Immediate Actions for Lowering CO2 Emissions: Insights from Sean Casten

1. What Can State, County and Local Officials do to Immediately lower CO2 emissions? • Sean Casten • Candidate for Congress, Illinois 6th District

2. My background • BA in Molecular Biology & Biochemistry, M.S. in Biochemical Engineering, Masters of Engineering Management • 2.5 years post grad school at ADL doing technology consulting for clean tech startups (1997 – 2000) • Clean energy entrepreneur 2000 – 2016. Two companies, both with mission to profitably reduce greenhouse gas emissions. Both focused on recovering previously-wasted energy from industrials to lower CO2 emissions, lower costs. • Built over 70 plants installed worldwide. Every one cut CO2 by at least 50%, every one paid for out of energy cost savings. • Founded Northeast CHP Initiative (MA) as advocacy organization for clean tech companies • Was chairman of US CHP Association – did same thing at national scale. • Sold company in September 2016…. Then the election happened. Now running to make sure that Peter Roskam’s ability to block good climate, energy and economic policy is eliminated in 2018.

3. There are 3 variables to reduce CO2 emissions – and it’s not possible to reduce any of them to zero. Energy Use Person CO2 Release Unit Energy Population Total CO2 Emissions = X X Fuel switching Reproductive Rights / Women’s Health Issues Energy Efficiency + Conservation This is where town and state officials can have the most direct impact • Positive & negative feedback loops with efficiency • Many industrial processes require fossil input • Fuel extraction • Fuel conversion • Distribution • Transportation • End-use consumption • Building design • Not a focus of this presentation These are CO2 sources. Total CO2 needs to net out sinks (forests, oceans, etc.)

4. How to convince ANYONE that our current CO2 situation is completely man made, and completely unsustainable

5. How to convince ANYONE that our current CO2 situation is completely man made, and completely unsustainable

6. How to convince ANYONE that our current CO2 situation is completely man made, and completely unsustainable

7. Given this trajectory, there are two things that ANY CO2 policy must do. • Reduce as much CO2 as quickly as possible. • Cause as much CO2-reducing capital investment to be deployed as quickly as possible. • Important point: it is NOT necessary for a CO2 policy to do anything else unless it supports the two goals above. It is NOT necessary for CO2 policy to: • Penalize CO2 emitters. • Generate revenue to fund non-climate related activities • Deploy any specific technologies • Favor zero-carbon over low-carbon technologies. (Only absolute reduction matters) • Make political compromises before the negotiation starts.

8. Town & County level – purchasing protocols • Clean power plants all struggle to secure long-term power purchase agreements (“PPAs”) – a critical requirement for financing. • Multiple Fortune 500 Companies have helped to bridge this gap by voluntarily entering into such contracts (Walmart, Whole Foods, etc.) • Multiple state governments have helped address by mandating that regulated utilities purchase a certain percentage of their load from such sources. • Notice a difference? • State & local governments could follow the lead of the private sector and mandate that they will only buy power from zero/low carbon sources. • Directly uses governments favorable credit rating to help secure capital for clean energy developers • Can be done by anyone who uses electricity – all the way down to the local library! • Depending on how structured, do not necessarily need a physical connection to the generator. • Low carbon power is what’s important – don’t get hung up on technology.* • Already have evidence in IL-06 of doing the wrong thing – Naperville / Prairie State Coal buy * For more details, see: http://grist.org/article/fossil-energy-reduction-standard-a-better-rps/

9. Town & County level – purchasing protocols • Many / most (all?) state and municipal departments have adopted purchasing guidelines designed to achieve / accelerate larger social goals • Numerous civil-rights era procurement rules (EEOC, etc.) • Preferences for Minority- and Women-owned businesses • Davis Bacon • States, counties and municipalities could adopt additional purchasing guidelines to favor energy efficiency and conservation. Would lower CO2 and cut energy costs, paying for the extra capital cost (if any!) • Favor HVAC & lighting equipment with highest Energy Star ratings • Use LEED-certified building protocols (insulation, natural lighting, etc.) • US Green Building Council has lots of great guidelines.

