Market Forces

Canaries in the mine of climate cooperation

Strong emissions trading system prices encourage and facilitate climate action but also reflect private sector confidence in governments’ commitments to long-term transformation.

Every evening in my Brooklyn neighborhood we come out onto our stoops with our children, dogs, bells, horns and pots (my contribution – inspired by the Colombian cacerolazos I witnessed protesting – non-violently, though I can’t say quietly – in Bogotá). We make a big noise to thank and celebrate the generosity and selflessness of the medical personnel and essential workers who are keeping life going during the crisis. Their example is an inspiration to us all and reminds us that humans are at essence a cooperative species. This same spirit of cooperation, backed up by strong social and political institutions including effective emissions trading systems, can help protect our climate in these difficult times.

Our focus now must be on flattening the curve, caring for the sick and vulnerable, and then getting back to work. But as we recover from this crisis, we need to do so in a way that helps us confront the next one: global climate change. Lawmakers in many countries are beginning to pivot from relief to recovery, focusing on the longer-term work of getting the economy back on track. We need that economy to have low greenhouse gas emissions.

No one should take false hope from the temporary decline in greenhouse gas emissions we have seen recently. In the short term, when economic activity falls, pollution falls. During the financial crisis of 2007-9 global greenhouse gas emissions did drop, slightly and briefly. The current economic crisis is deeper but will also pass and when it does, so too will the dip in climate pollution.

To make declines in emissions permanent, we need to seize this moment of fundamental change to ensure effective, efficient, resilient policies to lock in economic and behavioral shifts that do contribute to a transition to a low emission future where all people thrive.

One key element of the policy mix in an increasing number of countries and jurisdictions is an Emissions Trading System. These systems limit greenhouse gas emissions while allowing flexibility around where and when emissions occur.  They provide price signals to help guide clean investment and other climate actions. The limit, or cap, controls emissions; the marginal cost of achieving that limit, which depends on technology and other climate policies among other things, drives the ETS price.

What drives emission prices?

Those ETS price signals have been affected by COVID and its economic consequences. The climate challenge is no less urgent, but is the private sector feeling less pressure from governments to act? Are the canaries who sing in the healthy cooperation mine falling quiet?

Initially both the European Union and New Zealand ETS prices dropped dramatically, but they have since clawed back much of their initial losses. Will they recover and even move to levels consistent with modeled estimates of prices required to stabilize the global at less than two degrees above pre-industrial levels? A recent survey by IETA suggests not. It finds private sector expectations of emissions prices over the next 10 years have fallen relative to expectations a year ago by 12% (EU and the Western Climate Initiative (WCI) – California and Quebec), 27% (Regional Greenhouse Gas initiative), and 35 – 38% (New Zealand and Mexico). What does this mean?

During a recession, when capital is scarce, because ETS units are assets their price will also tend to fall in a similar way to other assets. As the financial sector recovers, asset prices should also recover. These price adjustments, like those driven by new information about mitigation technology provide useful signals. However, general economic factors and new information about the true costs of achieving our climate goals are not the only drivers of these changes in prices.

Because an emissions trading system is a market created by regulation, the price in each ETS is deeply dependent on expectations about the future stringency of that regulation. Because allowances in emissions trading systems are ‘bankable’ (they can be saved for future use by those who emit less and hence surrender fewer allowances today), as long as there is a ‘bank’ of units available their price depends on what people expect demand and supply will be in future, not just on current scarcity. That makes ETS prices a barometer of both the stringency of policy that politicians are willing to implement—and also of the private sector’s expectations about how stringent policy is likely to be over the long term.

In 2008 there was some international optimism about climate action. The Kyoto Protocol had come into force in 2005; obligations began in 2008. Climate policies were gaining traction in many countries. The EU emissions trading system started its second phase with a healthy price, and New Zealand’s ETS kicked off with similar prices. These reflected that optimism. In the US, the Regional Greenhouse Gas Initiative held its first auction in 2008, and California was moving forward after passing the ambitious Global Warming Solutions Act in 2006. But by December 2009, the price of carbon allowances in the EU emissions trading system had fallen, partly as a result of economic contraction, and more importantly things were beginning to fall apart internationally starting with an unsuccessful U.N. Climate Summit in Copenhagen. By the end of 2012 emission prices had largely collapsed (though prices in the California ETS, launched one year later, were protected by a price floor). Recession was not the only driver, and it’s always hard to disentangle various causes, but the financial crisis did not help.

