The CEPP: What could be America’s first and largest federal climate policy

US President Joe Biden wants to deliver climate legislation unlike anything America has seen before. His call for federal legislation to tackle climate change through a clean energy standard, packaged within his proposed $3.5 trillion reconciliation and infrastructure bill, has been hotly debated on Capitol Hill throughout September and into October. 

The clean energy standard is a mandate targeting utility suppliers to achieve a certain amount of zero-carbon electricity generation by a set date—a set of actions that would help the US realize Biden’s desire for a carbon-free electricity sector. Having passed the Senate after having its price tag reduced from $2 trillion to $1 trillion, the clean  energy mandate now must pass through Congress. 

At the risk of the clean energy standard and the grander, proposed $3.5 trillion infrastructure and social netting bills not passing Congress, Biden put forth an alternative plan called the Clean Energy Performance Program (CEPP) that would pressure utility companies to reach lofty decarbonization targets to deliver on his climate agenda.

What is CEPP?

The Clean Energy Performance Program is a policy that, if passed, would be America’s first federal policy aimed at significantly reducing carbon emissions from the power sector. CEPP is considered to be a modified version of the clean energy standard, and it works under the rules of a budget reconciliation bill (a bill that requires the policy to be related to taxes, spending, or debt). 

In short, CEPP would subsidize energy suppliers to invest in renewable energy technology and penalize them for continued reliance on fossil fuel energy generation. The program would run from 2023 to 2030. Every year within the period, electricity suppliers must meet a 4 percent clean energy growth target. When a supplier reaches that target, they would receive grants equal to $150 for each megawatt hour (MWh) above 1.5 percent of the previous year’s clean energy target. The grant money must be used for customer programs, direct bill assistance, clean electricity investment, and worker retention. 

A penalty for missing the target is applied to the supplier for every MWh. When they attempt to meet the target next year, suppliers must reach that year’s 4 percent target plus the percentage they fell short on the previous year. There would be options for the supplier to defer grants or payments up to two years consecutively to cater to intermittent renewable production.

Democrats see that this bill will help America reach 80 percent clean electricity by the end of its proposed timeframe: 2030. This target is a stepping stone to Biden’s vision of a 100 percent clean electricity sector.

For CEPP to pass, it would need just a simple majority vote in the reconciliation process in the Senate.

The development of CEPP

When Democrats gained majority in the House and Senate following Biden’s general election victory, they quickly got to work on crafting climate policies to transform America’s energy system and cut carbon emissions. 

Environmental policy groups led the way to develop a budget-based clean energy standard under the budget reconciliation. 

Out of this came CEPP. It is viewed as a linchpin to Biden’s strategy to decarbonize the American power sector by 2035, and it is hailed as the best opportunity for America to seriously address climate change and carbon emissions. Corporate leaders, environmental groups, and investor-owned utilities running 70 percent of the nation’s electricity have voiced their full or qualified support for CEPP. Major utilities across the country have already established clean energy and zero-carbon goals. 

Research from universities, federal laboratories, and think tanks have calculated that Biden and congressional Democrats’ climate goals are achievable. 

“Although challenging, a renewable energy buildout of this magnitude is feasible with the right supporting policies in place,” the authors of Goldman School of Public Policy at the University of California, Berkely’s report said.

Another analysis done by Evergreen Action suggests that CEPP would not sacrifice grid reliability as the legislation’s critics suggest. Instead, a 70–90 percent clean grid would provide the energy needed to meet the US’s energy demands. 

Criticism of CEPP

Critics of CEPP and the clean energy standard broadly argue that the program would force utilities to develop clean energy too rapidly, threatening energy reliability. Others are lobbying for natural gas credits to exist while suppliers work to meet the annual 4 percent clean energy threshold.  

West Virginia Senator Joe Manchin (D), the chairman of the Senate Energy and Natural Resources Committee, wants natural gas to remain as an energy resource in Biden’s clean energy standard. According to the legislative text of CEPP, the carbon intensity target for clean electricity is 0.10 metric tons of CO2e per MWh, a bar set too low for a fossil fuel like natural gas to meet. 

However, Manchin is insisting for natural gas to be part of the clean energy standard. 

“I’m all for clean energy, but I’m also for producing the amount of energy that we need to make sure that we have reliability and I’m concerned about that,” Manchin told The Hill. 

Manchin is a proponent of carbon capture technologies. Proponents of CEPP like Senator Jeff Merkley (D) of Oregon contend against an outright subsidy of fossil fuels but said natural gas would be acceptable as a clean energy source if it is paired with carbon capture technology. 

Meanwhile, one of the leading utility companies in America says that the 4 percent clean energy standard is too lofty. American Electric Power (AEP) wrote that CEPP would “adversely impact the reliability and resilience of the electric grid.”

The Edison Electric Institute, a trade association who represents investor-owned utilities, said there its members collectively see the 4 percent threshold as “pretty aggressive.”

“Edison has offered qualified support for the CEPP, arguing that the plan should be technology neutral and provide flexibility for companies to meet its targets,” reported E&E News.

What’s next for CEPP?

Debates on feasibility of the legislation aside, for CEPP to pass the Senate and reach a majority vote, it must earn the support of centrist Democrats such as Manchin and Senator Kyrsten Sinema (D) of Arizona. Both senators are combating the price tag of the reconciliation plan and, in Manchin’s case, have argued for it to be whittled down. It is speculated that Manchin will want for the penalty from CEPP to be eliminated.  

House Speaker Nancy Pelosi brought the bill to vote in the House on Thursday, September 30. As of writing, the bill is still being debated. While the price tag of $3.5 trillion makes the bill off putting for certain House and Senate Democrats, the contents of the bill are what keeps deliberations going. Compromise on the bill’s funding is on the table, even if no specific price has been proposed. 

“It’s never been about the price tag,” House Progressive Caucus Chair Pramila Jayapal (D – Washington) told CNN. “It’s about what we want to deliver. The price tag comes out of that.”

But it is indeed the price of the package that may prevent key components of it to be placed on the chopping block. The CEPP is one such feature that may be removed to set the bill at a price that better appeases centrists.

Whatever form of the bill passes—if it does—its ramifications will be felt in the energy sector. Utilities will likely receive stronger carrot and stick approaches to decarbonize their electricity generation. An acceleration towards clean energy and renewables for the energy sector means businesses too will need to adopt a clean energy supply moving forward. 

If you have questions about your business energy in light of existing policies in your state or how you should best procure and manage your energy as we move towards a cleaner energy future, contact our energy experts and consultants at Northern Gas and Power Americas.