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Expert to expert commentary on the science, law and economics of climate change.
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- Tomás Carbonell
- Nat Keohane
Vice President for International Climate
- Ilissa Ocko
High Meadows Fellow, Office of Chief Scientist
- Peter Zalzal
- Gernot Wagner
- Graham McCahan
- Mandy Warner
Climate & Air Policy Specialist
- Pamela Campos
High Meadows Scientist
- Tomás Carbonell
Selected category: Economics
The Federal Energy Regulatory Commission (FERC), a grid operator, states, and other parties just filed briefs with the U.S. Supreme Court in a case that could decide whether Americans have access to low-cost, clean and reliable electricity.
The case, EPSA v. FERC, revolves around demand response, a resource that helps keep prices low and the lights on – and does so while also being environmentally friendly.
In 2013, for example, demand response saved customers in the mid-Atlantic region close to 12 billion dollars. And during the polar vortex, which threatened the North-East with freezing cold in 2014, the resource helped prevent black-outs.
The clean energy rule at issue in this case is called FERC Order 745. EDF has been writing about this demand response case throughout the past year. We’ve been fighting for low-cost demand response and we’ll keep fighting in the Supreme Court.
History of the Case
The case involves a FERC rule that allows demand response – a low-cost, clean, and reliable energy conservation resource – the chance to compete fairly in our nation’s wholesale energy market.
EDF and a broad coalition of consumer advocates, environmental groups, companies, and industry organizations support it.
Demand Response – How It Works, Why It’s Popular
The broad support for demand response exists because of how the resource works.
Demand response reduces energy demand when power is needed most, rather than increasing supply from costly, carbon–emitting fuels. It relies on people and technology, not power plants, to affordably meet our country’s rising electricity needs. In so doing, it reduces costs for everyone by taking the place of very expensive generation.
Anyone in favor of cleaner, more reliable, lower-cost energy has a reason to support demand response.
What’s at Issue
FERC is the federal agency responsible for keeping our electricity rates “just and reasonable” (in other words, for making sure we get fairly priced electricity).
FERC created Order 745 to further that goal. Order 745 allows demand response access to the wholesale energy market, where electricity is bought and sold. It levels the playing field between demand response and traditional sources of electricity generation, like coal.
In doing so, demand response has been able to reduce our use of unneeded, costly electricity – the exact type of electricity that should be limited if one wants “just and reasonable” rates.
Electricity producers challenged FERC’s Order 745, arguing that the agency lacked jurisdiction to create it. A three-judge panel for the U.S. Court of Appeals for the D.C. Circuit Court, in a split 2-to-1 decision, ruled in favor of the challengers.
Now FERC — as well as states, demand response providers, grid operators, and others – have stated their case to the Supreme Court.
The Case Before the Court
In its just-filed brief, the Solicitor General said on behalf of FERC:
Given that demand-response programs unquestionably confer significant benefits on wholesale markets, including lower rates, there is no defensible justification for concluding that the [Federal Power Act] nevertheless altogether excludes the programs from wholesale markets or FERC regulation. (FERC brief page 34)
The FERC brief also says:
By exercising authority over wholesale demand-response programs, FERC can ensure that a practice that occurs in wholesale markets, and has been widely recognized as tremendously important to the efficient functioning of those markets, will continue to provide benefits to consumers and the economy and is deployed in a way that results in just and reasonable wholesale rates and a reliable electricity system. (FERC brief page 45)
Another party to the case, demand response company EnerNOC, said in its brief:
Without demand response participation, wholesale energy markets will not ‘function…effectively’: Competition will be constrained; and prices will be higher. (EnerNOC brief page 39)
What Happens Next
Next, attention will turn to the amicus briefs – briefs filed in support of the parties to the case. Those, including EDF’s amicus brief, will be filed by July 16.
The Supreme Court is expected to hear oral arguments in the case this fall.
You can find all the briefs in the case here. And EDF will keep you updated as the case moves forward.
By Ben Ratner, Senior Manager, Corporate Partnerships Program
Too much ink has been spilled on the anti-climate furor of the Koch brothers. If we lose on climate, it won’t be because of the Koch brothers or those like them.
It will be because too many potential climate champions from the business community stood quietly on the sidelines at a time when America has attractive policy opportunities to drive down economy-endangering greenhouse gas emissions.
Corporate executives have the savvy to understand the climate change problem and opportunity. They have the incentive to tackle it through smart policy, and the clout to influence politicians and policy makers. Perhaps most importantly, they can inspire each other.
