Market Forces

What policy instrument options are available to address methane emissions from the oil and gas sector?

By / Bio / Published: August 25, 2022

This blog was coauthored by Maureen Lackner, Huong Nguyen and Aaron Wolfe.

New EDF Economics Discussion Paper describes the instrument options available to policy makers in both oil and gas producing as well as importing countries.

Measuring to assess context and quantity of methane emissions in the EU. Photographer: Jarno Verhoef.

Policy makers around the world are increasingly recognizing the need to drastically reduce methane emissions in parallel with carbon dioxide emissions. More than a hundred countries have signed the Global Methane Pledge and made a collective commitment to reduce global methane emissions by 30% by 2030 from 2020 levels.

Reducing methane emissions in the oil and gas sector is considered particularly promising, not only because of estimated low or even negative net abatement costs for many of these emission sources, but also because most of these solutions involve mature existing technologies and work practices.

What public policy instruments can help reduce methane emissions from the oil and gas sector? We address this question in our recent EDF Economics Discussion Paper Policy Instrument Options for Addressing Methane Emissions from the Oil and Gas Sector from the perspectives of oil and gas producing as well as importing countries. Read More »

Also posted in Climate Change, emissions, Technology / Leave a comment

How we can make Time of Use Pricing work for everyone

By / Bio / Published: March 9, 2020

How we pay for electricity has important implications for our bills, as well as for the costs of the electric system. Most people pay a flat rate, essentially one price per unit of electricity (or kWh) they consume, regardless of when they consume it. However, because the cost of generating and delivering electricity varies throughout the day, having varying prices over the course of the day creates an important and actionable signal: use less electricity during high-priced and high-cost times; use more of it when it’s cheaper. This helps keep costs down in the long run and allows customers to save money by shifting their consumption to low cost times.

Yet there is some evidence that certain communities may be disadvantaged under this type of pricing structure; thus, we must identify and implement policy solutions to address this misalignment.

New study highlights inequities

A new study by Lee White and Nicole Sintov published in Nature Energy highlights some of these challenges. They looked at a pilot study in a southwestern electric utility that implemented time-of-use (TOU) tariffs (with a high cost peak period and a low cost off-peak period). White and Sintov gathered data from participants, including Hispanic, low income, elderly, and those with disabilities, and found some areas for concern.

For example, they find that the elderly and customers with disabilities saw greater increases in bills on TOU than their non-vulnerable counterparts, likely due to a reduced ability to shift their consumption to cheaper, off-peak times.

They also find that some of these customers who faced smaller bill increases, likely due to underlying preferable load profiles, faced either worse health outcomes (this was true for Hispanic households), or more discomfort than others (true for low income households).

Low-income and Hispanic households reported turning off AC more often than their non-vulnerable counterparts, but did not have a greater reduction in on-peak use. These households appear to have made a much more extreme sacrifice to achieve the same level of peak time reduction achieved by other pilot participants without negative health and comfort impacts.

It is likely that these potential negative health and comfort outcomes of TOU rates are exacerbated by the stock of older, less efficient appliances and leaky homes, common in low-income households. When households have to rely on less efficient appliances, it is harder for them to shift the timing of their cooling to cheaper hours of the day; many have to turn off the A/C altogether, leading to severe discomfort. Furthermore, when the house is leaky, any efforts to pre-cool the home during cheap times will not result in comfortable indoor temperatures during costly times of day.

Policy solutions can make TOU rates work for everyone

So we face a dilemma: TOU rates can help improve the system, and could help all customers reduce their bills, but achieving these benefits with old appliances and leaky homes is a major challenge. How can we maximize the benefits of implementing TOU rates while ensuring that all communities can participate?

Fortunately, policy solutions exist that can help level the playing field.

