Each week, I review the papers, studies, reports, and briefings posted over at the RFF Library Blog.
Taxing Carbon: What, Why and How
[From a Climate Wire article by Emily Holden, sub. req’d] A nationwide carbon tax — though difficult to implement for practical and political reasons — could significantly reduce greenhouse emissions while funding priorities on both sides of the aisle, according to a new report from the Tax Policy Center… – via Tax Policy Center / by Donald Marron, Eric Toder, and Lydia Austin
Impacts of the Clean Power Plan on U.S. Natural Gas Markets and Pipeline Infrastructure
[From Press Release] An analysis prepared by Advanced Energy Economy Institute using the models of Virginia-based ICF International, a leading authority on natural gas markets, finds that existing and planned natural gas infrastructure will be able to handle the bulk of future natural gas needs under EPA’s proposed Clean Power Plan (CPP). The analysis shows that additional natural gas pipeline expenditures under the CPP would be modest: 3% to 7% more than currently planned through 2030… – via ICF for the Advanced Energy Economy Institute (free download with registration)
China’s Growing Energy Demand: Implications for the United States
Growing rapidly in recent decades, China’s demand for energy has nearly doubled since 2005—making China the world’s largest consumer of energy. That growth and the energy policies that China pursues increase the level and possibly the volatility of some energy prices, reduce the competitiveness of U.S. manufacturing firms in relation to Chinese firms but provide benefits for U.S. consumers, and increase greenhouse gas emissions. This paper examines trends in China’s energy consumption, the implications of those trends for U.S. households and businesses, and policy options that might help minimize adverse effects. – via Congressional Budget Office / by Andrew Stocking and Terry Dinan (Working Paper 2015-05)
Adapting To Climate Change in Coastal Parks: Estimating the Exposure of Park Assets to 1 m of Sea-Level Rise
[USA Today] Sea-level rise puts at high risk more than $40 billion in park infrastructure and historic and cultural resources, including almost $90 million in assets at the Canaveral National Seashore, according to a federal report released Tuesday. – via National Park Service
- The American Council for an Energy-Efficient Economy (ACEEE) has released a new report finding energy efficiency in the United States has come a long way in the last 35 years, slashing in half the “energy intensity” metric that compares energy consumed to the gross domestic product.
- The United States has cut the amount of energy it uses, compared to each dollar of gross domestic product, from 12.1 thousand Btus per dollar in 1980 to 6.1 thousand Btus per dollar in 2014, ACEEE found.
- Last year, the study found, efficiency measures saved the United States $800 billion. Most of the improvements over the last 35 years came from advances in energy efficiency itself, ACEEE concluded, and not changes in the broader economy. – via American Council for an Energy-Efficient Economy / by Steven Nadel, Neal Elliott, and Therese Langer
In this series of blog posts, RFF researchers take a look at the current state of the nation’s transportation infrastructure and evaluate various policies for financing the Highway Trust Fund. See the first, second, and third posts in the series.
From our previous three blogs we saw that expenditures on roads and bridges from the Federal Highway Trust Fund have increased over time and the need for greater expenditures is expected to continue. Revenues into the Fund have not kept pace and will fall further behind unless Congress acts. We concluded that raising the gasoline tax could be at least part of the solution. In this blog we consider and compare a range of revenue raising approaches, some of which are already in place, and some are relatively new. The idea is to find policies that do well on a variety of criteria, including efficiency, political acceptability, and equity while still raising sufficient revenue to fund expenditures appropriated under the federal highway program.
As we discussed in the third blog, fuel taxes have been the primary funding vehicle since the HTF began. Fuel taxes do well to address the external costs of GHG emissions from vehicles, which depend entirely on gallons of fuel used. Estimates about the right magnitude of fuel taxes to account for the effects of GHG emissions from cars and trucks show that current taxes, which have not been raised since 1993, are too low. Increasing current federal fuel taxes on gasoline and diesel by about 10 to 15 cents a gallon would be efficient in that they would account for the carbon externality, and they would also raise sufficient revenue to make up for projected HTF shortfalls. And, they would be barely noticed amid the rapid and large price fluctuations of crude prices set by OPEC. However, state and federal policies to reduce gasoline consumption undercut the revenue generation of fuel taxes.
