Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.
The All-of-the-Above-Energy Strategy as a Path to Sustainable Economic Growth
The White House has released a report charting progress on several energy fronts that is clearly aimed at setting the stage ahead of President Obama’s expected announcement next Monday of the first regulations restricting carbon dioxide from existing power plants. (It’s been a very long journey — abetted by an important Supreme Court decision – since President George W. Bush tried to restrict carbon dioxide from such plants and quickly reversed course.) — via DotEarth by Andrew Revkin
Climate Change Implications for Fisheries and Aquaculture
Climate change could cost global fisheries as much as $41 billion by 2050, due to loss of landings, according to a new report. The report is based on the fifth assessment of the Intergovernmental Panel on Climate Change. It distills the assessment’s findings related to marine resources and outlines the challenges facing fisheries and aquaculture. Among the predicted effects are fluctuating fishery yields with fisheries in the high latitudes increasing as much as 70 percent while those in the tropics could see a reduction of 60 percent… — via E&E News PM article by Emily Yehle [sub. req'd]
The Wall Street Journal yesterday criticized EPA’s recent proposed standards for carbon emissions from existing power plants on the grounds that they will have a large disproportionate impact across states. That may or may not be the case, but figuring out which states have a greater burden is not as simple as the WSJ implies. The Journal looks at each state’s carbon intensity – the tons of carbon it emits for each unit of energy produced – and claims that those states with high carbon intensity (mostly heartland states dependent on coal) will have a much greater burden than those with lower carbon intensity (mostly coastal and, the WSJ claims not coincidentally, liberal states).
That claim might be true if EPA set a uniform carbon intensity standard for the whole country. But the agency did not do so. Instead, it calculated a unique carbon intensity target for each state, based on four “building blocks”, each corresponding to different emissions-cutting opportunities EPA estimates is available in the state. These targets vary widely: for example, during the initial compliance period, Montana’s target is more than seven times greater (that is, less stringent) than Washington’s. This does not mean that Montana will have an easier time meeting its targets – it may or may not, depending on how accurate EPA’s estimates are of the opportunities available to each state, the relative cost of those opportunities, and whether states have other emissions-cutting opportunities that EPA did not consider. You simply can’t tell from EPA’s target numbers, much less from a simple list of states’ carbon intensity, which states will have the greatest burden (either total or per-capita). Figuring that out will take careful modeling and analysis (working on it at RFF). Brad Plumer at Vox makes a similar point in a good post with more details.
To be fair to the WSJ, they admit that the carbon intensity figures they point to are not “a perfect proxy” for states’ burden under EPA’s proposal. But they nevertheless claim the figures are “a good indicator of which states will have to adjust the most”. That’s not true – or at least we can’t conclude that it is based on carbon intensity rankings alone.
Moreover, even if states do have differential burdens (in economic terms, different marginal abatement costs), the EPA proposal allows them to form multistate groups and trade with each other. Doing so will narrow the gap between state burdens, and potentially equalize them. But it will be up to states whether to join together. In this sense and many others, states’ burden will depend more on the policies they choose than on the targets EPA sets.
In short, it’s too soon to tell who the “winners” and “losers” among the states are. We will know more in the coming weeks and months, but there will be a lot of uncertainty until the program is in place in 2020 – a lot can change between now and then. And if states trade, the winners and losers on paper may not matter as much.
Another small point – the WSJ piece talks briefly about “stranded assets”. I don’t like the term, partly because it’s not well defined, and partly because I read it as either an appeal to the attraction of the sunk-cost fallacy or an attempt to ignore externalities (or both). But here the term just pops up in the lede, so that’s a point for another day.
EPA’s existing source performance standards (ESPS) proposal from Monday claims it will achieve 30% emissions reductions from the power sector by 2030. That reduction is relative to 2005 emissions – a target that’s important because of the president’s stated goal in Copenhagen of 17% economy-wide emissions reductions from 2005 by 2020. If that goal is achieved, early reductions from the ESPS will play a major role (though given the rule’s timeline, the 2020 target looks ambitious).
Focusing on this headline emissions reduction target, many observers have claimed that picking a 2005 base year instead of 2012 means the rule is less stringent than feared (or hoped, depending on where you sit). This is because US emissions have actually declined substantially since 2005. That means a big slice of the needed reductions are already in the bank. To pick one example, Bloomberg’s Mathew Philips claims “EPA did the power industry a big favor by using 2005 levels” for this reason.