  • Bill protection: Utilities can implement bill protection, whereby customers will not face bill increases under a TOU rate for a limited period of time. This allows customers to benefit if they are able, but will not harm those who find themselves unable to adequately shift consumption. In California, for example, Southern California Edison provides a full year of bill protection for customers transitioning to TOU rates.
  • Programs to help with weatherization and appliance upgrades: Programs like the Low Income Home Energy Assistance Program (LIHEAP) target less affluent customers and can provide assistance with either weatherization or efficiency improvements in appliances.
  • Robust marketing, education and outreach (MEO): Ensuring electric customers understand what rate they are on, and how changes in consumption can help them achieve lower bills is key to maximizing the benefits of TOU rates. This requires significant marketing, education and outreach. For customers who may face language or information barriers, the need for targeted MEO is even more pronounced.
  • Ensure that TOU rates are actionable: For TOU rates to be most effective at reducing consumption during peak hours, the ratio of peak to off-peak prices needs to be significant, and the length of the peak hours manageable. This provides ample space for customers to shift away from peak times and benefit from a greater number of low cost hours.
  • Allow TOU rates to be opt–out: Mandating TOU for all customers can exacerbate these disparities, especially among those who face challenges in responding to the time differences. Many low-income customers rent rather than own their homes, making it more difficult to invest in home weatherization or energy efficient appliances, two strategies that can make TOU rates easier to respond to. Allowing customers to opt out provides an important option to ensure equitable outcomes from more advanced electricity pricing, particularly for low-income renters. California utilities currently implement all TOU rates as opt-out.

TOU rates can provide many benefits to society and the environment, and could help put money back in the pockets of low-income and elderly customers. However, in order to avoid any negative consequences due to inefficient appliances and leaky homes, we will need to take extra measures outside of rate setting itself.

Posted in Energy efficiency / Leave a comment

Accelerating clean energy innovation is key to solving the climate crisis

By / Bio / Published: March 19, 2019

This post originally appeared on Climate 411 and was co-authored by Elgie Holstein

Our nation has a history of tackling big challenges and leveraging the ingenuity of American entrepreneurs to develop solutions that have changed the world – from curing diseases to exploring space to launching the internet. Today, climate change is one of our most urgent global challenges, for which there is little time left to prevent the most destructive impacts. To combat it, we must bring every bit of our nation’s entrepreneurial creativity and scientific excellence to bear. That means accelerating the deployment of existing low-carbon technologies as well as investing in new and emerging innovations that can transform our economy to 100% clean energy. And we have to do it quickly.

Fortunately, there are recent indications that a clean energy innovation agenda can attract bipartisan support in Congress, even as the debate over broader climate policy remains gridlocked. Recently, in the Republican-controlled Senate, the Environment and Public Works Committee held a hearing focused on a bipartisan bill that would invest in research on cutting- edge approaches such as direct air capture (DAC), a “negative emissions technology” (NET) that might someday be able to suck carbon pollution directly out of the air and store it or recycle it into fuel, fertilizer, and concrete.

A complement to conventional approaches to climate mitigation that reduce emissions, NETs remove carbon dioxide that’s already in the atmosphere. They range from technological options like DAC to natural sequestration techniques such as replanting and vitalizing forests and adopting sustainable farming practices that put more carbon into the soil. The Committee also looked at the state of carbon capture and storage (CCS) technology, which can capture carbon pollution from industrial smokestacks, including at power plants, and store it underground.

In the House, the Committee on Science, Space, and Technology held a hearing highlighting the contributions of one of America’s most successful energy research and development organizations, ARPA-E, the Advanced Research Projects Agency–Energy. Its special mission is to move high-impact energy technologies from the research workbench to the market. Its successes have earned the agency support from a wide array of groups on both sides of the aisle, even as President Trump has proposed ending this popular bipartisan initiative.

Together, these hearings illustrate a growing understanding that investing in emerging technologies that slash carbon pollution is good for the environment and the economy, as well as for maintaining America’s competitive edge in the global clean energy revolution.

Unlocking innovation

In order to avoid the worst effects of climate change, the world must reach net-zero emissions – taking as much carbon out of the atmosphere as we put into it – by mid-century. In its recent report on limiting temperature increases to 1.5 degrees Celsius, the Intergovernmental Panel on Climate Change (IPCC) emphasizes that cutting carbon pollution at the pace and scale required to avoid the worst effects of climate change will require rapid development and deployment of an expanded portfolio of low- and zero-carbon options.

In the U.S., we must take advantage of every cost-effective opportunity to cut climate pollution now, while investing in the innovations that will put us on course for net-zero emissions as soon as possible. Doing so will position us to lead the world in new clean-energy technologies, creating millions of new jobs for Americans.

Potential breakthrough technologies are on the horizon, from utility-scale energy storage, which can enable us to use lots more renewable power, to new means of capturing and storing carbon. But innovation and adoption are not happening fast enough, and many of the technologies that can make a difference are not currently cost-effective.

Accordingly, we must put in place the policies and incentives that will drive massive expansion and deployment of existing clean energy technologies such as solar and wind, backed by enforceable declining limits and a price on carbon pollution. At the same time, we must multiply investment in nascent, or even not-yet-dreamed-of, technologies, so that a new supply of clean solutions can be made market-ready, in order to close the emissions gap ahead.

