, it could be minimized through greater harmonization of state policies.

The most important principle for policymakers to 

remember is that deciding what qualifies as clean goes 

hand in hand with deciding the CES targets. The wider 

the range of resources that qualify as clean, the easier it 

is to meet any given percentage target, and the higher 

the target that can be met at a given cost.

TABLE 1: Illustration of Simple Approach to 

Crediting Clean Energy Generation under a 

CES

ELECTRICITY GENERATION 

TYPE

NUMBER OF CECS PER 

MWH OF GENERATION

Renewables 1

Nuclear 1

Coal with CCS (50-90% 

CO2 capture)

0.5

Coal with CCS (90+% CO2 

capture)

1

Natural gas combined 

cycle (<800 lbs. CO2/

MWh)

0.5

EQUATION 3: Illustrative Formula for Awarding CECs to Clean Energy Sources

CEC/MWh = 1 −

Generator′

sGHG Intensity in tCO2e/MWh

GHG Intensity in tCO2e/MWh of a New Coal Fueld Power Plant w/o CCS
CES: State and Federal Policy Options and Implications 29

CREDITING CLEAN GENERATION FROM NEW AND 

EXISTING GENERATORS

A CES has to provide credit to generation from new 

clean energy facilities, since the main purpose of the 

policy is to spur deployment of clean energy technologies. Policymakers, however, have different options for 

treatment of generation from clean energy facilities that 

predate enactment of a CES.63 The question of how a 

CES treats generation from such existing clean energy 

generators has very different implications for utilities 

with large existing clean energy sources than for those 

that do not. Some argue that providing credit for existing sources would create wealth transfers and windfall 

profits. Others argue that doing so would reward early 

adopters of clean energy, encourage existing clean resources to maintain and not reduce their output, provide 

for less expensive compliance with a given nominal target, and tend to make the market for CECs more robust 

from the beginning. The implications are especially 

important for the five issues below.

Target-Setting

The level of incremental clean energy required by a given nominal CES target will vary depending on whether 

generation from existing facilities counts toward the target. Providing credits to all clean energy generation (new 

and existing) makes it simple to translate a target like 

President Obama’s goal of supplying 80 percent of electricity from clean energy by 2035 into a CES target. The 

President’s target translates directly to a requirement 

that utilities supply 80 percent of their annual sales from 

clean energy sources in 2035. On the other hand, providing credits only for new or incremental clean energy 

generation means that, all else equal, the actual level of 

clean energy generation in a given year will be a function 

both of the percentage requirement set under the CES 

and the level of generation from existing clean energy 

sources that do not receive credits under the CES.64 To 

meet an overall goal for total clean energy generation 

(e.g., 80 percent of total electricity supply by 2035) with a 

CES that sets a requirement only for new and incremental clean energy generation it may be necessary to revise 

periodically the CES requirements in light of changes to 

existing clean energy facilities for example, due to facility retirements.

Incentives for Incremental Output

To the extent that an additional financial incentive can 

lead to greater output from existing clean energy facilities, providing credits to at least incremental generation 

from existing clean energy facilities can increase clean 

energy generation and reduce emissions more costeffectively. For example, if credits are not awarded to all 

existing clean energy generation, then awarding credits for incremental output from existing clean energy 

generators can provide an incentive for nuclear upgrades 

and higher utilization of existing natural gas combined 

cycle power plants. There are limits to this, of course – 

wind and nuclear generating units usually operate at full 

capacity already, and lower natural gas prices may lead 

to an already high dispatch of NGCC plants. Policymakers may wish to target the incentives, for example by 

assigning credits for output from capacity expansions or 

uprates at existing units.

Windfall Profits

Some argue that granting credits under a CES to existing 

facilities can create windfall profits for electricity generators. CECs are designed to be a tradable commodity 

with a market value. When an existing clean generation 

source is awarded CECs, it receives something of real economic value even though its operating costs and compliance obligations haven’t changed. If this hypothetical 

generation source is owned by a vertically-integrated 

utility, the utility regulator will presumably strive to ensure that the credits are used to meet the utility’s overall 

compliance obligations, or if the credits are sold that 

some or all of the proceeds are returned to ratepayers. 

But if the generation source is not owned by a utility, it is 

entirely possible that revenue from the sale of CECs goes 

straight to those who invested in the generator. These 

investors receive a windfall profit (i.e., something of 

value obtained at no additional cost to themselves) at the 

expense of the customers of the utility that purchased 

the credits.65,66 The policymaker’s desire to avoid or minimize this kind of windfall profit must be balanced with 

the desire to maximize generation from existing as well 

as new clean energy resources.
30 Center for Climate and Energy Solutions

Unintended Incentives

Because existing clean energy facilities (e.g., nuclear 

plants and hydroelectric dams) face very low variable 

production costs, they are unlikely to reduce their output 

if they do not receive credits under a CES in the near 

and medium run. However, to the extent that owners of 

existing clean energy facilities will eventually need to 

make investments to continue producing clean energy, 

they may ultimately choose to retire facilities rather than 

extend their lives if they do not receive credits for their 

clean energy output under a CES. This issue is relevant, 

in particular, to decisions by nuclear reactor owners 

regarding whether to pursue relicensing.67

In addition, providing credit to only incremental 

output from existing natural gas power plants (under 

a CES that provided any credit for natural gas) might 

introduce competition between new and existing natural 

gas generation; to the extent that generation from a new 

NGCC plant simply displaces generation from an existing 

NGCC plant in order to earn credits.68 Such competition 

would create CES compliance credits but no additional 

clean energy generation on net.

Further analysis can determine the extent to which 

the unintended consequences noted above such as the 

retirement of clean energy facilities may be material rather than just theoretical concerns. A CES could include 

provisions to address those unintended consequences 

that are expected to be material.69

Regional Impacts

Granting credits to non-incremental generation from 

existing clean generators has implications for how the 

impacts of a CES are distributed among different utilities 

and among states and regions under a multistate or federal program. For example, assuming uniform percentage requirements for all utilities, providing credits for 

non-incremental generation from existing clean energy 

facilities makes utilities that, at the time of enactment of 

a CES, have relatively low levels of clean energy generation net buyers of CECs from utilities that start out with 

relatively high shares of electricity from clean energy 

sources. Some object to this approach, arguing that this 

would lead to large credit transfers and associated wealth 

transfers from utilities (and possibly states and regions) 

that are relatively more carbon-intensive to those that are 

relatively less carbon-intensive that are disproportionate to the level of incremental clean energy generation 

required by the CES. Others argue that similar wealth 

transfers are ubiquitous and may be seen, for example, 

when a region is discovered to be a new source of natural 

gas that other regions will buy.

CREDITS FOR ENERGY EFFICIENCY AND 

CONSERVATION

Many analyses find that energy efficiency and conservation can provide large multi-pollutant emission reductions via avoided electricity generation at a relatively 

low cost. Several states have allowed utilities to meet a 

portion of their compliance obligation under an electricity portfolio standard via demonstrated electricity savings 

from energy efficiency, as have recent congressional 

electricity portfolio standard proposals.70 The administration’s CES proposal does not include end-use energy 

efficiency and conservation, but does allow for credits 

for combined heat and power systems and waste-heat 

recovery.71

In addition, 23 states have established mandatory 

long-term energy savings targets through an Energy Efficiency Resource Standard (EERS), with two other states 

having a non-mandatory energy savings goal.72 An EERS 

is similar in concept to an electricity portfolio standard 

in that it requires utilities to achieve annual energy 

savings equal to a specified amount, most commonly expressed as a percentage of retail sales. There are a variety 

of ways an EERS policy can be implemented. In some 

of these cases, the state RPS policy is combined with or 

linked to the EERS policy.

However, measuring electricity savings from energy efficiency is more challenging than measuring generation 

from qualified clean energy sources. In addition to this 

basic challenge, at least three interrelated issues arise 

when credits are awarded for electricity savings:

•	 Measuring electricity savings for a multistate or 

federal CES may prove administratively difficult 

and contentious, particularly since states already 

measure electricity savings from energy efficiency 

but not all in the same way. Some of the differences may be related to differences in climate and 

other objective factors between states.

•	 Awarding credits to utilities for electricity savings 

that are already factored into “business-as-usual” 

projections for electricity demand lessens the 

impact that a CES has on clean energy technology 

deployment and associated benefits.

•	 Historically, certain states and utilities have been 

more aggressive in pursuing energy efficiency 
CES: State and Federal Policy Options and Implications 31

than others. With substantial efficiency programs 

and requirements already in place, such states 

and utilities may object to any requirement under 

a CES that credits only be awarded for electricity 

savings from energy efficiency beyond “business 

as usual.”

If credits are awarded for electricity savings from 

energy efficiency and conservation, policymakers must 

decide how many credits to award for each unit of electricity savings. Unlike clean energy technologies, each 

unit of electricity savings from energy efficiency and conservation reduces the base quantity of electricity sales. 

Policymakers can treat one unit of electricity savings as 

equivalent to one unit of clean generation by providing 

partial credits for each unit of electricity savings, with 

the partial credit for electricity savings declining as the 

CES percentage requirement increases over time.

In considering whether and to what extent to credit 

electricity savings from energy efficiency, policymakers 

might consider how energy efficiency aligns with the objectives they hope to achieve through a CES.73 Crediting 

energy efficiency can reduce air pollution from electricity generation but will also limit the impact of a CES on 

deploying clean energy generation technologies. 

As Figure 6 (in Section II above) illustrates, energy 

efficiency may be substantially less expensive than clean 

energy generation. If a CES does credit electricity savings 

from energy efficiency, policymakers might limit the degree to which an electric utility can comply with the CES 

via energy efficiency so as to still incentivize the development of other desired technologies.74

SHUT-DOWN CREDITS FOR COAL PLANT 

RETIREMENTS

In addition to crediting qualified clean energy generation, a CES might also provide credits for avoided generation from highly polluting generating units (e.g., coal 

plants lacking modern pollution controls) that retire earlier than they otherwise would. A CES might offer such 

shut-down credits in order to spur the early retirement 

of coal plants facing retrofit requirements to comply with 

new air, water, and waste regulations.75

Under a CES, providing credits for avoided generation 

from retired coal plants lowers the CES’s effective target 

(because the CES is granting credits both for avoided 

generation from retired units and for whatever incremental clean energy generation replaces this avoided 

generation, thereby increasing the supply of clean energy 

certificates and reducing the incentive to deploy other 

technologies). However, the magnitude of the actual 

impact on the level of incremental clean energy generation might be small if the shut-down credits are limited 

in number (e.g., granted for a short duration) or if the 

CES has a relatively low alternative compliance payment. 

Policymakers could also adjust a CES’s target to take into 

account the effect of providing shut-down credits for coal 

plant retirements.

Shut-down credits might appeal to policymakers as a 

means to accelerate the turnover of the existing fleet’s 

generating units and speed the transition to cleaner 

energy sources. In particular, providing a financial incentive in the form of shut-down credits can deter some 

coal plant owners from making pollution control retrofit 

investments that, in the long run, might prove suboptimal compared to investments in clean energy. Shut-down 

credits might have additional appeal under a CES that 

does not provide any credit for natural gas generation. 

Under such a CES, incremental clean energy generation 

might displace some new natural gas generation and 

older coal-fueled generation without differentiation even 

though the former is typically much cleaner than the latter. A CES program could provide shut-down credits only 

for the relatively more polluting coal plants.

PROVISIONS FOR SPECIFIC TECHNOLOGIES 

(BONUS CREDITS, CARVE-OUTS, AND TIERS)

A CES that is technology-neutral—one that provides 

credits in proportion to qualified clean energy production from all qualified facilities without any limits or special treatment of any technologies—will likely promote 

some clean energy technologies, namely the most mature 

and least costly, more than others. Policymakers, however, may want to ensure that a CES spurs deployment of 

specific clean energy technologies in order to promote 

improvements and cost reduction in that technology 

(e.g., by moving the technology further down its learning 

curve) or to promote energy supply diversification.

