The new Senate Democratic energy bill is a wonk’s dream

In anticipation of the pope's visit to Washington, and to signal their support of Obama's agenda at climate talks in Paris this December, Senate Democrats have released a new bill: the American Energy Innovation Act of 2015.

When I heard such a bill might be coming, I expected a variation on the many "messaging amendments" that have come and gone over the past few years. Something like, "We, Senate Democrats, think climate change is real and something ought to be done about it." They release it, force Republican senators to vote against it, and tie it to the publicity around the pope's visit. Done.

But this bill is ... not that. Instead, it is astonishingly substantive, a veritable policy buffet of ideas about how to rationalize and accelerate government's role in the clean energy transition. It took me a few hours just to work my way through the summary. I'm a little Leslie Knope about it.

(giphy)

The New York Times story only scratches the surface of the bill, which is sponsored by Sen. Maria Cantwell (D-WA). There are subtitles on upgrading the grid, protecting customer energy information, boosting basic research, and increasing efficiency in buildings, to cite just a few. It creates a national Energy Efficiency Resource Standard! It puts the Federal Trade Commission in charge of prosecuting unfair trade barriers to distributed energy! It creates a program to study recycling of carbon fiber! (Wait, what?)

I won't attempt to summarize the whole thing. Instead, I'll just say a word about the politics and then call out my favorite set of provisions. TL;DR: the bill is less an attempt to pass legislation than a compendium of state-of-the-art energy policy from which future lawmakers can draw; among other things, it would streamline and extend incentives for clean energy.

The Democratic energy bill is an à-la-carte menu

There is no chance that this bill will pass under the current Congress, for reasons that ought to be obvious to everyone by now. There is a separate bill wending its way through the process containing only elements acceptable to both parties, and it is, headline notwithstanding, very, very narrow.

This bill, by contrast, is wide lens, a menu of policy ideas acceptable to a broad swath of the Democratic caucus. It is also, from a tactical perspective, an answer to the charge, exacerbated by the Keystone XL fight, that Democrats are the party of no on energy. There's a lot of yes in this bill. Deep yes.

I think a lot about this quote from economist Milton Friedman:

Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.

That's the spirit of this bill: to get these policies in circulation so that Democrats can run on them in 2016, ratify them as party policy, and draw on them when and where policy becomes possible. In a similar way, many of the energy policies that made their way into the stimulus bill and the Energy Independence and Security Act of 2007 trace back to a (similarly doomed) energy bill the Senate Democratic caucus put forward in 2006.

"A plan that looks something like this is going to be high on the next Congress’s agenda," says Sen. Chuck Schumer (D-NY), who's widely expected to become Senate Democratic leader after Reid retires.

Chris Maddaloni/CQ Roll Call

One more observation on the politics: Note that one thing (maybe the only thing!) the bill lacks is any mechanism to price carbon, which would seem to indicate that the caucus is not yet united around that much-ballyhooed goal. Instead, they are doing green industrial policy, which not only accelerates clean energy industries but builds constituencies for further, more ambitious policy. I wrote a whole post about just this strategy the other day, which clearly had huge (uh, retroactive) influence.

Streamlining the current fragmented, self-contradictory mess of energy incentives

The hottest action in the bill is in Title V, which was written by Sen. Ron Wyden (D-Ore.). It repeals all sorts of fossil fuel subsidies, but the most interesting bits are subtitles A through C. (There's a reason #TitleVsubtitleA is trending on Twitter.)

Those subtitles address:

• A: Clean energy tax reform, regarding current incentives for clean electricity
• B: Clean fuel tax credits, regarding current incentives for alternative liquid transportation fuels
• C: Energy efficiency investments, regarding current incentives for residential and commercial building efficiency

In each area, existing incentives are a fragmentary mess. Here's how the summary describes the situation in clean electricity:

There are several different incentives for the production of clean electricity, including the section 45 production tax credit [PTC] and section 48 investment tax credit [ITC], along with provisions for accelerated depreciation, tax-favored bonds, and allocated credits. This patchwork of incentives features several temporary provisions with differing rules and expirations, provides different incentive levels for technologies with similar emission profiles, and omits several new and emerging technologies.

In each of the three areas, the bill proposes two steps. First, existing incentives would be extended through the end of 2017 and then would expire. They would be replaced by performance-based standards.

So for instance, clean energy producers could choose between the PTC or the ITC, but in either case those incentives would be available not to a select list of technologies, but to any facility, "scaled based on the carbon emissions of the electricity generated — measured as grams of carbon dioxide equivalents (CO2e) emitted per kilowatt hour (KWh) generated."

In clean fuels, the standard is "the lifecycle carbon emissions of a given fuel," measured "well to wheel." In efficiency — which is split into two programs, one for residential buildings and one for commercial — the standard is "the overall level of energy reduction." In all cases, the incentive is tied to performance, to the achievement of social and environmental benefits, rather than to technology.

(Shutterstock)

If you're going to do green industrial policy, this is how to do it. Performance standards are a great way to harness markets to achieve social goals; they specify ends but not means. (This is the same flexibility economists love about a carbon price, but on a sector-specific scale.) In theory, this framework ought to be attractive to at least a few Republicans — it's certainly more efficient than today's skein of incentives or anything EPA is able to squeeze out of the Clean Air Act — but you know how that goes.

The bill would set a trajectory that would change climate politics

One interesting aspect of the clean electricity incentives in the bill is that they are set to expire when the US reaches its stated carbon target:

The credits are set to phase out when emission targets are achieved: when EPA and the Department of Energy (DOE) certify that the electric power sector emits 28 percent less carbon than 2005 levels, the incentives will be phased out over five years. Facilities will be able to claim a credit at 75 percent value in the first year, then 50 percent, then 25 percent, and then 0 percent.

There are two ways of looking at this. You might think it's somewhat shortsighted, since 28 percent cuts are only the beginning of what's needed. By 2050, carbon should be driven entirely from the US electricity system.

But you could also see it as an expression of confidence. If it makes some legislators more comfortable to vote for bounded, finite incentive programs than to vote for open-ended subsidies, that's fine. By the time emissions are down 28 percent, there will be a range of flourishing clean energy industries, from wind and solar to electric cars to energy management to microgrids, employing hundreds of thousands of Americans, producing millions of dollars in tax revenue, and throwing around money and influence in political circles.

When that day comes, it's unlikely Congress is going to sit by and let clean energy support lapse. Rather, the scope of political possibility is likely to be substantially expanded, maybe even enough to add a stiff carbon tax to the mix. Once the transition has that much momentum, it will be unstoppable.

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