The other policy that has been used recently to finance highway expenditures is to draw on general federal revenues. It can be argued that the federal highway system benefits the entire economy and drawing revenues more generally rather than just from users has some merit. On the negative side, general revenues may have a high opportunity cost in foregone government spending in other areas and has no ability to internalize other externalities.
However, the recent approach of using some funding from general revenues may have an additional benefit when used in conjunction with fuel taxes under current funding of the HTF. Recent transportation bills mandate that states get most of their fuel tax payments to the HTF back for their own road improvements. But there may well be projects that have higher regional or national value than those that a given state would decide to implement. This is part of the rationale for a federal system that can examine projects for their value beyond state lines. With recent trust fund expenditures much higher than revenues from fuel taxes, a large share of fuel tax revenues can be returned to states and the additional expenditures can come from general revenues. This approach to funding may enhance efficiency compared to simply raising all revenue from a higher fuel tax and returning most of the money to the states by formula.
Three federal policies make up a small portion of the current funding for the HTF. First, roughly 9% of HTF funds come from sales taxes on heavy-duty trucks and trailers. Another 3% is raised from $100-550 vehicle use fees levied on trucks using public highways, and 1% is raised from taxes on tire sales with a load capacity exceeding 3,500 pounds. Are these taxes as currently levied efficient?
Raising these taxes to fund infrastructure makes great sense because almost all road damage is caused by heavy-duty trucks. However, charges based on distance travelled would provide greater incentives to reduce miles driven—a number of states already levy distance and weight charges on trucks.
Additionally, the current excise taxes on truck, trailer, and tire sales may provide harmful disincentives. For trucks and trailers, these sales taxes may slow the rate at which fleets purchase new trucks. As joint EPA and NHTSA regulations on trucks’ fuel efficiency tighten, replacing old trucks will be crucial for maximizing carbon reductions. Tire taxes may create safety disincentives, as buying new tires would be more expensive. Such taxes may also lead to using trucks with fewer axles, which works against reducing road damage as, other things equal, damages to roads are lower for trucks that distribute weight across more tires.
There are also new options for raising some of the revenues for the HTF that are being discussed. One is President Obama’s suggestion – a one-time only tax on corporate coffers abroad. This policy has the same lack of incentive on reducing externalities as drawing from the general fund, but because it is a new source of revenue, it will not take away from other spending. Nevertheless, such funds still have an opportunity cost.
Another set of policies that have become more flexible and more ubiquitous in recent years are mileage-based fees. The familiar variety is the toll road. Fees are increased the longer one drives on the road, with trucks with more than two axles usually paying more than autos and light trucks. On some roads, it is now possible to increase fees when conditions are congested. Financial and time-related costs of implementing tolling have come way down as on board devices (e.g., EZPass) can substitute for manned tollbooths. Such fees can, in principle, be very efficient in that they can be varied to account for road damage, and for local congestion, and road safety externalities.
Currently such tolling only takes place on a few roads and bridges although the current highway bills floating through the Senate look to expand tolling. To raise a large amount of federal revenue for the HTF to, for example, replace current fuel taxes, fees would need to be charged on most, if not all, miles. Annual odometer readings could be used to levy flat-rate fees on miles driven. And, soon modern on-board systems may allow for location, use and time of day pricing. Such on-board systems could also charge by type of vehicle logging the miles (ICE car vs. electric car vs. heavy-duty truck) and its occupancy (exemptions for HOV use). These variable rates could be tuned to provide appropriate incentives to reduce specific externalities. Because these fees vary by location and time, they are likely to be more efficient as state or local taxes. However, privacy concerns remain a large hurdle for on-board systems.
Another possible source of revenue is an annual federal vehicle registration fee. For avoiding road damage, such registration fees could be varied in size by vehicle type, e.g., charging more for heavier vehicles. Some states give breaks to alternative fuel vehicles (AFVs), yet others are beginning to charge these vehicles more to make up for lost gasoline tax revenues. From a road damage perspective, however, fuel type is irrelevant. Such taxes do nothing to discourage fuel use or miles driven once the vehicle is owned. Levying a federal surcharge could be politically difficult.