Figure 6 shows the most recent estimates for the total 

system levelized cost of electricity (LCOE) from EIA’s 

Annual Energy Outlook 2011 for various power generation 

options.76 While power generators’ decisions about investing in new generation capacity involve much more than 

LCOE, Figure 6 does suggest that a uniform financial 

premium for clean energy might lead to substantially 

more deployment of some clean energy technologies 

compared to others. For example, Figure 6 suggests that 
32 Center for Climate and Energy Solutions

natural gas combined cycle plants, onshore wind, and energy efficiency are substantially less expensive than many 

other clean energy options. 

The following subsections discuss four CES policy 

design options that can achieve the goal of promoting a 

role for certain technologies that would not necessarily 

be competitive under a simple, technology-neutral CES.

Bonus Credits

A CES can offer extra incentive for the deployment of 

specific technologies (e.g., less mature and more costly 

technologies) by awarding bonus credits for each unit 

of output from such facilities. (In other words, provide 

more than one credit per unit of clean energy.) For example, policymakers might use bonus credits to promote 

solar power, next generation nuclear power, distributed 

generation, or first mover CCS projects—clean energy 

sources that might not see substantial deployment under 

a purely technology-neutral CES.77

Providing bonus credits for specific technologies will 

lower the effective target of a CES relative to its nominal 

target. If large numbers of bonus credits are provided 

for specific technologies, policymakers can maintain a 

desired effective CES target by increasing the nominal 

target to reflect the number of bonus credits.78

Carve-Outs

In an electricity portfolio standard, a carve-out is a 

requirement that a specific technology provide a specified minimum fraction of compliance with the overall 

target. Several state RPS programs include carve-outs 

for solar power. For example, New Jersey has an RPS 

that requires that 22.5 percent of electricity comes from 

qualified renewable generation by 2021 with a carve-out 

that requires that at least 2 percent of electricity come 

from solar power. Similarly, policymakers could establish 

one or more carve-outs under a CES for technologies for 

which they wanted to ensure at least a minimum role.

Tiers

Tiers are similar to carve-outs except that they set a 

minimum requirement for a set of clean energy sources. 

State electricity portfolio standards provide precedents 

for including tiers for particular classes of technologies. 

Pennsylvania and Ohio both have standards with tiers. 

Pennsylvania has separate tiers for renewable and nonrenewable, alternative energy sources. Ohio similarly established separate tiers for renewable and non-renewable 

qualified energy resources, requiring that at least half of 

the clean energy used to comply with its standard comes 

from renewable energy.

Limits on Compliance via Particular Clean Energy 

Sources

While the options described above provide incentives for 

or set minimum requirements for certain subsets of qualified clean energy sources, policymakers could also put 

limits on the degree to which utilities could comply with 

CES requirements via particular clean energy sources.79

For example, policymakers might set maximum levels for 

compliance via credits earned for electricity savings from 

energy efficiency or new natural gas generation. Such 

limits can ensure that a CES provides substantial incentive for less mature clean energy technologies to further 

particular CES policy objectives—e.g., energy diversification and technology advancement.

ADDITIONAL COMPLIANCE FLEXIBILITY

As explained in Section IV above a CES is a market-oriented policy whose broadly defined set of eligible clean 

energy sources and reliance on tradable credits to demonstrate compliance inherently provide electric utilities 

with substantial compliance flexibility and keep the cost 

of transitioning to cleaner energy sources manageable. 

Beyond the flexibility and cost-effectiveness inherent in the basic design of a CES, three particular policy 

design options (described below) can provide additional 

compliance flexibility under a CES and help ensure that 

the cost of complying with the CES is manageable.

Banking and Borrowing

Credit banking and borrowing lowers the cost of meeting 

clean energy targets by giving regulated entities compliance flexibility in terms of timing without affecting the 

ultimate level of clean energy generation or the achievement of associated policy objectives. Such flexibility can 

smooth out the price trajectory for credits and reduce 

price jumps over time.

Banking simply refers to saving CECs earned or 

purchased in one period to use for demonstrating 

compliance in a later period. Allowing banking can help 

avoid CEC price volatility.80 All recent federal electricity 

portfolio standards have all allowed for credit banking—

with restrictions in some cases—but little to no bor-
CES: State and Federal Policy Options and Implications 33

rowing. The renewable electricity standard in the 2009 

Senate energy bill restricted the banking of credits to 

three years from the year of issuance; however, the CES 

proposals from Senators Lugar and Graham placed no 

such time limits on banking. Senator Graham’s proposal 

alone allowed for credit borrowing in cases where a utility could submit an approved plan demonstrating future 

over-compliance sufficient to warrant near-term borrowing against future credits.

Borrowing is the mirror image of banking and an 

additional means of providing regulated entities with 

temporal compliance flexibility. Allowing for borrowing 

does, though, raise some implementation challenges 

regarding enforcement of repayment and the risk that 

firms will rely excessively on borrowing credits from the 

future (thereby deferring the required clean energy 

deployment into the future) thus creating pressure for 

policymakers to lower future clean energy targets. This 

“debt forgiveness” dynamic may jeopardize the overall 

clean energy deployment goal and increase regulatory 

uncertainty for firms. 

In light of these issues, policymakers might allow for 

limited borrowing of credits under a CES, perhaps tied 

to projected output from specific clean energy facilities that are reasonably anticipated to come online in 

the future. For example, if a utility owns or has a power 

purchase agreement with a new nuclear unit under construction, a CES could allow that utility to borrow against 

that plant’s future stream of CECs with the obligation to 

repay all borrowed CECs.

Offsets

Offsets are tradable compliance credits issued for actions taken by entities that are not subject to a particular 

market-based regulatory requirement. The concept is 

based on long-standing air pollution control rules that 

were developed to prevent increases in criteria pollutant emissions when new factories and power plants were 

built.81

Offsets could offer the same compliance flexibility under a CES as they do in air pollution control programs. 

West Virginia is currently the only state with an electricity portfolio standard that allows for credits from emission offset projects (such as landfill methane capture, 

reforestation, and certain agricultural practices), but 

one of the federal CES proposals also included the use 

of offsets.82,83 Including offsets in a CES is most obviously 

aligned with the policy objective of reducing GHG emissions, but could certainly be done in a way that addresses 

other air pollutants. However, while including offsets in 

a CES would yield equivalent net GHG emission reductions, it would yield less clean energy deployment in the 

power sector. 

The inclusion of offsets in a CES could draw upon the 

same principles and policy specifics associated with the 

use of offsets under other market-oriented regulations. 

Most importantly, offset provisions under other policies 

generally require that offset credits be real, surplus (or 

additional), verifiable, permanent, and enforceable.

Alternative Compliance Payments and Cost Off-ramps

Without cost containment provisions, a CES sets a known 

target for clean energy but has uncertain costs. While 

sophisticated and extensive policy analysis can illuminate the likely costs of achieving a given CES target, the 

future policy costs are innately uncertain—they may be 

higher or lower than projected. While a CES is an inherently flexible, market-based policy that can achieve clean 

energy goals cost-effectively, policymakers may choose to 

include cost containment provisions to keep the cost impacts of a CES within a particular range—i.e., to provide 

some certainty about the maximum cost of the policy. 

Two such options are alternative compliance payments 

(ACPs) and cost off-ramps. Designing cost containment 

provisions for a CES requires balancing the desire to 

protect ratepayers from excessive costs and the goal of 

not undermining the aims of the CES policy.

Electric utilities demonstrate compliance with CES requirements by submitting clean energy credits equivalent 

to the required level of clean energy generation (e.g., 

where one CEC equals one MWh of qualified clean energy generation). An ACP provision under a CES allows 

an electric utility to make payments to the CES program 

administrator of a specified value in lieu of submitting 

CECs.84 An ACP acts as a limit on the cost of compliance 

with a CES – i.e., a CEC price ceiling. Electric utilities 

will increase their levels of clean energy delivery until the 

incremental cost of such energy exceeds the ACP value. 

Policymakers have three options in determining the 

value of an ACP: one that is fixed (nominally); one that 

increases at the rate of inflation, but remains constant in 

real terms; and one that increases in real terms over time 

as the CES target becomes more ambitious.

All recent congressional electricity portfolio standards 

have included ACPs (see Appendix on “Recent Congressional CES Proposals”). ACPs are common in state 
34 Center for Climate and Energy Solutions

electricity portfolio standards as well. A 2008 survey of 

electricity portfolio standards in 25 states and the District of Columbia found that nine states had an ACP for 

capping the maximum cost of compliance.85

When including an ACP in a CES, policymakers must 

decide how to use the revenue raised when utilities opt to 

pay the ACP in lieu of supplying qualified energy. Policymakers might require that ACP revenue be used to further the goals of the CES, for example by funding clean 

energy deployment or research and development. Under 

a multi-state CES, ACP revenue might be returned to the 

states whose utilities paid it to further those respective 

states’ CES program goals, or other energy goals such as 

ameliorating any negative cost impacts on energy-intensive, trade exposed industries and household consumers.

The value of any ACP (including its rate of increase 

if any) is a crucial policy design decision. A low value for 

the ACP can undermine the ability of a CES program 

to drive clean energy research and development and 

incremental clean energy deployment and deliver the associated benefits.86 Policymakers might calibrate the ACP 

value to protect against excessive costs without substantially limiting the deployment of clean energy.

Another cost containment option is a cost off-ramp. 

Cost off-ramp provisions can take a variety of forms, but 

such provisions effectively limit the cost of compliance 

under a CES. For example, a cost off-ramp might set a 

maximum percentage rate impact for CES compliance 

such that, if an electric utility can demonstrate that full 

compliance with the CES would lead to compliance costs 

in excess of the off-ramp level, then the CES program administrator can limit the utility’s compliance obligation 

to a level of clean energy that does not exceed the maximum rate increase. Some federal CES proposals have included cost off-ramps.87 Cost off-ramps are also common 

features of existing state electricity portfolio standards. A 

2008 survey of electricity portfolio standards in 25 states 

and the District of Columbia found that most states that 

did not have ACPs had some type of cost off-ramp provision.88 However, whereas an ACP provides a direct signal 

(in terms of $/MWh) to investors regarding a reasonable level of new technology deployment, a cost off-ramp 

does not. Therefore cost off-ramps may impact the CES 

policy’s cost- effectiveness.

Figure 9: Regional Electricity Generation Mix89
CES: State and Federal Policy Options and Implications 35

PROMOTING EQUITABLE IMPACTS UNDER A CES

For a variety of reasons, the percentages of electricity 

supply that come from clean energy sources vary significantly among different states and regions (see Figure 9) 

and even among electric utilities in the same state. In 

addition, the availability and economics of certain clean 

energy sources vary among electric utilities, states, and 

regions. For example, Plains states have more wind and 

Southwest states have more solar than others.

While there may be differences among electric utilities in a single state in terms of their electricity supply 

mixes, ensuring equitable impacts from a CES is likely to 

be of particular concern for policymakers in the case of a 

multi-state or federal CES. These factors suggest that, depending on policy specifics, a multi-state or federal CES 

might have different cost and electricity price impacts 

in different states and regions. Policymakers and other 

stakeholders may seek to minimize any such disparities 

to promote fairness. Policymakers can adjust several CES 

design parameters in order to promote such fairness. 

These policy parameters are reviewed in the Sections 

above, and Table 2 summarizes the implications for 

state/regional impacts of several of these primary policy 

parameters.

One can make qualitative predictions about how 

certain policy designs will impact states and regions. 

However, given the number of potential variations and 

combinations of these policy parameters and the often 

complex dynamics of the power sector, substantially 

more sophisticated power sector modeling analysis is 

needed to inform policymakers and other stakeholders 

about the best ways to promote fairness alongside other 

CES policy goals. Appendix on “Federal CES Modeling 

Results and Regional Impacts” below includes results 

from two recent federal CES modeling analyses to provide some estimates of the potential for variations among 

states and regions in cost and other impacts under a 

multi-state CES program.

