Will Europe Scrap its Renewables Target? That Would Be Good News for the Economy and for the Environment

This post originally appeared on Robert Stavins’s blog, An Economic View of the Environment.

The European Union is considering scrapping the use of binding renewable energy targets as part of its global climate change policy mix that will extend action from 2020 to 2030.  The Financial Times reported that this move – presumably due to concerns over high European energy costs during the ongoing economic turndown – will “please big utility companies but infuriate environmental groups.”  The International New York Times framed the story in similar ways.

The press coverage has missed the very important reality that this potential decision by the European Commission will be good news both for the economy and for the environment.  The fundamental reason is that in the presence of the European Union’s Emissions Trading Scheme (EU ETS) – its pioneering, regional cap-and-trade system that covers electricity generators and large-scale manufacturing – the “complementary” renewables mandate conflicts with, rather than complements other policies.  Without the renewables mandate, the cap being planned for the EU ETS will be achieved at lower cost and will foster greater incentives for climate-friendly technological change.

Some Background

In 2007, the European Union established three sets of targets and related policies:  (1) a 20% reduction in greenhouse gas (GHG) emissions below 1990 by 2020, to be achieved by the cap-and-trade system; (2) a 20% target for 2020 for the share of Europe’s electricity consumption coming from renewable resources; and (3) a 20% improvement in energy efficiency by 2020.  These are the so-called “20-20-20 targets” for the year 2020.  A wonderful slogan, but a flawed policy, because of perverse interactions among the three elements.

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How Have Recent Fuel Economy and GHG Standards for New Passenger Vehicles Affected the US and European Markets?

Figure 1. Fuel Economy Technology Adoption for US Light Trucks

Figure 1. Fuel Economy Technology Adoption for US Light Trucks

In the second post of a two-part series, RFF Fellow Joshua Linn examines how recent standards have affected the type and rate of technology adoption in new vehicles. Click to read the first installment.

Concerns about global warming and energy security have caused many countries to tighten passenger vehicle standards for greenhouse gases and fuel economy. As noted last time, US fuel economy standards will roughly double by 2025. This is part of a larger trend—European standards, for example, will tighten by about 30 percent by 2015.

Economic theory suggests that tighter standards will have two effects on the vehicles that manufacturers offer. First, the standards create a stronger incentive to adopt technology that raises power train efficiency, spurring manufacturers to adopt technology more quickly. Second, tighter standards cause manufacturers to use more of that improved efficiency to raise fuel economy than boost other vehicle attributes, compared to how they would allocate that efficiency if standards were held constant.

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New Issue of Resources Magazine

Resources 184

Image: Resources for the Future

In the new issue of Resources magazine, RFF researchers examine long-lasting environmental issues, the future of natural gas fuels in the light-duty fleet and more, including:

Business Motivations for Conservation
James W. Boyd
Pro-environment business behaviors are driven by a rich set of political and social factors that affect profitability—all of which conservation advocates can use as leverage to motivate change.

Negotiating a Post-2020 Climate Agreement in a Mosaic World
Brian Flannery
Although negotiations are set to conclude in 2015, progress on a post-2020 climate agreement is already hampered by funding shortfalls, stark differences among key groups, and a top-down approach ill suited to address the diverse priorities and circumstances characterizing the nations of the world.

Getting to an Efficient Carbon Tax: How the Revenue Is Used Matters
Jared Carbone, Richard D. Morgenstern, Roberton C. Williams III, and Dallas Burtraw
The past 20 years of economic research suggests that the negative effects of carbon taxes on low-income groups are not as extensive as some believe.

Would You Pay to Reduce Risks from Shale Gas Development? Public Attitudes in Pennsylvania and Texas
Alan J. Krupnick and Juha Siikamäki
A study designed to bring the public’s views into the policy debate over shale gas development shows that a majority of people support development and are willing to pay to reduce its impacts on the environment.

To view all articles from this issue of Resources, visit our website or download the Resources app for iPad, iPhone, or Android.

Climate Benefits from the Production Tax Credit?

image: lamoix / flickr

image: lamoix / flickr

A year ago, we wrote about the potential expiration of the wind power production tax credit (PTC), which has helped support the US wind industry for most of the last 22 years. The PTC provides a subsidy of about $23 per megawatt hour (or roughly 30 percent above wholesale electricity prices). It was set to expire at the end of 2012, but Congress extended it at the last minute for another year. Congress did not authorize another extension in 2013, however, allowing the PTC to expire.

Several times in the past the PTC has been renewed even after expiring, and the wind industry will undoubtedly push hard for a renewal. But the process of repeated lapsing and potential renewals raises a basic question: just what are the implications of eliminating the PTC? There are at least two possible effects: on greenhouse gas emissions and on innovation.

