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.

A Realistic View of CNG Vehicles in the U.S.
As U.S. natural-gas prices have fallen and supplies have increased in recent years, compressed-natural-gas (CNG) vehicles are garnering renewed attention. Major automakers, such as Ford and General Motors, have announced plans for a half-dozen different vehicle models powered by CNG. Cummins Westport is introducing a full range of medium- and heavy-duty engines that run on either compressed or liquefied natural gas. Clean Energy Fuels, backed by longtime natural-gas proponent T. Boone Pickens, has opened almost 500 CNG truck-refueling stations as part of its America’s Natural Gas Highway network. Companies that operate large vehicle fleets have also embraced CNG. Waste Management, for example, has said it plans to convert most of its refuse trucks to run on CNG… via – Boston Consulting Group

Climate Change Adaptation: DOD Can Improve Infrastructure Planning and Processes to Better Account for Potential Impacts
[What GAO Found] In its Fiscal Year 2012 Climate Change Adaptation Roadmap, the Department of Defense (DOD) identified climate change phenomena such as rising temperatures and sea levels as potentially impacting its infrastructure, and officials at sites GAO visited or contacted noted actual impacts they had observed. For example, according to DOD officials, the combination of thawing permafrost, decreasing sea ice, and rising sea levels on the Alaskan coast has increased coastal erosion at several Air Force radar early warning and communication installations. Impacts on DOD’s infrastructure from this erosion have included damaged roads, seawalls, and runways. In addition, officials on a Navy installation told GAO that sea level rise and resulting storm surge are the two largest threats to their waterfront infrastructure. For instance, they are concerned about possible storm surge during work on a submarine that will be cut in half while sitting in a dry dock. Officials explained that if salt water floods the submarine’s systems, it could result in severe damage… via – US Government Accountability Office

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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.

Evolving Business Models for Renewable Energy
…Jointly authored by ACORE members ScottMadden, Sullivan & Worcester, American Clean Energy, RES Americas, Abengoa Solar and Siemens, this resource explores key issues and provides recommendations related to evolving utility and other business models for renewable energy. The report was produced in conjunction with ACORE’s Power Generation and Infrastructure Initiative, and ACORE member contributions to the review provide useful analysis, data, and insight for renewable energy and utility stakeholders… via – American Council on Renewable Energy

Driving Cleaner: More Electric Vehicles Mean Less Pollution
[From Press Release] …Increasing the number of electric vehicles on the road would reduce global warming pollution. Ten states – California, Connecticut, Maryland, Massachusetts, Maine, New Jersey, New York, Oregon, Rhode Island and Vermont – require auto manufacturers to sell electric vehicles in compliance with the Zero Emission Vehicle program. This law will put more than 3.5 million zero emission vehicles on the road in these states by 2025. Even in a scenario with limited growth in renewable energy, this would prevent 4.7 million metric tons of carbon dioxide-equivalent pollution per year compared with conventional cars. That is equal to the annual emissions of almost 1 million of today’s vehicles… via – Environment America

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Resources Magazine: Lifting the Oil Export Ban. What Would It Mean for US Gasoline Prices?

Stephen P.A. Brown and Charles F. Mason explain how, despite fears to the contrary, lifting the US ban on oil exports would bring down prices at the pump.

Earlier this year, the US Senate Committee on Energy and Natural Resources requested a comprehensive review of what would happen to energy prices, consumer prices, and more if the United States were to lift its 40-year ban on oil exports.

Until recently, the possibility of exporting US crude oil was not an issue because the United States was importing so much oil from the rest of the world and forecasts of US oil production were showing a decline. All this changed with the fracking revolution, which quickly opened up vast resources of “tight” oil to exploitation—primarily in North Dakota (the Bakken play) and Texas (the Eagle Ford play and the Permian plays)—and reduced US oil imports to new lows.

Combined with limited pipeline and rail transport capacity, this increase in oil production in the United States has led to bottlenecked oil supplies in the Midwest and much lower crude prices there. The situation has been exacerbated by the inability of most US refineries to efficiently process the light crude oil coming from these fields.

The reaction to these developments has been predictable. Most of the oil and gas industry wants the export ban lifted. The additional demand for US light crude oil will increase industry profits, although probably not prices because oil is priced in a world market. However, some refiners are benefiting from the bottlenecked supplies because they can process the discounted light crude and sell refined products—gasoline primarily—that generally have prices tied to world markets. They oppose lifting the ban.

Environmental groups also oppose lifting the ban. They see increased consumption of fossil fuels as contributing to greenhouse gas emissions worldwide and are concerned about other environmental risks, such as spills.