TREATMENT OF STATE PROGRAMS UNDER A 

MULTI-STATE OR FEDERAL CES

If a multi-state or federal CES were to be adopted, it 

would immediately raise questions about how to treat 

existing and future state electricity portfolio standards.

Preempting State Programs with a Federal CES

One option for dealing with existing state renewable 

and alternative energy portfolio standards is would be 

to preempt them with a federal standard. This could 

potentially upset gains made by individual states, and 

is likely to run counter to the wishes of state officials 

who would likely prefer to retain their prerogative to set 

requirements for clean power that might be more stringent than a federal CES or that might require compliance via in-state clean power generation.90 For example, 

in September 2010, a bipartisan group of 23 governors 

signed a letter to the Senate leadership urging passage 

of a federal renewable electricity standard that, they 

said, “should build on these state [renewable electricity 

standard] examples while allowing states the flexibility to 

set higher renewable energy goals.”91

TABLE 2: CES Design Parameters and Implications for State/Regional Impacts

CES PARAMETER OPTIONS AND IMPLICATIONS FOR STATE/REGIONAL IMPACTS

Percentage Requirement A CES could include percentage requirements that are differentiated by region, 

state, or individual utility.

Qualified Clean Energy 

Sources

The broader the set of energy sources that qualify for credits under a CES, the more 

options electric utilities in different states/regions have for compliance and the less 

likely utilities are to find themselves overly reliant on buying credits from others.

Credits for Existing Clean 

Energy Facilities

By not awarding credits for non-incremental generation from clean energy facilities, 

a CES can mitigate state/regional disparities.

Base Quantity of Electricity Excluding non-incremental generation from existing clean energy facilities from 

the base quantity of electricity sales can lessen the burden on states/regions that 

already have substantial clean energy generation.
36 Center for Climate and Energy Solutions

One argument—and perhaps the primary one—for 

preempting state programs is to avoid a patchwork of 

state programs in addition to a federal standard. However, compliance with distinct state and federal electricity 

standards is unlikely to prove onerous for utilities compared to compliance with only a federal CES.

Keeping State and Federal Programs Distinct and 

Separate

The first issue to address is that of overlapping requirements, and the most obvious solution is for a federal CES 

(for example) to be distinct from existing and future 

state programs. Under this approach, covered utilities 

would need to comply with the federal CES via federally 

issued CECs that are different from and not fungible 

with credits issued under state programs (e.g., state 

renewable electricity credits, RECs).92 For example, a geothermal plant might get one federal CEC and one state 

REC for each unit of generation, but only the CEC could 

be used to demonstrate federal compliance and the CEC 

could not be used to demonstrate state compliance. 

In this case, some existing state portfolio standards 

would likely prove less stringent than the federal CES 

and thus effectively non-binding on utilities – i.e., in 

the process of meeting their federal obligation, utilities 

would obtain more than enough state credits to meet 

their state obligations. Consequently, state RECs in this 

example would trade at or near a price of zero. 

On the other hand, some states might have or set 

more stringent clean energy requirements than a federal 

CES. Regulated entities in the state must go beyond the 

requirements of the federal CES, meaning that regulated entities outside of the state face a less stringent 

compliance obligation since the CES applies to national 

aggregate electricity generation or sales. Overall, such 

an approach may have no effect on the level of aggregate 

clean energy generation across the country, since the 

federal program would determine the aggregate total. A 

state program more ambitious than the federal program 

would simply change how clean energy generation is 

distributed among the states, with a disproportionate 

share of the national total coming from the states with 

ambitious standards.

State policymakers interested in promoting more 

clean generation than a federal CES would require may 

have options for ensuring that a stringent state standard 

leads to additional aggregate clean energy generation. 

One method is to require that, when a MWh of generation qualifies for both a state REC and a federal CEC, 

the REC and CEC be bundled and sold or transferred 

together. This constraint assures that even though a utility subject to the more stringent state standard will have 

excess federal CECs, it will not be able to trade the excess 

CECs to a utility in another state because the CECs are 

bundled with the RECs needed for compliance with the 

state standard. 

Allowing States to Define Clean Energy

Another issue to address is that of conflicting definitions 

of clean energy. One option for treating state electricity 

portfolio standards under a federal CES is to allow states 

discretion in defining qualified clean energy sources by 

allowing energy sources in a particular state that qualify 

for credit under that state’s electricity portfolio standard 

to also qualify for credit under the federal CES. In this 

case, federal policymakers would forgo their ability to 

define qualified clean energy themselves; although, they 

might set certain minimum criteria that energy sources 

would need to meet to qualify for credit under the 

federal CES based on their inclusion in state electricity 

portfolio standards.

INTERACTION OF STATE/REGIONAL GHG CAPAND-TRADE PROGRAMS AND A CES

Many states with electricity portfolio standards also are 

participating in separate and distinct regional GHG programs, such as RGGI’s power-sector CO2

 cap-and-trade 

programs, or are planning to implement their own statebased GHG program, such as in California. Similarly, 

congressional electricity portfolio standard proposals in 

the 111th Congress would have created programs separate and distinct from any existing state or regional GHG 

cap-and-trade programs or any proposed federal GHG 

cap-and-trade program. As with state electricity portfolio 

standards, any future CES programs might adopt the 

approach of treating a CES program as entirely distinct 

and separate from any GHG cap-and-trade programs. 

The main purpose of a GHG cap-and-trade program is 

to reduce GHG emissions. While this may be one of the 

benefits of a CES, a CES may have other goals and benefits in addition, as discussed earlier.

The interaction of a CES and GHG cap-and-trade 

program has not been thoroughly modeled. Nonetheless, qualitative observations can be made about the 

potential interaction of a CES with a GHG cap-and-trade 

program. Factors that would likely affect the outcomes of 
CES: State and Federal Policy Options and Implications 37

the implementation of both a GHG cap-and-trade program and a CES include the relative stringencies of the 

programs’ targets, the scope of coverage of the cap-andtrade program, and the electricity market structure (i.e., 

competitive vs. traditionally regulated).

Under a GHG cap-and-trade program that extends beyond the power sector, a CES might lead to lower powersector GHG emissions than the cap-and-trade program 

alone and thus higher emissions outside the power sector 

than under the cap-and-trade program alone.

A CES might lead to lower allowances prices in a 

GHG cap-and-trade programs since the CES will lead to 

emission reductions and thus lower the level of emission 

reductions that must be driven by the cap-and-trade allowance price.93

If a GHG cap-and-trade program leads to more clean 

energy generation than a CES alone would, then CEC 

prices will be lower than they would be in the absence of 

the GHG cap-and-trade program.

INTERNATIONAL COORDINATION

With respect to a CES, policymakers might consider 

issues of international coordination in the context of 

regional climate and energy policies that cross national 

boundaries and the potential to link a federal CES with 

market-oriented programs for clean energy deployment 

and environmental benefit in other countries.

U.S. regional GHG emission reduction programs 

might span multiple countries. The Western Climate 

Initiative (WCI) includes Canadian provinces as members and Mexican states as observers.94 In the case of 

a regional GHG cap-and-trade program that included 

trading among U.S. and international jurisdictions, a 

CES that covered only domestic electric utilities might 

lead to lower GHG emissions from U.S. power generators 

covered by the cap-and-trade program and higher GHG 

emissions from covered power generators in international jurisdictions than would occur in the absence of 

the CES.

None of the recent congressional proposals for federal 

electricity portfolio standards have included provisions 

for international linkage. However, a CES could be 

linked to similar market-oriented programs outside the 

United States such that U.S. CECs could be exchanged 

for tradable credits in other countries’ programs and 

vice versa. To enable such international coordination, 

policymakers would need to define criteria for determining whether an international program could be linked 

to and establish some means for setting an exchange 

rate between U.S. CECs and tradable credits from other 

countries’ programs.
38 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 39

IX. CONCLUSIONS

A transition from conventional fossil-fueled electricity 

generation to clean energy offers several benefits—particularly the growth of new clean energy industries and 

associated jobs, diversification of energy supply, acceleration of development and deployment of clean energy 

technologies, and reductions in the public health and 

environmental damages associated with conventional 

electricity generation. The current outlook for the power 

sector suggests, however, that absent significant new policies to promote clean energy the status quo in terms of 

power generation will continue largely unchanged for at 

least the next quarter century.

A CES holds promise as a policy for spurring growth 

in clean energy generation. As a concept, a CES builds 

on the successful experience of the majority of states 

that have implemented renewable and alternative energy 

portfolio standards and draws on a history of federal 

policy deliberation regarding national electricity portfolio standards.

The net effects of a CES policy are a function of interrelated policy design decisions. Policymakers and stakeholders should understand CES policy design options 

and their interactions and implications. Policymakers and 

stakeholders might usefully evaluate a CES in terms of 

key criteria – effectiveness, affordability, cost-effectiveness, 

and fairness – and think about implications of different 

policy design decisions in light of these criteria.
40 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 41

LIST OF ABBREVIATIONS

ACP Alternative Compliance Payment

AEO Annual Energy Outlook

CCS Carbon Capture and Storage

CEC Clean Energy Credit

CES Clean Energy Standard

CHP Combined Heat and Power

DES Diverse Energy Standard

EERS Energy Efficiency Resource Standard

EIA Energy Information Administration

GHG Greenhouse Gas

HAP Hazardous Air Pollutant

LCOE Levelized Cost of Electricity

MSW Municipal Solid Waste

MWh Megawatt-hour

NGCC Natural Gas Combined Cycle

NGCT Natural Gas Combustion Turbine

RES Renewable Electricity Standard

RGGI Regional Greenhouse Gas Initiative

RPS Renewable Portfolio Standard
42 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 43

APPENDIX

CHALLENGES FACING CLEAN ELECTRICITY 

TECHNOLOGIES

Clean energy technologies face numerous challenges to 

more widespread deployment, as summarized in Figure 

A1.

Other challenges include the need for federal financial support for clean energy technology research, development, and demonstration and various other market 

failures and regulatory and institutional barriers. 

While a CES can partially resolve the current failure 

of power markets to reflect all societal costs and benefits, 

less mature and more costly clean energy technologies 

face additional challenges. Existing federal policies address some of these challenges to some extent, but these 

challenges might warrant additional policies. 

Less mature and more costly clean energy technologies generally suffer from an underinvestment in research, development, and demonstration. Both because 

of the lack of a comprehensive financial incentive to shift 

to cleaner power generation and the spillover benefits 

from clean energy technology research and development 

(R&D), private firms under-invest in R&D given the returns such investments yield for society as a whole. This is 

the classic rationale for government financial support for 

clean energy R&D. Many stakeholders support increased 

federal spending on clean energy R&D. For example, the 

Institute For 21st Century Energy (an affiliate of the U.S. 

Chamber of Commerce) supports at least doubling federal spending on clean energy R&D.95 In addition to clean 

energy R&D, the initial deployment of less mature clean 

energy technologies also provides spillover benefits (e.g., 

demonstrated success and real-world cost and performance data that reduce uncertainty and cost, and performance improvements from “learning by doing”). Failure 

to reward initial deployment of these technologies for 

FIGURE A1: Challenges Facing Clean Electricity Technologies
44 Center for Climate and Energy Solutions

such spillover benefits leads to lower levels of deployment 

than are socially optimal. The aforementioned spillover 

benefits from clean energy R&D and initial deployment 

are particularly relevant to more costly and less mature 

technologies such as solar power, CCS, offshore wind, 

and next-generation nuclear power plants. Federal support for R&D and demonstration projects can improve 

the cost and performance of clean energy technologies 

and reduce market risk and uncertainty regarding firstof-a-kind clean energy projects.

