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United States

Opening another financing door

Various possibilities for including wind generation in cap-and-trade emissions reduction programs across 28 eastern states are examined in a July report issued by the National Renewable Energy Laboratory (NREL) and the American Wind Energy Association (AWEA).

"The report is intended to provide a little bit of historical feedback," says AWEA's Liz Salerno. "The idea is just to bring this idea for renewables to light. I guess we'll see who grabs a hold of it."

Cap-and-trade programs have been a leading policy choice for reducing emissions in the US electricity sector since 1990, when the Clean Air Act Amendments established the first national program. Under similar programs since, states are allocated a level of emissions within industry sectors. Individual states then determine how they will distribute those total allocations to individual electricity generators. Allowances are traditionally awarded on the basis of fuel inputs and have thus typically excluded wind power, along with renewables in general.

The NREL report looks at methods for specifically including wind generators in emission reduction programs, which could include set-asides for renewables as well as output-based allocation of allowances to renewable energy generators. "The idea is to include the whole range of energy sources," says Salerno. "Cap-and-trade has worked well in the past and this is a chance to build on what we've already seen."

A set-aside establishes a specific volume of allowances for renewable generators and offers certainty for existing generators about the number of allowances allocated to them. A direct output-based approach allocates allowances to all generators, including renewables producers, from a pool based on generation output.

Both methods have a potential drawback. Administrative costs of a set-aside are thought to be higher than output-based allocation, while output-based could reduce allocation to conventional generators as renewable generation shares increase.

The report also includes an examination of state policies that already include wind in cap-and-trade programs, along with ways for wind generators to get the most out of participation. "The long term goal here is to ensure that renewable generation gets recognised for its zero emissions," says Salerno. "There's kind of a menu of options once the allocation is in the hands of the renewable generator."

To control interstate emissions in the 28 eastern states, a cap-and-trade program called the Clean Air Interstate Rule (CAIR) is currently in use. The NREL report gives specific regulatory options regarding allowances to generators of renewables under the rule. The US Environmental Protection Agency (EPA) has provided states with a model for allocating allowances but does not include renewables. Eight states, however, have begun to include wind and other renewables, while more states are expected to follow that lead.

According to Salerno, progressive allowance allocation proposals that include renewables are already on the table in Illinois, Minnesota and Wisconsin. Indiana, Michigan, Missouri, Ohio and Virginia are not far behind. "The states are given the flexibility to do their own allocations," Salerno says. "But any guidance is still relevant to the federal program."

Each of the 28 states must submit a rule proposal to the EPA this fall and the CAIR regulation goes into effect in 2009. Additional emissions reductions will be required in 2015.

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