Space Launch Risk Redux

Indemnification, the nation’s approach to managing some of the risks associated with the launch of privately owned rockets carrying our satellites for telecommunications, Earth observations, supplies for the International Space Station, and other services, is on its way to becoming a new annual rite of winter.  Specifically, the federal government (taxpayer) indemnifies a portion of the financial liability in the event of harms to people and property in the flight path.  As we wrote a year ago, Congress has tended to authorize indemnification for a year at a time.  The US Senate has just agreed on a two-year extension and the House, a one-year extension with language to spend the next year conducting hearings on the provisions.  Among the issues raised are the effects of the indemnification on private and government launch risk management, a peculiar “doughnut hole” where launch companies are indemnified for only a range of losses, and why the government is covering the risk at all. To inform the upcoming debate, we call attention to three key considerations as noted in our last post.

RFF on the Issues

Social cost of Carbon and Electricity

The White House has revised the data used in its evaluation of the social cost of carbon (SCC), resulting in a change from $21 to $38 per metric ton in the central case estimate. The technical support document is open for public comment and officials are interested in understanding “the strengths and limitations of the overall approach.”

Imposing a carbon tax on power generation based on the SCC would change the mix of technologies and fuels used to produce electricity, according to RFF’s Anthony Paul, Blair Beasley, and Karen Palmer. In new research focusing on a range of SCC values, the authors find that lower SCC estimates favor gas substitutions for coal, whereas “higher estimates induce switching to wind and nuclear generation.”

Limits to Ingenuity

A group of researchers from the Rensselaer Polytechnic Institute examined the effort of villagers in China to replace the dwindling bee population by pollenating apple trees by hand—which resulted in a 30 to 40 percent growth in apple production. However, the authors caution against “the danger of allowing the logic of the market to drive conservation policy.”

According to RFF’s James Boyd, humans cannot always depend on ingenuity to “save the day.” He writes: “It’s also hard to imagine how we would innovate our way around the loss of natural resources important to our cultural identity or sense of beauty and wonder. There aren’t many substitutes for the relatively untouched expanse of Alaska’s North Slope if what matters to you is its very wildness.” Boyd also moderated a discussion between historians, ecologists, economists, psychologists, and entrepreneurs to examine such issues. Video is available here.

 

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:


An Apparent Hiatus in Global Warming?
Global warming first became evident beyond the bounds of natural variability in the 1970s, but increases in global mean surface temperatures have stalled in the 2000s. Increases in atmospheric greenhouse gases, notably carbon dioxide, create an energy imbalance at the top-of-atmosphere (TOA) even as the planet warms to adjust to this imbalance… — via Earth’s Future

Use of Internal Carbon Price by Companies as Incentive and Strategic Planning Tool
More than two dozen of the nation’s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming… — via Carbon Disclosure Project

Assessing “Dangerous Climate Change”: Required Reduction of Carbon Emissions to Protect Young People, Future Generations and Nature
We assess climate impacts of global warming using ongoing observations and paleoclimate data. We use Earth’s measured energy imbalance, paleoclimate data, and simple representations of the global carbon cycle and temperature to define emission reductions needed to stabilize climate and avoid potentially disastrous impacts on today’s young people, future generations, and nature. — via PLoS ONE

Gas Production in the Barnett Shale Obeys a Simple Scaling Theory
Ten years ago, US natural gas cost 50% more than that from Russia. Now, it is threefold less. US gas prices plummeted because of the shale gas revolution. However, a key question remains: At what rate will the new hydrofractured horizontal wells in shales continue to produce gas? We analyze the simplest model of gas production consistent… — via Proceedings of the National Academy Sciences

Abrupt Impacts of Climate Change: Anticipating Surprises
Climate is changing, forced out of the range of the past million years by levels of carbon dioxide and other greenhouse gases not seen in the Earth s atmosphere for a very, very long time. Lacking action by the world s nations, it is clear that the planet will be warmer, sea level will rise, and patterns of rainfall will change. But the future is also partly uncertain… — via National Academies Press

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The Warsaw Climate Negotiations, and Reason for Cautious Optimism

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

The Nineteenth Conference of the Parties (COP-19) of the United Nations Framework Convention on Climate Change (UNFCCC) came to a close in Warsaw, Poland, on Saturday, November 23rd, after what has become the norm – several all-night sessions culminating in last-minute negotiations that featured diplomatic haggling over subtle changes to the text on which countries were finally willing to agree.  The key task of this COP was essentially to pave the way for the negotiations next year at COP-20 in Lima, Peru, as a lead-up to the real target, reaching a new international climate agreement at the 2015 negotiations in Paris to be implemented in 2020, when the second commitment period of the Kyoto Protocol comes to an end.  If that was the key objective, then the Warsaw meetings must be judged to be at least a modest success – the baton was not dropped, rather it was passed successfully in this long relay race of negotiations.