And today, they have a chance to do what they do best: lead. Corporate climate leadership has nothing to do with partisanship – it’s ultimately about business acumen.
For starters, here are three immediate opportunities smart companies won’t want to miss.
1. Clean Power Plan: Will spur new jobs and investments.
The Obama administration’s plan will cut emissions from coal plants by 30 percent by 2030. This is expected to trigger a wave of clean energy investment and job creation. It will also seize energy efficiency opportunities and take advantage of America’s abundant and economic supply of natural gas.
Every company with an energy-related greenhouse gas footprint has something to gain from a cleaner power mix. Each one of those companies therefore has a stake in theClean Power Plan.
Google and Starbucks – two large and profitable American companies by any standard – are among more than 200 businesses that have already stepped up to voice their support.
2. First-ever methane rules: Will make industry more efficient.
The U.S. Environmental Protection Agency’s upcoming methane emission rules are another opportunity for business leaders to weigh in.
The rules are part of a White House plan that seeks to reducemethane emissions – a major contributor to global warming and resource waste – by almost half in the oil and gas industry.
Globally, an estimated 3.6 billion cubic feet of natural gas leaks from the sector each year. This wasted resource would be worth about $30 billion in new revenue if sold on the energy market.
Some oil and gas companies that have already taken positive steps include Anadarko, Noble and Encana, which helped develop the nation’s first sensible methane rules in Colorado.
Engaging to support strong and sensible national standards isa good next step for companies in this space. And for others with a stake in cleaning up natural gas, such as chemical companies, and manufacturers and users of natural gas vehicles.
3. New truck standards: Can help companies cut expenses and emissions.
New clean truck standards are scheduled for release this summer. Consumer goods companies and other manufacturers stand to see significant dollar and emissionsavings as they move their goods to market.
Cummins, Wabash, Fed Ex, Con-Way, Eaton and Waste Management are among those that applauded the decision to move forward with new standards.
Putting capitalism to work
American business leadership is still the global standard and will remain so if it adds climate policy to its to-do list. While it will take time to build the bi-partisan momentum for comprehensive national climate legislation, there are immediate opportunities to move the needle.
Which companies will take the field?
Image source: Flickr/Don McCullough
This post originally appeared on our EDF Voices blog.
A pair of critical analyses were just released that, together, make clear the need for a strong second generation heavy truck fuel efficiency and greenhouse gas standard.
The first piece is the U.S. Energy Information Agency’s (EIA) preliminary Annual Energy Outlook for 2015. I went right to the projection of fuel efficiency for new heavy trucks in 2020, which is 7.0 miles per gallon, and compared that to the projection for 2030, which is 7.2 miles per gallon. A three percent increase in efficiency for a decade is not too impressive.
As a result of this lack of projected progress on fuel efficiency and other factors, EIA expects that greenhouse gas emissions from heavy trucks will increase more than any other single end-use source by 2040 – an additional 120 million metric tons a year.
The other recent analysis is from The International Council on Clean Transportation. It released two papers on heavy truck fuel efficiency: one reviewed the potential of current and emerging efficiency technology; the other examined the cost effectiveness of these technologies.
Among the group’s findings are:
- Already available tractor-trailer technologies can achieve 9 miles per gallon, deliver payback periods of less than a year, and be widely deployed in the 2020 to 2025 time frame.
- Advanced efficiency technologies, now emerging in the marketplace, can double fuel economy to 11 to 12 miles per gallon, with payback periods of 18 months or less in the 2025 to 2030 time frame.
- Diverse technology approaches – meaning technology packages with differing contributions from aerodynamic, engine, and other technologies – can achieve similar efficiency results.
- Even under very conservative assumptions — fuel prices remaining as low as $3.10 per gallon diesel, higher technology costs, and a high discount rate of 10 percent — the most advanced technology packages have payback periods of only 1.4 to 2.2 years.
- Typical first owners of tractor-trailers with efficiency technology packages up to 9 miles per gallon would see fuel savings 3 to 9 times greater than the upfront technology cost over the period of ownership.
ICCT’s findings demonstrate that we have the technology to cost-effectively cut truck fuel consumption in half compared to 2010 levels. EIA’s projections demonstrate that, without well designed performance-based standards, truck manufacturers are unlikely to deploy these highly cost-effective solutions.
