Table of Contents
House Bill 306—State Energy Pollicy
This law, enacted in 2010, declares a state energy policy in order to achieve the following:
- a 15% increase in energy efficiency on a per capita basis between 2010 and 2020
- 50% of the state's electric generation from renewable and alternative energy sources by 2025
- work to ensure a reliable in-state gas supply for Alaska residents
- the power project fund (AS 42.45.010) to serve as the main source of state assistance for energy projects
- for the state to remain a leader in petroleum and natural gas production and become a leader in renewable and alternative energy development
Senate Bill 220—The Alaska Sustainable Energy Act
Enacted in 2010, this law relates to energy efficiency, energy conservation, and alternative energy. Here are some of the main components of the bill:
- an energy efficiency revolving loan fund
- low income heating assistance program
- renewable energy tax credit
- state energy policy
- energy loans for businesses
- efficiency in government
Power Cost Equalization
Since 1980, programs (i.e., Power Production Cost Assistance and Power Cost Assistance) have been enacted by the legislature to assist citizens of the state burdened with high power costs. The Power Cost Equalization program (PCE), which became effective in October 1984, is the latest effort aimed at assisting Alaska consumers faced with extreme electric costs. The PCE program provides economic assistance to communities and residents in rural areas of Alaska where, in many instances, the kilowatt hour charge for electricity can be three to five times higher than the average kWh rate of 12.83¢ (July 2007) in Anchorage, Fairbanks, or Juneau.
To learn more about Power Cost Equalization please visit our Power Cost Equalization page.
The Alaska Power Association (APA), the trade association for Alaskan electric utilities, has hired Steve Pratt to investigate opportunities to stabilize fuel costs. With the recent reduction in crude oil prices an opportunity exists to lock in to these low prices using established financial derivative and hedging transactions to stabilize the net cost of fuel.
The focus of this study was directed to the fuel purchases for electric utilities and school districts as the larger commercial purchasers of fuel in rural Alaska, but could be applied to other fuel use sectors. Essentially, the utilities or school district commits to pay an agreed upon price for fuel delivered at a specific future date – once committed, that price never fluctuates, regardless of what happens to market prices for petroleum products during the interim.
Because this price insurance allows the user to lock into a fixed price, it removes the risk of the fuel price increasing. However, it also removes the cost reduction if fuel drops to a lower price. This is the trade-off of fuel insurance, and is a risk determination that each participant must weigh and evaluate before committing to this program.
Under the APA proposal the program would be governed by an oversight board and administered by the Alaska Power Association. APA would contract for services of a Program Director/Manager who will design, budget for, implement and operate the program, assist and educate participating organizations, and provide continually updated information about the market place risks and opportunities.
This program is designed to provide short-term (rolling 1-3 years) fuel cost certainty for participants. A three-year look ahead position would provide price certainty and allow for accurate fuel budgeting. Predictability of fuel costs will allow the utilities and school districts to tend to the long-term needs of their customers and constituents rather than dealing with the immediate financial crises.
In response to health concerns related to chemical and particulate matter in diesel exhaust, the Environmental Protection Agency (EPA) enacted stringent standards for new diesel engines and fuels1.
EPA rules currently mandate the use of ultra-low sulfur diesel (ULSD) for on-highway mobile sources with diesel engines such as automobiles. Similar rules will take effect for construction equipment, locomotives, boats, and ships, and similar off-highway equipment in 2010. The rule for stationary engines applies to new, modified, or reconstructed internal combustion engines used for power generation and to industrial pumps starting with model year 2011.
Under the EPA rules for Alaska, rural areas can continue to use uncontrolled-sulfur-content diesel for all uses and are not required to carry multiple grades of fuel until 2010. However, as of June 1, 2010 all areas of Alaska, rural and urban, will begin the transition to ULSD for highway and non-road, locomotive, and marine diesel fuel.
