U.S. Senate Committee on Energy and Natural Resources
This testimony discusses the effects of the Clean Energy Standard Act of 2012 on electricity prices and on carbon dioxide (CO2) emissions from the electricity sector. Our modeling suggests that the act will result in substantial reductions in emissions from the electricity sector, resulting in 21 percent fewer cumulative emissions by 2035. The policy has very little effect on national average electricity price for the first decade and leads to lower prices in the near term in some regions of the country. However, after 2025, national average electricity prices will increase as a result of the policy, rising to 18 percent above baseline levels by 2035. The alternative compliance payment (ACP) mechanism will be triggered in all years, generating substantial revenue for states to invest in energy efficiency, while reducing the share of clean energy and the amount of CO2 emissions reductions compared to a CES policy without an ACP. The small utility exemption, which applies to roughly 17 percent of electricity sales initially and roughly 12.5 percent after 2025, creates a difference in electricity prices between exempt and non-exempt utilities under the policy that grows to roughly 50 percent on average by 2035. The exemption results in electricity prices at exempt utilities that are lower with the CES policy than without it for the life of the policy. This large price savings provides an incentive for groups of electricity consumers to create their own small utility, an unintended consequence of the bill.