Moreover, we need the pairing of policy frameworks — such as imposing carbon emissions limits and requiring companies to pay when they pollute — with investment in innovative solutions, such as NETs. That will produce a multiplier effect, allowing for greater ambition in curbing greenhouse gas pollution on a faster timeline. Requiring companies to face the true costs of their pollution will lead them to seek out cleaner sources of energy, not just as customers for new technologies, but as production and process innovators. Meanwhile, government investment in critical research will spark the development of new solutions that will be ready for deployment when the market demands them, lowering compliance costs and driving transformative change across the economy.

The case for Congress

While it is encouraging to see Congress engaging in conversations on innovation as a means of addressing climate change, much more work is needed.

Policymakers from both sides of the aisle must commit to investing in the development of clean energy solutions while creating the market conditions necessary to make significant cuts in climate pollution, starting now. They must articulate and act on a vision of achieving net-zero greenhouse gas pollution by mid-century.

Investing in innovation is a key piece of the puzzle. So, too, are policies that protect American families and communities while boosting our economy and cleaning our air.

The challenge is significant. Fortunately, America has shown that it is up to the job.

Also posted in Technology / Leave a comment

How reverse auctions can help scale energy storage

By / Bio / Published: January 24, 2019

This post is co-authored with Maureen Lackner

Just as reverse auctions have helped increase new renewable energy capacity, our new policy brief for the Review of Environmental Economics and Policy argues they could also be an effective approach for scaling energy storage.

Why we need energy storage

Voters have spoken, and states are moving toward cleaner electricity. Legislatures in Hawaii and California passed mandates for 100 percent clean energy in the electricity sector, and governors in Colorado, Illinois, Nevada, New Jersey, New York, Maine, and Michigan have all made similar 100 percent clean energy promises in recent months. These ambitious targets will require large-scale integration of wind and solar energy, which can be unpredictable and intermittently available. Cost-effective energy storage solutions can play a leading role to provide clean, reliable electricity—even when the sun isn’t shining and wind isn’t blowing.

Energy storage systems—ranging from lithium-ion (Li-ion) batteries to hydroelectric dams—can provide a wide array of valuable grid services. Their ability to bank excess energy for use at a later date makes them particularly well-suited to address the intermittency challenge of wind and solar. In some cases, energy storage systems are also already cost-competitive with natural gas plants.

However, in order to reach ambitious clean energy targets, we’ll likely need to close a large energy storage gap. One recent estimate suggests approximately 10,000 Gigawatt hours (GWh) of energy storage may be needed to support a two-thirds renewables domestic electricity mix. In our policy brief, we estimate the United States currently has no more than 10 percent of this utility-scale energy storage capacity available; the actual quantity is likely much lower. Developing vast levels of energy storage will likely be an important factor toward integrating a greater share of renewables into the energy mix. Smart policy design can help drive energy storage prices even further below current historic lows, while ensuring these technologies are procured cost-effectively.

A path forward: using reverse auctions to scale energy storage

Reverse auctions have already helped scale renewables and, when designed well, may also be an effective tool when applied to energy storage. In a reverse auction, multiple sellers submit bids to a single buyer for the right to provide a good or service. In the case of renewables, developers bid to provide a portion of capacity desired by the buyer, typically a utility. This policy tool is gaining in popularity, because, if designed well, it can drive down bid prices and ensure reliable procurement. Globally, the share of renewables capacity procured through reverse auctions is expected to grow from 20 percent in 2016 to more than 50 percent in 2022. It seems likely that auction-induced competition has triggered a fall in renewable prices that some are calling the “Auctions Revolution.”

While examples in Colorado and Hawaii suggest reverse auctions can be effective in procuring energy storage, there’s little guidance on tailoring them for that purpose. We offer five recommendations:

1: Encourage a Large Number of Auction Participants

The more developers bidding into an auction, the fiercer the competition. How policymakers approach this depends on their end goal. In a 2016 Chilean auction, bidding was open to solar and coal developers, and policymakers were pleased when solar developers offered cheaper bids on a dollar per megawatt-hour basis than coal developers. Another approach: signaling consistent demand through auction schedules. Participation in South African renewable auctions increased after auction organizers took steps to give advance notice and instructions for future regular auctions.

2: Limit the Amount of Auctioned Capacity

If competition still seems tepid, auctioneers can always scale down the amount of capacity auctioned. As witnessed in a South African renewable auction, bidders respond to a supply squeeze by decreasing their bid prices.