There is good news in EIA’s report, too. The 7.0 miles per gallon in 2020 is up from 6.0 miles per gallon in 2012. The increase can be attributed to the first round of Heavy Truck Fuel Efficiency and Greenhouse Gas Standards set by President Obama in 2011.
We know that well-designed fuel efficiency standards work because we are seeing it in the market today. For the second generation standards that will be announced this spring, we urge the administration to incentivize the full scale deployment of the advanced technologies highlighted in the ICCT analysis.
Each ton of carbon dioxide emitted into the atmosphere today causes about $40 worth of damages. So at least says standard economic thinking.
A lot goes into calculating that number. You might call it the mother of all benefit-cost analyses. It's bean-counting on a global scale, extending out decades and centuries. And it's a process that requires assumptions every step along the way.
The resulting $40 figure should be taken for what it is: the central case presented by the U.S. Government Interagency Working Group on Social Cost of Carbon when using its preferred 3% discount rate for all future climate damages. But it is by no means the full story.
Choose a different discount rate, get a different number. Yale economist Bill Nordhaus uses a discount rate of slightly above 4%. His resulting price is closer to $20 per ton of carbon dioxide. The Stern Review on the Economics of Climate Change uses 1.4%. The resulting price per ton is over $80.
And the discount rate is not the only assumption that makes this kind of a difference. In Climate Shock, we present the latest thinking on why and how we should worry about the right price for each ton of carbon dioxide, and other greenhouse gases, emitted into the atmosphere. There are so many uncertainties at every step—from economic projections to emissions, from emissions to concentrations, from concentrations to temperatures, and back to economics in form of climate damages—that pointing to one single, final number is false precision, misleading, or worse.
Of course, that does not mean that we shouldn't attempt to make this calculation in the first place. The alternative to calculating the cost of carbon is to use a big fat zero in government benefit-cost calculations. That's clearly wrong.
Most everything we know about what goes into calculating the $40 figure leads us to believe that $40 is the lower bound for sensible policy action. Most everything we know that is left out would push the number higher still, perhaps much higher.
As just one example, zero in on the link between carbon concentrations in the atmosphere and eventual temperature outcomes. We know that increasing concentrations will not decrease global temperatures. Thank you, high school chemistry and physics. The lower bound for the temperature impact when carbon concentrations in the atmosphere double can be cut off at zero.
In fact, we are pretty sure it can be cut off at 1°C or above. Global average temperatures have already warmed by over 0.8°C, and we haven't even doubled carbon concentrations from preindustrial levels. Moreover, the temperature increases in this calculation should happen 'eventually'—over decades and centuries. Not now.
What's even more worrying is the upper tail of that temperature distribution. There's no similarly definitive cut-off for the worst-case scenario. In fact, our own calculations (based on an International Energy Agency (IEA) scenario that greenhouse gas concentrations will end up around 700 parts per million) suggest a greater-than-10% chance of eventual global average warming of 6°C or above.
Focus on the bottom row in this table. If you do, you are already ahead of others, most of whom focus on averages, here depicted as "median Δ°C" (eventual changes in global average surface temperatures). The median is what we would expect to exceed half the time, given particular greenhouse gas concentrations in the atmosphere. And it's bad enough.
But what really puts the "shock" into Climate Shock is the rapid increase in probabilities of eventual temperatures exceeding 6°C, the bottom row. While average temperatures go up steadily with rising concentrations, the chance of true extremes rises rapidly:
That 6°C is an Earth-as-we-know-it-altering temperature increase. Think of it as a planetary fever. Normal body temperatures hover around 37°C. Anything above 38°C and you have a fever. Anything above 40°C is life-threatening.
Global average warming of 3°C wouldn't be unprecedented for the planet as a whole, in all of it geological history. For human society, it would be. And that's where we are heading at the moment—on average, already assuming some 'new policies' to come into play that aren't currently on the books.
It's the high-probability averages rather than low-probability extremes that drive the original $40 figure. Our table links greenhouse gas concentrations to worryingly high probability estimates for temperatures eventually exceeding 6°C, an outcome that clearly would be catastrophic for human society as we know it.
Instead of focusing on averages then, climate ought to be seen as a risk management problem. Some greenhouse gas concentration thresholds should simply not be crossed. The risks are too high.
This kind of focus on temperature extremes is far from accepted wisdom. We argue it ought to be.
The U.S. Environmental Protection Agency (EPA) is hard at work right now on the Clean Power Plan – the first ever national carbon pollution standards for power plants.
