This is the seventh 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.
A key question when developing any new climate policy is how to treat existing policies that already reduce emissions. In EPA’s Clean Power Plan, the agency proposes that actions taken by states since June 2, 2014 could count toward compliance efforts—which are slated to be measured from 2020. However, some feel that EPA is penalizing early adopters by not recognizing actions taken before this date. If EPA counted all actions taken by states before 2020 toward compliance, early adopters would likely be more fully rewarded; but such an approach might also award credit to actions that would have happened regardless of the Clean Power Plan and consequently decrease the emissions reductions achieved under the plan.
“Unquestionably, the proposed Clean Power Plan would establish more aggressive targets in states that committed early to clean energy leadership. This is bad policy on every level.”
—Frank Prager, Vice President, Policy and Strategy, Xcel Energy (See full response.)
“There are, of course, highly compelling reasons to begin to take action now to reduce carbon pollution. . . . These are simply common sense actions, with tremendous co-benefits—and the existence of an initial compliance date for the long-awaited carbon pollution standards does not alter that common sense.”
—Megan Ceronsky, Director of Regulatory Policy and Senior Attorney, Climate and Air Program, Environmental Defense Fund (See full response.)
“Michigan does not agree with this proposed cutoff date and instead recommends adopting EPA’s proposed option of recognizing emissions reductions that existing state requirements, programs, and measures have achieved starting from the end of 2005.”
—G. Vinson Hellwig, Senior Policy Advisor, Michigan Department of Environmental Quality (See full response.)
Today, the U.S. Government Accountability Office (GAO) released a report that reviews four studies about lifting the ban on U.S. crude oil exports—those by RFF, ICF International and EnSys Energy, IHS Global Insights, and NERA. According to the GAO’s summary, these studies estimate that U.S. crude oil prices would increase by about $2 to $8 per barrel—bringing them closer to international prices. At the same time, the gains in U.S. crude oil prices would boost world supplies of crude oil and reduce U.S. prices for gasoline, diesel, and other consumer fuels (which follow international prices).
According to the RFF study, lifting the ban on U.S. crude oil exports will allow crude oil prices in the Midwest to rise to international levels, which will stimulate Midwestern and Canadian crude oil production. In addition, lifting the ban will improve the efficiency of international refinery operations by allowing the lighter crude oil produced in the United States to go to foreign refineries and the heavier crude oil produced abroad to come to U.S. refineries (which are better equipped to handle the heavier crude). The increased production of crude oil and the improved efficiency in refineries will cause prices for refined products to fall.
Even without an improved refinery efficiency, the increased production of crude oil in the Midwest and Canada will mean that prices for refined products will fall, but just by not as much.
The GAO study provides a service by carefully comparing the four studies and showing that they basically reach the same conclusions using very different models. Since those four were completed, several other studies of lifting the ban on U.S. oil exports have been done, such as those by Brookings and Aspen Institute (the latter focusing only on the economic effects). Those studies come to similar conclusions, as well.
The GAO report goes beyond all of these studies by considering the implications of lifting the ban on exporting crude oil from the U.S. strategic petroleum reserve (SPR).
We agree that the SPR should be rethought. We would like to see discussion not only of the size of the reserve and other design issues, but also of the meaning of the reserve given the greater integration of North American energy markets that we expect in the future, especially in light of recent Mexican energy reforms.
Natural Gas Emissions
A new study published online this week in Nature finds that more abundant supplies of lower-cost natural gas in the future would not only displace higher-emitting coal but would also displace lower-emitting renewable and nuclear technologies. It concluded that without additional policies “emissions of heat-trapping gases … would not decline worldwide and could possibly go up” with increased use of natural gas.
RFF’s Brian Flannery, who co-authored the study with an international team of researchers, explains that while many hoped “that the recent US natural gas boom could help slow climate change,” it appears not to be the case. However, he notes that the recent shale gas boom has resulted in various “benefits related to the economy, jobs, energy security, and local air pollution,” which should not be ignored.