After the financial crisis and recession, the private sector clearly did not believe that policy makers would impose stringent caps in emissions trading systems; this kept prices low. Optimism around government-led climate action had evaporated. Emission prices, and the signals they provide to investors and companies, only really recovered after 2016 in New Zealand and 2018 in Europe. We can’t wait that long again.

How we can protect climate action from shocks like COVID

Recessions don’t have to lead us to fall even further behind in addressing climate change. The way we manage ETS can help protect the continuity of climate efforts and returns on clean investments against short-term loss of confidence in governments’ commitments to climate cooperation. Possibly the smaller shifts in expectations of prices in the EU and in California and Quebec reflect their more mature institutions and price management approaches—the Market Stability Reserve in the EU and the auction price floor in California and Quebec. Market players have more confidence that the institutions will manage short-term shocks. Critically though, they also have more confidence—though still not enough—that these jurisdictions have a sustained commitment to real long-term change.

When ETS participants believe in society’s commitment to long-term, transformational change to low emissions, ETS prices will reflect only the cost of achieving that.

Recent reductions have come at an enormous cost to human wellbeing. This is not what a transition to a low-emissions economy looks like. The good news: there is still time to stop climate change in ways that allow people and nature to prosper together, and human well-being to burgeon. But the window for such action is rapidly closing. We need a positive and attractive transformation, not economic crises that cause distress and bring only temporary reductions.

We can’t avoid the worst impacts of climate change unless we transform our energy and food systems—changing not only our production but also our culture and the stories we tell ourselves about how we can flourish in balance with our environment. This requires a shift in the fundamental assumptions of all key actors (politicians, business people, officials) and a change in institutions (public and private—e.g. banks, regulations, education, supply chains) so they support of a new set of clean investments and activities and discourage emissions-intensive activities. This won’t happen through forced change. It needs leadership and steady effort.

Once the immediate health crisis from COVID abates we don’t want policy makers (and the public) to lose sight of climate policy and action and focus only on short-term economic concerns. This is what we experienced after 2009 when unemployment levels stayed high long after the global recession passed. We need to find a way to address these critical economic needs while also moving even more aggressively towards a strong, longer-term economic future that offers high wellbeing in a stable climate.

When ETS market players believe we are really on this track, ETS prices will reflect their prediction of the costs of achieving global climate goals—not their assessment of political will.  Maybe we are closer than we think. Prices in the EU-ETS recently passed €30 for the first time since 2006 (briefly before falling a little with bad economic news) and NZ-ETS prices have reached their highest level ever around NZ$34 despite the announced closure of a major emitter. I’m optimistic. The canaries are singing again.  We need to help them to sing even louder.

 

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Firms can manage climate policy uncertainty. Here’s how.

This post was co-authored by Alexander Golub, Adjunct Professor of Environmental Science at American University.

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For companies that are large emitters of greenhouse gases, uncertainty about policies to address climate change can be a real challenge. But our new paper in the journal Energy shows how companies that invest now in a novel approach to climate mitigation could help manage their risk of future policy obligations more effectively and at a lower cost.

The challenge

In Energy, we demonstrate how policy uncertainty puts greenhouse gas emitting companies in a bind, raising risks for these companies and making it likely that carbon prices—an indicator of costs—will rise in a series of sudden bursts, rather than following a smooth transition.

Policy uncertainty discourages private investment in low-carbon technologies. However, when credible climate policy is finally in place, industry will have missed out on prudent investment opportunities and face spiking costs as they rush to catch up with tightened emissions controls requirements.

In the paper, we show that companies have a latent demand for suitable strategies that can help manage these risks.

Abatement short squeeze

When a government institutes stronger climate policy, businesses may find themselves over-weighted with carbon-intensive assets. Caught short of investments to reduce or “abate” emissions, companies will rush to rebalance their capital stock in favor of lower carbon technologies. At the same time, other businesses will also be rushing to unload high-carbon assets and adopt the lower carbon technology. This can cause carbon prices and associated costs of reducing emissions to rise dramatically.