As noted above, the new EPA ULSD rules will not be implemented for all fuels and for mobile, stationary, on- and off-road uses simultaneously. Therefore, compliance can occur gradually in concert with the regulation dates. These would require additional fuel segregation by use, or the shift can be made at the earliest compliance date for all fuel uses to avoid additional storage costs. ULSD is usually more expensive per gallon so there would be higher fuel costs for the one-time shift to ULSD. To determine the lowest cost option for rural households, an analysis was completed2. It found that the cost is lower to make one rapid transition, because the cost of segregating relatively small quantities of ULSD is higher than using ULSD for all uses, even before the required transition date for that use. However, the study concluded that even an efficient and rapid transition to ULSD will incur significant costs for rural households in the study area, on the order of $190 per household per year or roughly $16 per month.
Carbon Tax or Carbon Cap and Trade
According to 2005 Energy Information Administration (EIA) figures, Alaska consumes 40% more fuel per capita than any other state and more than three times the national per-capita average. This is due to a number of factors including Alaska’s remoteness; cold climate; scattered communities and population; limited road system and resulting dependence on air and ferry travel; status as a major world air cargo hub; and oil production, transportation and refining. As a result, measures to decrease greenhouse gas (GHG) emissions such as cap and trade, carbon taxes, or other remedies can be expected to impact Alaska residents and businesses especially hard.
According to the International Panel on Climate Change, the most important naturally occurring GHGs associated with this phenomenon are water vapor (H2O), carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). To address these issues, in 1999 the U.S. Department of Transportation the created the Center for Climate Change and Forecasting (CCCF), and numerous investigations into addressing transportation's climate change impacts were initiated. According to the U.S. Environmental Protection Agency’s Transportation GHG Emission Report, CO2 accounted for 85% of the radiative forcing effect of all human-produced GHGs in the United States in 2003. This proportion is higher for transportation sources, with CO2 representing about 96% of the sector’s GWP-weighted emissions. In 2003, U.S. transportation sector derived all but 1% of its energy from fossil fuels, 97% of which was petroleum.
According to an Alaska Department of Environmental Conservation (DEC) 2008 report, the principal source of Alaska’s GHG emissions is residential, commercial, and industrial (RCI) fuel use, accounting for 49% of total state gross GHG emissions in 2005. Nearly 85% of the RCI fuel use emissions are contributed by the industrial fuel use subcategory, approximately 42%. Based on estimates of emissions from large facilities, the oil and gas industry appears to be a key industrial source of greenhouse gas emissions.
Transportation sources accounted for approximately 37% of the gross GHG emissions in Alaska, with jet fuel consumption the largest share. Commercial aviation accounts for 96% of aviaton’s contribution; international aviation as a sub-division of commercial aviation appears to be a large GHG emission source and may account for roughly 60% of the emissions from aviation sources, largely due to the role of international cargo at the Anchorage International Airport. In 2006, NASA and FAA conducted a joint workshop with atmospheric and aviation experts on the impacts of aviation on climate change and priorities for future research. They concluded that the effects of aircraft emissions on the current and projected climate of the planet may be the most serious long-term environmental issue facing the aviation industry.
Alaska Department of Environmental Conservation greenhouse-gas emission estimates are given in Million Metric Tons of CO2 equivalents (MMtCO2e) in Table 1. Industry and transportation account for over 80% of Alaska’s estimated GHG emissions. Electricity production, residential and commercial uses account for approximately 7%.
In order to reduce greenhouse gas emissions, a national carbon tax or a carbon cap and trade program may be created in the near future. Both systems would effectively increase the cost of using fossil fuels, although the cost of all fossil fuels will not increase by the same amount. The tax will be on the carbon dioxide released when the fossil fuel is used. As a result, low-carbon-intensive fuels like natural gas will be taxed about half as much as coal. Table 2 shows the carbon content of fossil fuels.
A carbon tax or a cap and trade system would increase the cost of using fossil fuel energy, increasing the economic benefits of renewable energy projects. The actual increase of the benefits of renewable energy projects is dependent on the size of the carbon tax and the type of fossil fuel replaced.
Net metering is a policy whereby consumers who own small renewable energy facilities such as wind or solar power systems can use their own generation to offset their consumption over a billing period. They do this by allowing their electric meters to turn backwards when they generate electricity in excess of their demand. This offset means that customers receive retail prices for the excess electricity they generate. Concerns have been raised in Alaska regarding the burden that a mandated net metering program could create for small utilities with high fixed costs and a small customer base.