It appears that the best solution for raising revenue for the HTF is to use a set of policies that in combination account for the full cost of using and maintaining roads. This has the advantage of improving efficiency by addressing the different externalities from driving with separate tailored policies, and at the same time raises revenue for roads. It is important, however, to account for how policies may conflict with each other in designing the right combination of policies.
In our last blog, we identify the most efficient policies for raising revenues for the Highway Trust Fund, accounting for interactions and conflicts with other policies.
What does the Republic of Vanuatu, an island nation in the South Pacific, have in common with the state of California? Whether the former’s inundation, brought on by Cyclone Pam in March, was exacerbated by sea-level rise or whether the latter’s prolonged drought might, similarly, be an early harbinger of global warming—each case dashes the illusion that there is time to spare. Even if there were, the long-term benefits of a global greenhouse gas mitigation regime remain an uncertain prospect. In short, a delay in adaptation to unavoidable climatic threats is an unaffordable luxury—action can no longer be averted on account of eventual mitigation measures.
At the same time, adaptation presents unique challenges, unlike those associated with mitigation. Although Vanuatu and California may share vulnerability to the same underlying climatic phenomenon, the comparison exposes a striking asymmetry. The United Nations Population Fund classifies Vanuatu as “one of the most vulnerable nations to natural hazards,” emphasizing that it “faces the challenge of eradicating widespread poverty in the face of climate change.” As in California, the nation’s leaders have developed a detailed climate adaptation strategy that identifies not only the risks but also options, policies, and plans for action. But in contrast to Vanuatu’s clear lack of the economic resources needed to put such plans in place, California’s financial ability to confront climatic stress and threats will not hamper the state’s ability to act, as evidenced by the aggressive launch of Governor Brown’s water-management reforms. Read More
The EU Emissions Trading System (ETS) for carbon dioxide (CO2) is the largest worldwide. Since its inception in 2005, it has experienced allowance price volatility and low overall prices. Generally, the fact that it costs less than anticipated to reduce CO2 emissions would be good news. Instead, these price dynamics are bad news for many because they suggest the program may fail to spark a significant transformation of the economy away from fossil fuel use.
To bolster allowance prices, EU authorities are taking steps to introduce a market stability reserve (MSR). The MSR regulates the volume of allowances issued at any point in time depending on the volume in circulation and not yet used for compliance. Importantly, the MSR varies when allowances are issued but it does not vary the total number.
How this remedy will work and whether it will affect market prices are the focus of new research by three teams commissioned by RFF to provide an analysis of the EU’s MSR proposal.* Their findings are now available in the following RFF discussion papers and accompany related research by European-based teams. Read on below for highlights of key points:
- What Ails the European Union’s Emissions Trading System? Two Diagnoses Calling for Different Treatments, by RFF Visiting Fellow Stephen Salant
- Comparing Policies to Confront Permit Over-allocation, by Harrison Fell of the Colorado School of Mines
- Price and Quantity “Collars” for Stabilizing Emissions Allowance Prices: An Experimental Analysis of the EU ETS Market Stability Reserve, by Charles Holt and William Shobe of the University of Virginia
What have we learned? The news, in my view, is mixed. Theory and some evidence suggest that, so far, the MSR will have a limited effect in fixing the problem directly. However, to the credit of EU regulators, the MSR signals that the doctor has not given up on the patient. The European Union has a long-term commitment to emissions trading—the MSR may buy enough time for prices in the ETS to recover as the economy recovers. If that does not happen, I believe the European Union may ultimately replace the MSR with a more direct and simpler instrument—a reserve price in auctions for emissions allowances that will instill a minimum price in the market. Read More
Each week, I review the papers, studies, reports, and briefings posted over at the RFF Library Blog.