This is similar to the case in financial markets when prices jump as investors must rush to square accounts on an investment they have bet against—going “short” rather than “long” — in anticipation of falling prices. Until now, such a “short squeeze” was a phenomenon of the stock market — product of speculations and uncalculated risk. Climate change threatens to create such a squeeze of much broader scope and economic consequences.

A down payment on abatement

Companies need access to strategies to manage the risks of future climate liabilities. In our study, we describe how companies could reduce the costs of meeting pollution targets in an uncertain policy landscape by making relatively small investments today that can preserve the flexibility to reduce emissions more dramatically in the future—essentially putting a down payment into cost-effective climate protection programs from large-scale sources. Such strategies can include investments in research and development that could pay off in the future through the availability of low-carbon technologies.

A conceptually similar way to manage exposure to future climate costs is by helping to secure and preserve low-cost “call options” on future abatement. A “call” is a type of option that gives companies the right but not the obligation to purchase an underlying product (whether it be a stock, commodity, or carbon credit) in the future at a guaranteed price. We highlight tropical forest conservation as an ideal type of program that companies can use to buy large-scale call options on abatement. A down payment on abatement on forest protection programs would yield an immediate impact on protecting climate, biodiversity, and local communities, while protecting companies’ ability to obtain further cost-effective emissions reductions in the future.

Call options on large-scale forest protection programs (REDD+)

Tropical forests contain the world’s largest reservoir of carbon within natural ecosystems that once lost cannot be recovered within the necessary time to avoid dangerous climate disruptions. Protecting these forests is thus a time-limited opportunity, but it doesn’t require expensive new technologies or infrastructure. As a result, tropical forest conservation offers one of the least cost ways to immediately reduce carbon emissions at large scales, while providing a multitude of other local and global benefits. Forests also remove carbon from the atmosphere, and as long as they remain intact they will continue to store that carbon. A relatively small investment in protecting forests now can provide urgent near-term financing for conservation while securing call options on carbon credits from ongoing future forest protection.

Tighter emissions targets could lead companies to rush to invest in renewable energy more or less simultaneously. This spike in investment may well exceed the ability of the global capital market to mobilize capital and investment resources. For example, it would be impossible to double or quadruple production of wind turbines or solar panels over a year or so. The economy may reach a physical limitation that could be hardly compensated by pumping capital.

Instead, hedging this risk by investing to secure the ability to generate credits from large-scale programs to protect tropical forests (known as REDD+ programs), companies, and the world, could “flatten the curve” on the costs of capital rebalancing to comply with climate policies. This keeps the total volume of investment below a critical level that could lead to bankruptcy or excessive macro-economic disruption (green line in figure 1).

Who benefits?

By selling REDD+ credits or call options on such credits to firms, forest nations, particularly in the tropics, can start receiving a fair price for keeping their forests protected. Such financing is important to help governments cover their costs of protecting forests and to align incentives of communities, farmers, ranchers and commodity buyers and consumers around forest protection and sustainable agriculture, rather than destructive activities like illegal logging and inefficient cattle ranching.

EDF and partners are pioneering innovative pay-for-performance mechanisms for reducing deforestation. These include the Emergent Forest Finance Accelerator, which links private sector buyers to environmentally rigorous, high-integrity carbon credits from large-scale forest protection programs.

Investments in high-quality REDD+ programs can play an important role in protecting the climate, environment and communities, while allowing companies to better prepare for the moment when society begins implementing more dramatic measures to tackle climate change. To help start the flow of credits, policymakers, companies and other stakeholders should agree on high standards for environmental quality and support the inclusion and prioritization of high-quality REDD+ programs within voluntary climate commitments as well as regulated carbon market systems.

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More confirmation that the Trump administration has been disregarding the true costs of climate pollution

This post originally appeared on Climate 411

A new report highlights the Trump administration’s dangerous efforts to obscure the real costs of climate change, while a major court decision firmly rejects the administration’s approach.

Costly flooding in Houston after Hurricane Harvey

new report from the Government Accountability Office (GAO), an independent agency tasked with providing objective nonpartisan information to policymakers, confirms what we’ve known for years: that the Trump administration has been ignoring the enormous costs of climate change. By ignoring these damages, the administration is turning its back on communities across the nation who are footing the bill for those impacts today.

In addition, a federal court recently issued a clear-cut rejection of the administration’s deceptive math on the cost of methane pollution, another greenhouse gas that is 84 times more potent than carbon dioxide over a 20 year time period. This ruling reinforces the fact that the administration has been blatantly disregarding widely accepted science and economics when it comes to the costs of climate change.

