Country Snapshot: US

On 31 March 2015, the federal government of the United States announced that the United States intends to achieve an economy-wide target of reducing its greenhouse gas emissions by 26-28 percent below its 2005 levels by 2025. According to an accompanying report issued by the federal government:

‘The U.S. target will roughly double the pace of carbon pollution reduction in the United States from 1.2 percent per year on average during the 2005-2020 period to 2.3-2.8 percent per year on average between 2020 and 2025. This ambitious target . . . will keep the United States on the pathway to achieve deep economy-wide reductions of 80 percent or more by 2050.’

The target will cover all IPCC sectors and the following greenhouse gases: carbon dioxide, methane, nitrous oxide, perfluorocarbons, sulfur hexafluoride and nitrogen hexafluoride. The United States does not plan to use international market mechanisms to implement the target. Its’ INDC submission outlines both existing and future regulatory actions that will contribute towards the target reductions, such as fuel economy standards for motor vehicles, building sector energy conservation measures and requirements to reduce emissions from new and existing power plants.

The full text of the United States’ INDC submission can be accessed at here.

There is currently no national carbon tax or nationwide emissions trading scheme in place in the United States from which a national carbon price may be determined.

However, some States and localities have attempted smaller-scale carbon pricing. For example, a carbon tax on businesses in the San Francisco Bay Area was passed in 2008, taxing companies 4.4 cents per tonne of emitted carbon dioxide. Boulder, Colorado also passed a municipal carbon tax in 2006 that taxed electricity consumption. Boulder taxes residential buildings at $.0049/kWh, and commercial and industrial buildings at $.0009/kWh and $.0003/kWh respectively.

Although no national carbon offset scheme currently exists in the United States, historically, there was a national cap and trade program that reduced acid rain pollution in the 1990’s. Several bills have been introduced in Congress over the years to adopt a national cap and trade program for greenhouse gasses. However, none has passed and the current political outlook does not favor passage in the near future.

The Chicago Climate Exchange, a voluntary greenhouse gas emission cap and trade scheme, voluntarily operated from 2003 until it was discontinued in 2010 after having zero monthly volume for nine months. The carbon credit price on the exchange peaked at $7.50 per metric tonne of carbon dioxide, but its final position was between 5 and 10 cents. The exchange had over 400 members, including large corporations, municipalities and educational institutions.

At a regional level, some States have implemented market-based regulatory programs to reduce greenhouse gas emissions. The most notable are the Regional Greenhouse Gas Initiative (RGGI) and California’s cap and trade program. RGGI operates between the States of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. RGGI had a 2014 cap of 91 million short tonnes, and the cap is set to decline 2.5 percent each year until 2020.

California’s cap-and-trade regulation, issued under the state’s Global Warming Solutions Act of 2006, covers approximately 85% of greenhouse gas emissions from the Californian economy. It applies to electricity deliverers, facility operators and fuel deliverers that emit more than 25,000 metric tonnes of CO2 equivalent emissions per year. California also takes part in the Western Climate Initiative (WCI), a state emissions bloc similar to RGGI. While the WCI initially included participation from Arizona, New Mexico, Oregon, Washington, Montana, and Utah, as well as several Canadian provinces, it now consists only of California, British Columbia and Quebec.

The United States Environmental Protection Agency (EPA) issued a proposed rule to implement a Clean Power Plan (CPP) on 3 August 2015. If finalised in its proposed form, this plan will establish emission guidelines and standards to reduce carbon emissions by 32 percent from 2005 levels by 2030 and account for a significant portion of the United States’ announced intent to reduce greenhouse gas by 26-28 percent by 2023. Under the CPP, targets will differ across States because of each State’s unique mix of electricity-generation resources. The targets are based on current renewable technologies in the relevant State and how well they can reduce emissions through:

• improved efficiency of power plants;
• shifting generation from higher-emitting coal to lower-emitting natural gas power plants; and
• shifting generation to zero-emitting renewables.

Under the proposal, States may choose between two plan types to meet their targets:

• an emission standards plan, which includes source-specific requirements for all affected power plants within the State; or
• a State measures plan, which includes a mixture of measures implemented by the State, such as renewable energy standards and programs to improve residential energy efficiency, that must result in affected power plants meeting the State's mass-based goal.

States may consider carbon pricing and emissions trading schemes as options to lower their emissions to required levels by 2030. Under the proposal, State implementation plans will be due in September 2016 and the compliance period will begin in 2022. More information on the CPP can be accessed here.

In addition to the federal CPP, many States have existing State-based targets and incentives including grant and loan programs, tax and financial incentives, and renewable energy standards. Using these programs, the States will have discretion to lower their emissions by more than the CPP requires.

The CPP also includes a voluntary Clean Energy Incentive Program which is a “matching fund” program that States can use to incentivise early investment in eligible renewable energy. Through this program, States could “bank” credits in 2020 and 2021 for complying with the CPP during its interim (2022-2029) and final (2030 and onward) performance periods. The renewable projects that begin construction after a State submits a final plan would receive emission reduction credits (for rate-based plans) or allowances (for mass-based plans) on a one-for-one basis for each MWh generated in 2020 and 2021. These incentives are meant to spur investment in zero-emissions approaches and may also kick-start broader carbon-trading efforts.