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RFF on the Issues

Perception of Shale Gas Risks

An Associated Press review of reports of water contamination associated with oil and gas drilling found significant differences in the way complaints are recorded at the state level. For example, Texas collects the most comprehensive data on resident-submitted issues, whereas Pennsylvania tallies “raw numbers of complaints.” The review noted that “the lack of detail in some state reports could help fuel public confusion and mistrust.”

The public’s impression of potential well contamination can directly impact the housing market for surrounding homes, according to new research at RFF. RFF Visiting Fellow Lucija Muehlenbachs and coauthors write: “Access to a safe, reliable source of drinking water is an important determinant of a property’s value. Even a perceived threat to that access can have detrimental effects on housing prices.”
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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. Check out this week’s highlights below:

Reduced Emissions of CO2, NOx and SO2 from U.S. Power Plants Due to the Switch from Coal to Natural Gas with Combined Cycle Technology
Since 1997, an increasing fraction of electric power in the U.S. has been generated from natural gas.  Here, we use data from continuous emissions monitoring systems (CEMS), which measure emissions at the stack of most U.S. electric power generation units, to investigate how this switch affected the emissions of CO2, NOx and SO2. Per unit of energy produced, natural gas power plants… — via Earth’s Future

Fueling Up: The Economic Implications of America’s Oil and Gas Boom
…The authors say the industries that will be helped by new demand for equipment and other materials thanks to oil and gas growth account for 6 percent of U.S. manufacturing employment, while industries that will experience significant savings as a result of lower oil and gas prices make up another 5 percent of domestic manufacturing employment… — via Peterson Institute for International Economics

Why Every Serious Environmentalist Should Favor Fracking: [Richard Muller Article]
A recently released report warns environmental activists that their opposition to hydraulic fracturing is “a tragic mistake,” and asserts that shale gas provides a solution to two global environmental concerns: air pollution and greenhouse gas emissions. The report calls shale gas “a wonderful gift that has arrived just in time,” and advocates for its use in reducing both greenhouse gas emissions… —  via Centre for Policy Studies

Ocean Acidity is Increasing for Reasons Beyond CO2 Emissions: PLoS Study
Increasing atmospheric carbon dioxide (CO2) from anthropogenic sources is acidifying marine environments resulting in potentially dramatic consequences for the physical, chemical and biological functioning of these ecosystems. If current trends continue, mean ocean pH is expected to decrease by ~0.2 units over the next ~50 years. Yet, there is also substantial temporal variability in pH and other carbon system parameters in the ocean resulting in regions that already experience change… — via PLoS ONE

Standards of Performance for Greenhouse Gas Emissions From New Stationary Sources: Electric Utility Generating Units — A Proposed Rule
The Environmental Protection Agency published its rule limiting carbon emissions from new power plants on Wednesday to the dismay of coal advocates and the GOP…Included in the new performance standards, the EPA pushes for new coal-fired power plants to be built with carbon capture technology, which Republicans argue is impossible since the technology isn’t ready. McCarthy says the technology is ready and is already being used. — via U.S. Environmental Protection Agency

For more from the RFF Library blog, click here.

Understanding the Tradeoffs of CAFE Standards

Trends in Fuel Economy, Power, and Weight (A) Fuel Economy and the CAFE Standard for Cars, 1975–2007 (MPG); (B) POWER AND WEIGHT OF CARS, 1975–2007. Source: US Environmental Protection Agency. 2007. Light-Duty Automotive Technology and Fuel Efficiency Trends: 1975 through 2007. 420-R-07-008

Trends in Fuel Economy, Power, and Weight (A) Fuel Economy and the CAFE Standard for Cars, 1975–2007 (MPG); (B) POWER AND WEIGHT OF CARS, 1975–2007. Source: US Environmental Protection Agency. 2007. Light-Duty Automotive Technology and Fuel Efficiency Trends: 1975 through 2007. 420-R-07-008

In the first of a two-part series, RFF Fellow Joshua Linn explains how vehicle manufacturers respond to tightening fuel economy standards. Click to read the second installment.

Though the Corporate Average Fuel Economy (CAFE) standards have been regulating the fuel economy of US vehicles since 1978, the levels of the standards were pretty much flat for more than 20 years after they fully took effect. It wasn’t until the passing of the Energy Independence and Security Act of 2007, which was drafted following a period of intense debate, that the first major changes to CAFE standards were enacted.