Net metering is currently offered in 42 states plus the District of Columbia. Net metering is being considered by the Alaska Legislature under (HB 288). At a public meeting held on October 14, 2009, the Regulatory Commission of Alaska voted to adopt new regulations establishing net metering requirements for economically regulated utilities.
As an alternative to net metering, Golden Valley Electric Association (GVEA) instituted the Sustainable Natural Alternative Power (SNAP) program in 2004, a voluntary program that links renewable energy producers with other individuals on the GVEA grid who are willing to pay a premium for that power. SNAP producers pay to install their own renewable power systems and feed that power onto the grid. They are paid a premium for this ‘green’ power by voluntary contributions from other GVEA ratepayers. At the end of 2008, there were 27 renewable energy producers and 574 members contributing a total of $36,120 annually.
Land use policy in Alaska is primarily addressed at the local government level and, among other things, can dictate the placement of buildings and homes within a community. Identifying energy efficient land use policy can be one way to reduce the energy needs of a community. For example, in urban communities, land use policy can promote sprawl by lack of zoning or zoning for single use and low density neighborhoods. This sprawl creates increased dependency on automobile use and results in increased energy use.
In rural Alaska, land use policy can be used to encourage building placement that increases energy efficiency by increasing the potential for and benefits of co-generation. Building a community facility near a co-generation power plant enables use of waste heat and reduces the energy lost during the transmission of the heat, whether through hot water lines or through a direct heating loop.
The transportation industry is a relatively large sector of the Alaska economy. Tourism and international air cargo are both fuel intensive industries that are part of the transportation sector. Also, the cost of transportation increases the cost of living in Alaska because of the state’s remoteness. Alaska is remote from global markets and population centers, and communities and industries are remote from markets and population centers within the state, thus requiring greater use of air transportation. This remoteness increases the cost of getting goods and people to and from the state, making the Alaska economy especially susceptible to transportation energy price increases.
Alaska’s transportation policy can affect energy use by promoting either energy substitutes or energy compliments. Energy substitutes would decrease the demand for transportation energy. For example, state transportation policy can be used to reduce the amount of fuel used for transportation by promoting public transportation systems. An example would be a commuter rail line or increased bus service between the Valley and Anchorage that would allow commuters to switch from personal automobiles to far less fuel intense public transport.
Roads, railroads and airports are all energy compliments but it is likely that energy prices and use drive demand for energy infrastructure, not vice versa. It is important to understand the role energy plays in transportation and to pursue transportation policy that is responsive to changes in energy markets.
According to John Horsley, Executive Director, American Association of State Highway and Transportation Officials (AASHTO), transportation produces 33% of CO2 emissions with highways producing 72% of transportation’s share. Transportation will need to do its part to address climate change. Some of this fuel use reduction will occur through fleet fuel efficiency improvements. Federal legislation passed in 2007 called for increased Corporate Average Fuel Economy (CAFE) mandate of 35 miles per gallon (mpg) by 2020. AASHTO’s Vision Report calls for doubling the CAFE standard by 2020 to 42 mpg. Europe today averages 40 mpg versus the US at 21 mpg.
In addition to increasing fuel efficiency, the policy goal is to reduce the vehicle miles traveled (VMT) growth rate by 50% (instead of 2.2% growth annually, reduce VMT growth to 1% annually). A policy combining 35 mpg fuel efficiency and 50% cut in VMT results in highway transportation emissions below current levels by 2030. To reduce VMT, the goal nationally is to double transit ridership from 10 billion to 20 billion by 2030. The highway funding re-authorization is expected to increase transit funding 70% from $10.3 billion to $17.3 billion by 2015. In addition to increasing transit use, federal policy will be directed at increasing walking and biking trips, increasing telecommuting/on-line shopping, and adopting supportive land use policies that accommodate one-third of new development through infill of central cities and older suburbs. Mr. Horsley concludes that one third of transportation’s contribution to emission reductions will be shaped by re-authorization investments and policies and two thirds will come from federal, state, and local energy policies, local land use policies, the effect of higher fuel prices, and new technologies.
