The recent agreement between the United States and China to lower their greenhouse gas emissions signifies an understanding that climate change is a global challenge. The latest issue of Resources magazine explores climate change and other environmental and resource issues facing the world. Highlights include a look at EPA administrator Gina McCarthy’s remarks at RFF, an interview with RFF’s Allen Blackman about forest conservation investments, and more:
Wood Energy: An Overlooked Renewable
Wood energy is often ignored in national conversations about renewable energy, yet it dominates renewable energy portfolios in many developed nations—and is poised for even more growth.
Mapping the Value of Ecosystem Services in Latin America and the Caribbean
Juha Siikamäki, Peter Vail, Rebecca Epanchin-Niell, and Francisco Santiago-Ávila
When making decisions about conservation priorities, examining the services provided by the diverse ecosystems in Latin America and the Caribbean helps to ensure that people living in the region reap the benefits.
What Homeowners Say about Energy Audits
Karen L. Palmer and Margaret A. Walls
Less than five percent of American homeowners have had a home energy
audit, and many have not followed through with recommended changes. A household survey helps explain why homeowners are not taking advantage of these opportunities to save money.
Green Growth for China?
Mun S. Ho and Zhongmin Wang
For China’s leaders, achieving a sustainable path that balances economic growth and environmental protection is now a political necessity. Reforms to the country’s unique institutional reward system and governance structures are critical to this effort.
RFF ON THE ISSUES: Regulating methane emissions; China’s pollution problem; Climate impacts on agriculture
In this edition:
- Alan Krupnick on EPA’s new methane emissions regulations
- Phil Sharp on combining economic growth and environmental regulation in China
- RFF seminar on how scientists are preparing for climate change’s agricultural impacts
Regulating Methane Emissions
A new EPA proposal released last week aims to reduce methane emissions by 45 percent over the next 10 years. The proposed rules will target methane emissions from the oil and gas sector across the United States, which currently produces more natural gas than any other country.
In a recent blog post, RFF’s Alan Krupnick writes that EPA has taken “very important steps” in its commitment to exploring methane measurement and monitoring technologies. Krupnick writes: “What will remain unclear for some time is whether further reductions beyond the cheap stuff are really necessary to meet emissions reduction goals for this sector.” Read More
EPA issued a long-awaited statement today on its intentions to reduce methane emissions from the oil and gas extraction, processing and transmission sectors 40-45 percent of 2012 emissions by 2025.
While EPA had begun to tackle emissions from new wells, and plans to continue down this road in the future (albeit by regulating methane directly rather than as an ancillary benefit), the much awaited aspect of today’s statement addresses existing wells.
EPA plans to issue guidelines and “ready to adopt control measures” for states to add to their State Implementation Plans for reducing VOC emissions in ozone non-attainment areas and in the Ozone Transport Region (the states east of the Mississippi River). Thus, as previously for new sources, methane emission reductions will come about as an ancillary benefit of VOC reductions. This is a reasonable start, but rural areas in western states, where much of the oil and gas activities occur, would not be included in these requirements.
There are other important aspects of today’s announcement. First, EPA plans to “explore potential regulatory opportunities” in methane monitoring and measurement technologies to help undergird its GHG emissions reporting system (and also will work with industry in their own voluntary efforts to better monitor, report and verify methane emissions). These steps are very important. We would counsel that efforts to actually measure the amount of methane leakage needs to be developed rather than just leak detectors.
Second, BLM has agreed to update its methane standards around flaring, venting and leaking, in coordination with EPA. Our earlier analysis of BLM proposed standards applying to oil and gas extraction of federal lands revealed that, in general, the revised standards were weak compared to what many states were doing. Thus, coordination with EPA is a positive development.
