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The Lugar Energy Plan: The Good, the Bad, and the Ugly

David Doniger

Posted June 28, 2010 in Moving Beyond Oil, Solving Global Warming

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Senator Richard Lugar (R-IN) introduced S. 3464 – dubbed the “Practical Energy and Climate Plan Act” – on June 6, 2010.  The bill’s biggest flaw is that it establishes no overall limit or price signal on the carbon pollution that is driving global warming.  Indeed, by the Senator’s own assessment, the bill would achieve only half the carbon pollution reductions expected from other legislative proposals and meet only half the emission reduction commitment President Obama committed to in Copenhagen last December.  (Update July 1:  A new World Resources Institute analysis estimates that the Lugar bill would achieve far less than half the needed carbon reductions.)

The bill includes several useful provisions, notably in the area of building energy efficiency.  It also aims to improve vehicle fuel economy, although in a manner that would undercut the widely-supported clean vehicle program that the Obama administration is carrying out under current clean air and fuel economy laws. 

Other parts of the bill could actually set us back.  The bill proposes a “diverse” energy standard that would likely undercut the growth of renewable electricity generation.  And the bill puts public health at risk by letting old coal plants evade long-overdue limits on mercury and other dangerous air pollutants, if only they promise to shut down by the start of 2019. 

Senator Lugar is a realist who has long acknowledged the dangers of oil dependence and global warming, and who cares deeply about our country’s leadership role in solving tough international problems.  But his bill falls short and in places even moves us backwards.  Hopefully, Senator Lugar will join with members of the Senate from both parties to meld the best parts of his bill into a comprehensive energy and climate bill, and to pass that bill this summer. 

The Good:  Boosting Building and Appliance Energy Efficiency 

The Lugar bill includes several strong provisions to increase energy efficiency.  These provisions could be included as components of comprehensive energy and climate legislation, improving upon the American Clean Energy Leadership Act (ACELA) bill passed by the Senate Energy and Natural Resources Committee. These include: 

  • Building energy codes. The bill includes strong energy savings targets for improving residential and commercial building codes. The bill sets a target of improving residential and commercial building efficiency by 30% by 2012 compared to the applicable national model building energy codes.  The target would increase to a 50% improvement by 2015 for residential buildings, and a 50% improvement by 2017 for commercial buildings. The bill sets a national Minimum Building Efficiency Standard and directs states to adopt codes that achieve equivalent or greater energy savings. The bill also makes code adoption and enforcement a factor for Department of Energy grant funding to encourage states to adopt and enforce compliant codes.  While the bill’s codes provision is a good start, it should be strengthened by including a mechanism to ensure that all new buildings in the U.S. are built to meet the national Minimum Building Efficiency Standard. (Sec. 201) 
  • Federal building efficiency. The bill requires new Federal buildings designed after 2011 to exceed national building performance standards. It also requires Federal buildings designed after 2019 to achieve, to the maximum extent practicable, net-zero energy use by 2030.  (Sec. 211) 
  • Building retrofit program. The bill establishes a residential and commercial retrofit program with target retrofit rates of 5% and 2%, respectively.  It authorizes $2 billion to go towards direct loans, loan guarantees, letters of credit, and other financial product for the deployment of energy efficiency measures.  (Sec. 221-224) 
  • Rural and industrial efficiency programs. The bill authorizes $755 million for loans to rural consumers for energy efficiency retrofits (Sec. 231) and $500 million annually through 2014 for a revolving loan program for industrial efficiency. (Sec. 241) 
  • Appliance efficiency: The bill revises the Energy Policy and Conservation Act to set efficiency standards for computer monitors under the appliance standards program and requires the Energy Secretary to set standards for all covered products. (Sec. 251) 
  • The bill also requires 95% of all products purchased by federal agencies to be products certified by Energy Star or the Federal Energy Management Program. (Sec. 252) 

Good-Intentioned but Flawed:  Vehicle Fuel Economy and Alternative Fuels 

The Lugar bill’s provisions to raise the fuel efficiency of cars, light trucks, and freight trucks (Sec. 101), though well-intentioned, would conflict with the Obama Administration’s landmark program to cut both carbon pollution and fuel consumption from these vehicles over the next 15 years under our existing clean air and fuel economy laws. 

This April the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) jointly issued standards for 2012-2016 model year cars and light trucks cutting emissions of four greenhouse gases and raising CAFE standards under the existing Clean Air Act and the Energy Policy and Conservation Act to ensure maximum carbon pollution reductions and oil savings.  These standards are supported by the automotive industry, labor, the environmental community, and the states.  Acting again with broad support, the president in May directed the two agencies to set a second round of stronger car and light truck standards applying out to model year 2025, and to set carbon pollution and fuel economy standards for medium- and heavy-trucks starting with model year 2014. 

  • By contrast, Section 101 of the Lugar bill addresses only fuel economy and does not mention standards under the Clean Air Act.  It directs NHTSA to raise car and light truck fuel economy standards after model year 2016 by at least 4 percent per year.  There’s less here than meets the eye, however, because the 4 percent increase can be relaxed.   
  • For medium- and heavy-duty trucks, Section 101 adjusts some of the criteria to be used by NHTSA under the Energy Independence and Security Act (EISA) of 2007. It is unclear that these changes would result in fuel savings in addition to the EISA mandate and the administration’s program.  
  • Section 102 of the bill would create a “feebate” program, with fees on low-mileage vehicles and rebates on high-mileage ones.  

