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.

Forty Years Later, an Oil Crisis Retrospective

Though the 1973 Yom Kippur War lasted only 20 days, the outbreak of Arab-Israeli hostilities was followed by two major events, with implications that are still debated today. The first was a politically motivated and largely symbolic initiative by a group of Arab oil producers (the Organization of Arab Petroleum Exporting Countries) to form a selective embargo on oil exports. The second was a collective economic decision by member countries of the Organization of Petroleum Exporting Countries (OPEC) to raise the price of oil.

The threefold-plus increase in the real price of oil per barrel in 1973–1974 inflicted significant economic damage worldwide, while generating intense concerns among policymakers about the ongoing vulnerability of the United States and other energy-dependent societies. Though one would think it important to distinguish between the embargo and the oil-price escalation, a surprising number of accounts that reflect on the oil crisis have conflated them into a single phenomenon. Let’s consider the two events in turn, recognizing the marked differences in their causes and effects. For a more detailed look, see my recently published RFF issue brief.

The embargo primarily targeted the United States and the Netherlands to protest these nations’ presumed support of Israel, though no evidence exists of success in achieving the embargoing nations’ intended objective. All indications suggest instead that an effective rerouting of world oil flows spared the intended targets any major disruption in supply, making the embargo a token gesture, distinctly separate from the damage done by the oil price hike.

Rather, shifting consumption and production patterns, such as increased US oil demand and aggressive  inventory buildup by uneasy industrial nations went far to firm up the price spikes of 1973–1974. Moreover, the United States itself reinforced supply stringency through the persistence of its oil price controls, which prevented any new US crude oil production from realizing the sharply higher prices commanded by imported oil. Unsurprisingly, this reduced incentives to expand domestic output, contributing to an “artificial” supply shortfall—a significant factor in the lengthy US gas station lines that remain among the more memorable features of that period. In short, with a variety of identifiable demand and supply factors at work, proof of OPEC-engineered shortages as the prime driver of the 1973–1974 crisis remains questionable at best.

In the end, the price hikes of 1973–1974 (with additional turmoil surrounding the Iranian Revolution of 1979–1980) had the “salutary” effect of helping steer the United States toward becoming a less energy-intensive society—making it less vulnerable to damage from a repeat experience—while also benefiting from freer energy-market conditions as an indirect result.  Additionally, these events have promoted an intensified focus on research and development in pursuit of advanced energy systems and technology. But despite these gains, the benefits of moving from acute oil import dependence to the prospective energy independence now in sight should not be overestimated. It is important to remember that there are limits to the ability of the United States to shield itself from global energy turmoil, whatever and wherever its genesis.

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:


Bureau of Reclamation: Climate Change Will Increase Water Scarcity in Lower Rio Grande Valley
A new study released by the Bureau of Reclamation offers further proof that a warming climate will cause severe water supply shortfalls across the Southwest in the coming decades. — via Department of the Interior, Bureau of Reclamation

Stranded Down Under? Environment-related Factors Changing China’s Demand for Coal and What This Means for Australian Coal Assets
Predictions of continued robust coal consumption in China, including a heavy reliance on imported coal to fuel power and steel plants, may prove misguided as China begins tackling a series of complex environmental problems related to air pollution, according to a new report published by the University of Oxford for the global investment bank HSBC… — via University of Oxford, Smith School of Enterprise and the Environment

NREL Study: Bolstering Renewables Production Would Displace Natural Gas
In the second phase of its Western Wind and Solar Integration Study (WWSIS-2), the Department of Energy’s National Renewable Energy Laboratory (NREL) attempts to forecast some of the costs and consequences of power plant cycling in a future where renewables have been scaled up to 33 percent of Western energy supplies. — via US Department of Energy, National Renewable Energy Laboratory

Multimodel Assessment of Water Scarcity Under Climate Change [Potsdam Study]
Water scarcity severely impairs food security and economic prosperity in many countriestoday. Expected future population changes will, in many countries as well as globally, increase the pressure on available water resources. On the supply side, renewable water resources will be affected by projected changes in precipitation patterns, temperature… — via Proceedings of the National Academy of Sciences

For more from the RFF Library blog, click here.

RFF/Stanford/USA Today Poll Shows Majority Support for Regulating Power Plant GHG Emissions

The first round of results from the RFF/Stanford/USA Today poll was released today and it shows that a majority of the US favors doing something to address the threat of climate change, although there is substantially less agreement about what exactly to do. There’s a lot to dig into that’s relevant to climate policy options we analyze here at RFF.  For example, the poll finds that 54 percent of respondents supports the US government requiring power plants to limit their emissions of greenhouse gas pollutants. That number is up from recent years, but it’s down slightly from its high in 2007.

Full wording of the question and historical responses are below:

Q36.     [RANDOMLY ASSIGN RESPONDENTS TO BE ASKED EITHER VERSION A OR VERSION B OF THE INTRODUCTION TO THE NEXT QUESTION.]

VERSION A: For the next items, please tell me for each one whether it’s something the government should require by law, encourage with tax breaks but not require, or stay out of entirely.  Each of these changes would increase the amount of money that you pay for things you buy. …First…Next… 

VERSION B: For the next items, please tell me for each one whether it’s something the government should require by law to try to reduce future global warming, should encourage with tax breaks but not require, or stay out of entirely.  Each of these changes would increase the amount of money that you pay for things you buy. …First…Next… 

[AFTER READING EACH ITEM, INTERVIEWER PAUSE, THEN ASK] “should the government require this by law (pause), encourage it with tax breaks, or stay out of it entirely?”

 Q36_5: Lowering the amount of greenhouse gases that power plants are allowed to release into the air?

 

Q36_5

3/14/2006

4/10/2007

11/29/2009

6/7/2010

11/14/2010

3/11/2012

6/21/2012

12/05/2013

Require by law

61

62

42

42

44

42

41

54

Encourage by tax   breaks

26

26

34

38

33

28

37

25

Stay out of way   entirely

11

10

22

19

20

27

21

21

Don’t know/Refused

2

3

1

1

2

3

1

1

Total

100

100

100

100

100

100

100

100

N

1002

1002

1005

1000

1001

1428

804

801

Full particulars of the poll:

Resources for the Future/Stanford University/USA Today poll, Conducted by Abt SRBI, Interview dates: Nov, 20 – Dec 5, 2013,  801 adults nationwide, margin of error: +/- 4.2 percentage points at the 95% confidence level

Expect more results in the future on both climate and energy topics - the precise wordings of the questions and responses discussed in today’s USA Today story are available here.  We’ve been lucky to work closely with RFF University Fellow Jon Krosnick and Bo Macinnis, both of Stanford, on the this poll.