Inside the Fence: Keep an Eye on Cofiring under the Clean Power Plan

Later this summer, the US Environmental Protection Agency (EPA) will release its final Clean Power Plan, setting carbon emissions goals for existing power plants. This is the second post of ten in a new series—What to Watch For in EPA’s Final Clean Power Plan—in which RFF experts address what they will be looking for when the final regulations are released.

The Clean Power Plan will set state-by-state emissions rate goals and alternative, roughly equivalent emissions (mass) budgets, which states must adopt. The new regulations will require states to submit plans to EPA describing how they will meet those goals. EPA’s formula for calculating the goals will be complex, based on findings in four technical areas, termed “building blocks.” States are given wide latitude in deciding how to meet their goals and are not required to implement specific technical measures. Nonetheless, the individual building blocks provide the basis for the overall stringency of the Clean Power Plan and they affect states differentially, so they have attracted considerable attention.

The first two building blocks propose emissions reductions “inside the fence line” of fossil-fired power plants. In the first building block, EPA proposes that emissions rate reductions of 6 percent are possible at low cost at existing coal-fired power plants. Many observers have questioned this because if such opportunities exist, companies should (in theory) already be exercising them. But previous engineering studies have found that emissions rate improvements of 2 to 5 percent were possible, and this has recently been supported in a reanalysis. Another study using an econometric approach found that improvements of 1 to 3 percent are possible at a marginal cost of $10 per ton, consistent with the engineering studies, though greater changes appear to be increasingly expensive.

It is noteworthy, however, that the Clean Power Plan does not require changes at individual plants. Companies might choose to operate more efficient plants more often, and thereby achieve efficiency improvements across the fleet. Two studies have incorporated engineering estimates expected to be available at individual plants within a model to identify opportunities for changes in system operations. Both the first and second found that, indeed, improvements across the coal fleet of 4 to 5 percent are possible, close to what EPA proposed, at a cost of $10 to $30 per ton. Read More

Timing: An Easy Concession for EPA?

Later this summer, the US Environmental Protection Agency (EPA) will release its final Clean Power Plan, setting carbon emissions limits for existing power plants. Together with a final rule setting standards for new power plants, EPA will create the first nationwide limits on carbon emissions from coal and and natural gas power plants, the largest source of emissions in the US economy.

Proposals for the new- and existing-source rules have been discussed for over a year, sparking controversy over their environmental benefits, likely costs, legality, and design. EPA sought comment on many of these issues and may address them in the final rule. Over the next two weeks, in a new blog series—What to Watch For in EPA’s Final Clean Power Plan—RFF experts will highlight in 10 posts what we will be looking for when the final Clean Power Plan regulations are released (plus, in a bonus post, things to look for in the contemporaneous new source rule).

We begin with timing for implementing the rule. In the proposed Clean Power Plan, states are given emissions rate targets, or roughly equivalent emissions (mass) budgets, that their power sector must meet. It’s possible that the stringency of these targets or the way they are calculated will change in the final rule when it’s released later this summer (more on how this might happen in other posts to come in the series). But an equally important feature of the rule is when states will have to meet the targets. The longer states have, and the more flexible their timeline is, the easier (and less costly) it will be to meet the targets. But delays will also mean greater emissions in the meantime, making it harder to meet international commitments the United States may make and, ultimately, harder to reduce the risk of climate change.

In last year’s proposed Clean Power Plan, EPA set two targets for each statean interim goal and a final goal. The final goal was simpleit had to be met by 2030 (and thereafter, based on a three-year average). The interim goal, on the other hand, had to be met on average in 2020-2029. In other words, a state didn’t need to meet the interim goal in any particular year, but years in which it failed to meet the goal would need to be balanced by years in which it exceeded the target. In practice, this presumably would mean states ramping up over timeovershooting the target initially and then doing better as the decade went on. This gives states some crucial flexibility to implement the plan over time. Moreover, states that collaborate in multistate plans will be able to spread emissions cuts geographically among themselves as well as over time. (Note that this flexibility doesn’t mean states can make things up as they gowhatever strategy they adopt must be made explicit in a plan submitted to EPA).

Nevertheless, many states have complained that EPA’s goals are unrealistic or treat them unfairly. Achieving the goals of the Clean Power Plan will require shutting down coal power plants and a rapid increase in the utilization of existing natural gas facilities, along with new contributions from renewable energy and energy efficiency. These changes take time. For example, increased natural gas generation may require new pipelines that take years to construct, and increasing renewables requires new wind farms or solar installations. Read More

A Quick Legal FAQ on EPA’s Clean Power Plan

The Clean Power Plan is a proposed EPA regulation that aims to reduce greenhouse gas emissions from existing (rather than new) electric power plants. Coal and natural gas-fired power plants are the single largest source of GHG emissions in the US economy.

Why do I care?

The Plan will be among the most significant environmental regulations EPA has ever put in place. It is the first federal regulation aimed at reducing GHG emissions from existing power plants, targeting a 30% cut from the sector. The Plan and parallel regulations imposing stricter fuel economy standards on cars and trucks are the most important measures aimed at reducing US carbon emissions. In the absence of a carbon price (a carbon tax or cap and trade), these regulations are the cornerstone of US climate policy and will be a key element of the US position in international negotiations.

These emissions reductions will also come with a cost, possibly a large one. Coal power plants will be shut down, and new plants – gas, renewables, or nuclear – built in their place. These costs will vary across the country and among electricity consumers. The effects of decisions triggered by the Plan will persist for decades, long after it has sunset in 2030.

