Market Forces

Properly Pricing for Progress: How we can overhaul electricity tariffs to efficiently integrate distributed energy resources into the grid

Dr. Beia Spiller is a Fellow and Transportation Program Director at Resources for the Future. She had previously served as a Lead Senior Economist at EDF.

This post is the final in a series dedicated to the future of the electricity sector and new scholarship supported by the Alfred P. Sloan Foundation. Each post is based on a discussion between select researchers and experts working on relevant policy. To learn more, visit the series website.

As a growing number of distributed energy resources (DERs)–from rooftop solar panels to batteries–make up a greater share of the nation’s electric grid, electricity providers, policymakers and academics are recognizing that most electricity tariffs do not value or compensate for them effectively.

In the most recent and final webinar, I joined three other panelists and discussed why the current pricing system doesn’t work and, more importantly, explored ways regulators and utilities can reimagine electricity tariff structures to better price DERs and encourage more efficient electricity use. Dr. David Brown, Associate Professor at the University of Alberta’s Department of Economics moderated the panel, which included Dr. Michael Caramanis, Boston University Professor of Mechanical and Systems Engineering, Dr. Burçin Ünel, the Energy Policy Director at the Institute for Policy Integrity at New York University School of Law, and Paul Phillips, an expert in California energy policy now overseeing the Retail Rates group in the California Public Utility Commission’s Energy Division. Read More »

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Creating Data to Support Communities on the Front Lines of Oil and Gas Production in the US

This blog was co-authored by Kate Roberts.

This week we published a new study that combines locations of active oil and gas wells with census tract data in a way that helps us better understand the characteristics of the communities living near them. Our findings support what environmental justice groups have been voicing for years: in many counties across America, people who have been historically marginalized–communities of color, older Americans, children, and people living under the federal poverty line–often live near wells in greater proportions than the other groups that make up the rest of their local county.

In addition to publishing these data with our study, we also used it to develop an interactive tool, which users can access to explore how each of 13 different demographic groups relate to oil and gas wells across all US counties.

 

Case studies show the impact of overlapping demographics

For a long time now, EJ advocates have voiced the importance of taking a broader view of environmental stressors, and move beyond simply exploring outcomes for a single pollutant or population in isolation. In their seminal paper on this issue in 2011, UC Berkeley’s Rachel Morello-Frosch and her coauthors illustrate how critical it is to reframe our thinking around cumulative exposures and vulnerabilities, so that we may address environmental disparities.

A central aspect of our paper is to embrace this view: we developed an index to highlight the places with substantial overlap of historically marginalized groups, and where we also found a high density of active wells. We found about 41 clusters of interest across the country, which are predominantly located in three specific regions: California, the Southwest, (San Juan, Eagle Ford and Permian Basins in Texas and New Mexico), and Appalachia. The main demographic characteristics represented in these are outlined in the map below:

Taking a closer look at the Permian Basin (where EDF has conducted a methane monitoring initiative), one can clearly observe an abundance of active wells (the white dots). Certain counties here show a lot of overlap across historically marginalized groups, such as Lea and Eddy (in New Mexico), and Andrews, Crockett and Sutton (in Texas).

For example, in Lea county, Hispanics, children under 5, and unemployed individuals compose 59%, 9%, and 7% of the total population, respectively. Compare this to averages of 24%, 7%, and 4% across all counties across the US  where wells are found.

 

A basis for both current and future study

Users can explore the full data set, for all US counties, to learn more about the people living within 1, ½ , ¼, or 1/10th  of a mile of active oil and gas wells. This kind of information can be useful to a variety of organizations, like environmental justice and community groups to  highlight threats faced by people on the front lines, or health researchers, who can use this data to research projects delving into the health and other impacts associated with oil and gas operations.

It could also prove useful for policymakers concerned about the threats faced by their constituents, and to shape better policies.  For example, local, state and federal officials could use the data as they consider requirements designed to protect those who live in closer proximity to oil and gas wells, like more frequent leak inspections, appropriate setbacks, mitigation efforts to reduce light, noise and dust impacts, provision of information and services to populations in multiple languages, and the reduction of heavy truck traffic, as well as the elimination of high-polluting pneumatic devices and routine venting and flaring.

