The collapse of a controversial plan to prod utilities to rapidly decarbonize has scrambled the Biden administration's blueprint for slashing power sector emissions.

The White House on Monday released its long-term strategy for reaching economy-wide net zero emissions by 2050, but the Clean Electricity Performance Program (CEPP) was conspicuously absent.

A centerpiece of Biden's climate plans, the CEPP, would have penalized utilities that lagged in adding renewable power sources while doling out incentives to power companies that exceeded a predetermined standard.

But White House and Congressional negotiators have beat a retreat on CEPP amid adamant opposition by West Virginia Sen. Joe Manchin (D) that threatened to scuttle the Democrats multi trillion-dollar reconciliation bill over the issue.

While Manchin's reservations were well-known, his decision to draw a line in the sand on the program came as a surprise to some industry observers tracking the talks who believed a compromise was possible.

But the CEPP triggered a strong pushback from Ohio-based giant American Electric Power and other utilities that have questioned the feasibility of its central mandate, which would require power companies to expand the amount of power generated from renewable sources by at least 4% a year.

The CEPP's apparent demise has raised the question of what, if anything, will replace the program, designed as a regulatory enforcement mechanism to ensure the utility sector could meet the Biden administration's ambitious goal of complete decarbonization by 2035.

Meanwhile, Reps. Kurt Schrader (D-Ore.) and David McKinley (R-W.Va.)  are pushing what is being touted as a bipartisan effort to provide an alternative to the CEPP by creating a clean energy standard for electric utilities that would prove palatable to members of both parties.

The proposal has drawn praise from a number of major utilities, including American Electric Power, Xcel Energy, Southern Co. and Duke Energy as well as the Edison Electric Institute and the U.S. Chamber of Commerce. Major unions have also offered support, including the International Brotherhood of Electrical Workers (IBEW), North America’s Building Trades Unions, and the United Mine Workers of America.

"While there are many paths to achieve this goal, we applaud Rep. McKinley and Rep. Schrader’s efforts to prioritize new technology innovation and clean energy investments in a bipartisan fashion," said Jennifer Loraine, managing director for public policy at Duke Energy in a comment that appeared in a press release on the proposal put out by the legislators.

Also quoted in the release was Lonnie Stephenson, international president of the IBEW, who praised the proposal as "commonsense, bipartisan legislation that will address the climate crisis … while creating and maintaining tens of thousands – potentially hundreds of thousands – of family-supporting IBEW jobs."

Still, the proposal faces a potentially uphill battle gaining traction over the next few months in the shadow of ongoing deliberations over the trillions to be appropriated under the budget reconciliation package and the infrastructure bill.

There is also the possibility, that, failing action by Congress to create a clean energy standard, federal regulators could step in to try and fill that gap.

"It looks like it's on life support for sure … I did think there was a compromise there," said Paul Bledsoe, strategic adviser at the Progressive Policy Institute (PPI).

'Frankenstein's monster'

News of Manchin's refusal to back the CEPP, and the likelihood that it wouldn't be included in the Democrats' reconciliation bill, broke over the weekend of Oct. 15 with a report in The New York Times. 

In the days leading up to Manchin's thumbs down on the CEPP, congressional negotiators had been scrambling to find ways to forge a compromise on a proposal so complicated it was jokingly referred to by one industry expert as “'Frankenstein's monster.'" 

The program's reputation stemmed not from the design of a policy wonk gone mad, but rather the need to fit what is essentially a national clean energy standard, a policy, into a budget reconciliation bill.

A key flashpoint of the CEPP debate was the 4% threshold utilities would have to clear in order to tap into tax incentives and avoid penalties.

Some utility companies pushed back hard, arguing the 4% threshold would have been unfair and difficult to reach because the timing and rollout of projects often hinges on state, local and federal permitting issues, said Scott Segal, a partner at Bracewell, a law firm based in Washington, D.C.

Utility companies, in turn, can point to various permitting battles around the country that have delayed projects to add transmission lines and other infrastructure needed to connect renewable and other non-emitting power sources to the grid.

There are also issues with the uneven distribution of renewable energy sources, with Western and Southern states having an obvious advantage in terms of solar energy, industry observers say.

"There are too many obstacles to reach 4%," Segal said. "If you can't reach it, it's all penalties, all the time. That is not going to speed up the rate of clean energy adoption."

Closely tracking the talks, the PPI's Bledsoe, who worked for years as a top legislative staffer in various stints in the House and Senate, had hoped in the days leading up to Manchin's effective veto of CEPP that there might be a way to forge a compromise by lowering the threshold from 4% to 3%.

Lindsey Walter, deputy director for the Third Way's climate and energy program, also believed an agreement might be struck by adjusting CEPP's various mechanisms, including the penalties and incentives.

Under the original plan, utilities would have gotten paid $150 per megawatt hour of renewable energy they add above the 4% threshold, capped at 2.5% of their new clean energy sales. That's compared to what is effectively a $40 per megawatt hour penalty for falling short.

