Flexibility and Cost-Effectiveness in Proposed Climate Policies

RFF-DP-14-05_Page_01 Achieving the goal of an 83 percent reduction in US carbon dioxide (CO2) emissionsfrom 2005 levels by 2050 will require the electricity sector—which accounts for roughly 40 percent of US CO2 emissions—to make an enormous pivot away from fossil fuels toward non-emitting sources. Policy will be required to achieve this goal. In a recent RFF discussion paper with coauthor Matt Woerman, we analyze the economic and social welfare consequences of four CO2 emissions reduction policies, including a carbon tax, a tradable CO2 emissions rate performance standard (TPS), and two versions of a clean energy standard (CES). The analysis examines a way to tailor a CES to improve its efficiency. The Haiku electricity market model is employed in the analysis.

Although a carbon tax is fairly straightforward, the other policies that we explore may require some explanation.  A clean energy standard is similar to a renewable portfolio standard but with a broader scope. A CES imposes a requirement that a minimum amount of electricity sold in the market must be generated using low- or non-CO2 emitting technologies, such as renewables, nuclear, or natural gas combined cycle units.  Each kilowatt hour of electricity produced by these technologies receives some credit under the CES and these credits must add up to the minimum amount required under the policy. Under a technology-based CES, crediting of generation depends on technology alone, with renewables and non-emitting generators receiving full credit toward the standard and generation for other emitting sources (such as natural gas combined cycle plants) getting partial credit. For an emissions rate–based CES, crediting of emitting sources varies depending on their CO2 emissions rate and thus more efficient natural gas combined cycle generators can earn more credits. The last climate policy we examined, a tradable performance standard, imposes a maximum average CO2 emissions rate across all generators and allows generators that have a CO2 emissions rate below the average to sell credits to generators that emit at higher than the average rate.

Read More

Preserving Flexibility

Decisions EPA is making today will have a major impact on the cost-effectiveness of its planned move to regulate carbon emissions from existing power plants. The agency has proposed and will soon finalize performance standards for new power plants. These new-source standards are a prerequisite for the planned existing-source standards, but are ostensibly otherwise unrelated – existing source standards can and will be less stringent, and will be ultimately imposed and enforced by states, not EPA directly. But, as I argue in a new comment to EPA, important structural elements of the new source standards – the “source categories” into which emitters are divided for regulatory purposes – will persist into the existing-source standards, with major implications.

From the comment, here’s the short version of how the connection works:

  • EPA’s decision to separate coal and gas power plants into different regulatory categories for its proposed New Source Performance Standards (NSPS) has little effect on those standards, but has important implications for upcoming existing source standards (ESPS).
  • The approach—split or combined categories—that the agency uses for its NSPS will almost certainly persist for ESPS.
  • Other research indicates that switching from coal to gas generation is the largest and lowest-cost emissions reduction opportunity in the power sector.
  • Combined categories are therefore crucial to the cost- and environmental effectiveness of ESPS. Trading between coal and gas that could incentivize this fuel switching is almost certainly legal if categories are combined, and almost certainly illegal if they are not.
  • Combining coal and gas into a single category, as the agency did in its first NSPS proposal in 2012, would not reduce EPA’s freedom to set standards, increase the rule’s complexity or add any significant legal risk.
  • EPA should therefore combine coal and gas into a single source category in its final NSPS rulemaking.

Just last week, EPA submitted its proposed ESPS to the Office of Management and Budget for review. The decision on whether to combine source categories has therefore likely already been made, at least for purposes of the proposal. Here’s hoping EPA has combined the categories. If they have not, I do not see how the agency can fulfill its promise to preserve existing state climate programs, many of which (like the cap and trade programs in California and the Northeast) have trading at their core.

RFF ON THE ISSUES: State implementation of the Clean Air Act; The natural gas revolution

State Implementation of the Clean Air Act

The draft of a rule by the US Environmental Protection Agency (EPA) that would create strict new limits on power plant emissions has reached the White House. While critics have expressed concern about the rule’s effect on the coal industry, EPA Administrator Gina McCarthy says that it offers flexibility and recently noted that the agency is working “hand in hand” with the states on implementation of the regulation.