All of this comes amid a raging and widespread pandemic that underscores the absolute necessity of relying on experts and scientific data when crafting policy. With unchecked climate change fueling more devastating storms, droughts, and other public health impacts — all of which hit vulnerable communities the hardest — incorporating accurate costs of climate change in policy decision-making matters now more than ever.

Here is what this new report and court decision reveal about the administration’s backwards and harmful approach to decisions on climate change — and how experts and the courts are wholly rejecting it.

Why undervaluing the cost of climate change is dangerous

To justify its own political agenda, the Trump administration has manipulated the calculations behind the estimated impact of emissions to allow for more climate pollution from major sources like power plants and cars. The new GAO report outlines the steps the administration has taken to drastically underestimate the “Social Cost of Carbon” — a measure of the economic harm from climate impacts that is used to inform policy and government decision-making. These impacts include extreme weather events like flooding and deadly storms, the spread of disease, and sea level rise, increased food insecurity, and more.

After a 2008 court decision requiring the federal government to account for the economic effects of climate change in regulatory benefit-cost analysis, an Interagency Working Group (IWG) comprised of experts across a dozen federal agencies began in 2009 to develop robust estimates of the social costs of carbon that could be used consistently by agencies across the government. These estimates were developed through a transparent and rigorous process based on peer-reviewed science and economics that included input from the National Academy of Sciences and the public — and were periodically updated over time to account for the latest science. More recently, the NAS conducted a thorough assessment to provide guidance on updating the social cost of carbon estimates and suggestions for continuing to build on and strengthen it.

The GAO report underscores the importance of implementing those recommendations, while pointing to the fact that the federal government has done absolutely nothing to follow through. In fact, in 2017 the Trump administration recklessly disbanded the IWG — the very federal entity that already had the mandate to take on this task.

Since then, federal agencies like the EPA have been relying on an “interim cost” to inform important regulatory decisions that is seven times lower than the IWG’s estimate — a move that dramatically underestimates the profound impacts climate change has on families, businesses, taxpayers and local governments. To make matters worse, the administration is dramatically reducing the IWG figure even though it is widely recognized to be an underestimate of the true costs. There is wide consensus that the true costs are much likely significantly higher.

The Trump administration substantially reduces estimates through two key flaws in its calculations, both of which fly in the face of established science and economic principles. First, the reduced estimates ignore that carbon emissions are a global pollutant, omitting important categories of climate change impacts on the United States. Second, they undervalue the harm to our children and future generations by significantly over-discounting future climate impacts.

By vastly undervaluing the costs of climate change — and thus, the benefits of acting on climate — the administration has been able to justify rolling back critical protections such as the landmark federal Clean Car Standards. These important rules offer critical public health benefits and fuel savings for consumers.

A court ruling refutes the administration’s deceptive math on pollution costs

In encouraging news, a recent court decision outright rejected the administration’s deceptive math on a similar metric, the ‘Social Cost of Methane,’ used to estimate the impacts of methane pollution. The Bureau of Land Management, under former Department of Interior Secretary Ryan Zinke, has been using an interim social cost of methane that is more than 25 times less than the estimate from the IWG. The U.S. District Court for the Northern District of California recently overturned the BLM’s attempt to ease protections from dangerous methane leaking, venting and discharging from oil and gas activities on public and tribal lands, where it used a distorted social cost of methane as justification. EDF joined the states of California and New Mexico and a broad coalition of health, environmental, tribal citizen and Western groups to challenge in court the rescission of these vital safeguards.

In the opinion, the judge ruled that the BLM’s decision to rely on a lower interim estimate for the social cost of methane was “arbitrary” and “capricious,” and therefore, “failed to quantify accurately the forgone methane emissions and the resulting environmental impacts.” In addition, the court underscored that “the President did not alter by fiat what constitutes the best available science” on the social cost of greenhouse gas emissions. This is a major win for not only the broad coalition involved in the case, but for the basic principle of science-based decision-making on climate change. The court’s meticulous critique of the flaws in the interim social cost of methane — and the process used to develop it — could be influential in future cases involving the social cost of greenhouse gas emissions. Such a critical ruling like this opens the possibility that the Trump administration and future administrations could be required to properly account for the costs of climate change.

