Biomass Feasibility Project Final Report - Xcel Energy

project in South Dakota because it expected that carbon dioxide emissions would be regulated
in the future.
The application should not be approved unless the Applicants develop and
submit for Commission review a plan to offset the 4.7 million tons of CO2 emissions
enabled by the proposed transmission lines. Since carbon costs are expected in
the future, it is necessary to address these costs in a reasonable manner. If
carbon costs are not adequately addressed, it would be unreasonable to find
that the proposed project is in the public interest (DOC, 2007).
The commission suggested a number of actions that could be taken to address the cost of
carbon emissions. They included:
• adding DSM energy savings above the least-cost amount as determined in each utility’s
resource plan as approved by the PUC;
• generating additional wind power, including C-BED resources, above the least-cost
amount determined in each utility's resource plan as approved by the PUC;
• shutting down older high-emission generating facilities and replacing the energy with
more efficient or lower carbon-emitting sources;
• joining an organization such as the Chicago Climate Exchange or executing an
arrangement directly with a carbon-emitting entity to fund that entity's reductions in
carbon emissions;
• purchasing agricultural or timber lands to be managed for the purposes of carbon offsetsequestration;
or
• using any other reasonable means that lead the Department to conclude that carbon
offsets have been created.
The inclusion of carbon emissions costs in the regulatory process has positive implications for
biomass power projects. The inclusion of carbon emissions costs in the costs of fossil fuels will
lessen their relative price advantage over biomass fuels. This has the potential to improve the
economic viability of biomass power.
The use of renewable energy credits and carbon offsets in the regulatory process is new.
Regulators face a number of hurdles in ensuring that these new tools are well regulated and
implemented. They must verify that credits or offsets actually represent what they are marketed
to represent. Ensuring that renewable energy credits are based on the actual generation of
existing renewable energy generators (such as M-RETS) should be relatively simple because that
can be verified through the generator’s metering equipment. It may be harder to ensure that
renewable energy credits used to subsidize new renewable energy facilities are properly
accounted for because they must be applied to facilities that do not yet exist. Verification of
carbon offsets, particularly offsets based on sequestration of carbon in the soil, can be
particularly problematic. The rate at which carbon is sequestered in soil is not yet well
understood, and it may vary considerably by soil type and land use practices. In addition,
verifying that carbon remains sequestered requires that limitations be placed on the use of the
land for decades, if not centuries.
Carbon Emissions Tax
Taxing carbon emissions is a policy tool that may facilitate the growth of biomass power.
Biomass fuels are considered to be carbon neutral and, as such, would not be taxed like fossil
fuels under a carbon emissions tax. This tax advantage will make biomass fuels comparatively
cheaper than they are currently. While individual states may have the power to impose a
carbon tax on their own authorities, doing so would put them at a competitive disadvantage
Identifying Effective Biomass Strategies: Page 151
Quantifying Minnesota’s Resources and Evaluating Future Opportunities