Among the many important aspects of this historic plan, we believe this: It is critical that EPA finalize carbon pollution standards for the power sector that include protective, well-designed standards beginning in 2020.
Power plants account for almost 40 percent of U.S. carbon dioxide emissions, making them the largest source of greenhouse gas emissions in the nation and one of the largest sources of greenhouse gases in the world.
The Clean Power Plan will be finalized this summer. When fully implemented, it is expected to reduce greenhouse gas emissions from the power sector to 30 percent below 2005 levels. That makes these eminently achievable and cost-effective standards integral to climate security, human health and prosperity.
The Clean Power Plan will phase in over a 15-year period, with interim standards commencing in 2020, and final standards taking effect in 2030 – and there is strong reason to believe that the interim standards covering the period 2020 to 2029 should be strengthened in the final rule.
Interim standards can help the U.S. secure near-term low-cost opportunities to reduce greenhouse gas emissions, while generating the market signals necessary to achieve the deeper reductions required in the years ahead. They also can deliver important public health benefits for our families by providing healthier and longer lives for millions of Americans. And EPA has designed the interim standards in a manner that provides considerable flexibility to states and power companies to comply while deploying their own unique solutions.
Carbon Pollution Limits that Begin by 2020 are Essential for Driving Near-term Actions to Reduce Dangerous Emissions and to Advance Climate Security
As proposed, the Clean Power Plan’s interim standards could deliver cumulative emissions reductions of more than 5 billion tons of carbon dioxide. That approaches the total annual carbon dioxide emissions for the entire United States. Protective interim standards that require states and power companies to take near-term action to reduce carbon pollution are essential to secure these climate benefits.
Interim standards are essential for mobilizing the full range of near-term cost-effective opportunities to cut pollution, as they are the only way to ensure that investments in activities that reduce carbon pollution are fully recognized and properly rewarded. This is true whether the investments are new renewable generation, customer-friendly demand side energy efficiency programs, or other low-carbon solutions.
As the cost of clean energy decreases and the heavy burden of carbon pollution increases, a near-term limit on carbon emissions helps ensure these vital solutions are deployed without delay.
Interim standards can also help drive sustained investments in one especially important area – energy efficiency. Investments in energy efficiency can lead to direct financial benefits for customers – families and businesses alike – in the form of lower electric bills.
23 states are already implementing mandatory efficiency savings targets. These efforts have been overwhelmingly successful, regularly delivering two dollars of savings to customers for every one dollar invested – and in some cases up to five dollars for every one dollar invested.
Even in those states that have been implementing these programs for a while, there is little reason to believe that they have come anywhere close to exhausting the available potential. For example, analysis by McKinsey & Company found that implementing only those efficiency measures that pay for themselves would reduce the country’s total end-use energy consumption by 23 percent by 2020 relative to a business-as-usual scenario.
Analysis by the National Academy of Sciences found that the building sector could reduce energy consumption by 25 to 30 percent between 2030 and 2035, at a cost of just 2.7 cents per kilowatt hour saved. In addition, they found that cost-effective measures could reduce industrial demand 14 to 22 percent by 2020.
For all these reasons, electricity bills are actually expected to decrease as a result of efficiency investments power companies and states make to comply with the Clean Power Plan.
Near-Term Reductions are Essential to Ensure Healthier, Longer Lives for Millions of Americans
The interim emission standards are expected to drive significant near-term public health benefits across America.
In 2020 the proposed standards are expected to prevent:
- Up to 4,300 premature deaths
- Up to 100,000 asthma attacks in children
- Up to 2,100 heart attacks
- Up to 1,500 hospital admissions
- Up to 290,000 missed school and work days
Even greater benefits are anticipated in later years.
That’s because power plants are major sources of emissions for a range of pollutants that contribute to ground-level ozone, better known as smog, and dangerous particulate pollution, better known as soot. Power plants are also a major source of emissions for pollutants that have neurotoxic or carcinogenic (cancer-causing) effects.
Power plants account for about 70 percent of U.S. total sulfur dioxide emissions and 46 percent of mercury emissions, and are important sources of nitrogen oxides. Steps taken to reduce carbon pollution under the Clean Power Plan will have the co-benefit of reducing emissions of these and other harmful air pollutants.
EPA estimates that these human health benefits outweigh the costs of compliance by a factor of seven to one.
Each year they are in effect, these important safeguards provide healthier and longer lives for Americans.