When will the Plan be put in place?

EPA released a proposal last summer, sparking controversy and a flood of comments. EPA has now sent the final rule to the White House (OMB) for review, putting it on schedule to be released soon. Under the proposal, power plants would have to begin reducing emissions in 2020, continuing through 2030. That timetable could change in the final rule, though it’s unlikely.

How does it work?

The proposal is complex, but the basic structure is that EPA sets emissions targets that each state must meet. States – not EPA – are the primary regulators; such “cooperative federalism” is common under the Clean Air Act, though the Plan will push even more authority to states than is traditional.

The targets EPA sets are in “heat rate” or efficiency terms – the amount of carbon emitted per unit of electric power output (lbs/mWh), and are based on four “building blocks” of emissions-cutting measures EPA believes states can take. The first two building blocks are relatively straightforward – improved efficiency at existing coal plants, and shifting generation from coal to currently-underused gas plants. The other two are more ambitious, requiring investment in new renewable generation or reducing electricity use (AKA “demand-side energy efficiency”).

A frequently-misunderstood part of the Plan is that EPA isn’t requiring states to use any of the building blocks – they’re just the agency’s method for estimating what states are capable of doing and setting corresponding targets. States just have to submit plans to EPA that say how they will meet the targets, either alone or in multistate groups. How much flexibility states really have is unclear, however, and may depend on legal challenges (more below). Read More

Comparing Emissions Mitigation Efforts on the International Stage: Evaluating Metrics

(© European Union 2015 - European Parliament | fickr)

International policymakers will need to understand how the mitigation efforts of their peers stack up in order to ensure comparable effort and meet mitigation goals. (© European Union 2015 – European Parliament | fickr)

The success of international climate change policy going forward depends on the ability to measure and compare both commitments and subsequent actions across a large number of countries. Policymakers and negotiators from around the world will need to understand how the mitigation efforts of their peers stack up in order to ensure comparable effort across the board to meet mitigation goals.

Toward this end, the international community will require a well-designed framework for evaluating comparability of effort across nations to provide the foundation for a successful pledge and review regime. As my colleague Joe Aldy and I spell out in a recent article for Resources magazine, ideal metrics would ultimately be defined by the following principles:

  • Comprehensive. A metric should characterize the entire effort actively undertaken by a country to achieve its mitigation commitment—and exclude non-policy drivers of climate outcomes.
  • Measurable and replicable. To enhance credibility and facilitate transparency, a metric should consistently and accurately calculate effort based on publicly available information.
  • Universal: Climate change is a global challenge—metrics should be accessible and functional for as wide a range of countries as possible.

We take this work a step further in a new RFF discussion paper, with Keigo Akimoto from Japan’s Research Institute of Innovative Technology for the Earth, and propose a framework for evaluating six types of mitigation effort metrics. Included in this framework is a template for organizing metrics for both the examination of future targets (including INDCs) and the review of ongoing actions. Metrics that are relatively easy to observe and measure—such as total emissions or emissions prices—can be far removed from the concept of effort itself (and related policy action), requiring us to look further. But more helpful effort-based metrics, such as emissions reductions, are without question harder to measure and require the use of modeling tools that may result in divergent estimates. Read More

A Key Moment is Coming for the IPCC’s Future

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

About six month ago, I posted an essay at this blog (The IPCC at a Crossroads, February 26, 2015) highlighting some of the challenges faced by the Intergovernmental Panel on Climate Change (IPCC), which plays an important role in global climate change policy around the world. [In previous essays at this blog, I wrote about problems with the IPCC process (Is the IPCC Government Approval Process Broken?, April 25, 2014) and about its significant merits (Understanding the IPCC: An Important Follow-Up, May 3, 2014; The Final Stage of IPCC AR5 – Last Week’s Outcome in Copenhagen, November 4, 2014)].

A Key Moment to Think About the Future of the IPCC

Now is an important moment to think carefully about the path ahead for this much-maligned and much-celebrated organization, because in early October of this year, the 195 member countries of the IPCC (who together constitute this “intergovernmental panel”) will meet in plenary in Dubrovnik, Croatia, to elect a new Chair, who will lead the IPCC’s Sixth Assessment Report (AR6). There are some excellent candidates for the chairmanship. I hope they see (and read) today’s essay. Read More

This Week in the RFF Library Blog

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

Energy Efficiency in the United States: 35 Years and Counting
[Utility Dive] Dive Brief:

  • 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

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Alternative Policies for Financing the Highway Trust Fund

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.



Adaptation: An Essential, but Lagging, Part of Global Warming Policy

(dfataustralianaid | flickr)

The Pacific island nation of Kiribati sits only three meters above sea level at its highest point. Kiribati’s government is working to reduce the country’s vulnerability to climate change threats through several adaptation initiatives. (dfataustralianaid | flickr)

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

Low Allowance Prices in the EU Emissions Trading System: New Research on an Evolving Program

European flags flying in front of the Berlaymont

Policymakers in the European Union are taking steps to reduce allowance price volatility and bolster prices in the EU Emissions Trading System by introducing a market stability reserve. (Source: T P / flickr)

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 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

This Week in the RFF Library Blog

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 JournalUnconventional 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 EnergyRenewable 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/acs.est.5b01526) / by Zacariah Louis Hildenbrand, et al.

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