3: Leverage Policy Frameworks and Market Structures

Auctions don’t exist in a vacuum. Renewable auctions benefit tremendously from existing market structures and companion policies. Where applicable, auction design should consider the multiple grid services energy storage systems can offer. Even if an auction is only focused on energy arbitrage, it should not preclude storage developers from participating in multiple markets (e.g. frequency regulation), as this may help bidders reduce their bid prices.

4: Earmark a Portion of Auctioned Capacity for Less-mature Technologies

A major criticism of early auctions is that they unintentionally favored the same large players and mature technologies. Policymakers shouldn’t forget that energy storage includes several technological options; they can design auctions to address this by separating procurement for more advanced technologies (Li-ion, for example) from newer technologies (zinc air batteries).

5: Penalize delivery failures without damaging competition

Developers should be incentivized to bid their cheapest possible price, but poor auction design can trigger a race to the bottom with ever more unrealistic bid prices. This is especially true if developers don’t believe they will be punished for delivery failures or poor quality projects. Already, some contract terms for energy storage by auctions include penalties if the developer cannot deliver its promised grid service.

Decarbonizing our energy supply isn’t an easy task. Reverse auctions stand out as a possible tool to quickly and cost-effectively increase our energy storage capacity, which will help integrate intermittent renewables. If this market-based mechanism can be tailored to suit energy storage systems’ capabilities (e.g. offering multiple grid services), it could help shift us to a future where we have access to clean energy at any time of day and year.

Also posted in Markets 101 / Leave a comment

Study: Renewables played crucial role in U.S. CO2 reductions

By / Bio / Published: February 26, 2018

This blog was co-authored with Jonathan Camuzeaux, Adrian Muller, Marius Schneider and Gernot Wagner.

After a nearly 20-year upward trend, U.S. CO2 emissions from energy took a sharp and unexpected turn downwards in 2007. By 2013, the country’s annual CO2 emissions had decreased by 11% – a decline not witnessed since the 1979 oil crisis.

Experts have generally attributed this decrease to the economic recession, and to a huge surge in cheap natural gas displacing coal in the U.S. energy mix. But those same experts mostly overlooked another key factor: the parallel rise in renewable energy production from sources like wind and solar, which expanded substantially over the same 2007-2013 timeframe.

Between 2007 and 2013, wind generated electricity grew almost five-fold to 168 TWh and utility-scale solar from 0.6 TWh to 8.7 TWh. During the same period, bioenergy production grew 39 percent to 4,800 trillion BTUs.

Given these increases, how much did renewables contribute to the emissions reductions in the United States? In a paper published this month in the journal Energy Policy, we use a method called decomposition analysis to answer just that.

Unpacking the Factors

Decomposition analysis is an established method which enables us to separate different factors of influence on total CO2-emissions and identify the contribution of each to the observed decrease. The factors considered here are total energy demand, the share of gas in the fossil fuel mix (capturing the switch from coal and petroleum to gas), and the share of renewables and nuclear energy in total energy production.

Introducing a new approach for separately quantifying the contributions from renewables, we find that renewables played a crucial role in driving U.S. energy CO­2 emissions down between 2007 and 2013 – something which has previously largely gone unrecognized.

According to our index decomposition analysis, of the total 640 million metric ton (Mt) decrease (11%) during that period two-thirds resulted from changes in the composition of the U.S. energy mix (with the remaining third due to a reduction in primary energy demand). Of that, renewables contributed roughly 200 Mt reductions, about a third of the total drop in energy CO2 emissions. That’s about the same as the contribution of the coal and petroleum-to-gas switch (215 Mt). Conversely, increases in nuclear generation contributed a relatively minor 35 Mt.

While the significant role of renewables in reducing CO2 emissions does not diminish the contribution of the switch to natural gas, it is important to note that the climate benefits of switching from coal and petroleum to gas are undermined by the presence of methane leakage along the natural gas supply chain, the extent of which is likely underestimated in national greenhouse gas (GHG) emissions inventories.

Methane, of course, is a powerful greenhouse gas. Methane leakage from increased natural gas use could have wiped out up to 30% of the short-term GHG benefit (on a CO2-equivalent basis) calculated in this paper of switching from coal and petroleum to natural gas. For the natural gas industry to truly sustain the claim that it has made a positive contribution to reducing the country’s carbon footprint, the methane emissions associated with natural gas must be substantially reduced.