Protective Interim Standards are Flexible and Achievable
The goals of the Clean Power Plan are eminently achievable, as they are based on proven and cost-effective methods for reducing carbon pollution that many states and power companies are already demonstrating.
In addition, the Clean Power Plan provides an extraordinarily flexible structure in which states are able to craft their own path forward for reducing carbon pollution, so long as they meet the 10-year average interim target over the period 2020-2029 and then achieve the final reduction target in 2030. This flexibility provides states with the opportunity to harness their own unique opportunities and solutions in light of their own policy preferences.
When evaluating the feasibility of the standards, it is important to consider how quickly the nation’s grid is already decarbonizing. Emissions of carbon pollution from the power sector fell 15 percent from 2005 to 2014. As proposed, the Clean Power Plan only requires them to fall another 15 percent by 2030. Analysis by EIA suggests that the U.S. could cost-effectively reduce greenhouse gas emissions from the power sector about four times faster.
Here’s more evidence that the grid is decarbonizing at a considerably faster rate than what is required by EPA – in the five year period from 2007 to 2012, the Northeastern states reduced their carbon dioxide emissions from large power plants by 37 percent to 42 percent below 2005 levels. The reductions were due to a wide range of factors, including the adoption of the Regional Greenhouse Gas Initiative, shifting natural gas prices, and efficiency investments. That demonstrates the dynamic flexibility and adaptability of which the grid is capable.
This is all happening in the context of a continuously evolving and decarbonizing electric system. Since 2000, the U.S. has installed roughly 30 gigawatts of new generation capacity per year, the vast majority of which was natural gas and renewables. According to EIA, more than 20 gigawatts of utility scale renewables, natural gas, and nuclear generation are already scheduled to come online in 2015, almost half of which is wind.
Meanwhile, we continue to build new infrastructure – which can help unlock even greater opportunities.
For example, according to the Department of Energy, during the last several years more than 2,300 circuit miles of new transmission additions were constructed annually. According to FERC, there are almost 10,000 miles of proposed new transmission projects in various stages of development that have a “high probability of completion” by January 2017.
Protective interim standards will align our nation’s major investments in new infrastructure with climate security – providing lasting protections and smart investments.
Interim Standards Can Help Promote Investments that Drive Even Deeper Reductions in the Years Ahead
The cost of zero carbon generation is rapidly falling. Wind and solar are cheaper than coal – and even natural gas in a growing number of markets.
As a result, the solar industry is expecting to build another 20 gigawatts of new generation over the next two years alone. That’s roughly equivalent to the generation of 13 mid-sized coal plants. (The average capacity factor for new utility scale solar array is around 20 percent, while the average monthly capacity factor for the coal fleet was 61 percent in 2014.)
While EPA’s building blocks assume only modest growth in renewable generation over the next 15 years, recent shifts in price dynamics suggest that the actual market opportunity could be considerable. For this opportunity to materialize, however, power companies and investors need a clear signal about the value of reducing carbon pollution from the power sector.
Providing the clear investment signal beginning in 2020 can shape the broader range of infrastructure investments expected in the coming years, and ensure that they are consistent with the low carbon future we will need if we are to stave off the worst impacts of climate change.
That broader range of infrastructure investments includes the vast miles of electric transmission and natural gas pipelines that are expected to be built in the coming years, as well as investment decisions in today’s generation fleet. More than 30 percent of coal plants are 50 years old, and approximately one in four plants do not contain controls for sulfur dioxide or nitrogen oxides.
In total, utilities appear poised to invest up to $2 trillion in new generation, transmission, and distribution infrastructure between 2010 and 2030 in order to modernize aging generating facilities and grid systems. Any delay in establishing carbon pollution standards for the power sector increases the uncertainty and increases the risk that investments could become stranded in the future.
All of this suggests that well-designed interim standards are both achievable and essential. If anything, the standards should be strengthened given the urgency of the climate challenge, the scale of change we have seen in the power sector to date, and the significant public health and economic benefits the standards can provide.
We have an opportunity as a nation to take advantage of the fact that the economics of power generation are rapidly changing. The best way for both companies and states to position themselves for a competitive advantage in the future is to think long-term and to get on the leading edge of these emerging trends. Otherwise, there is a risk of reinvesting in assets that will be left behind by a changing market, leaving shareholders and ratepayers on the hook.
The Clean Power Plan presents a real opportunity. Let’s all work together to strengthen the program, and work to deliver a vibrant low-carbon economy for the United States.