Other market failures and regulatory and institutional challenges also hold back particular clean energy 

technologies. A comprehensive description of all such 

challenges is beyond the scope of this discussion. 

AIR EMISSIONS FROM NATURAL GAS VS. COALFIRED ELECTRICITY GENERATION

Figure A2 shows air emissions for three key pollutants 

from electricity generation for a new natural gas combined cycle (NGCC) power plant and a new subcritical 

pulverized coal power plant relative to average air emissions from all U.S. coal-fired electricity generation. Note 

that a new coal-fired power plant with modern pollution 

controls is more efficient than, and has fewer air emissions than, current U.S. coal-fired electricity generation 

as a whole. Nonetheless, a new highly efficient NGCC 

power plant has even fewer air emissions.

A CES IN TRADITIONALLY REGULATED AND 

COMPETITIVE ELECTRICITY MARKETS

In traditionally regulated electricity markets, vertically 

integrated electric utilities own electricity generation 

assets and sell power to retail customers. In competitive 

electricity markets, electric utilities buy power from competitive generators for sale to retail customers. Electricity 

portfolio standards generally, and a CES in particular, 

can apply to either type of electricity market, but the 

standards’ impacts will differ depending on the electricity market regulatory structure.

In a traditionally regulated market, a vertically integrated electric utility under a CES will accrue CECs for 

the output from its own qualified clean energy facilities. 

It may also purchase CECs from other entities or sell 

excess CECs that it has accrued. The vertically integrated 

FIGURE A2: Air Emissions from a New Natural Gas Combined Cycle Power Plant Relative to 

Emissions from Coal-Fired Electricity Generation.96

84%

6%

10%

36%

0% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

CO2 SO2 NOX

New Sub-Critical Pulverized Coal

New Natural Gas Combined Cyle
CES: State and Federal Policy Options and Implications 45

utility will seek the least-cost approach to complying with 

the CES. It will invest in new clean energy generation assets and increase the utilization of existing clean energy 

facilities where possible—earning credits itself for the 

output from these facilities—when doing so is cost-effective. The electric utility will also determine the extent 

to which its least-cost approach is to rely to some extent 

on buying credits from the credit market or generating 

more clean energy than it needs to comply with the CES 

and selling its excess credit to the credit market. Under 

the oversight of utility regulators, the electric utility will 

pass on to its ratepayers cost changes associated with increasing its own clean energy generation, buying credits 

from the credit market, and making ACPs. The utility 

regulators will also ensure that any revenue realized 

from selling excess CECs will pass through to electricity 

consumers.

The perspective of an electric utility in a competitive 

electricity market is different. Generally, the electric utility owns no clean energy generators and must purchase 

tradable credits from the credit market to cover its entire 

CES compliance obligation and will pass on the cost of 

purchasing these credits to its retail customers. Competitive clean energy generators will earn a premium for 

their output as they realize revenue both from selling 

electricity and CECs, and a CES will impact competitive 

electricity prices as the premium for clean energy induces new entrants and increased clean energy generation.

COMPARISON OF A CES TO OTHER POLICY 

OPTIONS

The table below compares a CES to other policies that 

can achieve many of the same policy goals via different 

means. These policies are renewable portfolio standards, 

cap-and-trade programs, and emission performance 

standards (both traditional and tradable standards).

TABLE A1: Comparison of CES to Other Clean Energy and Air Emission Reduction Policies

POLICY DESCRIPTION

COMPARISON TO A CES

KEY SIMILARITIES KEY DIFFERENCES

Renewable 

Portfolio Standard 

(RPS)

Requirement for electric 

utilities to supply specified 

percentages of their sales 

from qualified renewable 

sources with compliance via 

tradable credits.

Both policies focus on spurring deployment of clean 

energy technology.

A CES and RPS can be 

nearly identical save for the 

set of fuels / technologies 

that qualify for credit under 

the policies.

A CES allows for compliance via a 

broader set of clean energy technologies that includes lower- and 

non-emitting technologies that are 

not renewable.
46 Center for Climate and Energy Solutions

POLICY DESCRIPTION

COMPARISON TO A CES

KEY SIMILARITIES KEY DIFFERENCES

Cap-and-Trade 

Program

Absolute, aggregate limit 

(cap) placed on emissions 

implemented via tradable 

allowances surrendered by 

covered entities.

Both policies are marketoriented and rely on tradable 

instruments. 

Both policies can spur clean 

technology deployment and 

reductions in air emissions.

Cap and trade directly regulates 

pollution while a CES directly spurs 

clean energy technology deployment. 

Cap and trade ensures a specified 

aggregate level of emissions whereas 

a CES target implies a certain level 

of aggregate emissions intensity.

The point of regulation in a cap and 

trade program may differ from that 

of a CES. Cap and trade programs 

typically regulate emitters in the 

power sector (i.e., generators) 

whereas a CES typically regulates 

electric distribution utilities, which 

are often different entities than 

generators.

Whereas cap and trade requires 

covered entities to hold allowances 

to cover all emissions, a CES requires 

electric utilities to surrender credits 

just for clean electricity sales.

Cap and trade requires government 

distribution of allowances; under a 

CES, entities earn credits for qualified clean energy generation or electricity savings from efficiency.

Tradable Performance StandardsAggregate emissions intensity 

standard (e.g., lbs. / MWh) 

implemented via tradable 

permits / allowances surrendered by covered entities. 

Both policies are marketoriented and rely on tradable 

instruments. 

Both policies effectively 

require a certain aggregate 

emissions intensity level.

These policies can be effectively nearly identical 

depending on how they are 

designed.

A tradable performance standard 

program explicitly sets a requirement for the emissions intensity of 

generation rather than a target for 

clean energy generation.

A tradable performance standard 

program may apply to emitters 

rather than electric utilities.

TABLE A1: Comparison of CES to Other Clean Energy and Air Emission Reduction Policies 

(Continued)
CES: State and Federal Policy Options and Implications 47

POLICY DESCRIPTION

COMPARISON TO A CES

KEY SIMILARITIES KEY DIFFERENCES

Traditional Emission Performance 

Standards

Standards for maximum permissible emissions per unit 

of input or output (e.g., lbs. / 

MWh) that apply to emitting 

facilities; maximum emission rates may be facility- or 

technology/fuel- specific.

Emission performance 

standards may be binding 

directly on facilities or may 

govern electric utilities’ 

ability to contract for power 

from facilities.

Both policies can spur 

deployment of clean technology and reduce GHG 

emissions.

A CES is a market-oriented policy in 

contrast to traditional, non-marketoriented emission performance 

standards. 

Whereas traditional emission performance standards focus on limiting 

emissions, a CES focuses on increasing clean energy generation.

Performance standards typically 

apply to each emitting facility rather 

than to electric utilities.

Traditional performance standards 

have an uncertain impact on both 

aggregate emissions and emissions 

intensity.

Emission performance standards are 

enforced by environmental regulators, whereas a CES is normally 

enforced by utility regulators.

RECENT CONGRESSIONAL CES PROPOSALS

Table A2 below summarizes three federal electricity 

portfolio standard proposals from the last session of 

Congress (the 111th Congress) and includes a summary of 

President Obama’s CES proposal.

TABLE A1: Comparison of CES to Other Clean Energy and Air Emission Reduction Policies 

(Continued)
48 Center for Climate and Energy Solutions

TABLE A2: Comparison of Recent Senate Federal Electricity Standard Proposals and President 

Obama’s CES Proposal97,98

AMERICAN CLEAN 

ENERGY LEADERSHIP 

ACT OF 2009 (S.1462)

PRACTICAL ENERGY 

AND CLIMATE PLAN 

ACT OF 2010 (S.3464)

CLEAN ENERGY 

STANDARD ACT OF 

2010 (S.20)

PRESIDENT OBAMA’S 

CLEAN ENERGY 

STANDARD PROPOSAL

Sponsor Sen. Jeff Bingaman 

(D-NM)

Sen. Richard Lugar (RIN)Sen. Lindsey Graham 

(R-SC)

President Obama

Policy Renewable Electricity 

Standard (RES)

Diverse Energy Standard 

(DES)

Clean Energy Standard 

(CES)

Clean Energy Standard 

(CES)

Point of Regulation99Electric utilities Electric utilities Electric utilities Electric utilities

Qualified Energy SourcesNon-hydro renewables and incremental 

hydropower

Non-hydro renewables, 

incremental hydropower, 

coal with CCS, incremental nuclear power

Non-hydro renewables, 

incremental hydropower, coal with CCS, 

incremental nuclear 

power

Renewables, nuclear 

power, fossil fuel use 

with CCS, and efficient 

combined cycle natural 

gas plants (partial 

credit)—no details 

regarding different 

treatment of incremental vs. non-incremental 

generation

Coverage Retail electric utilities 

with sales of less than 

4 million MWh per 

year are not covered.

All electric utilities Retail electric utilities 

with sales of less than 4 

million MWh per year 

are not covered.

Not specified

Targets (% of 

Base Quantity 

of Electricity 

Sales to Come 

from Qualified Energy 

Sources or 

Efficiency)

2011-2013 3.0%

2014-2016 6.0%

2017-2018 9.0%

2019-2020

12.0%

2021-2039

15.0%

2015-2019 15.0%

2020-2024 20.0%

2025-2029 25.0%

2030-2049 30.0%

2050 50.0%

2013-2014 13.0%

2015-2019 15.0%

2020-2024 20.0%

2025-2029 25.0%

2030-2034 30.0%

2035-2039 35.0%

2040-2044 40.0%

2045-2049 45.0%

2050 50.0%

80% of delivered electricity to come from 

clean energy sources 

by 2035—no interim 

targets specified

Exclusions 

from Base 

Quantity of 

Electricity 

Sales

Existing hydropower, 

municipal solid waste 

(MSW), incremental 

nuclear, and fossil fuel 

with CCS

Existing hydropower Existing hydropower 

and MSW

Not specified
CES: State and Federal Policy Options and Implications 49

AMERICAN CLEAN 

ENERGY LEADERSHIP 

ACT OF 2009 (S.1462)

PRACTICAL ENERGY 

AND CLIMATE PLAN 

ACT OF 2010 (S.3464)

CLEAN ENERGY 

STANDARD ACT OF 

2010 (S.20)

PRESIDENT OBAMA’S 

CLEAN ENERGY 

STANDARD PROPOSAL

Energy EfficiencyCredits for electricity 

savings from efficiency 

can be used for up to 

26.67% of compliance.

Unlimited compliance 

via in-state electricity 

savings credits.

Credits for electricity 

savings from efficiency 

can be used for up to 

25% of compliance.

Credits at least for 

industrial CHP

Alternative 

Compliance 

Payment

$21/MWh Not less than $50/MWh $35/MWh Not specified

Other Notable 

Provisions

Banking of credits 

limited to 3 years.

Credits for early retirement of coal plants and 

generator-side efficiency 

improvements

SUMMARY OF RELEVANT STATE PROGRAMS

Table A3 summarizes the electricity portfolio standards 

in Michigan, Ohio, Pennsylvania, and West Virginia, and 

the voluntary program in Indiana, since these states have 

policies that include credit for clean energy sources in 

addition to just renewables.