These results show that past incentives to support the expansion of renewable energy have been successful in reducing the country’s emissions, and that decreasing costs for renewable energy offers some hope for continued progress even despite the current administration’s refusal to address climate change.

Such progress, however, will never be sufficient without ambitious climate and clean energy policies- whether at the federal or at the state level – that can drive further emission reductions.

Also posted in emissions / Leave a comment

The United States Could Lead the Next Tech Revolution by Investing in Clean Energy

By / Published: January 9, 2017

New Risky Business Report Finds Transitioning to a Clean Energy Economy is both Technologically and Economically Feasible

In the first Risky Business report, a bi-partisan group of experts focused on the economic impacts of climate change at the country, state and regional levels and made the case that in spite of all that we do understand about the science and dangers of climate change, the uncertainty of what we don’t know could present an even more devastating future for the planet and our economy.

The latest report from the Risky Business Project, co-chaired by Michael R. Bloomberg, Henry M. Paulson, Jr., and Thomas F. Steyer, examines how best to tackle the risks posed by climate change and transition to a clean energy economy by 2050, without relying on unprecedented spending or unimagined technology. The report focuses on one pathway that will allow us to reduce carbon emissions by 80 percent by 2050 through the following three shifts:

1. Electrify the economy, replacing the dependence on fossil fuels in the heating and cooling of buildings, vehicles and other sectors. Under the report’s scenario, this would require the share of electricity as a portion of total energy use to more than double, from 23 to 51 percent.
2. Use a mix of low- to zero-carbon fuels to generate electricity. Declining costs for renewable technologies contribute in making this both technologically and economically feasible.
3. Become more energy efficient by lowering the intensity of energy used per unit of GDP by about two thirds.

New Investments Will Yield Cost Savings

Of course, there would be costs associated with achieving the dramatic emissions reductions, but the authors argue that these costs are warranted. The report concludes that substantial upfront capital investments would be offset by lower long-term fuel spending. And even though costs would grow from $220 billion per year in 2020 to $360 billion per year in 2050, they are still likely far less than the costs of unmitigated climate change or the projected spending on fossil fuels. They’re also comparable in scale to recent investments that transformed the American economy. Take the computer and software industry, which saw investments more than double from $33 billion in 1980 to $73 billion in 1985. And those outlays continued to grow exponentially—annual investments topped $400 billion in 2015. All told, the United States has invested $6 trillion in computers and software over the last 20 years.

This shift would also likely boost manufacturing and construction in the United States, and stimulate innovation and new markets. Finally, fewer dollars would go overseas to foreign oil producers, and instead stay in the U.S. economy.

The Impact on American Jobs

The authors also foresee an impact to the U.S. job market. On the plus side, they predict as many as 800,000 new construction, operation and maintenance jobs by 2050 would be required to help retrofit homes with more efficient heating and cooling systems as well as the construction, operation and maintenance of power plants. However, job losses in the coal mining and oil and gas sectors, mainly concentrated in the Southern and Mountain states, could offset these employment gains. As we continue to grow a cleaner-energy economy, it will be essential to help workers transition from high-carbon to clean jobs and provide them with the training and education to do so.

A Call for Political and Private Sector Leadership

Such a radical shift won’t be easy, and both business and policy makers will need to lead the transition to ensure its success. First and foremost, the report asserts that the U.S. government will need to create the right incentives.  This will be especially important if fossil fuel prices drop, which could result in increased consumption.  Lawmakers would also need to wean industry and individuals off of subsidies that make high-carbon and high-risk activities cheap and easy while removing regulatory and financial barriers to clean-energy projects. They will also need to help those Americans negatively impacted by the transition as well as those who are most vulnerable and less resilient to physical and economic climate impacts.

Businesses also need to step up to the plate by auditing their supply chains for high-carbon activities, build internal capacity to address the impacts of climate change on their businesses and put internal prices on carbon to help reduce risks.

To be sure, this kind of transformation and innovation isn’t easy, but the United States has sparked technological revolutions before that have helped transform our economy—from automobiles to air travel to computer software, and doing so has required collaboration between industry and policymakers.

We are at a critical point in time—we can either accelerate our current path and invest in a clean energy future or succumb to rhetoric that forces us backwards. If we choose to electrify our economy, reduce our reliance on dirty fuels and become more energy efficient, we will not only be at the forefront of the next technological revolution, but we’ll also help lead the world in ensuring a better future for our planet.

Also posted in Politics, Technology / Leave a comment