The Low Income Home Energy Assistance Program
The Low Income Home Energy Assistance Program (LIHEAP) is designed to help low income households offset the high cost of home heating. The State’s LIHEAP block grant is administered by the Department of Health and Social Services (DHSS) and the Division of Public Assistance.
Prior to the spring of 2008, Alaska operated the federally funded LIHEAP program, which capped income at 150% of the poverty income guidelines. In May of 2008, the State Legislature created the Alaska Heating Assistance Program (AKHAP) for households with income between 150% and 225% of the poverty income guidelines.
In 2008 Alaska provided 13,620 households with LIHEAP financial assistance. The average heating assistance benefit was $756 in 2005. Alaska will receive $23.6 million in Federal LIHEAP funding in FY2009, up from $16.9 the previous year (Campaign for Home Energy Assistance).
AHFC Weatherization Program
For years the Alaska Housing and Finance Corporation (AHFC) has provided free weatherization assistance to low income households. Households that meet the income requirements are assessed to determine the weatherization measures to be performed on the home. The weatherization improvements are done by one of 15 state designated housing authorities.
In 2008 the State Legislature approved $200 million for the weatherization program, and the program’s income requirements were expanded from 60% of median income to 100% of median income. Priority is given to the elderly, the disabled, young children, and families under 60% of median income. A household may not participate in both the AHFC weatherization program and energy rebate program (described in the next paragraph). The tremendous popularity of this program has led to bottlenecks and waiting lists because of a scarcity of trained contractors to do the work, as well as a shortage of trained energy raters.
Particulate Matter Regulation
According to the Environmental Protection Agency (EPA), Particulate Matter (PM) is a “mixture of extremely small particles and liquid droplets” that can cause health problems when inhaled. Fine Particulate Matter (PM2.5) is less than 2.5 micrometers in diameter. PM2.5 is a product of combustion, primarily caused by burning fuels. Examples of PM2.5 sources include power plants, vehicles, wood-burning stoves, and wild-land fires. The EPA recently increased the stringency of the PM2.5 standard by lowering the previous 24-hour standard of 65 μg/m3 to 35 μg/m3.
The U.S. Environmental Protection Agency recently announced that it intends to classify Fairbanks and Juneau as non-attainment areas. This classification will force local officials to respond by restricting the use of wood-burning stoves. Winter inversions often leave the air stagnant, allowing PM2.5 to accumulate in the air. If the level of PM2.5 reaches a certain point, the community will temporarily restrict the use of all wood stoves except those that burn wood pellets. The new PM2.5 regulations could significantly increase the cost of heating in these communities because residents will not be able to rely on low-cost wood stoves.
Energy Research Fund
At this time, no state funding is available for energy research in Alaska. The Alaska Energy Authority currently has no mandate or capability to engage in energy research. The Renewable Energy Fund legislation does not allow for funding of any emerging technologies, and funding is explicitly limited to projects utilizing proven, existing technologies. This limits Alaska’s ability to utilize emerging technologies and become a leader in energy development. It is particularly crippling in a state with very different conditions than are found elsewhere in the U.S. in terms of environment, population density, and the isolated nature of the transmission system.
Applied research is designed to solve existing problems, to develop recommendations that can be used to improve practices, and to help decision and policy makers toward effective choices by defining a clear path forward.
According to the National Science Foundation, Alaska currently ranks 46th among states in terms of funding spent on R&D, and it has no significant mechanism for funding energy research at the state, regional, or local level. The creation of an Alaskan R&D or emerging technology fund would put the state in a better position to receive the increase in federal R&D dollars for clean energy development that President Obama proposed.
In 2003, AS 42.45.350 "Licensing of Water-Power Development Projects" became effective, requiring the Regulatory Commission of Alaska to adopt regulations and establish a regulatory program for small (5 MW or less) water-power development projects.
Alaska Department of Environmental Conservation, Summary Report of Improvements to the Alaska Greenhouse Gas Emission Inventory, January 2008.
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