The United States does not have a federal energy efficiency target in place. There are, however, various federal programs that impose energy efficiency standards on certain sectors of the economy, as well as various schemes and targets in many States. These programs generally target energy efficiency in utilities, building energy codes, appliance efficiency, and transportation:

• Utilities: establishment of energy efficiency resource standards that utilities must meet through customer energy efficiency programs. For example, Massachusetts enacted the Green Communities Act of 2008, which requires that electric distribution companies and natural gas distribution companies jointly develop three-year plans setting forth electric and natural gas efficiency investment plans, respectively. The plans must include programs for efficiency and load management, efficiency research and development, and public education. The plans also include savings targets and program incentives for reaching those targets.
• Building Energy Codes: adoption of stringent building energy codes for commercial and residential building and improvement of code compliance. For example, the Illinois Energy Efficient Building Act requires that all new commercial and residential construction and most renovations, alterations, and repairs adhere to the Illinois Energy Conservation Code. The Code incorporates the International Energy Conservation Code and current ASHRAE building standards. The Act also permits municipalities to adopt stricter energy codes for commercial buildings.
• Appliance Efficiency: implementation of appliance energy efficiency standards. The federal Department of Energy currently imposes and implements appliance energy efficiency standards for more than 50 classes of products under authority from federal legislation, most recently the Energy Independence and Security Act of 2007. The DOE program requires testing and certification to demonstrate compliance. Classes covered include appliances for heating and cooling, refrigeration, cooking, clothes washing and drying, and lighting. A number of States have also implemented appliance efficiency standards, although the federal standards have pre-empted many of them. California has the most robust state program, managed by the California Energy Commission. California standards cover more than 30 classes of appliances.
• Transportation: adoption of emissions standards for cars and trucks. Federal and state programs set targets for reduction of emissions from cars and trucks. The federal Environmental Protection Agency sets federal tailpipe emissions standards for on-road and off-road vehicles and engines. Several States also have emissions standards for transportation, ranging from tailpipe emissions (California) to low- and zero-emisson vehicle programs (e.g., Connecticut, Massachusetts, New York, Oregon, and Washington).

The United States has implemented several federal and State-based financial initiatives supporting clean energy investment, research and development. At the federal level, departments including the Department of Energy (DOE), the Department of Agriculture (USDA), the EPA and the Department of the Treasury (DOT) provide a variety of loan, grant and bond programs offering clean energy funding.

For example, the DOE supports a number of grant, loan and financing programs. The majority of renewable energy research and development activities are funded through the DOE’s Office of Energy Efficiency and Renewable Energy (EERE). EERE received approximately $1.9 billion in funding from the government in 2015, and it funds research and development by partnering with businesses and research institutions with the goal of making clean energy technologies cost-competitive with current conventional energy technologies. More information on the EERE may be found here.

The DOE’s Loan Programs Office (LPO) administers another federal program. The LPO issues loan guarantees to eligible clean energy projects through a clean energy loan guarantee program authorized by Title XVII of the Energy Policy Act of 2005 and the Advanced Technology Vehicles Loan Program (ATVM) authorized by Section 136 of the Energy Independence and Security Act of 2007. The LPO currently manages more than $30 billion in loans, loan guarantees and commitments for projects including wind, solar and geothermal energy.

The LPO is currently accepting applications under two main programs. Under the Advanced Fossil Energy Projects Loan Solicitation, authorised by the Energy Policy Act of 2005, up to $8 billion in loan guarantees are available to support innovative fossil energy projects in the United States that reduce, avoid or sequester greenhouse gas emissions. Eligible projects may involve any fossil fuel and can span the spectrum of production and use, including resource development, energy generation and end use. The ATVM provides loans to automotive manufacturers and component suppliers to support the manufacturing of fuel-efficient vehicles and components. ATVM, authorised under Section 136 of the Energy Independence and Security Act of 2007, has approximately $16 billion in remaining loan authority and is currently accepting applications.

At the State level, there are various initiatives in place to support clean energy investment, research and development, including subsidies, tax credits, feed-in tariffs, loans and green banks. While most States have implemented clean energy policies such as renewable energy standards (requiring that a certain amount of State electricity come from renewable resources), several have also implemented financing programs. For example, Iowa has established the Alternative Energy Revolving Loan Program (AERLP). Under this program, no-interest loans of up to $1 million for alternative energy projects are available to organisations and municipal utilities. These loans have terms up to 20 years and cover up to 50 percent of project costs. AERLP received an initial $5.9 million from Iowa’s investor-owned utilities, and an additional $5 million in fiscal years 2009 and 2010 from the Iowa I-JOBS bill. Eligible projects include solar energy, wind, biomass and hydroelectric proposals.

Other States, including Connecticut and New York, have implemented, or are considering, green banks. Green banks are quasi-public corporations into which existing State clean energy funding is placed, attracting private investment and enabling the bank to make loans and leverage its’ capital with additional private capital for clean energy projects. For example, the State of Connecticut launched the Connecticut Green Bank (CTGB) in July 2011 with the aim of shifting that State’s clean energy market from government-based incentives to private-sector financing. The CTGB offers the commercial sector several programs, including commercial property assessed clean energy financing, which allows property owners to finance energy improvements or alternative energy projects on their buildings and repay the loan through a tax assessment on their property.

The CTGB reviews proposed projects based on merit, and renewable energy projects are eligible for loans ranging from 10 to 20 years at an interest rate of 5 to 6 percent with a closing fee. To date, the CTGB has completed nearly 9,000 projects and reduced carbon emissions by approximately one million tonnes.
Likewise, New York recently created the New York Green Bank (NYGB), aimed at reducing the $1.4 billion New York spends yearly on clean energy incentives. Initially capitalised with $210 million in 2013, the NYGB has continually posted an open request for proposals to allow market actors to propose projects and programs for Green Bank investments. In October 2014, New York announced its first round of NYGB investments totalling $800 million for clean energy projects.