Before going further, I would like to acknowledge something else about COP-19 in Warsaw, namely the excellent logistics.  Anyone who suffered through the disastrous logistical arrangements for COP-15 in Copenhagen will not take this for granted.  Perhaps ironically, in the years I’ve been participating in these annual events, the two best organized conferences (in terms of logistical arrangements) were the two Polish COPs – COP-14 in Poznan in 2008 and COP-19 in Warsaw this year.

As I have written in many previous essays at this blog, the challenges standing in the way of an effective international climate change agreement are numerous and severe.  A brief historical account is necessary to explain the significance of what transpired in Warsaw.  However, if you’re familiar with international climate policy, particularly the history of these international negotiations, I suggest you skip the next section and move directly to “Issue #1:  Making Progress toward a Post-Kyoto Agreement.”

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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. Check out this week’s highlights below:


Economics of Climate Change in East Asia
This regional study includes the People’s Republic of China, Japan, the Republic of Korea, and Mongolia and examines how strategies for adapting to climate change up to 2050 can be combined with measures to reduce greenhouse gas emissions in East Asia. Besides discussing climate model results for costs of adaptation in infrastructure, coastal protection… — via Asian Development Bank

Historical Trends in Greenhouse Gas Emissions of the Alberta Oil Sands (1970–2010)
The carbon intensity (CI) of Alberta oil sands production has significantly decreased over the last 40 years, according to a new study by a team from Stanford University published as an open access paper in the journal Environmental Research Letters. — via Environmental Research Letters

Tracing Anthropogenic Carbon Dioxide and Methane Emissions to Fossil Fuel and Cement Producers, 1854–2010
DotEarth: …Yes, those rapacious miners and drillers of ores, oil and gas. How dare they? The findings came from the Climate Accountability Institute, an entity led by Richard Heede, whose company, Climate Mitigation Services, advises companies, municipalities and others on how to cut greenhouse gases, and Naomi Oreskes, the Harvard historian and co-author of “Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming.” — via Climatic Change

Exaggerating the Employment Impacts of Shale Drilling: How and Why
Energy development in the Marcellus and Utica shales has generated far fewer jobs than industry supporters claim, according to a new regional study. The six-state economic report is critical of employment estimates that include jobs from ancillary industries like engineering services and freight trucking. Adding those jobs overstates the shale industry’s employment impact, the study says… — via Multi-State Shale Research Collaborative

EPA Standards for Greenhouse Gas Emissions from Power Plants: Many Questions, Some Answers
The Congressional Research Service (CRS) is downplaying both the costs and benefits of EPA’s pending climate new source performance standard (NSPS) for future power plants, saying it will neither have a major impact on reducing greenhouse gases (GHGs) as some supporters claim or hasten the decline of coal-based power as critics say. — via Congressional Research Service

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Using Satellites to Understand Drought

Map of groundwater storage percentiles, one of the drought indicators derived from GRACE satellite data (courtesy of NASA/Goddard).

Map of groundwater storage percentiles, one of the drought indicators derived from GRACE satellite data (courtesy of NASA/Goddard).

A recent article in The Atlantic Cities highlighted a research paper published in Science by Jay Famiglietti, a professor of Earth System Science at the University of California, and Matt Rodell, Chief of the Hydrological Sciences Laboratory at NASA’s Goddard Space Flight Center.  Famiglietti and Rodell use data from a new generation of Earth observing satellites from the Gravity Recovery and Climate Experiment (GRACE) mission to measure changes in groundwater availability globally.  The researchers identify several areas across the United States that are currently suffering from drought and groundwater depletion, and show how GRACE could help detect and possibly predict such water-related catastrophes in the future.

The GRACE satellites are unique.  Most satellites detect electromagnetic waves reflected or emitted from the Earth’s surface, but GRACE senses variations in the Earth’s gravitational pull by measuring changes in the speed and distance between two identical spacecraft flying in a polar orbit.  As the twin satellites circle the globe together, regions of slightly stronger gravity will affect the lead satellite first, pulling it slightly away from the trailing satellite.  By constantly measuring these changes in relative position, GRACE is able to construct a new gravity map of the Earth each month.