But the area of greatest and most specific disagreement concerns the effect of lifting the export ban on US gasoline prices. Commenters span the full range, variously finding that gasoline prices will increase, decrease, or remain unchanged. In new research to inform this debate, we find that lifting the ban would boost crude oil production and improve the efficiency of global refinery operations. Accordingly, gasoline production would go up and its price in the United States would fall—anywhere from 2 to 5 cents per gallon once the market fully adjusted to lifting the ban.

​The Ban on Crude Oil Exports

The US ban on oil exports began as a reaction to the oil embargo in the early 1970s and later was codified in law and Department of Commerce rules for granting export permits. Currently, crude oil can be exported to Canada, but only for use there; from Alaska if it comes through the Trans-Alaska pipeline or from Cook Inlet; if it is foreign oil; if it is in conjunction with operation of the Strategic Petroleum Reserve; and for a few other small exceptions.

Read the rest of this article.

RFF on the Issues: Extreme flooding; Shale gas liability; Climate crash

Extreme Flooding

Cities across the Midwest are preparing for even more floods, following torrential rains and tornados that have already caused significant damage. Some in the area have noted that such flooding has “become more the rule than the exception,” with rainfall increasing in both quantity and intensity.

With increased flooding comes increased claims to the National Flood Insurance Program—and it seems that extreme events and damage are becoming “even more extreme,” according to RFF’s Roger Cooke, Carolyn Kousky, and colleague Erwann Michel-Kerjan of the Wharton Risk Management and Decision Processes Center. They note that “yearly losses can be hopelessly volatile and, as such, historical averages are not good predictors of future losses” and suggest that “we may need to rethink our risk management strategies.”

Shale Gas Liability

A Texas family was recently awarded $2.9 million in a lawsuit against Aruba Petroleum, in “one of the first successful US lawsuits alleging that toxic air emissions from oil and gas production have sickened people living nearby.” One of Aruba’s arguments in the case was that the family could not prove that the emissions were coming from Aruba wells.

RFF’s Nathan Richardson argues that liability rules should be revised for shale gas development issues to not only protect the public, but to help specify when companies are responsible and “whether they could be sued.” In new research by Richardson and RFF Visiting Scholar Sheila Olmstead of the University of Texas at Austin, the authors write that while most discussions of shale risk mitigation focus on regulatory measures, the existing legal liability system “could be adapted to address many of the potential risks of shale development.”

Climate Crash

In a New York Times op-ed, former Secretary of the Treasury Henry Paulson, Jr. paralleled the current issues with climate change to the 2008 financial market crash: “We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked.” (He also discussed this topic at RFF previously.) Paulson is not the only one taking this approach. In a special lecture at RFF earlier this year, Nobel Laureate Robert Engle explained how financial models can be used to evaluate environmental risk, noting: “I think the fact that environmental stocks, on average, are viewed as underperforming stocks is kind of an important observation because that means people are willing to pay more for them . . . they’re hedging this environmental long-run risk.”

Managing the Risks of Shale Gas Development Using Innovative Legal and Regulatory Approaches

RFF-DP-14-15-coverAt the heart of the US shale gas boom is a tense relationship between the desire for its economic benefits and the fear of its environmental costs. Regulatory measures and industry best practices can be adjusted to ease this tension, but the potential for incorporating innovative tools into new measures has been relatively understudied. Both regulation and litigation are already important components of shale gas risk mitigation, but understanding how these two systems can be improved requires an analysis of how they currently work together.

While state regulation receives the most attention in public discussions about shale gas risk mitigation, liability is probably the more important driver of risk-reducing behavior by operators. According to economist Steven Shavell, the decision to use regulation and liability to account for environmental risks should be based on the presence of information asymmetry, the ability of those at fault to pay, the ability of those at fault to avoid being sued, and the cost of the chosen action. Shavell noted that a mix of liability and regulation is often used in real-world settings, and that society generally gets the regulation–liability decision right.

We believe that this is true in the context of shale gas as well. While the presence of well-informed operators points toward a liability system, a potential lack of victim access to private information would require more regulation-based strategies. Calculating which is more cost-effective is difficult, because liability may be cost-effective for small scale events but less useful for dispersed harms that require complicated class-action lawsuits. Ultimately, the idea that there is a loose “division of labor” between the use of liability and regulation appears to hold true for shale gas development, though that’s not to say that switching between these policies won’t be beneficial in some existing situations.

