KCEP Director Jason Bailey made the following remarks on the panel “EPA’s Carbon Pollution Rules and Kentucky” at the 2014 Governor’s Conference on Energy and the Environment:
As we talk about this issue, it’s important for us to keep in mind that the energy context around us is changing in ways that are likely to be permanent. Kentucky is in a special position that creates certain vulnerabilities for us but also new opportunities. But those risks grow and those opportunities fade the longer we delay action. Our challenge is to develop a stance that is realistic, constructive and forward thinking. Otherwise we run the danger of further harm to our economy and quality of life not to mention the fate of future generations as it relates to the issue of climate change.
The proposed new rules on greenhouse gas emissions for existing power plants are simply the newest and latest—but not the first or the biggest—pressure on our existing energy system. Kentucky’s energy sector has never been static, but has been changing for a long time due to a number of forces—geologic, economic, technological and governmental—that will continue regardless of action on climate change.
Kentucky is a coal state, having been heavily reliant on coal for electricity and with pockets of the state historically dependent on mining for employment. Right after World War II, Kentucky coal mines employed about 75,000 miners. That’s about six times more miners than are employed today and roughly 13 times more as a share of the entire Kentucky workforce. Though there have been booms in subsequent years, the general trajectory since then has been decline as far as employment, driven largely by mechanization of the industry. Even as jobs went away, coal production continued to rise until 1990. Since then, production in the eastern part of the state has been steadily and sharply declining, driven in large part by its rising cost of extraction due to diminishing coal reserves in the region.
In recent years, that decline has been accelerated by cheaper alternatives including natural gas in particular but also inexpensive and abundant coal from the west, steadily growing renewable energy use and the phase-in of a variety of environmental laws. A counter trend to decline has been the consistent rise in production of western Kentucky coal since the early 2000s after power plants installed scrubbers that made that coal competitive again even with its high sulfur content.
Regardless, a combination of forces is making the Kentucky energy economy increasingly vulnerable in ways that suggest a need for risk mitigation. The reality is that while Kentucky electricity prices were 58 percent of the U.S. average in 2001, they were 75 percent in 2013—before any rules about greenhouse gas emissions go into effect.
While the future will be different than the past, there is an opening for us here. We have left significant untapped potential on the table that we can begin pursuing now both to hedge our risk in the future and to create more opportunities for Kentuckians in the short- and medium-term. And there are activities already happening in Kentucky that we can build on, strengthen and call for greater investment to expand.
A few points:
New EPA rules create flexibility for Kentucky in meeting the new standards and are less stringent here than in other places.
Kentucky asked for and received special consideration and flexibility in the new greenhouse gas rules. The rules take into account a state’s existing energy mix and its potential for new energy sources in setting different standards for states. While 30 states will have to reduce their emissions rate by more than 30 percent under the proposed rules, an 18 percent decline is expected in Kentucky, a lower percentage decline than in all but five states. Its allowable emissions rate in 2030 will be higher than all but two states.
The expected renewable energy generation for Kentucky in 2030 built into the rule’s calculations is no more than what other states in the South are already producing. The expected energy efficiency gains of 1.5 percent reductions per year are middle of the pack levels of effort, not what the leading states are already achieving today. And the rules give states flexibility in terms of how the new standards are met.
Kentucky has real untapped potential especially in energy efficiency but also in new renewable energy sources that are labor-intensive and cost-effective.
Kentucky ranks 39th among the states in the 2013 State Energy Efficiency Scorecard produced by the American Council for an Energy Efficient Economy, a drop of three spots compared to 2012. We are achieving electricity savings of only 0.25 percent of retail sales in the most recent year, about 40 percent of the U.S. average. The top 14 states are achieving more than four times that amount, including Ohio and Pennsylvania. Kentucky’s utilities are also spending only one-third of the U.S. average on energy efficiency programs, compared to a U.S. average that is three times higher. The top 12 states are spending four or more times as much as Kentucky.
The good news is that beginning to increase energy efficiency and expand renewable energy production requires workers. A 2012 study by Synapse Energy Economics for my organization found that increasing renewable energy to 12.5 percent of our portfolio and achieving about 10 percent savings through energy efficiency efforts would create a net 28,000 jobs at the end of 10 years. The study also estimated that while electricity will be more expensive under any scenario, rates will be 1 percent less and average bills 8-10 percent less than would otherwise be the case.
There are already exciting examples on the ground and options out there that can begin moving us forward.
At MACED, we have been partnering for the last couple of years with several East Kentucky Power distribution coops to offer what we call the HowSmartKY energy efficiency program. The program allows homeowners to finance energy efficiency improvements of their homes without putting any money down and without a credit check. The costs of the retrofit are paid back on a homeowner’s electricity bill.
So far through that program, we have done around 400 assessments and 160 retrofits in eastern Kentucky. Homeowners who have gone through a retrofit are saving about 20 percent on average on their electricity bills. Their homes are also becoming healthier, safer, more comfortable and more valuable. We have four coops participating, a fifth has applied to join and the program has received a permanent tariff through the Public Service Commission.
We also operate commercial energy efficiency programs and are seeing lots of examples of easy savings in warehouses, grocery stores and retail in areas like lighting, refrigeration and building envelope improvements. We’ve retrofitted more than 100 such facilities since 2008.
The state is also seeing advances in renewable energy utilization since adopting net metering legislation almost a decade ago. Utilities including the Berea Utilities’ Solar Farm and Grayson RECC are starting to experiment with renewable energy, and facilities like Fort Knox and Fort Campbell are adopting renewables—Fort Campbell having just announced the largest solar array in the state.
In addition, Kentucky has the beginnings of the energy policies needed to support greater action. As mentioned, we have had a net metering law for nearly a decade. Because of the Tennessee Valley Authority (TVA), there are generous incentives for solar for those parts of the state in which there is TVA power. We allow utilities to recover lost revenue associated with energy efficiency programs. We’ve put policies in place to improve efficiency in government buildings. We have tax credits for energy efficiency and investments in renewable energy. Through the Saving Our Appalachian Region (SOAR) process, we are beginning a vital conversation about how to diversify and transition the eastern Kentucky economy given the decline of coal.
But there is more we can do:
• The cap on tax credits that can be received is low and the credits expire at the end of 2015 unless reauthorized by the legislature.
• The net metering law has a very low cap on the size of installations, hindering some businesses from participating.
• Programs like HowSmart that allow on-bill financing (including Property Assessed Clean Energy (PACE) programs, which works similarly through property tax bills) could be significantly grown and expanded.
• We could do more to encourage combined heat and power applications with small- and medium-size manufacturers.
• We could work to more aggressively replace highly inefficient mobile homes with energy efficient options.
• We could join 29 other states in setting a portfolio standard to guide gradual increases in renewable energy utilization and energy efficiency improvements.
• And we could do much more to invest in new job-creating ideas that are coming up through the SOAR process, and calling on the federal government to substantially invest in that region out of recognition of the debt that is owed for its role in helping power the American economy in the past.
There is much at stake in the energy transition that is happening in our state and country. While there is risk, there are also gains to be made.
