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EDF-IETA maps show how the world can double down on carbon pricing

Carbon pricing

Currently, about 12% of the world's greenhouse gas emissions are covered by carbon pricing. More details about this map can be found in the Doubling Down on Carbon Pricing report by EDF and IETA.

There are a number of signs we are entering a golden age for carbon pricing. Perhaps the most important one is that many countries around the world are currently considering carbon pricing policies to achieve their greenhouse gas emissions reduction goals.

And for good reason.

A price on carbon gives emitters a powerful incentive to reduce emissions at the lowest possible cost, it promotes innovation while rewarding the development of even more cost-effective technologies, it drives private finance, and it can generate government revenue.

This spring, World Bank Group President Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde convened the Carbon Pricing Panel to urge countries and companies around the world to put a price on carbon. On April 21, 2016, the Panel announced the goals of doubling the amount of GHG emissions covered by carbon pricing mechanisms from current levels (about 12 percent, as illustrated in the map below) to 25 percent of global emissions by 2020, and doubling it again to 50 percent within the next decade.

EDF and the International Emissions Trading Association (IETA) worked together to explore a range of possible, though non-exhaustive, scenarios for meeting these goals. You can see the results in a series of maps which show how carbon pricing can be expanded worldwide.

Achieving the Carbon Pricing Panel’s goals will be a crucial stepping stone to realizing the ambition of the Paris Agreement, which aims to hold the increase in the global average temperature to well below 2°C above pre-industrial levels. Meeting that objective will require countries not only to implement the targets they have already announced, but to ratchet up their efforts dramatically in the years ahead. Carbon pricing will have to play a key role in that effort.

Explore how the world can reach the Carbon Pricing Panel’s ambitious goals.

This post originally appeared on Climate Talks.

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In Win for Environment, Court Recognizes Social Cost of Carbon

Co-authored with Martha Roberts

If someone was tallying up all the benefits of energy efficiency programs, you’d want them to include reducing climate pollution, right? That’s just common sense.

Thankfully, that’s what our government does when it designs energy efficiency programs—as well as other policies that impact greenhouse gas emissions. And just this month, this approach got an important seal of approval: For the first time, a federal court upheld using the social cost of carbon to inform vital protections against the harmful impacts of climate change.

So what is the social cost of carbon and why does it matter? It’s a crucial part of the development of climate safeguards and essential to our understanding of the full costs of climate pollution. We know that climate change is a clear and present danger now and for future generations—one that will result in enormous costs to our economy, human health and the environment. And yet, these “social” costs are not accounted for in our markets, and therefore in decision making. It is a classic Economics 101 market failure. Every ton of carbon dioxide pollution that is emitted when we burn fossil fuels to light our homes or drive our cars has a cost associated with it, a hidden one that is additional to what we pay on our utility bills or at the gas pump. These costs affect us all – and future generations – and are a result of the negative impacts of climate change. If we don’t recognize these hidden costs—we aren’t properly protecting ourselves against the dangers of climate pollution.

The social cost of carbon (or SCC) is an estimate of the total economic harm associated with emitting one additional ton of carbon dioxide pollution into the atmosphere. To reach the current estimate, several federal agencies came together to determine the range and central price point – roughly $40 per ton – through a transparent and rigorous interagency process that was based on the latest peer-reviewed science and economics available, and which allowed for repeated public comments.

It’s critical that we protect against the damages and costs caused by climate pollution. So it’s a no-brainer that when considering the costs and benefits of climate safeguards, we must take into account all benefits and costs – and that means including the social cost of carbon.

In their court opinion, the Federal Court of Appeals for the Seventh Circuit agreed wholeheartedly. Harvard Law Professor Cass Sunstein noted that their decision “upholds a foundation” of “countless” climate protections. In particular, their opinion made two important findings:

  • First, the court affirmed that the DOE was correct to include a value for the social cost of carbon in its analysis. The judges concluded that “[w]e have no doubt” that Congress intended for DOE to have authority to consider the social cost of carbon. Importantly, this conclusion reinforces the appropriateness of including the SCC in future carbon-related rule-makings.
  • Second, the court upheld key choices about how the SCC estimate was calculated. The court agreed that DOE properly considered all impacts of climate change, even those years from now, or outside our borders. These choices, the court concluded, were reasonable and appropriate given the nature of the climate crisis we face.

DOE itself acknowledged “limitations in the SCC estimates.” We couldn’t agree more. As new and better information about the impacts of climate change becomes available and as our ability to translate this science into economic impacts improves, regulators must update the current social cost of carbon estimate. There is still much we do not know about the full magnitude of climate impacts and much that cannot be quantified (as is true of all economic impact analysis) – which means that SCC estimates are likely far lower than the true impact of climate change. But as the Seventh Circuit recognized, their inclusion is a vital step in the right direction for sensible policy-making.