America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future
[Oil and Gas Journal] Unconventional oil and gas presents perhaps the single largest opportunity to improve the trajectory of the US economy, according to a report released by Harvard University Business School (HBS) and Boston Consulting Group Inc. (BCG). – via Harvard Business School / by Michael E. Porter, David S. Gee, and Gregory J. Pope
Nature as Capital — PNAS 100th Anniversary Special Feature on Ecosystem Services
Core Concept: Ecosystem services / by Amy West
If one were to build a healthy biosphere from scratch on another planet, what kinds of ecosystems and combinations of species would be necessary to support humans? This is the thought experiment that ecologist Gretchen Daily, a Bing professor at Stanford University, poses to illustrate the crucial role that the natural environment plays in supporting human society… – via Proceedings of the National Academy of Sciences (2015, v112 n24)
Competitiveness of Renewable Energy and Energy Efficiency in U.S. Markets
[Fierce Energy] Renewable energy and energy efficiency are competitive resources in today’s marketplace that will not only be cost-effective mechanisms for compliance with EPA’s Clean Power Plan (CPP) but should also be expected to grow strictly on the basis of cost. That is according to a report [attached] published today by the Advanced Energy Economy Institute (AEEI), which disputes “official projections” it says do not capture market realities and discount the growth potential of these resources and the role they can play in state CPP compliance plans… – via Advanced Energy Economy Institute (free download with registration)
Barriers to Industrial Energy Efficiency: Report to Congress
…The report—including the accompanying study (Appendix A)—examines barriers that impede the adoption of energy efficient technologies and practices in the industrial sector, and identifies successful examples and opportunities to overcome these barriers. – via US Dept. of Energy
A Comprehensive Analysis of Groundwater Quality in The Barnett Shale Region
The exploration of unconventional shale energy reserves and the extensive use of hydraulic fracturing during well stimulation have raised concerns about the potential effects of unconventional oil and gas extraction (UOG) on the environment. Most accounts of groundwater contamination have focused primarily on the compositional analysis of dissolved gases to address whether UOG activities have had deleterious effects on overlying aquifers. – via Environmental Science and Technology (Published online June 16, 2015; DOI: 10.1021/) / by Zacariah Louis Hildenbrand, et al.
Medium-duty and heavy-duty trucks likely will be getting a lot cleaner. Joint Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) programs announced Friday will build off existing regulations (Phase I, adopted in 2011) to significantly reduce carbon emissions and fuel consumption from the nation’s trucks. Covering tractor-trailers, buses, and heavy pickups and vans, Phase 2 of these regulations will cover model years 2021 through 2027.
In announcing these proposed standards, the Obama administration is addressing roughly a fifth of all transportation GHG emissions, which themselves account for 28% of the United States’ total GHG emissions. The rules will set standards for fuel economy and GHG emissions for different types and sizes of trucks, and truck trailers would be separately regulated for the first time. As with CAFE standards for light-duty vehicles, the Agencies propose to allow some flexibility to manufacturers in how to meet the standards cost-effectively with provisions that allow banking reductions over time and trading and averaging reductions across vehicles and fleets.
Perhaps most important for individual and fleet truck owners are the payback periods for meeting these regulations. Trucks will cost more because of added technology (estimates are around $13,000 for the biggest trucks), but at what point will the resulting fuel savings exceed the additional up-front costs? In spite of a lifetime of a decade or more for heavy trucks and their sale into the secondary market after only four years or so, heavy-duty truck manufacturers appear to expect payback periods on fuel economy technologies as short as 18-months before they would invest.
There are a number of possible reasons for this short time horizon, but the one we most often hear is the buyer’s need for a cushion against the claims sellers make for their fuel-saving technology. According to the draft Regulatory Impact Analysis from EPA and NHTSA, the payback period for heavy duty pickups and vans is roughly three years. For tractor trailers, the payback point is early in the 2nd year of ownership. Vocational vehicles, encompassing a wide variety of vehicles from delivery trucks to refuse haulers, see a payback period of roughly six years. Thus, payback periods from these new rules are being estimated to be in the ballpark of acceptability to buyers, even without the standards. This raises two questions: are technological improvements underlying EPA and NHTSA’s thinking making inroads already and if so, are new standards needed?
Another important issue to consider is whether trucks will actually be driven more as fuel economy improves, and the cost of driving each mile falls. This so-called rebound effect has big implications for calculating carbon emissions, fuel consumption, and even road damage—trucks account for significantly more road damage than light-duty vehicles. Fuel costs for trucks make up over one third of per-mile costs to drivers. Savings could be even more pronounced with higher fuel prices. The Agencies do try to account for a possible rebound effect, but better data and more analysis is needed to have a better estimate of its magnitude.
