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Conservation and Renewable Energy Reserve
The Acid Rain Program promotes pollution prevention through its SO2 allowance trading program. Since allowances are assigned a market value, utilities have an incentive to emit less SO2 in order to conserve these allowances. The Conservation and Renewable Energy Reserve (the Reserve) portion of the program provided further incentive to lower SO2 emissions through early emissions. Although the deadline for such early reductions was January 1, 2000, utilities can still request allowances.
Frequently Asked Questions about the Reserve:
- What is the Conservation and Renewable Energy Reserve?
- What Energy Efficiency and Renewable Energy Measures Qualify for the Reserve?
- Who Can Apply for Reserve Allowances?
- Are Reserve Allowances the Same as Other Acid Rain Program Allowances?
- How Does EPA Determine How Many Allowances to Award an Applicant?
- How Does EPA Verify the Demand-Side Energy Efficiency or Renewable Energy Generation Claimed by an Applicant?
- When Should Utilities Apply to the Reserve?
- What Are the Environmental Benefits of the Reserve?
What is the Conservation and Renewable Energy Reserve?
The Reserve is a pool of 300,000 bonus SO2 allowances that are awarded to utilities that employed efficiency or renewable energy measures to produce early emissions reductions before their generating became subject to the Acid Rain Program.
What Energy Efficiency and Renewable Energy Measures Qualify for the Reserve?
Utilities affected in Phase I of the program are eligible to earn Reserve allowances for efficiency or renewable energy generation measures employed from (but not before) January 1, 1992 to their compliance date of January 1, 1995. Phase II utilities are eligible for energy efficiency or renewable energy generation measures from (but not before) January 1, 1992 up until their compliance date of January 1, 2000. No reserve allowances could be earned since December 31, 1999; however, utilities may apply for reserve allowances until 2010 for reductions that occurred before the deadline (as explained below).
A qualified energy efficiency measure is a demand-side measure implemented in the residence or facility of a utility customer. The demand-side efficiency measures that qualify for the Reserve are listed in 40 CFR Part 73, Subpart F, Appendix A(1). If a demand-side efficiency measure is not included in the list, it may qualify for the Reserve if it is a cost-effective demand-side measure (not an educational program) consistent with an applicable least-cost plan or least-cost planning process that increases the efficiency of the customer's use of electricity.
Renewable energy generation measures that qualify for the Reserve program are listed in 40 CFR Part 73, Subpart F, Appendix A(3). Qualifying renewable energy generation resources for purposes of the Reserve program include: biomass, solar, geothermal, and wind.
Who Can Apply for Reserve Allowances?
To qualify, an applicant must satisfy the following criteria:
- The applicant must sell electricity.
- The applicant, any subsidiary of the applicant, or any subsidiary of the applicant's holding company must own or operate, in whole or in part, a Phase I or Phase II unit.
- The energy efficiency or renewable energy resource must be procured under a least-cost plan or planning process that is approved or accepted by the applicant's ratemaking entity. The least cost plan or planning process must meet the following requirements: (1) public participation; (2) evaluation of a full range of resource options; (3) treatment of supply-side and demand-side resources on a consistent and integrated basis; (4) accounting for system operation and risk factors; and (5) implementation of least-cost resources.
- To be eligible for allowances from the Reserve for energy efficiency measures, investor-owned utility applicants must be subject to a ratemaking process that does not make energy efficiency measures unprofitable. This is known as "net income neutrality," and requires that the utility be compensated for lost sales due to its energy efficiency measures. Applications for net income neutrality must be certified by the Department of Energy.
Are Reserve Allowances the Same as Other Acid Rain Program Allowances?
Yes. Bonus allowances from the Reserve have a dollar value and can be used for compliance with the program, sold or banked for future use.
How Does EPA Determine How Many Allowances to Award an Applicant?
A utility earns one allowance for every 500 megawatt hours of energy saved through demand-side efficiency measures or renewable energy generation.
How Does the EPA Verify the Demand-Side Efficiency or Renewable Energy Generation Claimed by an Applicant?
The Reserve application requires verification of both energy efficiency measures and renewable energy generation. In many cases an applicant applying for allowances based on energy efficiency measures may have its energy savings verified by its State Public Utilities Commission (see 40 CFR Part 73.82(c)). Otherwise, applicants must submit documentation of savings directly to EPA, and may use the EPA Conservation Verification Protocols to do so.
Renewable energy generation is verified by relevant plant records to be included with the application.
When Should Utilities Apply to the Reserve?
Each year, EPA accepts applications on or after July 1 for energy efficiency and/or renewable energy generation measures employed the previous year. If an application is received before July 1, EPA will consider it as a July 1 arrival.
An applicant may apply to the Reserve each year, or wait and apply once for several years of savings and/or renewable energy generation.
What are the Environmental Benefits of the Reserve?
Pollution prevention through energy efficiency measures and renewable energy generation helps combat not only acid rain, but other environmental harms as well, including global warming, urban smog, air toxics, the production of coal particulates, ash, and scrubber sludge.
The 300,000 bonus allowances in the Reserve represent a conversion of 150 billion kWh to energy efficiency or renewable energy. The net pollution displaced by the implementation of the Reserve amounts to 885 million pounds of SO2, 825 million pounds of NOx, and 225 billion pounds of CO2.