TABLE A2: Comparison of Recent Senate Federal Electricity Standard Proposals and President 

Obama’s CES Proposal97,98 (Continued)
50 Center for Climate and Energy Solutions MICHIGAN OHIO PENNSYLVANIA WEST VIRGINIA INDIANA Name of Policy Renewable Electricity Standard Renewable and Ad- vanced Energy Portfolio Standard100 Alternative Energy Portfo- lio Standard Alternative and Renew- able Energy Standard Voluntary Clean Energy Portfolio Standard Date Enacted October 2008 May 2008 December 2004 Amended 2008. June 2009 May 2011 Targets 10% of electricity from qualified sources by 2015

Each utility has unique interim targets as follows:- 2012: Existing renewable energy baseline plus 20% of the gap between baseline and 10%- 2013: Baseline plus 33% of the gap between baseline and 10%- 2014: Baseline plus 50% of the gap between baseline and 10%

25% of electricity from qualified sources by 2025:- at least 12.5% from renewables - up to 12.5% from alternative energyInterim annual requirements only for renewables, starting at 0.25% in 2009, 0.5% in 2010, then increasing by 0.5% each year until 2014, then increasing by 1.0% each year until 2024101

18% of electricity from qualified sources by 2021:- 8% from Tier 1 sources - 10% from Tier 2 sourcesInterim annual targets for Tier 1 began at approximately 1.5% in 2007 and 2008, then increase by 0.5% each year until 2021Interim annual targets for Tier 2 began at 4.2%, then increase to 6.2% in 2011 and 8.2% in 2016

25% of electricity from qualified sources by 2025Interim targets of 10% by 2015 and 15% by 2020

NON-MANDATORY INCENTIVE PROGRAMIn order to receive incentives, utilities must obtain from qualified sources an amount of electricity equal to a percentage of total base year (2010) retail sales:- 10% by 2025- Interim targets of 4% for the period from 2013 through 2018 (annual average) and 7% for the period from 2019 through 2024

TABLE A3: Summary of Existing State CES Programs
CES: State and Federal Policy Options and Implications 51

MICHIGAN OHIO PENNSYLVANIA WEST VIRGINIA INDIANA

Qualified Energy Sources At least 90 percent of compliance must come 

from renewable sources.Up to 10 percent of compliance can be met via Energy Optimization and Advanced Cleaner Energy Systems—i.e., electricity savings from efficiency and conservation, industrial CHP, gasification, and coal with CCS.Qualified energy sources must be in Michigan or in the out-of-state service territory of a Michigan utility.

Renewables, at least half of whose generation must be in-state; any other renewable generation must be shown to be deliverable into the state.Alternative energy resources include thirdgeneration nuclear power plants, fuel cells, energyefficiency programs, and coal with CCS.

Tier 1 sources: wind, solar, coalmine methane, small hydropower, geothermal, and biomass. Tier 2 sources: waste coal, demand side management, large hydropower, municipal solid waste, and coal integrated gasification combined cycle.Alternative Energy Credits (AECs) can be awarded to any qualified generators in the PJM footprint.

Renewables other than conventional hydropower.Electricity savings from efficiency / conservation.Credits can be awarded for emission reduction offset projects.Alternative energy sources include advanced coal technology, coal bed methane, natural gas, coal gasification or liquefaction, synthetic gas, integrated gasification combined cycle technologies, waste coal, tire-derived fuel, pumped storage hydroelectric, and recycled energy.No more than 10% of the standard can be met via natural gas generation.Qualified facilities must be in WV or PJM territory.

Renewables and alternative energy resources. Alternative energy resources include wasteto-energy facilities, energy storage systems, distributed generation, coal bed methane, CHP and waste heat recovery, demand side management, nuclear power, and natural gas from a facility constructed in Indiana after July 1, 2011, which displaces electricity generation from an existing coal fired generation facility.Qualified sources must be located within the control area of the ISO/RTO serving the utility (either PJM or MISO, depending on the utility).At least 50% of the target number of MWh must come from qualified sources in Indiana.

TABLE A3: Summary of Existing State CES Programs (Continued)
52 Center for Climate and Energy Solutions MICHIGAN OHIO PENNSYLVANIA WEST VIRGINIA INDIANA Regulated Enti- ties Electricity retailers. Utilities, but coverage is phased in. 2011 is the first year that all utilities (including state’s largest, PECO) will be required to fully comply.102 Electric utilities, exclud- ing municipal utilities, ru- ral electric cooperatives, and utilities serving fewer than 30,000 residential customers. Electric utilities, exclud- ing municipal utilities and electric cooperatives. Carve-Outs None. 0.5% from solar by 2025. 0.5% from solar by 2021 None. None. Credit Multipliers 3X multiplier for solar.

Lesser bonuses awarded for on-peak production, storage, and using instate labor or equipment.

None. None. 2 credits for each MWh 

of renewable electricity; 3 credits for renewable energy from reclaimed surface mines in WV.

None.

Alternative Compliance Payment

None, but the law caps entities’ compliance obligation once compliance costs reach per customer maximums (e.g., $3/month per residential customer).

$45 / MWh (except for solar)

$45 / MWh for Tier 1 (except solar) and Tier 2.103 Lesser of $50/MWh or 200% of average credit 

trading price.

None.

Banking / Borrowing Up to 5 years. Banking allowed for up to 2 years.104 Banking allowed. Banked credits may only be applied in the compliance period immediately 

following the period in which the credits were generated.

TABLE A3: Summary of Existing State CES Programs (Continued)
CES: State and Federal Policy Options and Implications 53

FEDERAL CES MODELING RESULTS AND REGIONAL 

IMPACTS

There are relatively few sophisticated modeling analyses 

of CES programs. The Bipartisan Policy Center (BPC) 

and Resources for the Future (RFF) have, though, 

recently released results from modeling analyses that 

looked at federal CES programs similar to President 

Obama’s proposal.

This paper presents these study results in order to 

illustrate how a federal CES might affect states/regions 

differently and what magnitude those differences might 

have. However, one should view these results cautiously 

since they represent just two recent studies that looked at 

only a small set of potential policy designs. More analysis 

like that conducted by BPC and RFF of a variety of possible CES policy designs can provide the insights necessary 

to design a CES that achieves its intended goals fairly. In 

particular, the results below do not model cost containment provisions (like an ACP), and they do not try to 

ameliorate regional or interstate disparities in terms of 

cost impacts. As such, one might interpret these modeling results as illustrative of possible disparate regional 

impacts with the potential to substantially ameliorate 

such impacts via deliberate policy design choices.

Overall, BPC’s modeling analysis of President Obama’s 

CES proposal shows that a CES can drive incremental 

growth in electricity generation from a portfolio of clean 

technologies. Compared to a “business as usual” policy 

case, Figure A3 shows changes in clean power generation 

under a CES. 

In April 2011, the BPC released a staff paper that 

presented results from an initial analysis of a federal 

CES modeled after President Obama’s proposal using 

ICF International’s Integrated Planning Model (IPM).107

The BPC study’s results are a function of its CES policy 

design assumptions. BPC assumed that a federal CES 

would provide credit for generation from new/incremental and existing non-hydro renewable energy facilities 

but give credit only to new/incremental nuclear, hydro, 

and natural gas generation. BPC assumed that existing 

hydropower generation would be excluded from the 

base quantity of electricity sales. Figure A4 and Figure 

A5 show the BPC study’s projections for how compliance 

with such a federal CES might vary among regions. Certain states/regions might find it less expensive to rely on 

buying credits from other states/regions, and the extent 

to which a state/region relies on in-state/region clean 

energy generation to meet its CES compliance obligation 

may change over time. As shown in Figure A4 and Figure 

A5 the BPC study also suggests that the net effect of a 

federal CES on retail electricity rates might vary among 

states/regions. 

TABLE A4: Covered Electricity Sales and Regulated Entities under Different Thresholds (WRI 

Analysis)105

THRESHOLD 

(MWHS)

TOTAL COVERED 

ELECTRICITY 

SALES (MWHS)

TOTAL POTENTIAL 

REGULATED ENTITIES

PERCENT 

OF TOTAL 

2009 SALES

PERCENT 

OF TOTAL 

ENTITIES

EFFECTIVE 

2035 TARGET

4,000,000 2,695,360,808 165 74% 5% 60%

1,000,000 3,140,693,666 399 87% 12% 69%

500,000 3,327,802,469 666 92% 20% 74%

0 3,617,942,578 3,347 100% 100% 80%

Source: EIA form 861 data, 2009 and WRI Analysis. Effective 2035 target assumes an 80 percent clean energy target and that 2035 percent of total sales is the 

same as in 2009.
54 Center for Climate and Energy Solutions

FIGURE A3: Projected Changes in Clean Power Generation under President Obama’s CES 

Proposal Compared to “Business as Usual”106

-200

0

200

400

600

800

1000

2020 2030

Change in Generation from "Busines as Usual" (Thousand 

Gigawatt-hours)

Other Renewables Biomass

Wind Coal+CCS

Nuclear Natural Gas

FIGURE A4: BPC Study - CES Credits Generated by Region in Comparison to Regional Requirement, 2020
CES: State and Federal Policy Options and Implications 55

FIGURE A5: BPC Study - CES Credits Generated by Region in Comparison to Regional Requirement, 2030

FIGURE A6: RFF Study - Projected CES Price Impacts from Federal CES (No Credit for Existing 

Nuclear and Hydropower), 2035109
56 Center for Climate and Energy Solutions

Table A5: BPC Study - Average Retail Electricity Price Impact of the CES

REGION NAME NERC REGION REGULATORY STATUS

PROJECTED AVERAGE RATE IMPACT

2013 TO 2020 2013 TO 2030

Northeast NPCC Mix -3% -4%

Mid-Atlantic RFC in PJM Mix 7% 6%

Southeast SERC (non-Delta) Regulated 6% 8%

Florida Florida Regulated 1% 0%

Gulf Coast SERC Delta Regulated 7% 9%

Southern Plain States SPP Mix 1% 2%

Midwest RFC (non-PJM) Mix 7% 8%

Upper Midwest MRO Regulated -6% -4%

ERCOT TRE Competitive -2% -5%

WECC WECC (non-California)Regulated 1% 2%

California California Regulated -7% -7%

Total US Continental US Mix 1% 1%

Source: EIA form 861 data, 2009 and WRI Analysis. Effective 2035 target assumes an 80 percent clean energy target and that 2035 percent of total sales is the 

same as in 2009.

RFF also modeled a federal CES program similar to 

President Obama’s proposal using its Haiku power-sector 

model.108 Figure A6 shows the different regional electricity price impacts that RFF projected for a federal CES, 

and Figure A7 shows how RFF projected that those price 

impacts would differ if a federal CES gave credit to existing nuclear and hydropower. RFF’s projections illustrate 

that the treatment of existing clean energy facilities 

under a federal CES is one important factor that determines how the electricity price impacts of a federal CES 

differ across states/regions.
CES: State and Federal Policy Options and Implications 57

FIGURE A7: RFF Study - Projected Changes in CES Price Impacts from Crediting Existing 

Nuclear and Hydropower, 2035
58 Center for Climate and Energy Solutions
CES: State and Federal Policy Options and Implications 59

ENDNOTES

1 U.S. Energy Information Administration, “Electricity” in Annual Energy Outlook 2011 (Washington, DC: U.S. 

Department of Energy, 2011), http://www.eia.gov/forecasts/aeo/MT_electric.cfm.

2 U.S. Energy Information Administration, “Table 8.2a Electricity Net Generation: Total (All Sectors), 1949-2009” 

in Annual Energy Review 2010 (Washington, DC: U.S. Department of Energy, 2011), http://www.eia.gov/totalenergy/data/annual/txt/ptb0802a.html

3 “Form EIA-860 Annual Electric Generator Report,” U.S. Energy Information Administration, last modified 

January 4, 2011, http://www.eia.gov/cneaf/electricity/page/eia860.html. Excludes industrial and commercial generators 

reported in EIA-860.

4 U.S. Energy Information Administration, Annual Energy Outlook 2011 (Washington, DC: U.S. Department of Energy, 2011), http://www.eia.gov/forecasts/aeo/index.cfm. Figure 3 includes projections from EIA’s main “business as usual” 

case (Reference Case) as well as from several side cases that examined the sensitivity of projections to the following factors: 

low natural gas prices (“Low Gas Prices”), an indefinite continuation of federal subsidies for renewable electricity (“No 

Sunset”); new EPA pollution regulations (the Transport Rule (TR) and mercury (Hg) and other hazardous air pollutant 

regulations, “TR + Hg”); and the combination of new EPA regulations and low natural gas prices (“TR + Hg (Low Gas)”). 