Former EPA General Counsel Roger Martella, when asked about this in an interview this week, pointed out that even if this is true for the country as a whole, it’s not true for every state. Some states increased their emissions between 2005 and 2012. He points to Texas, but EIA data available through 2011 indicates that Texas emissions have gone down slightly (about 5%). However, 8 states’ emissions did increase: Oklahoma, Wyoming, Kansas, North Dakota, Iown, South Dakota, Arkansas, and Nebraska – the latter three by 10-20%. Choosing a 2005 base year therefore seems to disadvantage those states.
However, all of this analysis appears to be wrong since EPA did not actually use 2005 as the base year. All of the calculations in EPAs proposal used to create state-level emissions rate improvement targest are based on 2012, not 2005 (or in the case of heat rates at existing coal plants, a 2002-2012 average). 2005 is only used to get the headline emissions reduction figure. Moreover, these goals are stated in terms of emissions rate – that is, the tons of emissions per megawatt hour generated. That means that running fossil power plants less due to reduced demand, a major component of the decline in US emissions, has no effect on the target.
You can debate whether the reason for nevertheless picking 2005 as the base year for the headline emissions cuts numbers is to inflate the emissions reductions from the proposal or, as EPA claims, to match up with international emissions reduction commitments. In any case, claims that using 2005 as the base year for calculating these overall results helped the industry, or helped or hurt any state, don’t hold water. Everything is based on the most recent numbers available – 2012.
If state targets are still based on 2012 numbers in 2020 when they become enforceable, it’s of course possible that changes in states’ emissions in the intervening 8 years will mean some have more work to do than others. But that’s much less of a problem – first because EPA could update the targets with new data, and second because states are now on notice that these requirements will be in place.
As readers likely have heard by this point, EPA proposed performance standards for carbon emissions from existing power plants on Monday. This major climate policy move is perhaps most notable in that it happened without new legislation from Congress. Economists have long argued that an economywide carbon price is the most cost-effective way to reduce emissions. This would require new legislation (though EPA’s policy does allow states to use some trading programs). Many (myself included) believe a carbon price remains the endgame for U.S. climate policy. But what advantages (if any) would it have over EPA policy? My colleague Art Fraas and I asked this question in a paper we wrote last year, which has just been published in the Environmental Law Reporter this week. Here’s a brief summary of our conclusions (re-posted from last year).
We plan to revisit our analysis in this space now that we have a concrete proposal to examine (though of course we don’t have a carbon price proposal from Congress to compare it to).
Though President Obama is set for a major address on climate tomorrow, US climate policy faces an uncertain future. EPA is moving haltingly ahead with regulations under the Clean Air Act ( and may redouble its efforts after the speech most notably its proposed existing source standards), but some in Congress are pushing to revoke its authority. Others in Congress support new legislation setting a price on carbon (with most recent attention focused on a revenue-neutral carbon tax). While the near future is in EPA’s hands, Congress will—by action or inaction—determine the longer term path for US policy. That path hinges on two decisions. First, will Congress pass new comprehensive legislation, like a carbon tax? And second, will Congress preempt EPA’s authority? These are independent decisions, so there are four possible outcomes:
|EPA authority mostly/wholly preempted||EPA authority mostly left intact|
No new climate legislation
|1. No U.S. climate policy||2. EPA regulates under the CAA (status quo)|
New climate legislation
|3. Carbon price supplants EPA regulation||4. Parallel EPA regulation and carbon price|
Preemption is a real possibility. Any new climate legislation appears (to us) likely to preempt at least some EPA authority, as the Waxman-Markey cap-and-trade bill would have done. Removing EPA’s authority without any new policy is also possible, but less likely given the President’s veto. That means two options – the Clean Air Act status quo and a new policy replacing it – appear the most likely outcomes.
In a new paper, Comparing the Clean Air Act and a Carbon Price, we try to evaluate these two pathways. We don’t choose one or the other, since there is a lot we don’t know about both policies and since much depends on one’s prior convictions. But we do think we’ve identified many of the right questions to ask. And even if you disagree with us on what the most likely policy outcome is here (for example, if you think EPA regulation and a carbon price will coexist), we think you’ll find our discussion is still useful. Read More
EPA’s existing source proposal is the cornerstone of the administration’s climate policy and, once finalized next year, will be the most signifcant federal climate policy move to date. Even relatively minor EPA rules face legal challenge from industry, environmental groups, or both. This rule’s significance means it will be no exception. Legal challenges will not come until the rule is finalized next summer (assuming it remains on schedule). In fact, there will be no actual regulation in place until states begin to submit their plans to EPA in 2016, so litigants may not have standing until then. The rule may also change a lot before it’s finalized and implemented, so making predictions is probably useless. But here are the biggest legal vulnerabilities I see today.