RFF’s Dallas Burtraw notes that flexibility and cooperation with the states are two key aspects for successful implementation of this regulation. Building on his research on reducing carbon emissions, he recently answered frequently asked questions about the costs, challenges, and advantages of regulating power plant emissions at the state level under the Clean Air Act. Video highlights and full text of the FAQs about state implementation of the Clean Air Act are available online, as part of RFF’s resource page on regulating carbon emissions under the Clean Air Act.

Read More

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.


Planning For Fracking on the Barnett Shale: Urban Air Pollution, Improving Health Based Regulation, and the Role of Local Governments
A review by a University of Texas at Austin researcher highlights the rapid proliferation of gas industry operations in urban areas and questions whether state and federal air pollution regulatory programs are well designed to ensure health and safety. The review recommends increased government monitoring, health impact studies and regulation of air pollution. — via Virginia Environmental Law Journal

Trees, Trash, and Toxics: How Biomass Energy Has Become the New Coal
…this first-ever detailed analysis of the bioenergy industry reveals that the rebooted industry is still a major polluter. Comparison of permits from modern coal, biomass, and gas plants shows that a even the “cleanest” biomass plants can emit > 150% the nitrogen oxides, > 600% the volatile organic compounds, > 190% the particulate matter, and > 125% the carbon monoxide of a coal plant per megawatt-hour, although coal produces more sulfur dioxide (SO2 ). Emissions from a biomass plant exceed those from a natural gas plant… — via Partnership for Policy Integrity.

U.N. Intergovernmental Panel on Climate Change Working Group II Final Draft Report
…The U.N. Intergovernmental Panel on Climate Change said that climate change is already hurting the poor, wreaking havoc on the infrastructure of coastal cities, lowering crop yields, and endangering various plant and animal species.
 
But the Nobel Peace Prize-winning group said that climate change’s effects will grow more severe and that spending and planning are needed to guard against future costs, much as people buy insurance against a range of possible accidents or health problems. — via U.N. Intergovernmental Panel on Climate Change

Read More

Identifying “Known Unknowns” in the Natural Gas Revolution

Last week, my colleagues and I released a new RFF report, The Natural NGI-coverGas Revolution: Critical Questions for a Sustainable Energy Future. At one point, I began referring to this document as the “Known Unknowns” report, in reference to a widely quoted Donald Rumsfeld speech. As the former secretary of defense noted, there are certain pieces of information that “we know we don’t know”—and those are what my coauthors and I have tried to identify for the broad world of natural gas development and use.

Our goal was extensive. We reviewed the literature and consulted experts in a range of different areas—from resource estimates, to demand drivers, to environmental risks and economic opportunities—to better understand what socioeconomic and policy questions researchers have already tried to answer. (Note the emphasis on socioeconomic and policy questions, areas that are the strengths of researchers at RFF; we largely chose not to explore technology questions, although there are many of importance.)

This search turned up a small number of relatively definitive answers (the known knowns, if you will), and many more uncertainties or remaining controversies. We sorted these into seven categories, which turned into chapters in the report: supply, demand, economic impacts, environmental impacts, climate impacts, regulatory and voluntary best practices, and international issues.

Read More

Resources Magazine: Negotiating a Post-2020 Climate Agreement in a Mosaic World

As we approach the end game serious negotiations for a post-2020 international climate regime, Brian Flannery describes the difficult road ahead.


Architects of the 1997 Kyoto Protocol believed it would usher in a long-term, top-down process for mitigating climate change, with a growing set of nations taking on increasingly ambitious greenhouse gas emissions targets and carbon markets playing a central role. That has not happened.

Instead, the world has moved to a bottom-up approach, where nations take on self-determined obligations based on national priorities and circumstances—an approach that I characterize as a “mosaic world.” In the mosaic world, for many developed and developing nations, carbon markets play no role. Though it promises less, proceeding under a mosaic approach may ultimately accomplish more than insisting on a top-down approach, which runs the very real risk of reducing participation by many countries that account for significant emissions globally. Without their participation, ambitious goals will never be met.

Tension over these approaches are on display as nations commence serious negotiations to develop a post-2020 agreement to be concluded in Paris in late 2015, at the 21st meeting of the Conference of Parties (COP-21). Since the very visible failure to reach an agreement in Copenhagen in 2009 (COP-15), nations have grown increasingly frustrated and concerned over the viability of negotiations under the United Nations Framework Convention on Climate Change (UNFCCC). In part, this arises from a growing legacy of unmet expectations.