The Trump administration’s unwavering, politically motivated attempts at twisting facts and discrediting experts is putting Americans’ lives, health and financial well-being at risk. Unfortunately, its effort to skew the costs of climate change is far more than a political game. It is already causing real harm to communities across the country suffering from climate impacts — and it will only add to the mounting costs our children and grandchildren will pay. That is why ongoing efforts to uncover and overturn unjust climate decisions are all the more essential.

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Decarbonizing industry is difficult but possible

Industry is the backbone of the U.S. economy: it provides and transforms raw materials, goods and chemicals needed for civilization, including the energy transition. Yet, it is also responsible for a third of global greenhouse gas (GHG) emissions and 30% of U.S. GHG emissions .

Industrial GHGs include direct (combustion of fossil fuels, leaks and byproducts) and indirect emissions (the purchase of electricity and heat). Even if we reduce indirect emissions through electrification and clean energy, uncontrolled direct emissions from industry would still be responsible for at least 20% of GHG emissions both globally and in the US. Heavy industry, which creates products like cement, iron and steel, chemicals and plastics is particularly carbon intensive, which is why we should invest in ways to mitigate its large direct emissions of CO2.

Why decarbonizing heavy industry is a challenge

Decarbonizing heavy industry is difficult, because its direct emissions are the byproducts of chemical reactions or related to processes that require very high heat or fossil fuels as feedstocks. And because industry uses fossil fuels like coal as feedstock, manufacturing processes often rely on them for heat as well, making it more challenging to reduce industrial fossil fuel consumption. Moreover, there are other obstacles to rapid decarbonization, such as the long lifetimes of industrial facilities (possibly 30+ years) and their high capital intensity. This makes it difficult—but also necessary—to retire or retrofit them on a timeline consistent with limiting warming to 2 degrees Celsius or less.

Another constraint: industrial products must often meet precise quality criteria to comply with safety regulations. In other words, lowering the carbon content of steel or cement manufacturing could impact the quality of the material outputs. Hence, if the characteristics  of carbon-intensive industrial products change, the specifications associated with  building codes and standards may need to change as well, especially if changes imply a modification of the physical properties of common building materials. Finally, geographical limitations like the local availability of renewable energy, key energy feedstocks and infrastructure as well as carbon storage capability may dictate the possibility of decarbonizing heavy industry or not.

That’s why we need to move forward with developing technology and processes that can decarbonize direct emissions from heavy industry. Luckily, several options are available.

Reducing CO2 emissions from high temperature industrial processes 

For industrial heat, there are temperature, quality and flow rate constraints on viable options that stand in contrast to electricity and residential heat (the temperatures required in heavy industry varies from 200°C to 2,000°C). The Columbia Center on Global Energy Policy identified hydrogen (blue, from natural gas or green, from renewable feedstocks), biomass and biofuels, electricity (resistance and microwave), nuclear (conventional and advanced), concentrated solar energy, and carbon capture utilization and storage (CCUS) as options for tackling decarbonization of industrial heat. Each has technical and economical tradeoffs:

  • Biodiesel and hydrogen have the highest heat potential, while conventional nuclear the lowest.
  • Nuclear is the least expensive option, while Green Hydrogen the costliest. They estimate CCUS adding up to 50% cost to the fossil fuel.
  • Green Hydrogen and nuclear have the lowest carbon footprint, while blue hydrogen the highest.
  • Biofuels and Hydrogen are the most feasible, while Nuclear is the most challenging to implement or build.
  • Considering indirect costs and quality of heat needed, these options could increase wholesale costs of production between 10 to 200 percent depending on the sector and specific application.
  • Many options are not cost competitive with retrofitting existing fossil fuels plants with CCUS, and low carbon hydrogen seems the most viable option in the future due to both costs and feasibility.

Cutting process CO2 emissions

The other major source of direct emissions, process emissions, represent an even greater challenge. This is where the rest of direct emissions fits: leaks, fossil fuels as feedstock for chemical reactions and GHG emissions as byproducts of chemical reactions. Rissman et al. (2020) identified the following options:

  • On the producer side: CCUS, use of new materials, energy efficiency, new chemical reactions, leak repairs.
  • On the consumer side: circular economy; 3D printing; reduced material use: longevity, intensity and material efficiency; alternate materials.