Third, EPA plans to work with industry “to develop and verify robust [but voluntary] commitments to reduce methane emissions.” EPA mentions several voluntary efforts, including One Future, which among many activities is examining the potential for a market-based approach for reducing methane, something RFF is looking into as well. EPA recognizes that these voluntary actions could “reduce the need” for future regulation, but is careful not to say that voluntary efforts substitute for regulations. This distinction is very important. Industry rightly says that it is in its interest to control leaks, since its product is going up, literally, in smoke. Yet, some types of leaks are cheap to fix relative to the value of the product lost and others are expensive. Industry cannot be expected to fix expensive leaks without being forced to by regulation. What will remain unclear for some time is whether further reductions beyond the cheap stuff are really necessary to meet emissions reduction goals for this sector. Our point would be that any pain inflicted should be minimized through cost-effective policy design.
A recent Bloomberg View article (“Brazil Puts a Denier in Charge of Climate Change,” January 7) draws a sharp contrast between Brazilian President Dilma Rousseff’s September UN General Assembly reference to climate change as “one of the greatest challenges of our times” and a just-announced appointment to her cabinet. A slightly edited version of my “comment” to the article follows.
It appears that the President has selected a climate denier – Aldo Rebelo – as Brazil’s minister of science and technology (the agency that has climate in its portfolio), a move that seems seriously misguided. Aside all else, Brazil’s acknowledged emergence as a significant power – hemispherically and beyond – makes responsible political judgments a test of the country’s claim to international respect. If this appointment threatens a politicization of climate science, Brazil fails that test decisively.
But there is more. And it adds both irony and disillusionment to what, over a number of years, has pointed to a growing Brazilian policy-embrace of environmentally responsible growth. And no one embodies that record more than Dr. José Goldemberg – the Brazilian-born physicist who, both as a distinguished academic and public official, played a leading role in hosting the 1992 UN Conference on Environment and Development in Rio. Among many other distinctions, Goldemberg served as Rector of the University of Sao Paulo, Visiting Professor at Princeton, President of the Brazilian Association for the Advancement of Science, and co-recipient of the (US-based) Mitchell Prize for Sustainable Development.
That a tradition reflected in such contributions should, in effect, be so casually shrugged off with the appointment of a viscerally committed climate denier – one who appears to lack the interest or intellectual wherewithall to articulate the basis for such denial – is truly troubling.
Gas Tax Opportunity
The current oil market has created an ideal opportunity to raise the gas tax and better support the Highway Trust Fund, according to the editorial board of the Washington Post. In a recent op-ed, it writes that revenue could be used to fill the fund, which will “run dry again in May.”
In a previous letter to the editor, RFF’s Joel Darmstadter writes that the current gas tax has “ceased to make any meaningful contribution to sound economic and environmental policy” due to its inability to keep up with inflation. RFF’s Margaret Walls also considers the limits of a gas tax in a Wall Street Journal blog post, noting that an inflation-adjusted tax will still only generate “about half as much” in annual revenues due to tighter corporate average fuel economy standards.
Climate Science Consensus
In a letter to the editor published in the Washington Post, Nobel Laureate Mario Molina addresses recent comments by prominent figures that “cast doubt on man-made climate change” by referencing previous climate shifts that were unrelated to human actions. Molina writes that “while the planet may have experienced natural periods of warming in the past, what is happening now is not natural.”
At an event hosted by RFF and the American Association for the Advancement of Science (AAAS), Molina noted that scientists have reached the kind of consensus on climate change that “is not common in science,” but media coverage—and therefore public perception—“certainly does not represent [this] consensus.” Video of the event can be found here.
Poverty, political instability, and natural disasters are just a few of the problems facing Latin America and the Caribbean. So it’s not surprising that policymakers devote limited resources to conserving the region’s biodiversity—even if it is, by all accounts, exceptionally rich and valuable. But that’s exactly why those scarce conservation resources need to be deployed strategically.
Co-authored by RFF researchers Becky Epanchin-Niell, Juha Siikamäki, Daniel Velez-Lopez and me, it has three sections.
- The first part provides an overview of the region’s (terrestrial, freshwater, coastal and marine) biodiversity, the threats to this biodiversity, and the drivers of these threats.
