(Bloomberg) -- North Carolina’s body politic is cleaved in two: Democrats hold the governorship and Republicans a large majority of both legislative houses. Yet last week, lawmakers mandated that the power sector make a deep cut in carbon dioxide emissions.
The story of how the bitterly divided state passed a bill that few like, but which nevertheless enshrines CO2 reductions in law, may offer lessons to Washington. In the nation’s capital, Congress is gridlocked by both inter- and intraparty wars on President Joe Biden’s energy plan.
One crucial element of North Carolina’s success was to set overarching goals in law and then to put the hard implementation decisions into the hands of a separate regulatory body, the North Carolina Utilities Commission, said Daniel Tait, who monitors the Southeast for the Energy and Policy Institute, a San Francisco-based national watchdog. The other was to give protections to Charlotte-based Duke Energy Corp., which is the state’s largest and dominating utility.
“They set the high goals and put all the work on the NCUC,” said Tait. “But they are essentially paying Duke a lot of money and preserving their monopoly. That way, Duke transitions, but maintains all control and ownership.”
North Carolina was once a relatively moderate swing state whose economy, formerly based on mill work, ran on banking, research and higher education. Decades of business-friendly leadership tried to skirt the region’s furious racial and ideological battles. In 2010, Republicans took control of the legislature and two years later, the governor’s office. They restricted abortion, eliminated public funding for judicial races and redrew districts to favor their party. One measure explicitly prevented the state from using the latest climate science to set policy for its idyllic and vulnerable Outer Banks barrier islands, which are continually threatened by rising seas.
In 2016, when Democrat Roy Cooper was elected governor, cooperation seemed impossible. The departing governor and GOP lawmakers curtailed his powers, resulting in years of acrimony and litigation.
But Cooper wanted to address climate change, and in 2018 he instituted a clean-energy plan by executive order. Its goal was reducing the state’s greenhouse gas emissions by 40 percent over 2005 levels by 2025 and registering 80,000 zero-emissions vehicles.
The 2020 election was bitterly fought, but produced the same result: Cooper and the GOP legislature both were returned to office. That changed the political calculus, according to state Senate leader Phil Berger. “There was an acknowledgement that he’s going to be the governor for the next four years, so if we want to get anything done, we’re going to have to reach an accommodation,” he said.
The year didn’t start on a bipartisan footing. Republicans in the House met with Duke Energy and wrote a bill meant to strip the Utility Commission of its ability to implement the executive order. The bill gave Duke multiyear rate hikes — meaning it wouldn’t have to go in front of the Utility Commission annually as it once did — yet had nothing to slow down its proposed aggressive build-out of natural-gas power plants. While natural gas produces only a fraction of coal’s carbon dioxide emissions, its main ingredient is methane, which is 80 times more potent a greenhouse gas in the two decades after its release.
Cooper threatened a veto, which is when Berger stepped in and helped him build a compromise. Duke would get its multiyear rate increases, but the governor got a 70% carbon-dioxide reduction of 2005 level, which is more in line with Biden’s national goals. It also made North Carolina only the 17th state to make CO2 reductions law, and the first with a fully GOP legislature, according to the National Conference of State Legislatures.
The tricky part of the compromise was how to enforce the mandate. Neither side wanted the other to prescribe an exact energy mix (natural gas, solar, wind, nuclear) to reach the 70% reduction. They left it to the Utility Commission, whose seven members are appointed by the governor but approved by the State Senate, to ensure that utilities meet the target. Utilities can resist its plans, but the law also requires that they pursue the most affordable energy mix, which currently favors both wind and solar.
Utilities across the globe are a drag on aggressive decarbonization, preferring the forms of energy generation they already know. Tait said that giving rate hikes and other guarantees to Duke about its pre-eminent place in North Carolina’s energy hierarchy even as it transitioned to lower carbon was key to the deal — the very thing that made it flawed.
In Washington, the national Clean Electricity Payment Program was devised to reward or penalize utilities. Yet it was recently pulled from the infrastructure bill because of objections from Democratic Senator Joe Manchin of West Virginia. Coal mining, once the state’s economic mainstay, employed fewer than 14,000 people there in 2019, but the industry dominates West Virginia political culture.
“The federal plan had a stick to go with the carrot,” said Tait, which is why utilities and Manchin didn’t like it. “To get it passed in North Carolina, they had to get rid of stick.”
North Carolina environmentalists say that the concessions were too high a price to pay, as they allow Duke to increase its use of natural gas. Local clean-energy advocates point out that less than 10% of the state’s energy comes from renewable sources. Jim Warren, executive director of NC Warn, a climate and energy watchdog in Durham, said: “In our view, it goes backward. Building 50 gas units over the next 15 years is crazy in terms of climate and economics.”
Bill Norton, a Duke Energy spokesman, said the company would not comment.
A more common refrain is the sentiment from Kevin Martin, executive director of Carolina Utility Customers Association, Inc., a manufacturing trade association that opposed the bill, saying built-in rate hikes would raise electricity rates by 50 percent over a decade. While the association didn’t like the end product, Martin recognized the political craftsmanship.
“All in all, there was significant compromise,” Martin said. “And I do appreciate all the work that went into that.”
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