The GAO Report: Competition of Oil Export Ban Studies

Today, the U.S. Government Accountability Office (GAO) released a report that reviews four studies about lifting the ban on U.S. crude oil exports—those by RFF, ICF International and EnSys Energy, IHS Global Insights, and NERA.  According to the GAO’s summary, these studies estimate that U.S. crude oil prices would increase by about $2 to $8 per barrel—bringing them closer to international prices. At the same time, the gains in U.S. crude oil prices would boost world supplies of crude oil and reduce U.S. prices for gasoline, diesel, and other consumer fuels (which follow international prices).

According to the RFF study, lifting the ban on U.S. crude oil exports will allow crude oil prices in the Midwest to rise to international levels, which will stimulate Midwestern and Canadian crude oil production.  In addition, lifting the ban will improve the efficiency of international refinery operations by allowing the lighter crude oil produced in the United States to go to foreign refineries and the heavier crude oil produced abroad to come to U.S. refineries (which are better equipped to handle the heavier crude).  The increased production of crude oil and the improved efficiency in refineries will cause prices for refined products to fall.

Even without an improved refinery efficiency, the increased production of crude oil in the Midwest and Canada will mean that prices for refined products will fall, but just by not as much.

The GAO study provides a service by carefully comparing the four studies and showing that they basically reach the same conclusions using very different models.  Since those four were completed, several other studies of lifting the ban on U.S. oil exports have been done, such as those by Brookings and Aspen Institute (the latter focusing only on the economic effects).  Those studies come to similar conclusions, as well.

The GAO report goes beyond all of these studies by considering the implications of lifting the ban on exporting crude oil from the U.S. strategic petroleum reserve (SPR).

We agree that the SPR should be rethought.  We would like to see discussion not only of the size of the reserve and other design issues, but also of the meaning of the reserve given the greater integration of North American energy markets that we expect in the future, especially in light of recent Mexican energy reforms.

RFF on the Issues: Natural gas emissions; Renewable energy in EPA’s Clean Power Plan

Natural Gas Emissions

A new study published online this week in Nature finds that more abundant supplies of lower-cost natural gas in the future would not only displace higher-emitting coal but would also displace lower-emitting renewable and nuclear technologies. It concluded that without additional policies “emissions of heat-trapping gases … would not decline worldwide and could possibly go up” with increased use of natural gas.

RFF’s Brian Flannery, who co-authored the study with an international team of researchers, explains that while many hoped “that the recent US natural gas boom could help slow climate change,” it appears not to be the case. However, he notes that the recent shale gas boom has resulted in various “benefits related to the economy, jobs, energy security, and local air pollution,” which should not be ignored.

Renewable Energy in EPA’s Clean Power Plan

The Union of Concerned Scientists (UCS) recently published a report suggesting that EPA’s proposed Clean Power Plan “could deliver much deeper reductions in emissions” by including more opportunities to take advantage of renewable energy. It recommends a number of alterations to the plan that UCS says would “nearly double the amount of cost-effective renewable energy in [its] state targets.”

As part of RFF’s Expert Forum on the EPA’s Clean Power Plan, UCS Senior Energy Analyst Jeremy Richardson weighs in on EPA’s assumptions about the deployment of renewable energy in its proposal. Richardson describes six ways EPA could strengthen its renewables-based building block, including “factoring in renewable energy growth between 2012 and 2017” and “removing (or relaxing) artificial limits on growth rates.” Experts from the Environmental Defense Fund and Pacific Gas & Electric also provide their views on this issue in RFF’s forum.

 

Cap and Trade in China: How Might It Work?

CoverChina plans to start a nationwide cap-and-trade market in 2016. But can China, whose economy still contains many nonmarket features, properly design and implement a fundamentally market-based policy? In our new RFF discussion paper, my coauthors (RFF’s Richard Morgenstern, Zhongmin Wang, and Xu Liu) and I attempt to answer this question by examining cap-and-trade pilot programs in Shanghai, Shenzhen, and Guangdong that have each operated in China for over a year.

We find that some designs in the pilots represent a deft tailoring of cap and trade to China’s unique political economy. For example, most cap-and-trade designs outside of China require electricity producers to retire allowances and pass allowance costs through to electricity consumers in the form of higher prices; this pass-through ensures that the whole electricity sector (producers and consumers) faces prices that reflect the cost of carbon. In China, however, the government heavily regulates electricity prices and rarely allows those prices to increase—which virtually precludes the pass through of allowance costs. This constraint threatens to keep a carbon price signal from reaching electricity consumers, potentially leaving low-cost abatement opportunities on the table.

Yet regulators in Shanghai, Shenzhen, and Guangdong crafted a policy that replicates the pass-through of allowance costs. The pilots require that both electricity producers and electricity consumers retire allowances. Under this arrangement, these pilot programs require certain large consumers of electricity—for example, big office buildings and hotels—to obtain and retire allowances for the tons of carbon associated with their electricity purchases. Although it is an usual design compared to most cap-and-trade programs, this decision allows for communication of the carbon price signal to consumers in China—bringing cheap reductions online and helping to restore the overall efficiency of the pilot programs.