- The second section summarizes what we know about seventeen leading conservation policies, including regulatory polices like protected areas and land-use planning, and market based approaches like subsidy reform and payments for ecosystem services.
- And the third section proposes a five-point action plan focusing on green agriculture, strengthening terrestrial protected areas and co-management, improving environmental governance, strengthening coastal and marine resource management, and improving biodiversity data and policy evaluation.
When we talk about risk in the financial world, we are typically referring to an asset or portfolio whose price may decrease down the road. Even though risk implies a level of uncertainty, we are able to model and measure the risks associated with these assets. One of the typical ways we do this is to assess their volatility; if their prices change often, we would argue that you take on a large risk by holding them.
When volatility is especially low, it is very likely to rise again. But before the financial crisis, the risk management tools that we generally used did not offer an easy way to measure this potential and warn people in the financial sector that these risks could change.
Since then, we have built volatility models that allow us to project how fast risks can change, using historical data to simulate a number of future sample paths for long-run risks. These tools now allow us to look back on the period of time before the financial crisis to understand why everything went wrong when it seemed to be going well. In fact, just before the crisis began, only short-term volatility was low; in the long run it was high, significantly changing the situation’s perceived long-run risks.
Risks considered “long-term” are sufficiently far in the future that what we see today only has a tiny bearing on what the long-run risk really is and include events such as economic recessions, inflation, terrorism, war, and even climate change.
Climate Change as a Long-Term Risk
So why do we think of climate change in the long-run risk category? The scientific evidence is clear that the climate is changing. However, we are not sure what the economic costs associated with this change will be or what the economic benefits would be of doing something about it. The topic of climate change includes large uncertainties that we have to address as aspects of long-run risk, but the financial community is in the business of making decisions under uncertainty. Knowing this, how should this community approach climate uncertainties?
A good initial approach is to assess the potential financial impacts of climate change. We assume that the global economy will be able to produce fewer goods and services as climate change progresses than it would without climate change. We also assume that the government will have to take a number of actions, such as building dikes or moving power plants, and that funding these actions will require raising taxes and will increase the cost of doing business for companies. Costs from doing so may be significant, but they are far in the future and uncertain as of now. Revealing more information on these costs requires projecting and comparing a variety of long-run risk scenarios for the stocks or assets in question.
If you think about the whole of the market as being one large, risky asset that faces a long-run climate change risk, then we would expect today’s stock market to drop if future climate risks were seen as more severe. Conversely, we could expect today’s stock market to go up if future climate risks were thought to be less severe. Assuming these hold true, we wouldn’t have to wait 50 years or so to find out whether we’ve had a positive impact on the environment and would instead see the stock market respond today. If we are effective at responding to climate change, the stock market should reward us today for taking these steps to reduce long-term risk in the future.
Note: RFF on the Issues will be on hiatus until the new year.
Lima Climate Action
The United Nations Climate Change Conference in Lima ended with the creation of the “Lima Call for Climate Action,” which was designed to appease poor nations concerned about shouldering disproportionate economic burdens, as well as rich nations who want “fast-growing economies to rein in fast-rising emissions.”
In a recent Marketplace interview, RFF’s Ray Kopp discussed how climate agreements involving the responsibilities of rich and poor countries have traditionally been framed. Kopp comments: “The way the paradigm has been laid out for the last 20 years, developing countries—China included—really don’t have to take actions or make commitments. Only the developed world needs to do that.”
Oil’s Foreign Policy Impacts
Low oil prices have the potential to impact US foreign policy goals involving countries that depend on the production and export of crude oil. Losing large amounts of oil-based income could “prod Russia into abiding by a ceasefire in Ukraine [or] make Iran more pliable in talks over its nuclear program,” but may also “hurt some governments the US wants to protect,” such as Nigeria.