10. State level – State Implementation Protocols (“SIPS”) • EPA sets environmental emissions limits, but states are enforcement agencies. • States are required to outline their State Implementation Protocol for relevant rules for EPA approval. Must meet OR exceed EPA directives. • States can choose to exceed EPA limits • States can choose different methodologies to achieve compliance. • These are generally non-CO2 rules but if carefully structured can have a HUGE favorable impact on CO2 emissions via an implementation of Output-Based Standards.

11. Output vs. Input Standards (power plant example) Input-Based Standards Output-Based Standards pollution air pollution air fuel fuel electricity electricity air air Regulated Metric Parts per million e.g., grams of NOx pollution / million grams of air parts/kilowatt-hour e.g., grams of NOx pollution / kWh of electricity Impact of Increased fuel efficiency Fuel + Air goes (inputs) go down Pollution falls less = Less pollution but more parts per million EFFICIENCY IS DISFAVORED AS A POLLUTION CONTROL STRATEGY Fuel (inputs) go down Electricity flat / rising Pollution flat / falling = Pollution / kWh falls EFFICIENCY IS A PREFERRED POLLUTION CONTROL STRATEGY Note: The Regulatory Assistance Project has really good model rules – Connecticut & Texas have partially implemented

12. State level – Revenue Decoupling • Utility rate making sets rates in order to earn a sufficient return on capital to attract $ necessary to build and maintain a functioning and reliable power grid. IN THEORY, rate making is set as follows: • Non-fuel Operating costs x 1.0 PLUS • Fuel expense x 1.0 PLUS • Annual capital recovery costs x 1.X (where X is set to provide a return and profit) • DIVIDED BY Projected total annual kWh sales = Price / kWh • This model gives utilities no incentive to conserve fuel (since savings are all passed through to customers) and a strong incentive to make sure loads grow. • Lots of really good ideas have developed over the last decade to implement new rate setting algorithms to remove these disincentives and make utiltiies allies in the push for energy conservation • Revenue decoupling most high profile (again, see RAP) • RED-Rochester’s ‘for-profit co-op’ in NY State • These issues are all purely state issues – requires engagement at state utility commissions to run to ground, and the help of good rate lawyers.

13. All levels – pension allocation • Several environmental groups – most notably, Bill McKibben – have led a push for University & other public endowments / pension funds to divest from fossil fuels. • Personal view: if focused on public equities, may simply create a good investment opportunity for less morally-driven investors. • It’s a “stick” approach in a world that needs carrots • BUT – could be very usefully deployed in pension fund illiquid investments. • Pension fund investing 101: • Portfolios allocated into classes that in combination deliver a desired risk/return/liquidity profile: A% cash, B% public equities, C% bonds, D% “alternative” • “Alternative” = illiquid, higher return investments. Real estate, private equity, hedge funds. • Alternative investments usually go through portfolio fund managers, but no reason – other than investor diligence – that they can’t make direct investments in businesses. • Idea: Mandate that __% of the alternative investment portion be directed towards investments that reduce CO2 emissions. Creates carrots for clean energy projects, again levers state/municipality access to credit to bridge a gap for clean tech developers

14. National issues – not to be forgotten, but (maybe?) not state level • National carbon regulation. Desperately need, but not really a state issue. • Question: could Illinois be persuaded to join RGGI? • Health & environmental costs of dirty energy. Lots of inefficiencies & cross subsidies that make dirty energy look artificially cheap. Are there any state policies that could help address? • Military expenses in the middle east are paid out of income tax, but make gasoline look artificially cheap. • Downwind health costs of coal estimated at 6 – 10 c/kWh, but largely paid out of state / local health costs, makes upwind coal look artificially cheap. • Below-market lease rates on federal lands effectively subsidizes mined domestic fossil energy. • Tax policy very inefficient tool to encourage clean energy investment – revenue would be much better, but has constitutional issues. Tax-equity markets are necessary under current regulations, but sub-optimal, especially for smaller projects. • Any creative ways for states to bridge that gap?

15. Questions?