Since its launch in 2002, scientists have used GRACE to study everything from the mass balance of ice sheets to uplifting of the seafloor due to earthquakes.  Famiglietti and Rodell’s study exploits GRACE’s ability to detect changes in the Earth’s gravity field caused by the redistribution of water on or beneath the land surface, including changes in groundwater, soil moisture, and snow.  These measurements allow the authors to overcome the lack of comprehensive ground-based measurements of water storage and develop new insights regarding the potential for regional flooding and drought. Read More

RFF on the Issues

State Species Regulation

Newly proposed legislation allowing for more flexible land use could give states the power to opt out of Endangered Species Act (ESA) regulations. The bill would also require congressional approval for additions to the federal endangered species list, as well as compensation for some private property owners affected by the ESA.

The ESA will be the focus of RFF’s next First Wednesday Seminar, Species Conservation under the Endangered Species Act, on December 4. RFF’s Rebecca Epanchin-Niell will lead panelists in a discussion of the strategies needed to overcome the challenges to effective implementation of the ESA. Register to attend in person or watch via live webcast and Tweet questions using #AskRFF. Read more about new tools for conservation under the ESA in the latest issue of Resources magazine.

Flood Insurance Reform Delay

Congress has yet to reach an agreement that would delay implementation of the Biggert-Waters Flood Insurance Reform Act, which will remove artificially low insurance rates in high-risk areas though the gradual elimination of discounts and subsidies. However, some have voiced concerns about the severity of the changes for many coastal homeowners.

RFF’s Carolyn Kousky and Howard Kunreuther of the University of Pennsylvania’s Wharton School argue that delaying the act “could impede the financial soundness of the [National Flood Insurance Program].” Insurance rates kept artificially low do not accurately reflect information to homeowners about the risks they face. The authors recognize that affordability must still be addressed, however, and suggest enhancing the Biggert-Waters Act with a voucher system coupled to a low-interest loan program for investments in hazard mitigation.

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:


Border Carbon Adjustment and International Trade: A Literature Review
An important source of political opposition to measures aimed at reducing emissions of greenhouse gases (GHGs) arises from concerns over their negative effects on the competitiveness of domestic firms, especially those that are energy-intensive and exposed to competition from foreign producers. Politicians and industry representatives alike… — via OECD

Transaction Costs of Low-carbon Technologies and Policies: The Diverging Literature
Transaction costs are major challenge to moving forward toward low-carbon economic growth, as new technologies or policies tend to have higher transaction costs compared with those in the business as usual situation. However, neither a well-developed theoretical foundation nor a consensus interpretation is available for those transaction costs in the existing literature. — via World Bank

Hydraulic Fracturing: Selected Legal Issues
…An amendment to the Safe Drinking Water Act (SDWA) passed as a part of the Energy Policy Act of 2005 (EPAct 2005) clarified that the Underground Injection Control (UIC) requirements found in the SDWA do not apply to hydraulic fracturing, although the exclusion does not extend to the use of diesel fuel in hydraulic fracturing operations. — via Congressional Research Service

Water Resource Reporting and Water Footprint from Marcellus Shale Development in West Virginia and Pennsylvania
A study of water withdrawals at hydraulic fracturing sites in the Marcellus Shale region shows most of the water injected is eventually removed from the hydrologic cycle, a finding that the study’s authors say raises concerns over operations in drier regions of the country or if operators begin developing deeper shale plays that require more water… — via Downstream Strategies for Earthworks Oil & Gas Accountability Project

Technology Roadmap: Wind Energy
Wind power could generate up to 18% of the world’s electricity by 2050, compared with 2.6% today, the new report Technology Roadmap: Wind Energy – 2013 Edition finds. The nearly 300 gigawatts of current wind power worldwide must increase eight- to ten-fold to achieve the roadmap’s vision, with the more than USD 78 billion in investment in 2012 progressively reaching USD 150 billion per year. — via  International Energy Agency

For more from the RFF Library blog, click here.

Taxing Electricity’s Carbon Emissions at Social Cost

A national tax on carbon emissions would offer an opportunity for deficit reduction and/or tax reform, as well as climate change mitigation. Economists studying taxes on environmental harms, such as carbon emissions, often suggest that the tax be set according to the damage inflicted by the last unit of emissions. In the case of carbon, the economic harm inflicted by an incremental ton of emissions is referred to as the social cost of carbon (SCC).