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Quick Thoughts on UARG v. EPA

SCOTUS released its decision in UARG v. EPA today, with the majority opinion authored by Justice Scalia. The issue in the case was whether EPA appropriately subjected stationary sources to new source review obligations for their GHG emissions. Here are some quick thoughts. If you’re unfamiliar with the case or with EPA’s regulatory agenda for greenhouse gases, this may be a little tough to follow. If you need more background, take a look at this post on the cert grant and the lower court’s decision or the good coverage at Legal Planet. 1)  The court reviewed three related parts of EPA’s carbon policy. After 2007′s Massachusetts decision and its subsequent move to regulate GHG emissions from vehicles, EPA:

a. Required new & modified large stationary emitters (power plants and factories) undergoing new source review (aka PSD permitting – the difference is immaterial here) due to their emissions of conventional pollutants to implement best available control technology (BACT) for GHGs.

b. Required GHG emitters to go through PSD permitting based on GHG emissions alone, even if they would not have to do so for other pollutantsc.

c. Limited the group in b) to large emitters over  100k tons CO2e/year despite the statute’s requirement of 250 tons/year (this is the “Tailoring Rule”).

2)  The court (5-4) rejected policy b) on the grounds that it contradicted the plain meaning of the statute. This is interesting because EPA had claimed that a plain reading required it to include all GHG emitters in PSD, despite the fact that doing so would be really expensive and burdensome. The court’s reading of the statute is reasonable, but it has some problems in light of court’s traditional deference to agencies on questions of statutory interpretation (see #8 below). Read More

Energy Efficiency in 111(d): Evaluating Energy Savings for Carbon Reduction

EPA’s Clean Power Plan uses expanded energy efficiency programs as a component of states’ emissions rate targets. States that choose to use energy efficiency for compliance need to develop and provide EPA with a plan for evaluating energy savings that result from the policy. In the technical support document for state plans, EPA describes the state of the art with respect to Evaluation, Measurement & Verification (EM&V) of energy efficiency programs and suggests a number of approaches that states might adopt.

EPA’s discussion of EM&V focuses on traditional engineering-based methods. These calculations are sometimes (but not always) adjusted to reflect the fact that some of the consumers who participate in an efficiency program may have made the investments anyway. When they are made, adjustments are  based on surveys that ask customers whether they would have invested without the program, a method of questionable reliability. The engineering approaches also may fail to account for the interactions between efficiency enhancements related to one end use and energy consumption for another end use. (For example, replacing incandescent lights with cooler compact fluorescent lights or LED lamps could increase demand for energy for heating in the winter and reduce demand for energy for cooling in the summer.) They also fail to account for the so-called rebound effect, an increase in usage that may occur when efficiency improves. And the engineering approach is not well suited to policies that work through behavioral “nudges,” information provision, and other non-technology based approaches.

An alternative approach to evaluating energy savings would be to use actual customer-level energy consumption data, comparing energy consumption before and after a policy takes place for those affected and a control group., This approach eliminates the need for a separate net to gross calculation and it automatically accounts for impacts of the efficiency policy across different energy end uses. And the approach can be used for nudges, information provision, and similar policies. This econometrics approach is often used in the scholarly economics literature, but typically has not found its way into mainstream energy efficiency EM&V.

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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.

Lord Stern’s New Paper on Carbon Pricing
[Abstract] ‘To slow or not to slow’ (Nordhaus, 1991) was the first economic appraisal of greenhouse gas emissions abatement and founded a large literature on a topic of great, worldwide importance. In this paper we offer our assessment of the original article and trace its legacy, in particular Nordhaus’ later series of ‘DICE’ models. From this work many have drawn the conclusion that an efficient global emissions abatement policy comprises modest and modestly increasing controls. On the contrary, we use DICE itself to provide an initial illustration that, if the analysis is extended to take more strongly into account three essential elements of the climate problem – the endogeneity of growth, the convexity of damages, and climate risk – optimal policy comprises strong controls. To focus on these features and facilitate comparison with Nordhaus’ work, all of the analysis is conducted with a high pure-time discount rate, notwithstanding its problematic ethical foundations… — via London School of Economics

Comparative Life Cycle Assessment of 2.0 MW Wind Turbines
Wind turbines produce energy with virtually no emissions, however, there are environmental impacts associated with their manufacture, installation, and end of life. The work presented examines life cycle environmental impacts of two 2.0 MW wind turbines. Manufacturing, transport, installation, maintenance, and end of life have been considered for both models and are compared using the ReCiPe 2008 impact assessment method. In addition, energy payback analysis was conducted based on the cumulative energy demand and the energy produced by the wind turbines over 20 years. Life cycle assessment revealed that environmental impacts are concentrated in the manufacturing stage, which accounts for 78% of impacts. The energy payback period for the two turbine models are found to be 5.2 and 6.4 months, respectively. Based on the assumptions made, the results of this study can be used to conduct an environmental analysis of a representative wind park to be located in the US Pacific Northwest… — via International Journal of Sustainable Manufacturing

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What are the Benefits and Costs of EPA’s Proposed CO2 Regulation?