Poor data also plague an understanding of truck characteristics and utilization for goods transport, including technology purchase behavior by trucking companies and independents – information needed to judge the actual economic impact of the standards. The main federal survey to collect data on truck use was discontinued in 2002, but it may be restored in the future. It is interesting that an annual industry survey conducted by the North American Council for Freight Efficiency, which polls major carriers about such decisions for their 18-wheelers, shows a steady improvement in adoption rate of fuel efficient technologies and rising fuel economy in recent years.
Additional data and analysis will be essential for assessing the benefits and costs of these new rules for achieving their energy savings and emissions reduction goals.
NOTE: RFF on the Issues will be published intermittently for the remainder of the summer.
In this edition:
- Insight into the funding needs of US highway infrastructure projects
- Commentary on addressing countries’ welfare disparities during climate negotiations
Highway Trust Fund Standoff
Congress has yet to reach an agreement on how to finance the Highway Trust Fund before it runs out at the end of July, which would “shut down road and bridge construction projects across the nation.” Policymakers hope to craft a $60 billion bill that could cover four years of highway spending at current levels, though members from both parties argue that a flat extension “isn’t nearly enough to repair the nation’s aging infrastructure.” Read More
In this edition:
- Commentary on comparing countries’ targets at the upcoming Paris climate talks
- A collection of RFF research on the impacts of a potential US carbon tax
Comparing Climate Pledges
Group of 7 (G7) leaders concluded a recent meeting in Germany with a commitment to “limit global warming to 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial levels.” The goal was announced only months before the United Nations climate change conference in Paris, where G7 representatives hope to create a global climate agreement that promotes “transparency and accountability” among countries regarding their progress toward achieving their emissions reductions targets. Read More
Each week, I review the papers, studies, reports, and briefings posted over at the RFF Library Blog.
Evaluating Taboo Trade-offs in Ecosystems Services and Human Well-being
Managing ecosystems for multiple ecosystem services and balancing the well-being of diverse stakeholders involves different kinds of trade-offs. Often trade-offs involve noneconomic and difficult-to-evaluate values, such as cultural identity, employment, the well-being of poor people, or particular species or ecosystem structures. Although trade-offs need to be considered for successful environmental management, they are often overlooked in favor of win-wins. Management and policy decisions demand approaches that can explicitly acknowledge and evaluate diverse trade-offs. We identified a diversity of apparent trade-offs in a small-scale tropical fishery when ecological simulations were integrated with participatory assessments of social–ecological system structure and stakeholders’ well-being. Despite an apparent win-win between conservation and profitability at the aggregate scale, food production, employment, and well-being of marginalized stakeholders were differentially influenced by management decisions leading to trade-offs. – via Proceedings of the National Academy of Sciences / by Tim M. Daw, eta l.
European Ecosystem Assessment — Concept, Data, and Implementation
[From Summary] …Europe is becoming greener (Fuchs et al., 2014) but, at the same time, losing biodiversity. At least one-out-of-three species in Europe is threatened with extinction (IUCN, 2011a-d). Many ecosystems are pushed towards the provision of one service — mainly food production — at the cost of the other services they usually provide. The EU Biodiversity Strategy to 2020 aims towards ‘healthy’ ecosystems that are rich in biodiversity and provide multiple services for human well-being… – via European Environment Agency
Possible Artifacts of Data Biases in the Recent Global Surface Warming Hiatus: NOAA Study
Much study has been devoted to the possible causes of an apparent decrease in the upward trend of global surface temperatures since 1998, a phenomenon that has been dubbed the global warming “hiatus.” Here we present an updated global surface temperature analysis that reveals that global trends are higher than reported by the IPCC, especially in recent decades, and that the central estimate for the rate of warming during the first 15 years of the 21st century is at least as great as the last half of the 20th century. These results do not support the notion of a “slowdown” in the increase of global surface temperature. – via Science (June 4, 2015; DOI: 10.1126/science.aaa5632) / by Thomas R. Karl, et al.
