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Minnesota Leading the Charge on Valuing the Climate Benefits of Rooftop Solar

Laurie Johnson

Posted April 11, 2014 in Curbing Pollution, Solving Global Warming, U.S. Law and Policy

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Guest blogger-Denise Grab, Legal Fellow, Institute for Policy Integrity (Twitter: @denisegrab)

Rooftop solar electricity generation helps homeowners save money on their electricity bills. It can help support the rest of the electrical grid during times of high usage or outages. It can help utilities meet their renewable energy mandates. And, if it replaces dirty fossil fuel power, it will reduce harmful air pollution, including carbon pollution that threatens to warm our climate and destroy our planet.

Minnesota recently became the first state to establish a method to assess the value that rooftop solar brings to the electrical grid and to society. Last year, the Minnesota legislature passed a law requiring the state Public Utilities Commission to create a way to “compensate … customers through a bill credit mechanism for the value” of rooftop solar generation “to the utility, its customers, and society.”  The law requires the commission to account for “the value of energy and its delivery, generation capacity, transmission capacity, transmission and distribution line losses, and environmental value,” and allows it to consider other values as appropriate. This approach is an important step because it attempts to find the true value of rooftop solar, accounting for all of its costs and benefits—both direct effects on utilities and consumers, as well as externalities that impact society more broadly.

Last week, after a months-long study process, the Commission issued an order approving its new Value of Solar Tariff. One of the most significant questions that arose was how to value the benefits of the carbon emissions avoided by using solar power instead of dirty fossil fuels. Minnesota regulators considered three potential approaches to valuing the benefits of reduced carbon emissions. One approach was a two-decade-old value used in state resource planning that regulators decided was outdated. Another approach was a value that Minnesota regulators had recently developed to estimate the cost of complying with future carbon regulations. The third approach, which the Commission wisely selected, was the federal Social Cost of Carbon—the highest value out of all three options, at $37/ton.

The Social Cost of Carbon is an estimate of the damage caused by emitting a ton of carbon dioxide into the atmosphere. It was developed by a federal interagency working group and has been used in a number of federal rules to assess the value of carbon reductions. Because it was designed to account for the full benefit to society of reducing a ton of carbon emissions, the Social Cost of Carbon is the appropriate value for Minnesota and other states to use in a comprehensive analysis of costs and benefits of rooftop solar. Should the federal government update the Social Cost of Carbon to include damages currently not accounted for in the estimate, Minnesota should follow suit and update its value accordingly. In particular, recent studies by the Institute for Policy Integrity, NRDC, and the Environmental Defense Fund have shown that the current Social Cost of Carbon is likely too low, because it fails to include a number of types of damages from climate change, including wildfires, storm surges, and droughts.

Minnesota’s Value of Solar Tariff framework is an important step toward establishing a methodology that fully assesses the costs and benefits of rooftop solar, compensating rooftop solar owners for the value they provide to the grid and society—including all of the climate benefits. The social cost of carbon established by the EPA is an important accounting tool that state utility regulators and utility companies can and should use today to stay ahead of carbon pollution regulations that will affect them.

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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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