We also find that China’s political economy causes many design deficiencies in the cap-and-trade pilots that threaten their effectiveness.  Most cap-and-trade programs outside of China, for example, contain strong laws that impose substantial fees for non-compliance. In China, however, law is more hierarchal, with national laws and regulations typically superseding local ones. To date, no Chinese national law or regulation mentions cap and trade, let alone establishes penalties for non-compliance. Without a clear signal from the national government, some regulated entities have questioned whether the pilots generally have the authority to impose non-compliance fees. We recommend that Chinese policymakers at the national level craft a law that explicitly states that entities regulated by a cap-and-trade program are subject to strict non-compliance penalties.

Additional barriers exist to optimal design and implementation of a cap-and-trade program in China. Although it is clear that pilot regulators, in some instances, have cleverly tailored cap and trade to their particular circumstances, many challenges still exist. Read more in our full discussion paper, where we make nine recommendations to improve the prospects for China’s cap-and-trade pilot programs in order to inform the construction of the country’s nationwide program.

This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.


Power Plants Are Not Built on Spec: 2014 Update
[Fierce EnergyJust 2.4 percent, at the most, of generation capacity constructed in 2013 was developed solely for sale into organized electricity markets, according to a report released by the American Public Power Association (APPA).  In 2013, almost all new generation capacity was supported by long-term power purchase agreements or ownership, and only 6 percent of all capacity constructed that year was built within the footprints of one of the regional transmission organizations (RTO) with mandatory capacity markets, the report, “Power Plants Are Not Built on Spec: 2014 Update,” says. – via American Public Power Association

Potential Impacts of the EPA Clean Power Plan
[The Hill] A study commissioned by the coal industry and other business groups found that the Environmental Protection Agency’s (EPA) carbon rule for power plants could cost at least $366 billion. The analysis, written by Nera Economic Consulting, said that people in 43 states would see double-digit percentage increases in their electricity bills, with at least 20 percent increases in 14 states. Meanwhile, the carbon dioxide reductions would only limit global warming by 0.02 degrees and sea level rises by 0.01 inch, researchers said… – via NERA Economic Consulting

Read More

Looking at the Effects of a Carbon Tax across States

RFF-DP-14-25-CoverThe use of revenue from a carbon tax or cap-and-trade program substantially affects who gains and who loses as a result of the policy; indeed, it is often more important than the effect of the carbon tax itself. In a previous RFF discussion paper, we (together with RFF’s Dallas Burtraw and Richard Morgenstern, and Jared Carbone of the Colorado School of Mines) examined how the initial distribution of the costs across income groups in the United States varied under three different ways to use the revenue generated by a $30 per-ton carbon tax: returning the money via cuts in taxes on labor income, cuts in taxes on capital income, or a equal-sized rebate for every person.  (See the blog entry about this paper for more detail).

Our new discussion paper, written with the same team of researchers, follows up by looking at the distribution of costs across states, for the same set of policies.  Our methodology is very similar to the earlier paper: we used a dynamic overlapping-generations model to predict price and quantity changes for a range of consumption goods and income sources, and combined that with government data on income from different sources and spending on different goods in each state to estimate how those price changes affect each state. Using RFF’s Haiku electricity market model, we estimated the effects on the price and quantity of electricity consumed in each state, which varies substantially based on characteristics of the local electricity market. Read More

More Natural Gas, Less Warming?

The unexpected energy revolution caused by the rapid growth in North American shale gas production has produced benefits related to the economy, jobs, energy security, and local air pollution, and has contributed to a decrease in US greenhouse gas emissions. However, as my colleagues and I report in a new study published online today by Nature Advance Online Publication (fee required), its overall impact on global greenhouse gas emissions appears to be surprisingly small. In fact, we find that even a very significant expansion in the availability of less-expensive natural gas (up to 300 percent) would have little effect on growing global greenhouse gas emissions.

Because abundant, lower-cost gas is displacing coal in electricity production (where it emits 50 percent less carbon dioxide than coal to produce the same amount of energy), many believed that the recent US natural gas boom could help slow climate change. However, according to our study, globally more-abundant, competitively priced natural gas would displace all energy sources—including both higher-emitting coal and lower-emitting (and relatively more expensive) nuclear and renewable energy technologies, such as wind and solar. In additon, decreasing energy costs accelerates economic growth and increases energy use. Read More

RFF on the Issues: Fuel economy improvements; Climate action health benefits

Fuel Economy Improvements

EPA has reported that the average fuel economy achieved by new vehicles in the United States reached a record 24.1 miles per gallon in 2013. The agency “credited the gains to President Obama’s climate agenda,” which aims to increase the fuel efficiency of the US vehicle fleet and reduce greenhouse gas emissions through existing and future requirements laid out by the country’s corporate average fuel economy (CAFE) standards.