1) Renewables and Energy Efficiency
In the proposal, EPA sets emissions rate targets for each state, that the states must then meet with their plans. In building the rate targets, EPA uses four building blocks. The first two – efficiency improvements at coal plants and increased use of existing gas plants – are on relatively solid ground, I think. But the third (new renewable generation) and fourth (demand-side energy efficiency improvements) blocks are more legally risky. EPA argues that because both blocks would reduce emissions from the existing fossil power plants that are the subject of the rule, including them in the targets is legitimate. They’re right that fossil emissions would go down – add zero marginal cost renwables or cut demand, and you don’t have to run fossil as much (note that this is not true for carbon offsets like planting trees or cutting agricultural emissions, which EPA has not sought to include).
But, litigants will likely argue, the relevant part of the Clean Air Act (§111(d)) gives neither EPA nor the states any authority to regulate activity outside the sources subject to the rule’s performance standards. Since renewables have no CO2 emissions, and energy efficiency isn’t even a stationary source, neither is properly included in a “source category”. Former EPA General Counsel Roger Martella pointed to this issue as a particular area of vulnerability in an interview today.
On balance, I think EPA has the better argument here, but I would not be surprised if a court disagreed. EPA appears to acknowledge this risk, requesting comment on the legal issue and, more importantly, cleanly separating renewables and energy efficiency into severable building blocks. If a court nixes either, the policy will survive, though it will be less stringent.
The success of President Obama’s new plans for reducing carbon emissions from power plants will rest heavily on the natural gas industry. The key building block of that plan is to ramp up the use of natural gas. Before the shale gas revolution natural gas prices were a good deal higher than they are today. But shale gas and the fracking that made it possible have reduced gas prices, inducing a frenzy of gas generator purchases and increased generation from existing gas plants. This has driven down electricity prices as well. In the process, electricity from coal has been disadvantaged. In principle, cheap gas could also hurt renewable electricity, but in many states renewables’ share of the power mix is protected (and increasing) due to portfolio standards.
With the new plan, the demand for natural gas will increase even more. In the old days this would have led to big increases in costs and prices to bring that gas to market. But the shale gas revolution has changed all that. The fact that companies can put multiple wells on a given well pad very rapidly and are drilling into very rich and productive rock means that even a small increase in the price of natural gas brings forth a lot of new supply. Indeed the pace of technological change has been very high, further reducing production costs and holding prices down. Even with low prices there is so much gas that pipeline capacity is inadequate to get the gas to market resulting in shut in capacity. This will be remedied soon. An estimate we made of the costs of a plan with similar stringency to Obama’s shows that the natural gas revolution can shave a $ billion off of the plan’s cost.
Still, just how responsive supply will be to big increases in demand is not well understood. With plans to export lots of liquid natural gas, to use natural gas (as both a fuel and chemical feedstock) to drive a manufacturing renaissance and even to use it as a transportation fuel, the extent to which gas costs will rise is uncertain. That creates parallel uncertainty over the future price of electricity.
An even bigger concern is with natural gas as a powerful greenhouse gas. We can’t very well promote natural gas as a major building block to CO2 reductions when leaky gas (termed fugitive methane) could reverse those gains. Thus it is imperative that the industry get their leaks down or conclusively demonstrate they are already low enough.
RFF researchers on the regulation of greenhouse gas emissions from existing power plants
Today, the Obama administration proposed a new rule to reduce emissions from existing power plants, using EPA’s authority under the Clean Air Act. EPA Administrator Gina McCarthy commented: “The glue that holds this plan together, and the key to making it work, is that each state’s goal is tailored to its own circumstances, and states have the flexibility to reach their goal in whatever way works best for them.” (Note that there is still time to register for RFF’s special event on June 5, where experts will discuss the challenges and opportunities of this approach.)
RFF experts on greenhouse gas emissions and Clean Air Act regulatory issues have examined various flexible approaches that the states might take to reduce emissions from power plants under the Clean Air Act. Below are some highlights.
- Dallas Burtraw, Joshua Linn, Karen Palmer, and Anthony Paul find that “approaches likely to be taken by EPA in regulating carbon dioxide emissions from existing power plants will result in minimal price increases for consumers.”
- Nathan Richardson writes: “Trading programs are (at least in many senses) the ‘best’ system for low-cost emissions reductions.”
On state implementation:
- Nathan Richardson notes that “allowing states to choose unique policy paths is sensitive to local conditions and creates a policy laboratory” where “states aren’t just responsible for enforcing federal rules or meeting federal targets, but are the primary regulators, with control over the program’s structure and stringency.”