"You can play around with the value of these numbers – there are a lot of different levers we can adjust," she said.

Another idea floated with Manchin in mind, given his role representing a major fossil-fuels producing state, would have been to allow utilities to give half credit to natural gas towards meeting the 4% goal, said Brad Townsend, vice president for policy and outreach at the Center for Climate and Energy Solutions, or C2ES.

A number of other options were also discussed, though it's unclear if any satisfied the concerns of the pivotal West Virginia senator, who, along with having outsized importance in an equally-divided chamber, also chairs the Senate Committee on Energy and Natural Resources.

Manchin's office did not respond to a request for comment by press time.

However, Manchin has expressed a number of concerns about CEPP in various forums over the past few months, and, in particular, questioning the wisdom of granting additional tax incentives to utilities for renewable power projects.

A scramble for alternatives

The weeks following reports of Manchin's rejection of the CEPP have led to a series of potential replacements being floated in various forums.

A day after the Times story on Manchin's refusal to budge on the CEPP, the Washington Post reported the Biden administration is examining the idea of a voluntary carbon trading program for the steel, chemical, concrete and aluminum manufacturers that would also provide federal dollars to help companies lower their emissions.

"Carbon pricing is actively under consideration," Townsend said. "We are hopeful we will see it in the Senate version" of the reconciliation bill.

Biden, in a recent CNN town hall session, offered further hints on what may be next, arguing the $150 billion worth of incentives attached to the CEPP can now be used for other environmental initiatives in the reconciliation bill. That money would come on top of the $320 billion in clean energy tax incentives that are already in the bill.

Groups that had been strong supporters of the CEPP approach are now lining up behind Biden's push to beef up clean energy incentives.

"The most important thing is to focus on the Build Back Better plan and use the opportunity to make historic investments to support clean power, reliability and affordability," said Sam Krasnow, senior advocate for climate and clean energy with the National Resources Defense Council.

Leah Rubin Shen, federal policy director at Advanced Energy Economy, in an interview, had also expressed strong support for the CEPP.

Some power companies are already adding 3-4% clean energy capacity each year, she said, calling 4%  "ambitious but very achievable."

But in the wake of the recent developments, Shen, in an email, said "we'd like to see the funds previously earmarked for CEPP repurposed for other programs that will help us get to 100% clean energy."

Meanwhile, a pair of congressmen are pushing what they contend is a bipartisan approach to creating a clean energy standard and providing federal support for new and old technologies designed to cut carbon emissions.

Schrader, the Democrat from Oregon,and McKinley, the West Virginia Republican, are promoting a bill that would spread federal dollars across a wide range of sectors, from advanced nuclear and carbon capture and sequestration (CCS) to green hydrogen, energy storage and wind and solar.

The broad range of technologies targeted in the bill is aimed at satisfying both Democrats and Republicans, supporters say.

The Clean Energy Future Through Innovation Act of 2021 would focus on funding and promoting new carbon-reduction initiatives over its first decade, followed by the introduction of a clean energy standard and an 80% reduction target for power sector carbon emissions by 2050.

Samuel Thernstrom, founder and CEO of the Energy Innovation Reform Project, is backing the bill, which he contends is a much better approach to creating a national clean energy standard than through the CEPP approach.

Measures passed through the reconciliation process only last a decade, an insufficient amount of time when dealing with a huge issue like the energy sector transition, he said

Enacting a clean energy standard through a bipartisan bill is also crucial. Otherwise, energy policy will shift back and forth like a "ping pong" as the two parties win and lose elections, Thernstrom said.

"It is the only bipartisan CES in Congress," Thernstrom said of the Schrader McKinley bill.

But timing could be a challenge for the Clean Energy Future bill, with Congress considering the infrastructure bill and reconciliation package.

The two big bills have "eaten up a huge part of the process, and it's still not done," Thernstrom said.

"Again, I am not giving up on this year yet, it will be challenging, but I remain hopeful," he said.

Still, the collapse, for now at least, of plans to impose a clean energy standard could end up backfiring on the utilities that led the opposition against it,  according to PPI's Bledsoe.

Through the EPA or other agencies, the federal government is likely to step in at some point with its own regulations aimed at the utility sector on the decarbonization issue, Bledsoe said.

At the Bloomberg Sustainable Business Summit in July, Gina McCarthy, the White House's national climate adviser, noted the administration was strongly in favor of a clean energy standard.

But she also noted that regardless of what happened with the CEPP proposal, the federal government would be stepping forward on the regulatory front.

"We have a lot of regulatory authority we intend to use regardless," McCarthy said.

While it is quiet on the federal regulatory front now, Bledsoe expects that could start to change next year.

"We don't really know what the form of the regulations will be, but there will be regulations, you can count on that," Bledsoe said. "I know the industry is divided – there were many in the industry who were against the CEPP, but they should be careful what they are asking for."