Since then, the standards have been revised and now they jointly regulate fuel economy and greenhouse gas emissions. The new standards are tightening steadily—between 2005 and 2025 the average fuel economy of new passenger vehicles will have roughly doubled, reducing gasoline consumption and greenhouse gas emissions dramatically. Much of the public, including many industry analysts, believes that tighter standards will cause manufacturers to add technology that will dramatically increase the cost of producing the vehicles, and that much of these costs will be passed on to consumers.

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Space Launch Risk Redux

Indemnification, the nation’s approach to managing some of the risks associated with the launch of privately owned rockets carrying our satellites for telecommunications, Earth observations, supplies for the International Space Station, and other services, is on its way to becoming a new annual rite of winter.  Specifically, the federal government (taxpayer) indemnifies a portion of the financial liability in the event of harms to people and property in the flight path.  As we wrote a year ago, Congress has tended to authorize indemnification for a year at a time.  The US Senate has just agreed on a two-year extension and the House, a one-year extension with language to spend the next year conducting hearings on the provisions.  Among the issues raised are the effects of the indemnification on private and government launch risk management, a peculiar “doughnut hole” where launch companies are indemnified for only a range of losses, and why the government is covering the risk at all. To inform the upcoming debate, we call attention to three key considerations as noted in our last post.

The Sandy Supplemental by the Numbers

Figure 1. Sandy Supplemental Compared with 2012 Agency Outlays Source: Fiscal Year 2014 Historical Tables Budget of the US Office of Management and Budget.

Figure 1. Sandy Supplemental Compared with 2012 Agency Outlays
Source: Fiscal Year 2014 Historical Tables Budget of the US Office of Management and Budget.

The amount of federal spending on disaster aid has been growing over time. Hurricane Sandy resulted in an enormous level of supplemental appropriations. For perspective, we compared the Sandy supplemental appropriation, more than $50 billion, with the 2012 federal outlays by agency, excluding entitlement programs, military spending, and debt payments, as shown in Figure 1. The Sandy supplemental was greater than the amount spent by the Environmental Protection Agency, National Aeronautics and Space Administration, State Department, Department of Justice, Department of Energy, and many others.

More than 90 percent of the supplemental appropriations for Hurricane Sandy went to four departments: the Department of Housing and Urban Development (HUD), Department of Transportation (DOT), Department of Homeland Security (DHS), and the US Army Corps of Engineers (Corps). The (pre-sequester) amounts appropriated to each are shown in Figure 2.

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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. Check out this week’s highlights below:

2014 U.S. Climate Action Report
The State Department has sent the United Nations a report that claims pending regulations under President Obama’s climate action plan, including EPA’s first-time climate rules for power plants, could help the United States meet its goal of cutting its greenhouse gas (GHG) emissions 17 percent below 2005 levels by 2020. — via U.S. Department of State

Carbon Capture and Sequestration: EPA’S Technology Availability Determinations Need to be Reproducible
The U.S. Environmental Protection Agency is proposing to amend its Clean Air Act Standards of Performance for Petroleum Refineries for Which Construction, Reconstruction, or Modification Commenced After May 14, 2007. In the same Federal Register notice, EPA also amended the definition of “delayed coking unit” as a direct final rule without a prior proposed rule. If EPA receives no adverse comment… — via Center for Regulatory Effectiveness

A Report on the Economics of California’s Low Carbon Fuel Standard and Cost Containment Mechanisms
A recent report prepared by UC Davis researchers for the California Air Resources Board (ARB) found that compliance costs for the Low Carbon Fuels Standard (LCFS) may increase rapidly in the future if there are large differences in marginal costs between traditional fossil fuels and alternative, low-carbon-intensity fuels; or if there are capacity or technological constraints to deploying alternative fuels, particularly those with low-carbon intensity. — via University of California, Davis, Institute of Transportation Studies

Border Adjustments for Economywide Policies That Impose a Price on Greenhouse Gas Emissions
Human activities around the world are producing increasingly large quantities of greenhouse gases (GHGs), the most abundant of which is carbon dioxide (CO2). In recent years, concerns about the effects those emissions might have on the climate have prompted the Congress, federal regulators, and others to consider policies to reduce them. This CBO report examines the unintended effects on the competitiveness of U.S firms… — via U.S. Congressional Budget Office

CBO: International Trade and Carbon Leakage
Under a broad-based carbon tax or cap-and-trade program, some of the reduction in U.S. carbon dioxide emissions would probably be offset by increases in foreign emissions that would not otherwise have occurred, a phenomenon known as carbon leakage. Industries with substantial total emissions, high trade ratios, and high emission intensities are the most likely to generate substantial leakage. — via U.S. Congressional Budget Office

For more from the RFF Library blog, click here.