Renewable Energy in EPA’s Clean Power Plan
The Union of Concerned Scientists (UCS) recently published a report suggesting that EPA’s proposed Clean Power Plan “could deliver much deeper reductions in emissions” by including more opportunities to take advantage of renewable energy. It recommends a number of alterations to the plan that UCS says would “nearly double the amount of cost-effective renewable energy in [its] state targets.”
As part of RFF’s Expert Forum on the EPA’s Clean Power Plan, UCS Senior Energy Analyst Jeremy Richardson weighs in on EPA’s assumptions about the deployment of renewable energy in its proposal. Richardson describes six ways EPA could strengthen its renewables-based building block, including “factoring in renewable energy growth between 2012 and 2017” and “removing (or relaxing) artificial limits on growth rates.” Experts from the Environmental Defense Fund and Pacific Gas & Electric also provide their views on this issue in RFF’s forum.
China plans to start a nationwide cap-and-trade market in 2016. But can China, whose economy still contains many nonmarket features, properly design and implement a fundamentally market-based policy? In our new RFF discussion paper, my coauthors (RFF’s Richard Morgenstern, Zhongmin Wang, and Xu Liu) and I attempt to answer this question by examining cap-and-trade pilot programs in Shanghai, Shenzhen, and Guangdong that have each operated in China for over a year.
We find that some designs in the pilots represent a deft tailoring of cap and trade to China’s unique political economy. For example, most cap-and-trade designs outside of China require electricity producers to retire allowances and pass allowance costs through to electricity consumers in the form of higher prices; this pass-through ensures that the whole electricity sector (producers and consumers) faces prices that reflect the cost of carbon. In China, however, the government heavily regulates electricity prices and rarely allows those prices to increase—which virtually precludes the pass through of allowance costs. This constraint threatens to keep a carbon price signal from reaching electricity consumers, potentially leaving low-cost abatement opportunities on the table. Read More
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.
Power Plants Are Not Built on Spec: 2014 Update
[Fierce Energy] Just 2.4 percent, at the most, of generation capacity constructed in 2013 was developed solely for sale into organized electricity markets, according to a report released by the American Public Power Association (APPA). In 2013, almost all new generation capacity was supported by long-term power purchase agreements or ownership, and only 6 percent of all capacity constructed that year was built within the footprints of one of the regional transmission organizations (RTO) with mandatory capacity markets, the report, “Power Plants Are Not Built on Spec: 2014 Update,” says. – via American Public Power Association
Potential Impacts of the EPA Clean Power Plan
[The Hill] A study commissioned by the coal industry and other business groups found that the Environmental Protection Agency’s (EPA) carbon rule for power plants could cost at least $366 billion. The analysis, written by Nera Economic Consulting, said that people in 43 states would see double-digit percentage increases in their electricity bills, with at least 20 percent increases in 14 states. Meanwhile, the carbon dioxide reductions would only limit global warming by 0.02 degrees and sea level rises by 0.01 inch, researchers said… – via NERA Economic Consulting
The use of revenue from a carbon tax or cap-and-trade program substantially affects who gains and who loses as a result of the policy; indeed, it is often more important than the effect of the carbon tax itself. In a previous RFF discussion paper, we (together with RFF’s Dallas Burtraw and Richard Morgenstern, and Jared Carbone of the Colorado School of Mines) examined how the initial distribution of the costs across income groups in the United States varied under three different ways to use the revenue generated by a $30 per-ton carbon tax: returning the money via cuts in taxes on labor income, cuts in taxes on capital income, or a equal-sized rebate for every person. (See the blog entry about this paper for more detail).