RFF’s Stephen Brown recently discussed the effects of plummeting oil prices on US diplomacy and energy security interests on RFF’s blog. Brown writes that while output is likely to drop in “politically stable countries” with higher production costs, cheap oil will cause income losses in countries such as Russia, Iran, and Venezuela that may “weaken their ability to oppose US interests.”
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.
Disclosing the Facts 2014 : Transparency and Risk in Hydraulic Fracturing Operations
[Bloomberg] While a handful of shale drillers including BHP Billiton Ltd. (BHP) are providing better information to investors on the risks posed by fracking, industry wide efforts still fall short. – via As You Sow | Boston Common Asset Management | Green Century Capital Management | Investor Environmental Health Network (IEHN)
The Economic and Budgetary Effects of Producing Oil and Natural Gas From Shale
Recent advances in combining two drilling techniques, hydraulic fracturing and horizontal drilling, have allowed access to large deposits of shale resources—that is, crude oil and natural gas trapped in shale and certain other dense rock formations. As a result, the cost of that “tight oil” and “shale gas” has become competitive with the cost of oil and gas extracted from other sources. Virtually nonexistent a decade ago, the development of shale resources has boomed in the United States, producing about 3.5 million barrels of tight oil per day and about 9.5 trillion cubic feet (Tcf) of shale gas per year. Those amounts equal about 30 percent of U.S. production of liquid fuels (which include crude oil, biofuels, and natural gas liquids) and 40 percent of U.S. production of natural gas. Shale development has also affected the federal budget, chiefly by increasing tax revenues. – via Congressional Budget Office
New York State: A Public Health Review of High Volume Hydraulic Fracturing for Shale Gas Development
[New York Times] … the long-awaited health study finally materialized, its findings made public during a year-end cabinet meeting convened by the governor in Albany. – via New York State Dept. of Health
US Dept. of Energy Responds to Nature article, “The Fracking Fallacy”
EIA has responded to a December 4, 2014 Nature article on projections of shale gas production made by EIA and by the Bureau of Economic Geology of the University of Texas at Austin (BEG/UT) with a letter to the editors of Nature. – via US doe Energy Information Administration
Proof Positive: The Mechanics and Impacts of British Columbia’s Carbon Tax
In 2008, British Columbia announced a bold new climate policy: North America’s first revenue-neutral tax on carbon pollution. Today, it is the toast of the world… – via Clean Energy Canada
This is the tenth in a series of questions that highlights RFF’s Expert Forum on EPA’s Clean Power Plan. Readers are invited to submit their own comments to the questions and/or the responses using the “Leave a Comment” box below. See all of the questions to date here.
Building new natural gas plants to replace existing coal plants can be a cost-effective way to achieve emissions reductions. However, EPA’s Clean Power Plan is designed to regulate carbon emissions from existing power plants, so the potential for emissions reductions from new natural gas plants (natural gas combined cycle units) are not counted in the plan’s emissions targets. Some believe that including these plants as compliance options for states provides more flexibility. Others argue that making such investments are a short-term and imperfect fix, and that achieving even larger emissions reductions in the future will require even cleaner technologies. Should EPA modify the way it treats new natural gas plants in the Clean Power Plan? And, if so, how?
“Considering that power plants are long-lived investments, the construction of new plants today to meet the moderate goals of the current EPA proposal may be regrettable in later years if goals for emissions reductions tighten.” See full response.
—Anthony Paul, Center Fellow, Resources for the Future
“It is important to remember that considering new [natural gas plants] as part of a ‘best system of emission reduction’ would change the stringency of emissions rate goals for some states, but it would not require any state to build new [natural gas plants].” See full response.
—John Larsen, Senior Analyst, Rhodium Group LLC
“EPA should modify the Clean Power Plan so that it accounts for the emissions impacts of new natural gas combined cycle generators. Not appropriately accounting for emissions from new natural gas plants would encourage utilities to increase their dependence on natural gas, resulting in more fracking and more pollution.” See full response.
—Kate DeAngelis, Climate and Energy Campaigner, Friends of the Earth