In the latest issue of Resources magazine, RFF’s Alan Krupnick, Joshua Linn, and Virginia McConnell propose a series of research questions to consider during the midterm review of light-duty CAFE standards. The authors write: “The next several years will be an important time for research that can enhance this evaluation and inform future policies. . . . Major questions remain about consumer and manufacturer responses to the regulations and the best methods for estimating the costs and benefits.” For more information, see a four-part blog series and infographic by the authors on midterm CAFE review topics.

Climate Action Health Benefits

A new study by Harvard University, Syracuse University, and Boston University indicates that EPA’s proposed Clean Power Plan has the potential to “prevent thousands of premature deaths and hospitalizations, and hundreds of heart attacks” annually in the United States. The study’s authors note that the specific benefits of these regulations are dependent on which policies are included in the final iteration of the Clean Power Plan.

At a recent RFF Policy Leadership Forum, EPA Administrator Gina McCarthy highlighted the potential for climate action to improve public health, emphasizing that “climate change supercharges the risks to our health and our economy.” McCarthy also described the economic benefits of improving public health through the regulation of emissions from power plants, stating that “every dollar we invest through the Clean Power Plan will return seven dollars in health benefits.” Video and transcript of the event are now available.

 

This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.


Energy Darwinism II — Energy Storage: Game Changer for Utilities, Tech & Commodities
[Reneweconomy.com.au] A major new report from researchers at investment bank Citigroup predicts that the payback for rooftop solar plus battery storage systems will, by 2020, beat the payback on solar-only systems now. Its forecasts are based on the assumption that battery storage costs will halve over the next 5, 6 or 7 years to around $230/KWh. That would make storage financially attractive enough to increase manufacturing and further accelerate the fall in battery storage system costs towards $150/KWh. – via Citibank

MIT Climate CoLab Proposals for a U.S. Carbon Price
[From a Climate Wire article by Niina Heikkinen, sub. req'd] Last week, the Massachusetts Institute of Technology Center for Collective Intelligence announced the winners of the 2014 Climate CoLab, a project that uses crowdsourcing to develop effective proposals to mitigate the effects of climate change. Contestants from around the world have proposed hundreds of ideas that were evaluated and voted on by judges and Climate CoLab members, eventually narrowing the field to 34 winners in 17 categories. One of the more politically contentious categories was a prompt to design a national carbon price in the United States. The judges selected two winning proposals in the category, one that would create a carbon tax, and the other, a cap-and-trade program with a twist. – via MIT Climate CoLab

Read More

Designing Cost-Efficient Surveillance to Control Invasive Species

Invasive species can cause substantial reductions in a region’s ecological, industrial, and human welfare, and often require significant control expenditures. The Emerald Ash Borer, for example, established itself in the United States in the early 1990s and has caused the death of hundreds of millions of ash trees and is estimated to cause billions of dollars of costs and damages annually.  Currently, New Zealand is threatened by the establishment of similar wood borers and bark beetles, pests that pose a substantial threat to the country’s forest industry, as well as to its urban and natural forests. In a new journal article, with New Zealand colleagues Eckehard G. Brockerhoff (Scion), John M. Kean (AgResearch), and James A. Turner (AgResearch), we ask: How much should New Zealand invest in surveillance, and where should traps be placed, to cost-efficiently monitor for new wood borer and bark beetle invasions?

To control newly established invasions and limit their damages, new populations must first be detected. And the sooner that an invasion is detected, the less expensive and more successful eradication or control efforts are likely to be—lessening the costs and damages associated with the invading species.  Greater investment in surveillance upfront reduces the expected costs and damages from new invasions, but this can be quite costly; and gauging what level of surveillance spending will produce the most cost-effective results, and where on the landscape those resources should be targeted, is difficult for managers and policymakers to assess. Read More

Improving the Efficiency of Coal Plants under EPA’S Clean Power Plan

This is the sixth in a series of questions that highlights RFF’s Expert Forum on EPA’s Clean Power Plan. Readers are invited to submit their own comments to the questions and/or the responses using the “Leave a Comment” box below. See all of the questions to date here.

RFF asks the experts: how can coal power plants reduce emissions and be made more efficient—and at what cost (building block #1)?

The emissions rate targets assigned to states are built on four building blocks that EPA says represent best practice in reducing emissions throughout the electricity system. Building block #1 focuses on measures to make coal plants more efficient. EPA seeks comment on its proposed finding that the average heat rate for coal power plants (the heat content of fuel input per unit of electricity output) could be improved by 6 percent on average across the fleet. Do such opportunities exist, and at what cost? Would they lead to emissions reductions?

anthony-licata

 

“The evidence suggests EPA’s finding is technically plausible and economically reasonable—given that the agency adopts a flexible approach to achieve compliance.”
—Dallas Burtraw, Darius Gaskins Senior Fellow, Resources for the Future (See full response.)

 

 

anthony-licata

“EPA’s conclusion that 4 percent improvement using “best practices” is possible at no or low cost was based upon an analysis [that]… did not consider any technical aspects of the facility, or if any characteristics changed over the 11 year period, including a change in operating mode… whether the facility conducted a retrofit …or if the facility changed coals.”
—Anthony Licata, Partner, Licata Energy (See full response.)