Our new discussion paper, written with the same team of researchers, follows up by looking at the distribution of costs across states, for the same set of policies. Our methodology is very similar to the earlier paper: we used a dynamic overlapping-generations model to predict price and quantity changes for a range of consumption goods and income sources, and combined that with government data on income from different sources and spending on different goods in each state to estimate how those price changes affect each state. Using RFF’s Haiku electricity market model, we estimated the effects on the price and quantity of electricity consumed in each state, which varies substantially based on characteristics of the local electricity market. Read More
The unexpected energy revolution caused by the rapid growth in North American shale gas production has produced benefits related to the economy, jobs, energy security, and local air pollution, and has contributed to a decrease in US greenhouse gas emissions. However, as my colleagues and I report in a new study published online today by Nature Advance Online Publication (fee required), its overall impact on global greenhouse gas emissions appears to be surprisingly small. In fact, we find that even a very significant expansion in the availability of less-expensive natural gas (up to 300 percent) would have little effect on growing global greenhouse gas emissions.
Because abundant, lower-cost gas is displacing coal in electricity production (where it emits 50 percent less carbon dioxide than coal to produce the same amount of energy), many believed that the recent US natural gas boom could help slow climate change. However, according to our study, globally more-abundant, competitively priced natural gas would displace all energy sources—including both higher-emitting coal and lower-emitting (and relatively more expensive) nuclear and renewable energy technologies, such as wind and solar. In additon, decreasing energy costs accelerates economic growth and increases energy use. Read More
Fuel Economy Improvements
EPA has reported that the average fuel economy achieved by new vehicles in the United States reached a record 24.1 miles per gallon in 2013. The agency “credited the gains to President Obama’s climate agenda,” which aims to increase the fuel efficiency of the US vehicle fleet and reduce greenhouse gas emissions through existing and future requirements laid out by the country’s corporate average fuel economy (CAFE) standards.
In the latest issue of Resources magazine, RFF’s Alan Krupnick, Joshua Linn, and Virginia McConnell propose a series of research questions to consider during the midterm review of light-duty CAFE standards. The authors write: “The next several years will be an important time for research that can enhance this evaluation and inform future policies. . . . Major questions remain about consumer and manufacturer responses to the regulations and the best methods for estimating the costs and benefits.” For more information, see a four-part blog series and infographic by the authors on midterm CAFE review topics.
Climate Action Health Benefits
A new study by Harvard University, Syracuse University, and Boston University indicates that EPA’s proposed Clean Power Plan has the potential to “prevent thousands of premature deaths and hospitalizations, and hundreds of heart attacks” annually in the United States. The study’s authors note that the specific benefits of these regulations are dependent on which policies are included in the final iteration of the Clean Power Plan.
At a recent RFF Policy Leadership Forum, EPA Administrator Gina McCarthy highlighted the potential for climate action to improve public health, emphasizing that “climate change supercharges the risks to our health and our economy.” McCarthy also described the economic benefits of improving public health through the regulation of emissions from power plants, stating that “every dollar we invest through the Clean Power Plan will return seven dollars in health benefits.” Video and transcript of the event are now available.
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy.
Invasive species can cause substantial reductions in a region’s ecological, industrial, and human welfare, and often require significant control expenditures. The Emerald Ash Borer, for example, established itself in the United States in the early 1990s and has caused the death of hundreds of millions of ash trees and is estimated to cause billions of dollars of costs and damages annually. Currently, New Zealand is threatened by the establishment of similar wood borers and bark beetles, pests that pose a substantial threat to the country’s forest industry, as well as to its urban and natural forests. In a new journal article, with New Zealand colleagues Eckehard G. Brockerhoff (Scion), John M. Kean (AgResearch), and James A. Turner (AgResearch), we ask: How much should New Zealand invest in surveillance, and where should traps be placed, to cost-efficiently monitor for new wood borer and bark beetle invasions?
To control newly established invasions and limit their damages, new populations must first be detected. And the sooner that an invasion is detected, the less expensive and more successful eradication or control efforts are likely to be—lessening the costs and damages associated with the invading species. Greater investment in surveillance upfront reduces the expected costs and damages from new invasions, but this can be quite costly; and gauging what level of surveillance spending will produce the most cost-effective results, and where on the landscape those resources should be targeted, is difficult for managers and policymakers to assess. Read More