The “Low Gas Prices” case refers to EIA’s “High Shale EUR” case. The “TR + Hg” case refers to EIA’s “Retrofit Required 5” 

case which assumed more stringent regulation of air emissions from coal-fired plants would require the installation of flue 

gas desulfurization (FGD) scrubbers and selective catalytic reduction (SCR) systems and a 5-year capital recovery period for 

retrofit investments. 

5 “Renewable & Alternative Energy Portfolio Standards,” Center for Climate and Energy Solutions, last modified 

August 25, 2011, http://www.c2es.org/what_s_being_done/in_the_states/rps.cfm. Note that while Figure 4 indicates that 

Vermont has a renewable portfolio standard (RPS), the state actually has a goal for renewables that, if not met, will lead to 

the creation of an RPS program. 

6 Ryan Wiser, “State of the States: Update on RPS Policies and Progress” (presentation, Renewable Energy Markets 

2010, October 20, 2010), http://www.renewableenergymarkets.com/docs/presentations/2010/Wed_State of the Markets_

Ryan Wiser.pdf. 

7 “Levelized Cost of New Generation Resources in the Annual Energy Outlook 2011,” U.S. Energy Information 

Administration, last accessed September 26, 2011, http://www.eia.gov/oiaf/aeo/electricity_generation.html. 

Figure 6 shows the most recent estimates for the total system levelized cost of electricity (LCOE) from EIA’s Annual 

Energy Outlook 2011 for various power generation technologies (as well as electricity savings from energy efficiency). Importantly, the values shown do not reflect various incentives including state or federal tax credits that may be available. The 

total system LCOE estimates include levelized capital, fixed operation & maintenance (O&M), variable O&M (including 

fuel), and transmission investment costs. Note, the LCOE estimate for electricity savings from energy efficiency is not from 

AEO2011 but rather based on Paul et al., Supply Curves for Conserved Electricity, Discussion Paper (Washington, DC: Resources 

for the Future, 2011), http://www.rff.org/RFF/Documents/RFF-DP-11-11.pdf, which finds that electricity savings of one 

to three percent are available at a marginal cost of $50/MWh. NGCC and NGCT refer to natural gas combined cycle and 

combustion turbine plants, respectively. CCS refers to carbon capture and storage.

8 Briefing on Investing in Green Technology as a Strategy for Economic Recovery, Day 1, Before U.S. Senate Committee on 

Environment and Public Works. 111th Congress. 2009. (Statement of John Doerr, Partner at Kleiner Perkins Caufield & Byers). 
60 Center for Climate and Energy Solutions

Statement available at: http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=df8869c6-c972-417bb0a7-14b09d8c50bc. 

9 The Pew Charitable Trusts, Who’s Winning the Clean Energy Race? 2010 Edition: G-20 Investment Powering Forward

(Washington, DC: The Pew Charitable Trusts, 2011), http://www.pewenvironment.org/uploadedFiles/PEG/Publications/

Report/G-20Report-LOWRes-FINAL.pdf. 

10 IHS Emerging Energy Research, US RPS Markets and Utility Strategies: 2010-2025 (Cambridge, MA: IHS Emerging 

Energy Research, 2010), http://www.emerging-energy.com/Content/Document-Details/Renewable%20Power/US-RPSMarkets-and-Utility-Strategies-20102025/791.aspx. An RPS is one form of a CES; the distinctions are explained in Section 

IV of this CES report.

11 See, for example, NREL cost curve presentations at http://www.nrel.gov/analysis/docs/cost_curves_2002.ppt

and http://www.nrel.gov/analysis/docs/cost_curves_2005.ppt.

12 For more information on the opportunity for clean energy industry growth and job gains, see the Center for 

Climate and Energy Solutions, In Brief: Clean Energy Markets: Jobs and Opportunities (Arlington, VA: Center for Climate and 

Energy Solutions, 2011), http://www.c2es.org/publications/brief-clean-energy-markets-jobs-and-opportunities. See also the 

National Commission on Energy Policy, Task Force on America’s Future Energy Jobs (Washington, DC: National Commission on 

Energy Policy, 2009), http://www.bipartisanpolicy.org/library/report/task-force-americas-future-energy-jobs.

13 The Pew Charitable Trusts, The Clean Energy Economy: Repowering Jobs, Businesses, and Investments across America

(Washington, DC: The Pew Charitable Trusts, 2009), http://www.pewcenteronthestates.org/uploadedFiles/Clean_Economy_Report_Web.pdf.

14 Michigan Public Service Commission, Report on the Implementation of the P.A. 295 Renewable Energy Standard and the 

Cost-Effectiveness of the Energy Standards (2011), http://www.michigan.gov/documents/mpsc/Report_on_Implementation_of_

PA_295_RE_Standards_and_Cost_Effectiveness_of_Standards_345871_7.pdf.

15 Max Wei, Shana Patadia, and Daniel M. Kammen, “Putting Renewables and Energy Efficiency to Work: How 

Many Jobs Can the Clean Energy Industry Generate in the US?,” Energy Policy 38 (2010) 919-931. According to the authors, 

“Unlike most other renewable energy studies, an attempt [was] made to take into account job losses in the coal and natural 

gas industry as a first step to capturing wider economy effects.”

16 “Most electric generating capacity additions in the last decade were natural gas-fired,” U.S. Energy Information 

Administration, last modified July 5, 2011, http://www.eia.gov/todayinenergy/detail.cfm?id=2070.

17 “U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet),” U.S. Energy Information Administration, 

last modified August 29, 2011, http://www.eia.gov/dnav/ng/hist/n9190us3M.htm.

18 Robert Peltier, “Predicting U.S. Coal Plant Retirements,” Power, May 1, 2011, http://www.powermag.com/coal/

Predicting-U-S-Coal-Plant-Retirements_3632_p4.html.

19 For example, in 2005 back-to-back train derailments in the Powder River Basin region held up more than 20 

million tons of coal deliveries, and some power plants were reportedly within one week of running out of coal. That same 

year, natural gas production and deliveries were disrupted and prices spiked following the devastation caused by Hurricane 

Katrina. A more recent example comes from abroad, where severe flooding in Australia in January 2011 disrupted mining 

operations and caused coal prices to spike by 35 percent.

20 Joseph Goffman, “From Reducing Pollution from Power Plants” (presentation, Environmental Regulation and 

Electric System Reliability, Washington, DC, October 22, 2010), http://www.bipartisanpolicy.org/events/2010/10/environmental-regulation-and-electric-system-reliability.

21 Joe Bryson, “Reducing Pollution from Power Plants” (presentation, National Association of State Utility Consumer Advocates Annual Meeting, Atlanta, Georgia, November 16, 2010).
CES: State and Federal Policy Options and Implications 61

22 U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2009 (Washington, DC: U.S. Environmental Protection Agency, 2011), http://www.epa.gov/climatechange/emissions/downloads11/USGHG-Inventory-2011-Complete_Report.pdf. 

23 Biomass and landfill gas technologies, for example, release GHG during the combustion process that would ultimately be released anyway as methane inevitably escapes the landfill or is flared releasing CO2, or as biomass decomposes 

in nature.

24 See, for example, Allen A. Fawcett et al., “Overview of EMF 22 U.S. Transition Scenarios,” Energy Economics 31, 

supplement 2 (2009): S198-S211, http://emf.stanford.edu/files/res/2369/fawcettOverview22.pdf.

25 For example, the capital cost of installing a new 300 MW advanced natural gas combined cycle power plant 

would be roughly $300 million, based on EIA data. In contrast, according to the Brattle Group’s recent analysis of possible 

EPA regulations, the cost of retrofitting pollution controls on a 300 MW coal plant to reduce nitrogen oxide, sulfur dioxide 

and mercury emissions (but not GHG emissions) could exceed $200 million. Metin Celebi et al., “Potential Coal Plant Retirements Under Emerging Environmental Regulations” (presentation, EUCI Presents a Web Conference on: Coal Plant Retirements under New EPA Regulations, December 8, 2010), http://www.brattle.com/_documents/uploadlibrary/upload898.

pdf.

26 Some states have also adopted energy efficiency resource standards (EERS). An EERS can be similar to an electricity portfolio standard except that only electricity savings from energy efficiency count toward compliance with an EERS. 

This paper does not consider an EERS in isolation as a form of electricity portfolio standard, but does allow for the possibility of a CES that treats energy efficiency savings as one type of qualifying resource.

27 In this paper, the term “electric utility” will generally be used to refer to any entity that sells electric energy at retail to end-use customers. Where references are made to specific state laws or specific federal laws that have been proposed, 

the term “utility” may in some cases be defined more narrowly in the applicable statute or bill, for example to include 

investor-owned utilities but not electric cooperatives.

28 Section VIII (CES Policy Design Options and Implications) explains how a CES specifies what fraction of sales 

must come from clean energy sources.

29 For a more thorough explanation of the unbundling of electricity attributes into different commodities such as 

the megawatt-hour (MWh) energy commodity and CECs, see Ed Holt, “Renewable Energy Certificates and Generation Attributes,” Issuesletter, (Regulatory Assistance Project, 2003), http://www.raponline.org/docs/RAP_Holt_IssuesLetter-RenewableEnergyCertificatesAndAttributes_2003_05.pdf. 

30 See Appendix on “Federal CES Modeling Results and Regional Impacts” for illustrative CES modeling results.

31 Part of the dilemma faced by coal-producing states is that most of them have relatively small populations and 

electric load. They are fuel exporters. RPS policies established in other states, over which the coal producing states have 

no control, may eventually reduce coal’s share of the generation pie. And forthcoming EPA regulations could have an even 

more dramatic effect, given the impacts of coal on air and water quality. These two factors might substantially reduce the 

future demand for coal. But it is not inconceivable to think that a federal CES policy could stimulate research, development, 

and deployment of lower-emitting coal-based technologies like CCS that would otherwise be cost-prohibitive, and thereby 

provide an “insurance policy” for coal-producing states.

32 Roughly 30 percent of U.S. electricity currently comes from hydropower, other renewables, and nuclear power, 

while natural gas generation, which the White House proposal gives half credit for being cleaner than conventional coal 

use, provides about 20 percent of total electricity.

33 See the White House’s factsheet on the proposed clean energy standard at http://www.c2es.org/docUploads/

SOTU factsheet CES.PDF and details on the CES proposal in the Obama Administration’s Blueprint for a Secure Energy Future 

at http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf.
62 Center for Climate and Energy Solutions

34 U.S. Energy Information Administration, Energy Market Impacts of a Clean Energy Portfolio Standard (Washington, 

DC: U.S. Department of Energy, 2006), http://www.eia.gov/oiaf/servicerpt/emice/index.html.

35 See Center for Climate and Energy Solutions, “Responses to the Senate Energy and Natural Resources Committee CES White Paper” (Arlington, VA: Center for Climate and Energy Solutions, 2011), http://www.c2es.org/federal/analysis/responses-senate-energy-and-natural-resources-committee-ces. 

36 See Table A2 in the Appendix for a side-by-side comparison of the proposals across some of their key design 

parameters.

37 In addition, the U.S. Territories of Puerto Rico, Virgin Islands, and Northern Mariana Islands have adopted 

standards and Guam has adopted a goal.

38 “Energy Efficiency Standards and Targets,” Center for Climate and Energy Solutions, last modified August 11, 

2011, http://www.c2es.org/what_s_being_done/in_the_states/efficiency_resource.cfm. See also American Council for 

Energy-Efficient Economy, State Energy Efficiency Resource Standard (EERS) Activity (Washington, DC: American Council for 

Energy-Efficient Economy, 2011), http://www.aceee.org/files/pdf/fact-sheet/State%20EERS%20Summary%20June%20

2011_1.pdf. 

