The path to a clean, reliable and affordable energy future continues to be an elusive, but not impossible, goal. As the longest-serving chief executive in the utility industry, I have had the opportunity to look at this issue longer than most and have arrived at the obvious conclusion: The current approach of looking for solutions in single dimensions and through short-term policy mandates falls short and is not an effective path to achieving this goal.
So, what is the answer? Realizing a clean, reliable and affordable energy future requires that we look at three factors simultaneously: cost, reliability and environmental impact.
These factors drove the latest analysis behind Exelon 2020, our business strategy that sets a goal of reducing, offsetting or displacing our entire carbon footprint by 2020. Three years into the initiative, we have achieved more than half of our goal. But it is much more than a carbon goal for our company. It offers insights that the entire industry can apply to move the country toward a clean, reliable and affordable energy future.
We expanded this year's analysis to include options for reducing pollutants targeted by the Clean Air Act (CAA), including nitrogen oxide (NOx), sulfur dioxide (SO2) and toxic air pollutants. Our modeling concludes that PJM, the 13-state power market in which Exelon operates, can reduce air pollutants and meet CAA standards for as little as one-quarter of the cost of other politically popular approaches, while still ensuring reliability. This approach requires:
- Federal and state policymakers to not increase existing government mandates or subsidies.
- EPA to finalize its clean air rules, such as the Cross-State Air Pollution and Air Toxics Rules, to provide a stable regulatory climate.
- Properly designed competitive electricity markets to be allowed to work to deliver the most sensible solutions.
Before examining these and other options, one must take into account key trends that have altered the energy landscape over the last few years. On the upside, continued discoveries of vast shale gas resources that can be responsibly produced at a low cost will be, I believe, the bridge fuel to a clean energy future. The downside is the lingering effects of the economic crisis have led to scaled-back expectations for electricity load growth. And finally, we must consider the fact that state and federal policies on electricity and emissions regulation and renewable generation development continue to evolve haltingly, independently and without a keen eye for their costs. This only serves to distort market signals and exacerbate uncertainty around the supply of power in the coming years.
Our analysis took these realities into account in comparing four competing visions of the country's energy future - one that relies upon properly designed competitive markets to clean our energy supply and three politically popular and commonly discussed approaches. The latter approaches include: subsidizing a large amount of wind power; mandating investment in a combination of wind, solar, new nuclear and clean coal; and subsidizing pollution controls for coal-fired power plants. These options cost consumers as much as an additional $15 billion per year - and in some cases, fall short of CAA standards.
Simply put, implementation of the CAA will help level the playing field for various generation technologies and allowing markets to choose the most cost-effective solutions. Some oppose enforcement of this law, but the reality is the industry has known these rules were coming for a long time. Some energy companies prepared while others took a gamble that the CAA would never be enforced.
Those who demand safe haven to continue to operate unscrubbed coal plants based on false threats to reliability disregard the economic reality of plentiful natural gas. The continued emergence of new domestic natural gas supplies makes it an affordable fuel source for the foreseeable future. In addition, natural gas emits 80 percent less SO2 and NOx and 55 percent less carbon dioxide than coal, with no mercury or particulates.
Ironically, one of the main obstacles to solving the equation and achieving the goal are the very elements that were put in place to address the issue - namely, public policy debates and business strategies that fall short by looking for solutions in single dimensions and short-term policy mandates that ignore market dynamics.
In addition to draining the federal treasury, unnecessary energy subsidies stifle innovation by setting a low bar for uneconomic technologies and deter investment in competitive technologies by distorting market prices. This is a harmful, unintended consequence of picking winners and losers in the energy mix through subsidies rather than relying on innovation and properly designed competitive markets. Put simply, every dollar of subsidy that artificially lowers the cost of uneconomic technologies crowds out lower-cost technologies in the marketplace that could be working today.
Energy policy should not be this hard. Healthcare is hard, education is challenging, debt is complicated - but energy needn't be. The combination of enforcement of the CAA, abundant natural gas, and allowing the competitive electricity market to work without new subsidies or mandates will be key to achieving the seemingly elusive goal of a clean, reliable and affordable energy future for our nation.
Disclosure: Exelon, which has invested in a clean electric generation fleet, has a financial interest in enforcement of the Clean Air Act rules.