The role for policy 

Incentivizing industry decarbonization will require collaborating with industry and engaging policy makers. There are several ways policy can mobilize development and deployment of new processes and technologies in heavy industry, including:

  • Carbon pricing, which increases the costs of using fossil fuels in industrial processes. To ensure domestic producers are not put at a disadvantage in the global market and that there is no emissions “leakage” overseas, the carbon price should include a border adjustment on imported products and materials from heavy industry in other countries.
  • Energy efficiency and/or emission standards to drive deployment of low-carbon technologies.
  • Federally funded research, development, and deployment (RD&D) as well as robust financial incentives to spur private RD&D.
  • Procurement standards and government-sponsored pilot projects to help address the financial risks facing entrepreneurs and early movers.

New initiatives show promise

IEA has noted that in order to get to net zero emissions by 2050, it is important to avoid locked-in emissions from investment in the industry sector, especially considering investment cycles beginning around 2030 will endure for 25 years. By boosting spending on research and development, low carbon technology for the Industry sector might be mature enough to be marketable by the time new investments are done.

While there is still a long way to go, some companies are already exploring ways to deploy decarbonizing technology. The Hybrit initiative, backed by Swedish and Finnish state owned companies LKAB, SSAB and Vattenfall,  is preparing the construction of a demonstration plant to produce low carbon steel with hydrogen by 2035. Canadian Carbon Cure is already mixing recycled CO2 into cement reducing the carbon footprint of their production process. Massachusetts-based Boston Metal is already producing steel with molten oxide electrolysis, a process that removes the need to use coal as feedstock and therefore has no CO2 emissions. Archer Daniels Midland Company (ADM) has deployed a commercial scale Carbon Capture and Storage ethanol refinery plant in Illinois.

These examples highlight some of the strategies and tools that can be used to allow heavy industry to continue to provide the goods and materials we rely on – and the emerging technologies necessary for a clean economy – while decarbonizing. But it will take robust policy support and a significant increase in RD&D funding to reduce direct and indirect industrial emissions at the speed and scale science demands.

 

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How an open-source tool helps state climate policy

Empowered by the Paris Agreement and a lack of national leadership on climate policy in the United States, state and local governments are leading on their own climate initiatives. California, New York and Colorado have set ambitious greenhouse gas emission and renewable energy targets for 2030. Just last week, Massachusetts introduced sweeping climate legislation targeting net zero emissions by 2050.

As these environmental and energy policies move ahead, experts need to invest in economic data and tools that allow them to conduct robust economic analysis, to better inform policymakers, stakeholders and the public on how to design robust alternative climate and energy policies.

To target this capacity need, Environmental Defense Fund collaborated with Thomas F. Rutherford (University of Wisconsin-Madison), Andrew Schreiber (United States Environmental Protection Agency) and Christoph Böhringer (University of Oldenburg) to launch a project  to build a subnational economic model framework for climate and energy policies in North America.

An Open-Source tool emerges

An important byproduct of the first phase of this project is the Wisconsin National Data Consortium (WiNDC), an open-source data and modeling framework for the U.S. WiNDC is comprised of regional (state-level) social accounting matrices and a calibrated static multi-regional, multi-sectoral computable general equilibrium model that runs on the constructed dataset. This tool, the technical details of which can be found in a peer-review article about its development, makes it possible to conduct analysis of environmental and energy regulations as well as trade policies taken both at the subnational level and at the national level.

A forthcoming paper investigating the potential economic and environmental impacts from the imposition of a carbon adder on New York Independent System Operator’s energy market is the first to utilize the WiNDC accounts in a state-level analysis of climate and energy policies. The study finds that the carbon adder—a carbon tax equal to marginal environmental damages from carbon emissions not already covered under existing policies—gives the “right” price signal for New York’s power generation to turn into a greener one.

In another paper by Balistreri, et al. (2018) “The Impact of the 2018 Trade Disruptions on the Iowa Economy,” WiNDC is used to analyze the state-level impacts of the 2018 tariffs on a wide range of Chinese imports ranging from agriculture and manufactured goods on the state of Iowa. The authors examined the overall gross state product impacts, as well as lost labor income and tax revenue due to additional tariffs.