This decision already has positive implications more broadly—in particular, for the Clean Power Plan, our nation’s historic program to reduce carbon pollution from power plants. Just last week, EPA submitted a letter in the Clean Power Plan litigation noting that the Seventh Circuit’s decision further demonstrates the error of challenges to the treatment of costs and benefits in the Clean Power Plan rulemaking. It’s just another affirmation of the rock-solid legal and technical foundation for the Clean Power Plan.

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How More Transparent Electricity Pricing Can Help Increase Clean Energy

By: Beia Spiller and Kristina Mohlin

The price of most goods we purchase is CostPriceImagegenerally based on the costs associated with the goods' production, including the raw materials used to generate them, the labor associated with their manufacturing, and so on. However, when it comes to pricing residential electricity, many regulators choose to use a flat price per unit of electricity (kilowatt-hours, or kWh) that unfortunately fails to adequately reflect the underlying costs of generating and delivering energy to our homes.

This creates incorrect incentives for conservation and investments in distributed energy resources (like rooftop solar, energy storage, and demand response). Getting these incentives right can go a long way in creating more opportunity for efficiency and clean energy resources.

Pricing electricity generation

The cost of generating electricity from large-scale power plants varies significantly over the course of a day. When demand is low, electricity providers call upon the most efficient and inexpensive power plants to produce electricity. As demand increases, they must also utilize more inefficient and expensive power plants. So, for the price of generation to accurately reflect these costs, it too must vary with the time of day. Time-variant pricing charges customers more for using electricity during periods of high demand (such as during hot afternoons) and less when demand is not as great. This pricing system is an accurate reflection of generation costs.

In contrast, flat rates that don’t vary over time incentivize customers to consume more electricity when it’s most valuable to them, even though consuming during times of high demand places a larger cost on the system. Thus, the current, static pricing system creates incorrect incentives for conservation and electricity use. Read More »

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When it comes to developing natural gas – not all impacts are created equal

Over the past decade, Pennsylvania has seen a huge increase in natural gas production due to technology advancements. Horizontal drilling combined with hydraulic fracturing, the process of cracking rock open deep underground to release the gas trapped inside, has made Pennsylvania the nation’s second largest natural gas producer. While a thriving natural gas industry is a boon for the state’s economy, well-documented accounts of air and water pollution have been associated with its development.

But do the benefits and risks of natural gas production impact Pennsylvania’s communities equally? In particular, while the broad economic benefits (more jobs, cheaper gas prices, etc…) may accrue to all members in the community, the local environmental impacts may only affect those living in close proximity to a shale gas well.

A recent paper published this month in the American Economic Review examines the impact of increased drilling activity on the property values of homes located in close proximity to a well, and in particular, estimates whether this impact differs for homes dependent on groundwater for drinking compared to those with publicly supplied water. To determine how property values for these different types of homes may be affected, EDF, working with economists from the University of Calgary and Duke University, utilized transaction level data across the state to conduct comparisons in three different dimensions simultaneously:

  • properties very near a well to those further away;
  • properties dependent on groundwater for drinking to those with access to piped water;
  • and properties sold prior to a shale gas well being drilled with those sold after the well was drilled.

Furthermore, to account for the fact that many groundwater-dependent properties may be located further away from urban centers, the data were restricted to homes located near the piped water boundary. This helps eliminate differences in neighborhood characteristics that could affect both the price of the home and its proximity to a shale gas well.

The analysis determined that property values are impacted by proximity to a shale gas well, though results differ depending on the property’s drinking water source. Those with piped water can economically benefit from being very near a well (a value increase of 3 percent for properties within 1.5km of a well), potentially due to royalties and bonuses companies pay to develop on a homeowners land. However, the property values of homes that are dependent on groundwater and located within 1.5km of a shale gas well declined by an average of 13 percent. Importantly, the impact on both types fades with distance; showing that both the benefits (increased royalty payments) and costs (increased groundwater contamination risk) of proximity diminish as one moves further from shale gas development.

This analysis does not draw information from observed air or water contamination. Instead, the data reflects public perception and brings to focus two important observations.

The first is that oil and gas communities are becoming more aware of the environmental risks posed by development. Managing these risks is critically important, as nearly 10 million Americans live within one mile of a hydraulically-fractured oil or gas well.  Smart policies that improve operations and create more opportunities for public transparency are necessary to ensuring communities in close proximity to drilling feel adequately protected from the inherent risks of oil and gas development.

But the study also highlights another key issue – the economic and environmental consequences of oil and gas development (both positive and negative) do not impact communities evenly. There is a clear detriment to some populations – as there often is with any industrial activity.  And rigorous, economic and scientific analyses are important tools for helping policy leaders understand these discrepancies to respond effectively.