39 For an earlier analysis of the effects of state RPS policies, refer to Chen et al., Weighing the Costs and Benefits of 

State Renewables Portfolio Standards: A Comparative Analysis of State-Level Policy Impact Projections (Berkeley, CA: Lawrence Berkeley National Laboratory, 2007), http://eetd.lbl.gov/ea/emp/reports/61580.pdf.

40 The five states featured in this subsection are not the only ones with policies that credit non-renewable resources. More than half of the state policies allow at least some resources that don’t generate electricity (e.g., energy efficiency or 

solar hot water heating) to qualify on an MWh-equivalent basis. More than half of the state policies also define municipal 

waste as an eligible renewable resource, and two include waste tires. It is also fairly common for state policies to allow fuel 

cells, combined heat and power facilities, and distributed generation to qualify, in some cases regardless of whether the 

energy source is renewable. For a table summarizing all of the resources that qualify under each state RPS or CES policy, 

see http://www.c2es.org/docUploads/Qualifying-Resources-by-State.pdf. 

41 2008 Michigan PA 295. http://www.legislature.mi.gov/documents/2007-2008/publicact/htm/2008-PA-0295.

htm.

42 Michigan Public Service Commission, Report on the Implementation of the P.A. 295 Renewable Energy Standard and the 

Cost-Effectiveness of the Energy Standards.

43 Under Ohio rules, “advanced nuclear energy technology” includes generation III technology as defined by the 

Nuclear Regulatory Commission; other, later technology; or significant improvements to existing facilities.

44 Individual compliance reports of Ohio Power Company, Columbus Southern Power Company, Duke Energy 

Ohio, and First Energy available online, see “Alternative Energy Portfolio Status Reports – 2010,” The Public Utilities 

Commission of Ohio, last accessed September 26, 2011, http://www.puco.ohio.gov/puco/index.cfm/industry-information/

industry-topics/alternative-energy-portfolio-status-reports-2010.

45 Pennsylvania’s AES Tier I qualified energy technologies are: solar photovoltaic energy, solar thermal, wind 

power, low-impact hydropower, geothermal energy, biologically derived methane gas (including landfill gas), fuel cells, 

biomass energy, coal mine methane, black liquor, and large-scale hydropower (certain restrictions apply). Tier II energy 

technologies are: waste coal, distributed generation systems, demand-side management, large-scale hydropower, municipal 

solid waste, generation of electricity utilizing by-products of the pulping process and wood, and integrated combined coal 

gasification technology. More information about Pennsylvania’s electricity portfolio standard, see “Alternative Energy,” 

Pennsylvania Public Utility Commission, last accessed September 26, 2011, http://www.puc.state.pa.us/electric/electric_alt_

energy.aspx. 

46 Pennsylvania Public Utility Commission, 2008 and 2009 Annual Reports Alternative Energy Portfolio Standards Act of 
CES: State and Federal Policy Options and Implications 63

2004 (2010), http://www.puc.state.pa.us/electric/pdf/AEPS/AEPS_Ann_Rpt_2008-09.pdf. 

47 In recent years, legislation expanding the list of qualifying resources has been introduced in a number of states, 

sometimes successfully and sometimes not. These proposals have most often focused on adding resources that generate or 

save relatively few MWh compared to the overall policy targets. But in several notable cases (e.g., Maine and Arizona), proposals to include high-output resources like nuclear power and natural gas generation without increasing the targets have 

been defeated. 

48 In practice, this could require a fairly complicated national tracking system, especially if the definition of “clean” 

varies across jurisdictions, but the concept is not unprecedented and is certainly realistic. Some states already collaborate 

on tracking systems despite having different lists of qualifying RPS resources. The key points are to ensure that any one 

credit cannot be used where it is not eligible and cannot be used twice.

49 This paper uses the term “electric utilities” to describe entities selling electric energy at retail to end use customers. This is in fact a gross simplification but it is sufficient for describing the concepts in this paper. In today’s complex 

restructured electric power industry, the reality is that end use customers may be purchasing power from a distribution-only 

utility, a vertically-integrated utility that owns generation assets, an electric cooperative, a public power entity, or a competitive retail electric supplier. Some of these entities will not meet the legal definition of “utility” in every jurisdiction. The 

distinction between electric utilities and generators is further explained in Appendix on “A CES in Traditionally Regulated 

and Competitive Electricity Markets”.

50 See Table A2 in Appendix on “Recent Congressional CES Proposals”.

51 The White House’s Blueprint for a Secure Energy Future says of the President’s CES proposal that it “would work by 

giving electric power plants clean energy credits for every megawatt-hour (MWh) of electricity they generate from clean 

energy” and “[u]tilities that serve retail customers would be responsible for making sure the utilities had enough credits to 

meet their target.”

52 Joseph E. Aldy, Promoting Clean Energy in the American Power Sector, The Hamilton Project (Washington, DC: The Brookings Institution, 2011), http://www.brookings.edu/papers/2011/05_clean_energy_aldy.aspx.

53 Dallas Burtraw, “Additional Topics,” in RFF Analyzes Clean Energy Standard in Response to Senate White Paper Questions (Washington, DC: Resources for the Future, 2011), 53-55. http://www.rff.org/Documents/Features/110415_RFF_CES_

Responses_Final.pdf. 

54 Consider the case of a merchant coal plant. Under a CES with the point of regulation on electric utilities, this 

coal plant may earn some credits (e.g., via CCS retrofit) to sell to electric utilities or not earn any credits, but the coal plant 

will never have to pay for any credits or allowances to cover its emissions. Under Aldy’s proposal though, the coal plant 

would eventually, if it did not retrofit with CCS, have to pay to buy credits to cover its emissions.

55 For example, the generation and transmission cooperatives that supply rural electric cooperatives with nearly 

half of their electricity have made significant investments in developing and deploying clean energy technologies. In April 

2009, the National Rural Electric Cooperative Association (NRECA) reported that seven generation and transmission 

cooperatives are currently partnering with universities, laboratories, and research firms to explore methods for capturing 

and utilizing carbon emissions from existing fossil power plants. In addition, NRECA reports that electric cooperatives are 

partial owners of operating nuclear plants in seven states and are actively planning to participate in the development of new 

reactors; moreover, a consortium of cooperatives is working on licensing the first small modular nuclear reactors.

56 California Market Advisory Committee, “Recommendations for Designing a Greenhouse Gas Cap-and-Trade 

System for California” (Sacramento, CA: California Environmental Protection Agency, 2007), http://www.climatechange.

ca.gov/market_advisory_committee/index.html.

57 Excluding clean energy generation (e.g., from existing facilities) from the base quantity means a CES has an effective target for overall clean energy generation that is higher than its nominal target, all else equal. Excluding non-clean 

energy generation from the base quantity means a CES has an effective target for overall clean energy generation that is 
64 Center for Climate and Energy Solutions

lower than its nominal target.

58 U.S. Energy Information Administration, Energy Market and Economic Impacts of H.R. 2454, the American Clean 

Energy and Security Act of 2009 (Washington, DC: U.S. Department of Energy, 2009), http://www.eia.gov/forecasts/aeo/

index.cfm. The federal renewable electricity standard included in the House-passed Waxman-Markey American Clean 

Energy and Security Act of 2009 (H.R. 2454 of the 111th Congress) illustrates the difference between nominal and effective 

targets. The Waxman-Markey bill included a federal renewable electricity standard with a nominal target of 20 percent by 

2020. However, Waxman-Markey included a compliance exemption for small utilities (those with annual sales of less than 

four million MWh) responsible for roughly 20 percent of total U.S. electricity sales. Moreover, Waxman-Markey excluded 

conventional hydropower from the base quantity of electricity sales. As such, Waxman-Markey effectively required only that 

20 percent of large utilities’ non-hydropower electricity sales come from qualified renewable sources. EIA estimated that 

the effective Waxman-Markey renewable electricity standard target for 2020 was 16.5 percent of total U.S. electricity sales as 

opposed to the headline target of 20 percent.

59 The fourth example is offered to illustrate how energy efficiency can change the base quantity of sales and 

thereby change the amount of actual clean generation needed to satisfy a CES. The authors do not intend to suggest that 

this “incentive” for energy efficiency is necessarily or in all cases sufficient to overcome other disincentives a utility might 

have for investing in efficiency.

60 In its AEO2011 Reference Case, EIA projects that natural gas-fired plants account for 60 percent of capacity additions from 2010 through 2035.

61 Combustible renewable fuels face a similar issue. Whereas biomass, biogas, and landfill gas can be viewed as 

neutral with respect to long-term emissions of GHG, the same is not true for non-GHG air pollutants. When burned, these 

fuels release criteria air pollutants (e.g., SOX, NOX, and particulate matter) and hazardous air pollutants, though usually in 

smaller quantities than the typical coal-fired power plants operating today. This point is illustrated in part by EPA’s proposal to exempt natural gas power plants from new HAP emission regulations, based on EPA finding that the public health 

impacts from HAP emissions at those power plants are negligible. Nonetheless, if reducing non-GHG air pollutants is an 

important CES policy goal, policymakers might consider provisions to address the non-GHG pollutants from these renewable technologies.

62 Generally, it’s challenging to create and assign generation technologies into credit categories that are equitable 

because of plant-to-plant as well as technology-by-technology variation in emission rates.

63 The federal electricity portfolio standards proposed in the 111th Congress provided credits to all renewable electricity (new and existing) with the exception of conventional hydropower, for which only incremental generation received 

credits. The electricity portfolio standards from Senators Graham and Lugar (S.20 and S.3464 of the 111th Congress) 

provided credits to certain non-renewable clean energy sources but, with respect to existing nuclear plants, provided credits 

only to incremental output. See Table A2 in Appendix on “Recent Congressional CES Proposals” for details.

64 For example, if the baseline of existing clean energy generation was 40 percent before the policy is enacted, 

then a 40 percent CES that credits only new and incremental generation could be equivalent to an 80 percent CES that 

provides credit to existing, new, and incremental generation.

65 The issue of wealth transfers from consumers to producers is nuanced. In some competitive electricity markets, a 

CES might actually lower wholesale power prices during certain periods. In such cases, existing clean power facilities might 

be less profitable under a CES than they would otherwise have been which might be an argument for providing credits to 

existing facilities.

66 See Appendix on “A CES in Traditionally Regulated and Competitive Electricity Markets” for a discussion of a 

CES in traditionally regulated and competitive electricity markets.

67 Ray Kopp et al., RFF Analyzes Clean Energy Standard in Response to Senate White Paper Questions (Washington, DC: 

Resources for the Future), http://www.rff.org/News/Features/Pages/RFF-Responds-to-Senate-CES-Request.aspx. Based 
CES: State and Federal Policy Options and Implications 65

on RFF’s modeling President Obama’s CES proposal that did not provide credits to non-incremental output from existing 

clean energy facilities, up to five GW of existing nuclear capacity would retire rather than relicense by 2035 (depending on 

natural gas prices ). RFF projected that these units would not retire under a CES that provided them with credit for nonincremental output. To put this figure in context, the Nuclear Regulatory Commission (NRC) reports that, between 2012 

and 2035, the operating licenses for 74 GW of existing nuclear capacity will expire if not renewed. For NRC data, see U.S. 

Nuclear Regulatory Commission, “Information Digest, 2011–2012” (NUREG-1350, Volume 23), Appendix A, http://www.

nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1350.

68 Meghan McGuinness, The Administration’s Clean Energy Standard Proposal: An Initial Analysis, Bipartisan Policy 

Center Staff Paper (Washington, DC: Bipartisan Policy Center, 2011), http://www.bipartisanpolicy.org/sites/default/files/

CES_paper_revised.pdf.

69 For example, if analysis suggests that nuclear plant owners will not relicense their reactors without receiving credits under a CES (even when generation from such reactors receives indirect credit by its exclusion from the base 

quantity), then policymakers might provide some amount of credits for generation from existing nuclear plants upon their 

relicensing.

