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Source: From http://www.dsireusa.org/summarytables/finandal.cfm?&CurrentPageID = 7, accessed November 2, 2005.

accumulation of "renewable energy credits" (REC) that can facilitate either intertemporal compliance "banking" (i.e., using RECs earned in a year to meet compliance targets in another year) and/or interutility or interstate credit trading (whereby, a utility that overcomplies may sell RECs to a utility that cannot meet targets with native resources). Most states with mandates or RPS policies limit the geographic source of compliance to in-state resources, resources within the electric power pool(s) that service the state, or resources that can be "delivered" to the state or state power pool. The prevailing selling price of RECs may also be used to target a penalty or alternative compliance payment, typically in the form of a price ceiling at which the state will provide RECs (without actual renewable capacity or generation) or otherwise waive actual compliance. Such "safety-valve" prices are generally intended to provide a clear maximum impact on general electricity prices. Compliance in various states may also be waived or delayed for other, statutorily sanctioned reasons, such as protecting the financial solvency of affected utilities. Policies among states also show significant variation in resource eligibility, "grand-fathering" of existing capacity, and mechanisms to show preferences among eligible technologies (such as awarding "bonus" credits or having differentiated targets for preferred technologies) [15].

In 1975, the Federal government established a target of doubling automotive fuel efficiency within 10 years. To implement this target, the aggregate sales of each manufacturer selling cars in the U.S. market had to achieve a set schedule for Corporate Average Fuel Economy (CAFE) [16]. Presently, the CAFE for each manufacturer must be 27.5 mpg (miles per gallon) for passenger cars. Lesser standards are presently set for light-duty trucks, 21 mpg for the 2005 model year, increasing to 22.2 mpg for the 2007 model year. Compliance credits allow the "banking" of mileage shortfall/overage within 3 years of a compliance year, but presently there is no mechanism in place for trading compliance shortfall/overage among manufacturers. In addition to supporting more efficient cars, present CAFE regulations also support alternative fueled vehicles, including ethanol. Vehicles that operate on an alternative fuel, or can switch between a conventional fuel (gasoline or diesel) and an alternative fuel (known as "flex-fuel" vehicles), receive additional compliance credits, based on a multiplier of the alternative fuel portion of the gas mileage of the vehicle. Although this has resulted in a significant fleet of flex-fuel vehicles in the U.S., it has not resulted in a refueling infrastructure for alternative fuels or in significant sales of alternative fuels.

2.1.2.2 Market Facilitation or Restriction

Regulatory policy can also be used to facilitate or hinder a preferred or undesirable renewable energy or energy efficiency technology from participating in the market. Facilitation can take many forms, including the target-based and technology-specification approaches discussed elsewhere in this section. Other types of market facilitation can require nondiscriminatory or even preferential market treatment of preferred technologies. Such policies operating at the Federal or state level can include "feed-in" laws, net-metering requirements, and interconnection standards.

In 1978, the Congress passed the Public Utility Regulatory Policy Act (PURPA), which established the requirement that electric utilities must interconnect (i.e., accept generation feed from) small qualifying facilities that either cogenerate process heat and electricity (combined heat and power or CHP) or utilize certain renewable resources [17]. Furthermore, PURPA established a price floor for the power, known as "avoided cost," subsequently defined to mean the cost of electricity that the utility otherwise would have purchased. In theory, PURPA established a nondiscriminatory framework for adoption of efficient industrial CHP and renewable electricity, established by the Federal government, but largely implemented by state regulatory authorities. Some of the nondiscriminatory market features that PURPA specifically applied to renewable and CHP facilities were subsequently applied to the broad class of all power generation technologies as Federal electricity policy moved toward deregulation of the wholesale power market [18].

Many states have adopted regulations at the retail/distribution level to require the acceptance of some renewable electricity feeds at an established price floor [19]. Such net-metering laws typically require load serving utilities to facilitate end user connection of renewable distributed generation technologies (especially solar, but sometimes wind or other renewable or nonrenewable technologies) on the customer side of the meter. When instantaneous generation from the local resource exceeds instantaneous customer demand, the meter is allowed to "run backward," effectively causing the utility to purchase the excess generation at the prevailing retail rate. Most states limit the size of the distributed resource, sometimes by customer class, and may also provide limits on the total generation off-set allowed (e.g., the monthly or net annual bill may not be less than zero). Some states have also established limits on the number of customers or level of installed distributed capacity that may participate in net-metering.

2.1.2.3 Technology Specification Standards

Another common form of regulatory intervention for renewable and energy-efficient technologies is the establishment of minimum product specifications, either as voluntary targets or mandatory limits on product performance. Such standards are seen as an effective approach to improving energy efficiency among individual consumers. Commercial and industrial consumers presumably have significant incentive to optimize energy efficiency for their operations to maintain or improve profitability. However, individuals, while still sensitive to energy prices, may have less motivation to seek out products with higher up-front costs to achieve lower ongoing energy costs. In some cases, market structures may affect consumer decision-making with respect to energy efficiency.

The Federal Energy Star program allows qualifying products—ranging from computer equipment to household appliances, to commercial building equipment—to display the "Energy Star" logo on product advertising and packaging [20]. This serves as a proxy for disclosure, in that the consumer is thus aware that the product is "best-in-class" for energy efficiency (although for products not displaying the logo, the consumer cannot tell if this is because the product did not meet the specification or because the manufacturer did not participate in the program). Through the Energy Policy and Conservation Act and its various amendments, the Federal government also establishes mandatory energy efficiency specifications, such as minimum levels of energy efficiency, for a wide array of consumer appliances, such as furnaces, air conditioners, light fixtures, and kitchen appliances [21]. At the state and local level, energy efficiency standards may also be incorporated into building codes.