Economic research can provide insights into how markets internalize the environmental costs of economic activities, even if these costs do not have a monetary value associated with them (for example, you can’t buy greenhouse gases, but economic research has demonstrated that the social cost of a ton of carbon is around $40). This analysis demonstrates that the threat of drilling activity causing groundwater contamination – which has no market value – still has true costs. Rigorous economic analysis allows us to quantify these costs, leading to more informed policy decisions and better outcomes for both the environment and the local community.


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Cap and Trade under AB 32 – Now it’s an “Official Success”

(This blog post was co-authored with Tim O’Connor and originally posted on California Dream 2.0.)

iStock_000004415617SmallMany people have been following the AB 32 cap-and-trade program since it kicked off on January 1, 2013. After all, it’s the most comprehensive carbon market in the world; it has created billions in investments for pollution reduction in California communities and garnered intense international attention. Now, based on data showing the program has cut climate pollution during its first compliance period, the chair of the California Air Resources Board (CARB) has dubbed it “officially a success.”

Under California’s Mandatory Greenhouse Gas Reporting program, the largest polluters in the state across all sectors must report their emissions every year. This data is then collected and counted by CARB. Yesterday, the agency released the final tally of the 2014 greenhouse gas (GHG) emissions covered by cap-and-trade, and with data, we get the final word on what happened during the program’s first compliance period (for years 2013 and 2014).

Covered emissions went down…            

According to CARB’s report, although GHGs in 2014 experienced a slight increase compared to the year before, total climate pollution across the compliance period (2013 and 2014) decreased by over three percent to approximately 146 million metric tons (MMt) of carbon dioxide-equivalent. This means California’s emissions were nine percent under its 2014 cap of 159.7 MMt, putting the state well on its way to achieve its short-term emissions reduction target: bringing emissions back to 1990 levels by 2020. It also shows how cap-and-trade is best evaluated across compliance periods: since businesses have the incentive to cut pollution as quickly and deeply as possible, reductions in one year of the program may outpace those in another year.

… While California’s economy continued to prosper

Total emissions reported under the Mandatory Greenhouse Gas Reporting program, including those not covered under cap and trade, also decreased between 2012 and 2014, by about 1.3 percent. Meanwhile, the state’s gross domestic product (GDP) increased by almost three percent in 2014, surpassing the two percent GDP growth California’s economy underwent the year before. So while emissions were declining under AB32, the state’s economy grew, proving once again that economic output and emissions don’t necessarily go hand in hand.

California also experienced remarkable job growth during the same period. In 2013, California saw total employment increase by 2.1 percent, beating the national average. In 2014, job growth in the state reached an impressive 3.2 percent. As a comparison, the rest of the United States experienced only an average 2.2 percent growth in jobs that year.

Companies are complying with cap and trade

Under California’s cap-and-trade program, regulated polluters are also required to surrender some of their emissions allowances every year. Yesterday, they did just that, turning in allowances needed to cover the remainder of 2013 emissions and all of 2014 emissions. Total allowances for the first compliance period represent approximately 290 MMt of carbon dioxide-equivalent.

According to data released by the agency, over 99 percent of the required allowances were surrendered in the first compliance period, barely short of a perfect score, proving companies are prepared to incorporate cap-and-trade obligations in their everyday business practices.

Looking ahead

Starting on January 1 of this year, transportation sector emissions are also regulated under California’s cap-and-trade program. This is another important step forward: emissions from transportation represent almost 40 percent of the state’s GHG emissions. It is also a crucial building block, putting California on the right track to achieve its ambitious medium and long-term targets – with the ultimate goal of reducing emissions 80 percent below 1990 levels by 2050.

Today’s results confirm that the cap-and-trade program’s first compliance period was a success and that California has a strong foundation to build upon as it takes the next critical steps towards its climate change goals.

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Natural Gas-Fueled Buses and Trucks: Will the Climate really Benefit?

Kenworth truckAs readers of this blog will know, the freight transportation industry in Texas— a freight hub – has a significant impact on the state’s economy and environment. Recent market conditions and environmental concerns have ignited talk of expanding the use of natural gas trucks instead of diesel. But what would be the true climate benefit – or cost?

This post from our colleague Jonathan Camuzeaux, a senior economic analyst for EDF’s Office of Economic Policy and Analysis, explores this question from a national perspective, but we wanted to share this post with Texas Clean Air Matters because of its relevance to our state. We have the second-largest state-highway system in the U.S., as well as the Port of Houston Authority, which is the second busiest port in the nation when it comes to overall tonnage. Considering the switch to natural gas could have a big effect on the climate impact of the state’s truck fleets.

— The EDF Texas Clean Air Matters Team Read More »

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