WiNDC’s aim is to meet the demand for more robust evidence-based regional analysis of environmental and energy regulations. It provides an easy-access, open-source platform for all stakeholders to conduct analyses of environmental and energy regulations taking place at both state and federal levels. The open-source nature aims to encourage further collaboration within the research community and development of this valuable resource.

WiNDC is a powerful and unique tool that could give states the opportunity to design their own climate policies in the light of their economic and environmental objectives and help them align with policies implemented by other states that are increasing economic and environmental efficiency.

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How renewables, natural gas and flat demand led to a drop in CO2 emissions from the US power sector

New state-by-state research shows significant reductions across the country from 2005-2015

 Decarbonizing the power sector in the United States will be critical to achieving the goal of a 100% clean economy by 2050 – especially since reaching “net-zero” greenhouse gas emissions across the economy means that other energy-using sectors such as buildings and transport will increasingly need to be electrified, switching away from direct fossil fuel use and relying on low-carbon electricity instead. Demand for electricity is therefore very likely to grow in the future – which makes it critical that its CO2 emissions sharply decrease through the accelerated deployment of low carbon technologies, such as wind and solar power, in the decades ahead.

US power sector CO2 emissions, 1990-2015

For now, US power sector CO2 emissions appear to have turned a corner. While CO2 emissions from the U.S. power sector increased between 1990 and 2005, they peaked shortly thereafter, and then decreased to the point that by 2015, they had fallen by 20% (or 480 million metric tonnes CO2) compared to 2005.

In recently published research, my co-authors and I wanted to understand the drivers behind the drastic fall in the country’s—and individual states’–power sector CO2 emissions, and in particular the role that low carbon technologies such as wind and solar power have already played in reducing US power sector CO2 emissions. Our analysis, published in Environmental Research Letters  used an approach called index decomposition analysis and found that natural gas substituting for coal and petroleum coupled with large increases in renewable energy generation—primarily wind—were responsible for 60% and 30%, respectively, of the decline in CO2 emissions from the US power sector between 2005 and 2015.

Renewable growth in red states

Most of the emissions reductions driven by renewable energy growth came from Texas and states in the Midwest — Iowa, Kansas, Illinois and Oklahoma. While many of these states are not necessarily known for supporting aggressive climate policies, the combination of federal tax credits, state energy policies, decreasing costs of renewables and windy conditions appears to have provided powerful support for renewable energy deployment.

Texas, in particular, is an interesting case. In 2005, it was the leading emitter of U.S. power sector CO2 emissions across the country. But by 2015, its gross reductions from wind energy totaled 27 million metric tons, or more than 5% of the total net US reduction in power sector CO2 emissions since 2005 (i.e., a sixth of the total US reduction attributed to renewables). The state achieved its final renewable portfolio standard (RPS) target in 2008—seven years ahead of its 2015 goal. In addition to reduced costs of turbine technologies, federal tax credits and positive wind conditions also likely played a role in wind’s growth.

Wind generation in Texas, Iowa, Kansas, Illinois and Oklahoma together contributed half of the renewables-related emission reductions (70Mt or 3%-points out of the 20% reduction in US power sector CO2 emissions since 2005).

Over the same period, many states that had relied heavily on coal like Pennsylvania, Georgia, Alabama and Florida, reduced emissions by substituting natural gas for coal in electricity generation. While that prompted a decline in CO2 emissions, it’s important to note that while natural gas emits less CO2 emissions than coal and petroleum when producing electricity it is still a source of CO2 emissions and can only take us so far in decarbonizing the power sector. In addition, methane leakage across the supply chain remains a significant issue–and is not accounted for in this analysis, meaning the overall net greenhouse gas benefit from this natural gas expansion was–potentially significantly—lower.

Need for new policy

While there are positive signs in the power sector—the cost of renewables continues to decline and a growing number of states are taking crucial action to cut CO2 emissions, these trends as well as the specific factors identified in this analysis cannot be relied upon to achieve the deep emissions reductions needed in the decades ahead.

U.S. power sector CO2 emissions are projected to remain relatively flat over the next decade and rise slowly after that, absent new policies. This is particularly significant given that, much of the decarbonization of other sectors such as buildings and transportation will need to rely heavily on electrification.

Ultimately, new policy interventions are necessary, including strong limits on climate pollution – not only in the power sector, but across the entire economy to drive reductions at the pace and scale needed for the US to be 100% clean no later than 2050.

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