In order to inform the benefit–cost analysis of new environmental regulations proposed by federal agencies, the president established an Interagency Working Group (IWG) that published estimates of the SCC (initially in 2010 and updated in 2013)—and how it evolves over time. In a recent paper, together with Blair Beasley, we analyzed the effects of taxing carbon emissions from the power sector, the largest emitter of carbon dioxide in the United States, at the most recent values of the SCC. The 2013 IWG report presents multiple possible SCC estimates that grow over time, and we analyzed them all.

Our analysis reveals that imposing an SCC-based carbon tax on the electricity sector would cause a large initial reduction in emissions from power generation in the first year of the tax, followed by much slower rates of further emissions reductions in later years. Emissions reductions are primarily a result of lower power consumption due to higher electricity prices and fuel switching from coal to natural gas. The amount of federal tax revenue from an SCC-based carbon tax in the power sector would range from $21 billion to $82 billion in 2020, while also causing electricity prices to climb between 7 and 50 percent. Price increases are especially large in the middle of the country and in those states that rely heavily on coal generation, while the coasts are least affected by a carbon tax.

The dual environmental and fiscal effects of a carbon tax for the electricity sector provide the context for our paper, but we focus on the environmental consequences and their costs and benefits. We find that even without accounting for the fiscal benefits, the environmental benefits of a power-sector carbon tax exceed its economic costs.

We invite the intrepid inquisitor about welfare economics to explore our analysis of the optimality of taxing carbon emissions at the SCC (the first-best model doesn’t hold for obvious reasons, but it might still be close). We also explore the differences between SCC-based carbon taxes and Hotelling-type carbon prices that could emerge from a cap-and-trade program with identical environmental outcomes.

Two World Views on Carbon Revenues

Traditionally, the value created from pricing pollution has been directed to the regulated industry, an approach called “grandfathering.” However, there has been a growing trend, especially when pricing carbon emissions, toward auctioning emissions permits and the direct payment of emissions fees. These approaches are more consistent with the polluter pays principle and cast carbon revenues as payments for environmental services from the polluting firms to the owner of the atmosphere resource.

Requiring polluters to pay generates revenue, which leads to two fundamental questions. First, who is the owner of the atmosphere resource and thus to whom should the payment accrue? Second, should efficiency or procedural fairness be the primary consideration in deciding how to use carbon revenue? The second question is relevant from a policy design standpoint because greenhouse gas emissions are ubiquitous and their mitigation will be expensive, requiring a successful climate change policy to be both practical and politically feasible.

In a recent paper we discuss these questions in the context of prior and existing environmental policy. We describe the historical trend away from grandfathering toward revenue raising auctions and fees, the revenues of which are largely invested based on the “polluter pays” principle.

While the existing literature has focused on the best means of revenue collection and form of revenue expenditure, the more fundamental philosophical underpinning has been largely overlooked. Identifying the state as the owner of the atmosphere resource implies that the carbon asset value is like any other government revenue, which can be utilized to solve the government’s fiscal or planning problem. If citizens collectively are the owner, then the carbon asset value belongs to the collection of individuals. In this case the government’s utilization of that value to solve its planning problem might be viewed as a taking essentially equivalent to confiscating other property for the same purpose.

We also evaluate the payments for environmental services from a policy design perspective in existing climate policy in six different countries and regions. We determine five payment categories: investment in research and development, investment in energy efficiency, replacement of other taxes with a carbon tax (tax swaps), return of revenue to citizenry on a lump-sum basis (dividends), and the use of carbon asset value as general revenue. Tax swaps and general revenue are associated with a state-owned atmosphere resource. In contrast, dividends clearly are associated with a commonly held atmosphere resource.

chart

We find that British Columbia and Australia, which both have a carbon tax, employ tax swaps to offset a substantial portion of their revenues and—along with the Regional Greenhouse Gas Initiative (RGGI) and California—return a portion of their revenues to citizens, especially low-income individuals. The most common forms of revenue-use are investments in energy efficiency and renewable energy projects, which are designed by the government but benefit energy consumers (common property owners). Each form of expenditure has its merits and concerns in terms of economic efficiency, political feasibility, transparency, and ability to further the policy’s effectiveness in climate change mitigation, which are considered in the paper.

Ultimately, the only philosophy certainly embraced among all the carbon-pricing schemes—to varying degrees but generally on the ascent—is the polluter pays principle. This philosophy has created an associated increase in carbon revenue. The resulting question we examine is: To whom should this value accrue? Practice in existing programs has resulted in numerous forms of revenue expenditure across the globe, leading to varying efficiency and socio-political outcomes.