70 See Table A2 in Appendix on “Recent Congressional CES Proposals” for details on the federal proposals. 

71 The White House’s Blueprint for a Secure Energy Future says the President’s CES should be paired with energy efficiency policies that “will lower consumers’ energy bills, such as stronger appliance efficiency standards, tax credits for energy efficiency upgrades, the proposed Home Star rebate program, the ENERGY STAR program, and technical assistance 

for industrial efficiency.” 

72 “Energy Efficiency Standards and Targets,” Center for Climate and Energy Solutions, last modified August 11, 

2011, http://www.c2es.org/what_s_being_done/in_the_states/efficiency_resource.cfm. 

73 Policymakers could also consider an energy efficiency resource standard (EERS) as a complementary policy to a 

CES. 

74 Table A2 in Appendix on “Recent Congressional CES Proposals” shows that two of the three federal electricity 

portfolio standards in the last Senate included limits on how much compliance could come from energy efficiency.

75 For example, Senator Graham’s Clean Energy Standard Act of 2010 (S. 20 of the 111th Congress) would have 

provided credits for early retirement of carbon-intensive generating units (e.g., old coal plants), where early retirement was 

defined as retirement between enactment of the bill and the end of 2014. Under the proposal, eligible retired units received 

partial credits for their avoided generation during this period.

76 Note that the LCOE estimates do not reflect any state or federal tax or other financial incentives.

77 For example, Senator Graham’s CES proposal from 2010 provided double credits for generation from the first 

five new coal power plants to use CCS and the first five CCS retrofit projects at existing coal plants. The proposal required 

that new coal with CCS projects sequester at least 1 million tons per year of CO2 and retrofit projects capture and sequester 

the CO2 from at least 200 MW of generation capacity. The proposed CES would also have adjusted bonus credits downward 

for CCS projects that sold captured CO2 for use in enhanced oil recovery (EOR) projects.

78 Using bonus credits to provide an extra incentive for deployment of particular technologies poses an additional 

challenge under a CES if such bonus credits are of a very large scale. For example, if a CES’s nominal target is increased 

in order to maintain a certain effective target in light of substantial numbers of anticipated bonus credits for widespread 

CCS deployment, then the CES will turn out to be much more ambitious than intended if those anticipated CCS projects 

never materialize. One option for addressing this issue is to grant the bonus credits on a competitive basis (e.g., via a reverse 

auction); this approach would prevent policymakers from defining a rate for awarding bonus credits for CCS (e.g., double 

credits for first movers) only to find this rate insufficient to spur CCS projects, thus leaving the bonus credits unclaimed 

and the overall CES targets overly stringent.
66 Center for Climate and Energy Solutions

79 Strictly speaking, by setting minimum requirements for certain clean energy sources, carve-outs and tiers also 

set maximum levels of compliance from all other clean energy sources.

80 One might argue that banking of credits should be limited under some electricity portfolio standard policies. 

For example, a renewable electricity standard that sets targets that are at or even below “business-as-usual” levels in the 

early years might warrant restrictions on banking since early over-compliance with very modest requirements might substantially undermine the longer-term deployment of renewables. However, a CES with clean energy targets that are significantly 

higher than “business as usual” projections (e.g., a CES consistent with President Obama’s goal of 80 percent clean energy 

by 2035) may not face the same issue with regard to banking.

81 More recently, offsets have been a key feature in GHG cap-and-trade programs and proposals—including RGGI, 

California’s cap-and-trade program, and recent congressional GHG cap-and-trade bills. Under a GHG cap-and-trade 

program, entities who are not subject to an emissions cap (e.g., farmers and forest managers) could receive offset credits for 

quantified emission reductions or biological carbon sequestration (e.g., credits for carbon sequestered via reforestation) 

that they could sell to entities that are covered by the emissions cap for compliance with the cap on emissions. Such credits 

are called “offsets” because they allow an entity that does not have a compliance obligation to take some actions to offset 

the actions (e.g., GHG emissions) of entities that do face compliance obligations. For more information on offsets in the 

context of GHG cap-and-trade programs, see Center for Climate and Energy Solutions, Greenhouse Gas Offsets in a Domestic 

Cap-and-Trade Program (Arlington, VA: Center for Climate and Energy Solutions, 2008), http://www.c2es.org/federal/congressional-policy-brief-series/greenhouse-gas-offsets-domestic-cap-and-trade-program.

82 Alternative and Renewable Energy Portfolio Act, West Virginia Code §24-2F (2009), see http://www.legis.state.

wv.us/Bill_Status/bills_text.cfm?billdoc=hb103%20ENR.htm&yr=2009&sesstype=1X&i=103. 

83 In 2006, Senator Coleman (R-MN) proposed a federal Clean Energy Portfolio Standard that allowed for compliance via credits issued for biological sequestration projects, see U.S. Energy Information Administration, “Appendix B. 

Proposed Clean Energy Portfolio Standard” in Energy Market Impacts of a Clean Energy Portfolio Standard - Follow-up (Washington, DC: U.S. Department of Energy, 2007), http://www.eia.gov/oiaf/servicerpt/portfolio/pdf/appb.pdf.

84 An ACP may be specified in $/MWh. For example, if an electric utility had to demonstrate that it delivered 1000 

MWh of qualified clean electricity under a CES, it might submit CECs equivalent to 500 MWh of clean energy and pay the 

ACP for the remaining 500 MWh.

85 Ryan Wiser and Galen Barbose, Renewables Portfolio Standards in the United States — A Status Report with Data 

Through 2007, (Berkeley, CA: Lawrence Berkeley National Laboratory, 2008), http://eetd.lbl.gov/ea/emp/reports/lbnl-154erevised.pdf, 31.

86 A recent study modeled a federal renewable standard with a target of 20 percent by 2020 both with and without 

the ACP ($25/MWh). Compared to “business as usual,” this study projected that the policy scenario without an ACP led to 

the deployment of roughly 2.5 times as much incremental renewable generating capacity as did the policy scenario with 

an ACP through 2035. See Karen L. Palmer et al., Federal Policies for Renewable Electricity: Impacts and Interactions, Discussion 

Paper (Washington, DC: Resources for the Future, 2011), http://www.rff.org/RFF/Documents/RFF-DP-10-53_Final.pdf.

87 Senator Graham’s CES proposal (S.20) from the 111th Congress, for example, capped the program’s rate impact 

at 4 percent per year per customer.

88 See Table 9 in Ryan Wiser and Galen Barbose, Renewables Portfolio Standards in the United States — A Status Report 

with Data Through 2007.

89 Edison Electric Institute, Different Regions of the Country Use Different Fuel Mixes to Generate Electricity (Washington, 

DC: Edison Electric Institute, 2009), http://www.eei.org/ourissues/ElectricityGeneration/FuelDiversity/Documents/diversity_map.pdf.

90 State laws that specifically require in-state generation have been challenged in court on constitutional grounds, 

with litigants asserting a violation of the interstate commerce clause. See, for example, American Tradition Institute v. State 
CES: State and Federal Policy Options and Implications 67

of Colorado. Although resolution of this legal question is important, it is beyond the scope of this paper.

91 Letter from the Governor’s Wind Energy Coalition, 13 September 2010, http://washingtonindependent.com/

wp-content/uploads/2010/09/RES-letter.pdf.

92 Under this approach, policymakers may take two steps to promote the fair treatment of utilities subject to state 

standards in addition to the federal CES. First, utilities that have purchase agreements for state RECs at the time of enactment of a federal CES might be assured that they will receive any federal credits associated with the renewable electricity 

generation that creates those state RECs. Second, to the extent that regulated entities comply with state standards by making payments to state authorities, a federal CES could assign to utilities making such payments ownership of the federal 

credits associated with any clean power generation funded by such payments to states. Both of the above provisions should 

be accompanied by adequate steps to avoid any double-counting of clean power generation under the federal standard. 

These steps are based on the provisions in Sec. 610(h) of the American Clean Energy Leadership Act of 2009 (S.1462) from 

the 111th Congress.

93 This interaction between an electricity portfolio standard and a GHG cap-and-trade program is illustrated by 

the modeling results in two studies from RFF that compared GHG cap-and-trade programs alone to cap-and-trade in combination with an RPS. Palmer et al., Federal Policies for Renewable Electricity: Impacts and Interactions. Burtraw et al., Allocation of 

CO2 Emissions Allowances in the Regional Greenhouse Gas Cap-and-Trade Program, Discussion Paper (Washington, DC: Resources 

for the Future, 2005), http://www.rff.org/documents/RFF-DP-05-25.pdf.

94 “Regional Initiatives,” Center for Climate and Energy Solutions, last modified July 18, 2011, http://www.c2es.

org/what_s_being_done/in_the_states/regional_initiatives.cfm#wci.

95 “Increase Clean Energy R+D,” Institute for 21st Century Energy, last accessed September 26, 2011, http://www.

energyxxi.org/issues/Increase_Clean_Energy.aspx

96 Air emissions from average coal-fired power plants come from EPA’s “Air Emissions,” last modified December 28, 

2007, http://www.epa.gov/cleanenergy/energy-and-you/affect/air-emissions.html. Air emissions for new NGCC and coalfired power plants come from National Energy Technology Laboratory’s “Bituminous_Performance_Tool,” last accessed 

September 26, 2011, http://www.netl.doe.gov/energy-analyses/pubs/Bituminous_Performance_Tool_Rev6.swf.

97 The summary of President Obama’s CES proposal draws from the CES discussion in the White House’s Blueprint 

for a Secure Energy Future. As a high-level proposal rather than actual legislation, President Obama’s CES has fewer details 

than the Senate bills.

98 For a detailed side-by-side comparison of the proposals, see: the Center’s “Comparison Chart: Diversified/

Renewable Energy Standard Provisions in Climate and Energy Legislation in the 111th,” last modified May 8, 2011, http://

www.c2es.org/federal/analysis/congress/111/comparison-chart-diversifiedrenewable-energy-standard-provisions-clima. 

99 Each of the bills summarized in Table A2 uses the definition of “electric utility” from the Public Utility Regulatory Policies Act of 1978 (PURPA), 16 U.S.C § 2602(4) —i.e., any person, state agency, or federal agency, which sells electric 

energy—and applies the portfolio standard requirement to electricity sales to consumers for purposes other than resale.

100 Ohio utilities also face a requirement for peak demand reduction and electricity savings from energy efficiency 

and conservation programs.

101 Todd Williams, “Ohio’s Renewable Portfolio Standards” (presentation, Toledo City Council, February 28, 2011), 

http://www.scribd.com/doc/49792124/Ohio-s-Renewable-Portfolio-Standards.

102 The law exempts utilities from complying until the companies have fully recovered their competitive or intangible transition charges, or until their generation rate caps have expired, whichever period is later.

103 PJM Environmental Information Services, “Comparison of Renewable Portfolio Standards (RPS) Programs in 

PJM States” (Norristown, PA: PJM Environmental Information Services, 2010), http://www.pjm-eis.com/~/media/pjm-eis/

documents/rps-comparison.ashx.
68 Center for Climate and Energy Solutions

104 Ibid.

105 Kevin Kennedy et al., Submission to the U.S. Senate Committee on Energy and Natural Resources: Response to the Committee’s White Paper on a Clean Energy Standard (Washington, DC: World Resources Institute, 2011), http://www.wri.org/stories/2011/04/how-design-clean-energy-standard.

106 McGuinness, The Administration’s Clean Energy Standard Proposal: An Initial Analysis. BPC’s paper found that the 

main CES policy case led to slightly lower levels of nuclear power generation and natural gas-fired generation than under 

“business as usual” in 2020 and 2030, respectively. BPC projected more natural gas-fired generation under a CES when 

lower natural gas prices were assumed.

107 Ibid.

108 Kopp et al., RFF Analyzes Clean Energy Standard in Response to Senate White Paper Questions.

109 “BL” refers to RFF’s baseline or “business-as-usual” model scenario.
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