Investing in a Time of Climate Change: 2015 Study
[From a Climate Wire article by Benjamin Hulac, sub req’d] …The oil and utility sectors will become the second- and third-worst performing sectors 35 years out, behind coal, and other businesses based on fossil fuels will suffer, such as raw material manufacturers, the report projects. Oil and power company investors will watch their average annual returns north of 6 percent drop to 2.5 percent and 3.7 percent, respectively, each year. – via Mercer
Putting a Price on Carbon: A Handbook for U.S. Policymakers
[Green Biz] WRI’s new paper, Putting a Price on Carbon: A Handbook for U.S. Policymakers, is the first in a series examining the concept of making emitters pay for the carbon pollution they produce. As the title suggests, the Handbook sets out the lay of the land around the different carbon-pricing models—such as cap-and-trade and carbon taxes—and can be used as a “how-to” guide for what to consider when designing a carbon-pricing policy. – via World Resources Institute / by Kevin Kennedy, Michael Obeiter and Noah Kaufman
This post is an excerpt of our recent article in Resources magazine.
Power plants are responsible for more than one-third of greenhouse gas emissions and a slightly higher share of carbon dioxide (CO2) emissions in the United States. On June 2, 2014, in a landmark step toward a national climate policy, the US Environmental Protection Agency (EPA) announced the Clean Power Plan, its proposal for regulating CO2 emissions from existing power plants under Section 111(d) of the Clean Air Act. The proposal plays an important role in the US Intended Nationally Determined Contribution, recently submitted by President Obama to the UN’s climate negotiation process. A distinguishing feature of the plan is the central role of states.
The proposed Clean Power Plan embodies a federal–state partnership under which EPA sets emissions reduction goals and states make policies to meet them. As part of the proposal, EPA has laid out four building blocks that it says comprise the “best system of emissions reductions” and that form the basis for each state’s emissions rate goal as proposed by EPA. However, the proposed rule encourages flexibility by suggesting many potential mechanisms that states could use for compliance. In fact, states are free to choose any regulatory approach that they can demonstrate to EPA will achieve the goals, whether employing a comprehensive approach through a single climate policy or a portfolio of policies that together can bring a state into compliance.
At a high level, the advantages of flexible, comprehensive policies are twofold: cost-effectiveness and administrative simplicity. These policies work by creating goals and incentives for emissions reductions or, in some cases, clean technology adoption. But they leave it to the market to find the least-cost way to achieve the desired environmental outcome. Comprehensive policies are also robust to unexpected changes in market conditions or technology costs because they do not pick a particular technology for reducing emissions. Administrative simplicity springs from the comprehensive nature of the policies; one policy alone is sufficient.
In our research, we examined three forms of incentive-based, comprehensive policies: a mass-based policy; a rate-based policy, or tradable performance standard; and a clean energy standard. Each of these comprehensive policies imposes a cost and, in some cases, an electricity production (or consumption) incentive on different types of generators or consumers based on emissions, production, or consumption.
The cost-effectiveness of each approach will depend on the extent to which the particular policy influences the range of relevant choices within the sector about the fuels and technologies used to produce electricity, as well as the level of electricity production itself. From a state’s perspective, it also may depend on what policies neighboring states implement and the extent of power trading across state borders. All these issues are important for states to contemplate as they formulate their plans for compliance with the Clean Power Plan once the rule is finalized by EPA later this year.
Making the Policy Choice
Among the three policy options, a mass-based approach has many virtues, including ease of measuring compliance and simplicity in administration. It also may be easier for states that want to work together to implement a joint mass-based policy than it is to combine multiple rate-based approaches. One consideration when designing such a policy is determining how to allocate the value of emissions allowances: to electricity producers, electricity consumers, or government for purposes outside the electricity sector.
Economics research suggests that using the revenue from such a policy to offset distortionary taxes on capital and labor may be the most efficient policy. The opportunities for such efficiency-enhancing tax reforms have been studied extensively in the federal context but less so at the state level. The government also may choose to use allowance revenue to pay for research and development related to clean energy technologies or to refund the value to consumers in a way that is divorced from energy consumption choices. Several of the options for allowance allocation that are popular for distributional or political reasons affect economic incentives within the power sector, with implications for cost-effectiveness and incidence of the policy. This makes the allocation of allowance value an important consideration.
Read the full story at http://rff.org/Publications/Resources/Pages/189-Complying-with-EPAs-Clean-Power-Plan.aspx.