As the negotiations become increasingly complex, fundamental differences continue to grow and separate various coalitions of nations. Groups have yet to resolve central issues, including the following:

  • the magnitude of national emissions commitments, and whether they should put the world on track to limit warming to less than 2°C;
  • the means of implementation—particularly finance, but also technology and capacity building;
  • how the agreement will reflect differences between developed and developing nations based on common but differentiated responsibilities, equity, and historical responsibility; and
  • whether the ultimate agreement will be legally binding.

Given these differences and the realities of today’s mosaic world, progress in Paris may depend on whether nations can embrace bottom-up commitments in lieu of a more ambitious top-down, legally binding approach.

Read the rest of this article.

RFF ON THE ISSUES: Exporting LNG; Local Impacts of Shale Gas; Returning Carbon Tax Revenue

Exporting LNG

Recently, several congressional committees have held hearings to review the benefits and implications of expediting exports of liquid natural gas (LNG). While industry has supported such proposals, environmental groups remain concerned about how increased gas use will contribute to more greenhouse gas emissions (especially methane).“Greenhouse gas emissions need to come down. But fighting exports of gas and oil is way down the list of actions that will be effective and economically sensible,” says RFF’s Alan Krupnick. In a recent blog post, he writes: “To the extent our exports make gas prices in Europe and Asia lower, that may enable more fuel substitution away from coal, lowering greenhouse gas emissions.” Read more commentary on LNG exports from RFF experts here, here, and here.

Local Impacts of Shale Gas

While discussions about natural gas exports have taken the national (and international) stage, local communities around the country continue to feel the direct effects (both positive and negative) of shale gas development. Some regions are experiencing economic booms, while others are eyeing potential risks. On April 10, RFF is hosting a seminar to illuminate the pros and cons of such impacts, including research on the boom-and-bust cycles, how impact fees are being used in local economies, effects on residential property values, and observed changes in truck traffic and accidents in local communities (infographic). Register for the seminar or watch on the web at www.rff.org/live.

Read More

This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:


Oil and Gas Wells and their Integrity: Implications for Shale and Unconventional Resource Exploitation
A small percentage of the shale gas sites drilled in the event of a UK fracking boom would probably contaminate the surrounding environment because of problems with wells, a new report has warned, adding that in some cases the damage could be exacerbated because the companies that drilled them will have gone out of business. — via Marine and Petroleum Geology

US Shale Gas and Tight Oil Industry Performance : Challenges and Opportunities
In just seven years, the US shale gas and tight oil revolution has created significant new challenges and opportunities and a new known-unknown that energy market players and analysts must learn to deal with in the years to come. Among all the data and evidence at hand, this comment focuses around the following pieces of industry data that capture a vast amount… — via Oxford Institute for Energy Studies

Read More

RFF on the Issues: Climate Change Information; Effects of Fuel Efficiency Standards

Climate Change Information

The White House announced that it is collaborating with Google to gather and publish data on climate change, with the goal of helping communities prepare for changes in temperatures and water levels “as easily as they use Google maps to get driving directions.” The joint effort will also feature a high-resolution mapping initiative to track climate-related changes to sea levels.

RFF’s Molly Macauley notes that “the quantity and quality of our information will play a critical role in determining the effectiveness of public and private responses [to climate change].” However, in this Resources article, she writes that such information comes at a price, and outlines four principles for deciding if the information “delivers sufficient bang for the buck.”

Read More

This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:


Co-producing Wells as a Major Source of Methane Emissions: a Review of Recent Analysis
U.S. EPA’s estimate of this number is at least 100 times lower than what it should be, according to a white paper released yesterday by the Environmental Defense Fund (EDF). The white paper reviewed a series of recent studies that have tried to quantify methane emissions from wells that produce both natural gas and oil… — via Environmental Defense Fund

What We Know: the Reality, Risks and Response to Climate Change (AAAS Report)
…Despite “overwhelming evidence”, the AAAS said Americans had failed to appreciate the seriousness of the risks posed by climate change, and had yet to mobilise at a pace and scale needed to avoid a climate catastrophe. — via American Association for the Advancement of Science

Read More