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

On June 2nd, the Obama Administration’s Environmental Protection Agency (EPA)released its long-awaited proposed regulation to reduce carbon dioxide (CO2) emissions from existing sources in the electricity-generating sector. The regulatory (rule) proposal calls for cutting CO2 emissions from the power sector by 30 percent below 2005 levels by 2030. This is potentially significant, because electricity generation is responsible for about 38 percent of U.S. CO2 emissions (about 32 percent of U.S. greenhouse gas (GHG) emissions).

On June 18th, EPA published the proposed rule in the Federal Register, initiating a 120-day public comment period. In my previous essay at this blog, I wrote about the fundamentals and the politics of this proposed rule (EPA’s Proposed Greenhouse Gas Regulation: Why are Conservatives Attacking its Market-Based Options?). Today I take a look at the economics.

Cost-Effective, Perhaps – but Efficient?

The proposed rule grants freedom to implementing states to achieve their specified emissions-reduction targets in virtually any way they choose, including the use of market-based instruments (the White House has referenced cap-and-trade in this context, although somewhat obliquely as “market-based programs,” and state-level carbon taxes might also be acceptable – if any states were to include them in their plans to implement the regualtion). Also, the proposal allows for multistate proposals and for states and regions to establish linkages among their state and multi-state market-based instruments. Some questions remain regarding the temporal flexibility (banking and borrowing) that the proposed rule will allow, but it’s reasonable to conclude at this point that although EPA may not be guaranteeing cost-effectiveness, it is allowing for it, indeed facilitating it. AsDallas Burtraw of Resources for the Future has said, the proposed rule ought to be judged to be potentially cost-effective.

Cost-effectiveness (achieving a given target at the lowest possible aggregate cost) is one thing, but economists – and possibly some other policy wonks – may wonder if the proposal is likely to be efficient (maximizing the difference between benefits and costs). This is a much higher mountain to climb, and a particularly challenging one for a regional, national, or sub-national climate-change policy, given the global commons nature of the problem.

The Challenge of this Global Commons Problem

GHGs mix globally in the atmosphere, and so damages are spread around the world and are unaffected by the location of emissions. This means that any jurisdiction taking action – a region, a country, a state, or a city – will incur the direct costs of its actions, but the direct benefits (averted climate change) will be distributed globally. Hence, the direct climate benefits a jurisdiction reaps from its actions will inevitably be less than the costs it incurs, despite the fact that global climate benefits may be greater – possibly much greater – than global costs.

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Energy Efficiency in 111(d): The Role of End-Use Efficiency in State Compliance Plans

In a prior blog post, I describe the contribution of energy efficiency to state emissions-reduction targets in EPA’s Clean Power Plan. As EPA has pointed out, including energy efficiency in states’ targets does not mean that states will necessarily choose to include energy efficiency programs in the compliance plans they submit to EPA. Many factors will no doubt play a role in a state’s decision on what to do about energy efficiency, but here are a few points to keep in mind.

First, it matters if a state chooses to convert its emissions rate target (tons CO2 per MWh of electricity generation) to a mass budget (tons CO2)—the proposal allows states to do so if they choose. Limiting emissions to a mass budget can be done in a variety of ways but economists have long advocated imposing a cap and allowing trading across sources of emissions under it, or imposing an emissions fee on covered sources calibrated to achieve a similar level of reductions—as at least one state is already considering and some in Congress have advocated.

Energy Efficiency under a Mass Target

If states use either of these policies to raise revenue and reduce other preexisting taxes (and there are many good reasons why a state might want to do that, as discussed in the RFF carbon tax FAQs) electricity prices could rise by as much as 10 percent in 2020, according to a recent RFF analysis. That increase in prices could lead to substantial changes in behavior and investment that improve energy efficiency. However, if a state selects a budget approach with emissions trading and then returns revenues to local electric distribution companies or to generators, the policy will have only modest impacts on electricity prices. This would provide little direct incentive for consumers to adopt more efficient appliances or equipment. This makes separate policies to encourage energy efficiency more attractive.

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