There are both Federal and state regulations regarding transportation fuel composition that either directly or indirectly provide incentive for renewable fuels. The Federal CAFE program is discussed in the previous section. In addition, the Clean Air Act Amendments of 1990 (CAA) established a number of fuel specifications, including oxygenation that varies by region and/or season [22]. Ethanol has emerged as a preferred oxygenate, especially in states with additional ethanol incentives or that have restricted the use of alternatives, such as MTBE [23]. Restrictions on the sulfur content in diesel fuels may also encourage the use of "biodiesel" fuels derived from plant oils, if such fuels can be economically produced. Federal legislation to require minimum renewable energy content in highway fuels (sometimes referred to as a "renewable fuels standard") has previously been proposed, but has not become law as of this writing [24]

While regulatory action can encourage development of renewable and energy efficiency technologies, it can also discourage this development. Some regulatory actions are directly aimed at limiting the use of selective technologies in some locations. A few states, for example, have proposed or enacted moratoria on the development of utility-scale wind power plants;[25] used zoning or permitting processes to limit, delay, or stop development of renewable energy projects in undesired locations;[26] or established technical specification for interconnection to the power system that limits the adoption of some renewable technologies [27]. At the local level, homeowners may find deed covenants from quasi-governmental homeowner associations that restrict external modifications to a house, such as the addition of solar collectors (for PV or hot water), or may specifically restrict these technologies [28].

2.1.3 Research and Development

Government research and development (R&D) funding for renewable and energy efficiency technologies can support the adoption of these technologies by facilitating cost reductions, higher efficiency, and improved utilization. R&D funding may occur at all stages of the technology development cycle, including basic science, bench-scale technology development, proof-of-concept demonstration, and pilot applications [29]. Government funds maybe directed toward government-owned research laboratories, academic institutions, or industry participants. For many projects, especially those developing technologies closer to commercialization, the government will leverage its contributions by requiring substantial cost-sharing (either financial or in-kind) with industry participants.

2.1.4 Other Direct Policy

Other common programs at the stated and Federal level, include direct payments (such as through grants or awards) and government purchase of these technologies. These mechanisms generally require continuing budgetary support, which may be provided from a dedicated revenue source, or may require periodic affirmation in appropriations process.

Direct payments, such as the Federal Renewable Electricity Production Incentive (REPI), are useful to publicly owned or not-for-profit (such as rural electric cooperatives) utilities interested in developing renewable energy resources, but which do not pay taxes. Presently, authority to provide REPI payments to new sources has expired [30]. A number of states have established system benefit funds dedicated to supporting renewable energy and energy efficiency projects and technologies. Although varying greatly by state, these programs are typically structured to collect revenue based on an additional fee on retail generation or billing, commonly referred to as a systems benefit charge or public benefit fund [31]. As a result of EPACT and subsequent Presidential orders, the various agencies of the Federal government are required to obtain a share of their energy from renewable sources and reduce their consumption of energy per square foot of facility [32]. Finally, the Federal-owned fleet of cars and other vehicles is required to meet requirements for both fuel economy and use of alternative fuels. Several state local governments have also established similar purchase or efficiency requirements for electricity or motor fuels [33].

2.1.5 Indirect Policy

Numerous other policies at the state and Federal level, while not designed specifically to address renewable energy and energy efficiency markets, may have significant or notable impact on these markets. Perhaps most significant among this broad category are efforts to regulate energy or other markets, manage government- or privately owned lands, and protect the environment.

Efforts at the Federal level to introduce competition in wholesale electricity generation markets, as well as in a number of states to introduce competitive retail electricity supply, have created the opportunity for electricity suppliers to sell "green" power—typically electricity produced from renewable, low-emission, or high efficiency technologies [34]. Such programs include competitive supply of clean or renewable power, special pricing for green power by regulated utilities, or the sale of the environmental attributes of renewable power apart from sale of electricity. In addition, the specific design of competitive wholesale markets for generation and transmission can impact the competitiveness of some renewable, especially intermittent resources like wind. FERC has recently begun an effort to address some of these intermittency issues, such as those related to schedule imbalance charges and nonfirm transmission rights [35].

Environmental regulation at the Federal or state level, for air quality, water quality, solid waste disposal, land use, and other pollution problems, can have substantial impact on both the cost and value of renewable energy and energy efficiency. The CAA of 1990 provides the foundation for cap-and-trade regulation of sulfur dioxide, and recently enacted cap-and-trade programs for nitrogen oxides and mercury [36]. While the cap-and-trade structure of these programs does not preclude renewable energy or energy efficiency from displacing covered emissions at some plants, present regulations do not assign allowances to nonfossil resources. Other CAA impacts on renewable energy and energy efficiency, include reformulated gasoline requirements discussed above, which have interacted with state-level groundwater protection efforts to provide a preference (in some states) for ethanol as a preferred fuel additive for CAA compliance. As a result of the Resource Conservation and Recovery Act, some landfill operations have been required to install collection and flaring systems to prevent the dangerous buildup of methane-rich gas that results from the decomposition of organic matter in the landfills [37] These systems have significantly reduced the cost of deploying small generators fueled by this off-gas. Impacts of land management policy at both the Federal and state level can be significant factors in renewable energy policy, either to encourage or preclude its development on government owned land.

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