- Dallas Burtraw says: “I don’t think we will end up in a world where there are 50 different approaches ineach of the states. For one reason, many states do not have the resources to really give form to an approach that has not already been thought through by their neighbors. There’s going to be leading states and maybe some states that will follow.”
On international targets:
- Dallas Burtraw and Matt Woerman find that EPA’s proposed emissions reductions “could be expected to take the United States past 15 percentage points of the 17 percentage-point reduction from 2005 levels that President Obama pledged in Copenhagen in 2009.”
For more work by RFF researchers on these topics, visit www.rff.org/cleanairact.
Today, EPA announced proposed performance standards for existing power plants under the Clean Air Act (also known as the existing source performance standards, or ESPS). Attention to the proposal is deservedly high, and it’s a monster of a rule (645 pages, at least in this unformatted version). That means general overviews are already out, and in-depth ones will have to wait. But there is still plenty to say today. Last week, I listed the five things I was most interested in seeing in the rule. Here’s how they came out.
First, this post will be about some in-the-weeds details. That’s likely what you come here for, so I doubt that’s a problem. But it’s worth taking a step back and appreciating that this proposal, if it survives political and legal challenge, will be the single most significant action on climate the U.S. government has ever undertaken. It won’t be successful unless it can move other countries to take action, but it has a better chance of doing that than any speech or vague commitment. It’s far from perfect in its current form, and will remain flawed in important ways, but it gets a lot of emissions reductions at reasonable cost, and it’s what we’ve got. Someday soon I hope we can replace it with something even better.
Second, a point on structure. The proposal would set a separate goal for each state based on a formula that takes into account the various emissions-cutting opportunities available in that state’s power sector. This is similar to an approach taken in NRDC’s shadow proposal from last year (so some credit goes to them for either prophecy or influence). There are pros and cons to this strategy, particularly in terms of implications for states that are big importers or exporters of power. It will be interesting to see what energy economists and engineers predict.
The big headline is 30% emissions cuts from the power sector relative to 2005 by 2030. That’s quite large – over 500 million tons of CO2 per year. Most of those reductions (25%) appear to come by 2020, though a closer reading reveals states have some flexibility to push compliance out toward 2030 so long as they show they are making progress. That explains why, as Michael Levi observes, the 2030 target is not much tougher than the 2020 target. Think of it as a “2020s” target and a final push goal in 2030. I suspect that EPA expects these targets will be superseded by 2030, either by a new rule or, I think much more likely, by legislation (presumably setting a carbon price).
Also, remember that emissions have declined since 2005 – a good chunk of that 30% is already baked in.
On Monday, President Obama is set to announce proposed regulations limiting emissions from the existing fleet of power plants. These existing source performance standards or ESPS will be the most important part of the administration’s climate policy and, as my colleague Dallas Burtraw likes to point out, the most significant action any President will have taken on climate change. I’ve been working to understand what these regulations might look like for almost 5 years, and over that time I’ve seen attention to them gradually increase.
It seems like this week everyone has something to say, including major studies from the U.S. Chamber of Commerce (with some flaws) and Harvard/Syracuse, and greatly increased media coverage. That coverage is good since the rules are important. Anyone interested in energy and climate should be paying attention. But if you’re getting up to speed on this my advice is to wait until next week. Then we’ll actually have something to talk about. But if you can’t resist, below are the five things I’ll be looking for most when the proposal is released. I’ll come back to these on Monday and explain how they turned out.
1) Emissions Most observers will focus on the rule’s stringency – how much will they cut emissions, and how quickly. My guess is that the proposal will be quite ambitious – the NYT suggests 20% emissions cuts from coal, which translates to 6% of total U.S. emissions. That’s a substantial step towards the President’s Copenhagen pledge of 17% cuts by 2020. But details matter here – what’s the baseline, what’s the timeline for cuts, etc. The stringency targets are important, but it will be equally important to look behind the headline numbers.
On Monday, EPA is set to release proposed new rules limiting carbon emissions from existing power plants. Along with many others, we at RFF have studied the potential implications of this policy for the economy and the environment for some time. While Monday’s release is only a proposal, it will for the first time give analysts something concrete to work with.
In what is likely to be the last significant analysis of the coming regulations before their release, the U.S. Chamber of Commerce released a study this week with dire predictions. Among other results, the study finds that the total cost of the existing-source rule will exceed $50 billion per year through 2030 and lead to 224,000 lost jobs every year.
What should we make of these results?
This is not a slap-job affair; it is an expensive study, with methods and writing that cannot easily be discounted. However, the study suffers from quick conclusions, questionable assumptions, and some errors.