In the absence of federal direction on climate change policy, many states have created their own policies to curb greenhouse gas emissions.
New York, for example, has introduced a program that compensates nuclear power plants for the net environmental benefits of the electricity that they generate. Illinois has followed in New York’s footsteps with a nearly identical program that also rewards nuclear plants for their ability to generate electricity without producing any greenhouse gas emissions.
But the industry has responded to these state programs with legal challenges. In a recent paper, Ari Peskoe, a Fellow at the Harvard Law School Environmental Law Program Policy Initiative, arguesthat courts reviewing these challenges should find that New York and Illinois’s programs do not conflict with federal law.
New York and Illinois’s programs use similar mechanisms to provide financial support to nuclear plants, Peskoe notes. Both programs reward in-state nuclear plants for the environmental attributes of their energy with so-called Zero Emission Credits (ZECs). ZECs represent, Peskoe explains, “the environmental attributes of power” and are “an entirely separate product” from the energy itself. Eligible nuclear plants may sell their ZECs to a state regulatory body for a pre-determined price, and electric companies in the state must then purchase a set number of ZECs in proportion to their share of in-state sales.
By providing financial support to qualifying nuclear plants, ZECs encourage aging plants to remain operational and continue to provide electricity with zero greenhouse gas emissions.
Shortly after New York and Illinois regulators announced their respective programs, industry challengers brought suit in federal court, arguing that the state programs conflict with the Federal Power Act—a statute that delineates the bounds of federal and state power over energy—and violate the U.S. Constitution. Although the challengers lost their individual suits at the district court level, they have appealed to federal circuit courts of appeal.
Peskoe rebuts the challengers’ arguments that the New York and Illinois programs conflict with the Federal Power Act. The challengers, Peskoe notes, ground their argument in the text of the Act, which states that the Federal Energy Regulatory Commission (FERC) has authority over “rates and charges made, demanded, or received” for energy sold between states or in wholesale markets. Under the Act, state governments have authority over retail sales of electricity made to consumers, while the federal government retains authority over wholesale markets in which electricity is sold.
According to the challengers, ZECs count as payments that are “received” for energy sold in wholesale, and therefore federal, markets. Under this reasoning, New York and Illinois’s ZEC programs interfere with areas of exclusive federal authority.
Yet, as Peskoe notes, the challengers’ arguments fail to explain why ZECs are impermissible when they share many of the same characteristics as FERC-sanctioned and yet unchallenged Renewable Energy Credits. Renewable Energy Credits, much like ZECs, are credits that states provide to renewable energy generators for the positive environmental attributes of their electricity. A majority of U.S. states currently use or recognize Renewable Energy Credits for tracking the production and sale of renewable electricity.
Peskoe observes that FERC has previously held that Renewable Energy Credits sold outside of a wholesale energy transaction fall beyond the scope of agency authority because the sale does not constitute “a charge in connection with a wholesale sale of electricity.” In light of this existing determination by FERC, Peskoe states that the outcome that the challengers seek would “destabilize how states and FERC have understood this key jurisdictional issue.”
He also argues that the challengers fail to explain how ZECs are sufficiently different from Renewable Energy Credits—in short, why Renewable Energy Credits remain permissible while ZECs are impermissible.
Peskoe further urges courts to defer to FERC’s understanding of its authority over state-designed credit programs and to provide the agency enough latitude to address new issues that affect the electric grid. Peskoe observes that FERC has a history of accommodating state renewable energy goals and that “this sort of technical judgment about squaring wholesale market rules with state clean energy policies is at the heart of FERC’s regulatory mission.”
Although the challengers also argue that New York and Illinois’s ZEC programs are impermissible for the same reasons that the U.S. Supreme Court provided when it struck down a Maryland program in 2016, Peskoe highlights some key differences between the states’ programs.
Unlike the Maryland program, which provided subsidies to a natural gas plant that the state conditioned on its participation in the wholesale market, ZECs do not “disregard an interstate wholesale rate,” Peskoe observes. On the contrary, ZEC prices reward generators for their environmental attributes—a product entirely unrelated to prices for power or capacity set by FERC, according to Peskoe.
In addition, Peskoe distinguishes between the mechanism that triggered payments in Maryland’s program and the ZEC programs. Peskoe notes that New York and Illinois’s programs do not condition ZEC payments on nuclear plants taking any specific action in FERC-regulated markets. These differences, according to Peskoe, allow the ZEC programs to avoid the structural flaws that were fatal to Maryland’s program.
Peskoe’s article appeared in the Ecology Law Quarterly.
SOURCE: REGULATORY REVIEW