The Lugar proposal has drawn strong opposition from automakers for deviating from the administration’s existing joint standards process.  NRDC is sympathetic to Senator Lugar’s goals for raising fuel economy, but we urge him to lend his support to the existing administration-led process under current laws.  That process could be strengthened by setting clear statutory deadlines for EPA and NHTSA action under the president’s initiatives, as proposed in Section 4141 of the American Power Act drafted by Senators John Kerry (D-MA) and Joe Lieberman (I-CT). 

The Lugar bill also includes provisions to promote renewable fuels: 

  • Section 111 would broaden an existing production incentive under Section 942 of the Energy Policy Act of 2005 (EPACT).  EPACT Section 942 establishes a reverse auction run by the Department of Energy where fuel producers compete for production payments. Candidates that bid for the lowest per gallon incentive payment win the award.  Previously, the program was only available to cellulosic biofuel. The Lugar bill would expand eligibility to “renewable fuels.”  
  • To its credit, the bill adopts the current Renewable Fuel Standard (RFS) definition of “renewable fuel,” preserving critical land, wildlife and ecological protections that are built into that definition. Additionally, the Lugar bill excludes grain-based fuels, making some conventional and mature technologies ineligible for unnecessary payments.  Finally, reverse auctions are designed to foster competition and reduce costs for new technology.    

But the Lugar proposal also contains significant flaws:  

  • In its current form, the bill lacks many environmental criteria that would ensure selection of the most sustainable fuels.  As written, the evaluation process considers cost but ignores the level of greenhouse gas savings or environmental services delivered.  Given the recognized need to develop cleaner fuel sources, greenhouse gas savings should be viewed as a competitive advantage and included in the selection process.  Requiring candidates to compete on environmental worth in addition to cost will ensure that the most viable fuel technologies emerge. 
  • Additionally, the proposal increases the funding authorization for EPACT section 942, but provides no new revenue sources.  In the current fiscal environment, it is hard to see how an expanded reverse auction would be funded.  Thus it is unlikely to address global warming and oil dependency effectively.   

The Bad:  The Diverse Energy Standard 

Section 301 of the Lugar bill includes a “Diverse Energy Standard” (DES) for electric utilities that promotes dirty energy technologies and does not ensure that renewable electricity generation will increase beyond current projections for business as usual growth.

In comparison with “Renewable Energy Standards” in place at the state level and proposed in the ACELA bill, the Lugar bill’s DES includes no minimum standard for the percentage of generation that must come from renewable sources, which is essential to ensure that utilities ramp up clean energy resources.  Instead, the Lugar bill’s DES allows utilities to meet the bill’s percentage standard with an array of non-renewable sources.  A recent analysis of the Lugar bill’s DES by the Union of Concerned Scientists found that it could result in deploying less renewable resources than the 29 state renewable electricity standards currently in effect.

Federal legislation must promote clan energy solutions and enhance, not undercut, the state standards. That is why NRDC supports including in comprehensive energy and climate legislation a renewable electricity standard that sets minimum targets of 20 percent by 2020 and 25 percent by 2025, and that excludes energy sources such as nuclear plants, municipal solid waste incinerators, and biomass plants that use feedstocks from environmentally sensitive areas. 

The Ugly:  Clean Air Rollbacks 

Power plant air pollution is responsible for an estimated 20,000-24,000 deaths annually. Each year this pollution is linked to tens of thousands of heart attacks, hundreds of thousands of asthma attacks and other cardiac problems, and tens of thousands of emergency room visits, hospitalizations and lost work days.  This toll will be reduced significantly when Clean Air Act deadlines arrive for cleaning up deadly smog, soot, and toxic air pollution in 2012 and 2015. 

Section 302 of the Lugar bill veers sharply in the wrong direction by providing exemptions from a range of health safeguards under the Clean Air Act and other environmental laws to owners of coal-burning power plants.  These exemptions would be available to any utility company that signs a contract with EPA to shut down an electric generating unit by the start of 2019. 

This “early retirement incentive program” – captured under a subsection bluntly entitled “Regulatory Relief” – allows power plant operators to evade upcoming Clean Air Act deadlines for cleaning up deadly smog, soot, and toxic air pollution in 2012 and 2015.  The worst emitters in the nation’s most heavily polluting industrial sector – coal-burning power plants that have evaded cleanup for decades – would be empowered to continue imposing unacceptable health hazards on the public.  They would also be allowed to evade other air pollution programs such as new source review, and even two Clean Water Act regulations. 

Absent these “regulatory relief” provisions, many plant operators will decide to retire some of their old and dirty coal plants by 2015, concluding that it is not economically sensible to equip them with the pollution control equipment needed to meet the coming standards. Instead of allowing these dinosaurs to fade away by 2015 (if not before), the Lugar bill would give them a four year deregulatory windfall to keep operating without curbing their smog, soot, and toxic air pollution. Further, the 2019 retirement date is not enforceable by citizens or states under the Clean Air Act, nor do Clean Air Act penalties apply if a plant should stay open past its contractual closing date. 

Even the 2019 retirement date is not firm. The bill would grant EPA broad authority to extend that date indefinitely, by making a vague and undefined determination that “energy disruptions” will occur if the 2019 deadline is not waived.  The bill does not even give citizens the ability to police the exercise of that discretion. 

There is no reason to add to two decades of regulatory delay in cleaning up dirty power plants that are endangering the lives and health of thousands of Americans. 

        * * * 

NRDC encourages Senator Lugar to work with other Senators to merge the best parts of his bill into comprehensive energy and climate legislation that meets the challenge of reducing our oil dependence, curbing global warming pollution, and building the clean energy economy that will help America compete in the 21st century.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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