The new analysis comes as the EPA is considering new requirements to limit methane pollution from oil and gas wells across the U.S. Leading states including Colorado and New Mexico have established requirements in recent years that help protect frontline communities from oil and gas pollution including regular inspections at smaller wells with leak-prone equipment and bans on routine flaring. EPA will have the opportunity to build from these comprehensive approaches when it issues its supplemental rule proposal later this year.

Our methods used in the study can also be applied towards other environmental stressors. For example, EDF has used the same approach to explore communities living near large warehouses that attract polluting truck traffic, and other petrochemical facilities across the United States.

As you explore the interactive dashboard, let us know what you think. How can this data be made useful and supportive towards your own goals? Are there other ways it should be presented, or adapted so that it can be more effective? We’re happy to help you learn more about how you can make sense of it and what it means for your local community.  Please feel free to get in touch, and we hope to include your feedback in future versions of this tool and as we build out more population mapping efforts.

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Mass Appeal: How can we make electrification more affordable and equitable?

This post is the fourth in a series dedicated to the future of the electricity sector and new scholarship supported by the Alfred P. Sloan Foundation. Each post is based on a discussion between select researchers and experts working on relevant policy. To learn more and join one of our upcoming conversations, visit the series website.

Distributed energy resources (DERs)—from rooftop solar to electric vehicles (EVs)—have amazing potential to reduce greenhouse gas emissions and help us reach our climate goals. Their widespread adoption, however, could also bring unprecedented stress to an already aging electric grid. Upgrading both local and system-wide electricity grids to support this change will require thoughtful planning to minimize costs and recover these equitably.

On our recent webinar funded by the Alfred P. Sloan Foundation, the panel delved into the growing adoption of DERs, the data needed to understand trends and provide more accurate forecasting for future investment, as well as the costs—and their allocation—of upgrading our electric system to accommodate this seismic shift. Moderated by Elizabeth B. Stein, Lead Counsel for Energy Transition at Environmental Defense Fund, the panel included Dr. Jim Bushnell, Professor of Economics at the University of California, Davis; Dr. Anamika Dubey, Assistant Professor of Electrical Engineering and Computer Science at Washington State University; Dr. Alan Jenn, Assistant Professional Researcher at the Institute of Transportation Studies at the University of California, Davis; and Michelle Rosier, the Economic Analysis Supervisor for the Minnesota Public Utilities Commission.

As California goes… Read More »

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Grid makeover: New research shows how the integration of renewables is exposing design flaws in energy markets and offers paths to improvement

This post is the third in a series dedicated to the future of the electricity sector and new scholarship supported by the Alfred P. Sloan Foundation. Each post is based on a discussion between select researchers and experts working on relevant policy. To learn more and join one of our upcoming conversations, visit the series website.

As energy providers around the country integrate a growing volume of wind, solar and batteries into their systems, researchers and regulators are seeing compelling evidence that markets may require design adjustments to address inefficiencies.

Our recent webinar, funded by the Alfred P. Sloan Foundation, examined how market designs can lead to clean energy outcomes—and potential unintended consequences like an increase in CO2 emissions.

Moderated by Sarah Ladin, an attorney at the Institute for Policy Integrity, the panel—which you can watch here—included Dr. Catherine Hausman, an associate Professor of Public Policy at the University of Michigan and a research associate at the National Bureau of Economics Research, Dr. Chiara Lo Prete, an Associate Professor of Energy Economics at the Pennsylvania State University and Valerie Teeter, the Deputy Director of the Office of Energy Market Regulation at the Federal Energy Regulatory Commission (FERC).

Ancillary services markets, renewables and their impact on generation

While most economists tend to examine wholesale energy markets, Dr. Hausman has researched ancillary service markets, which provide essential services for maintaining a secure and stable power system. One of these markets is the frequency regulation market, which is crucial for ensuring reliability. This market helps maintain the appropriate balance of supply and demand by paying generators to make small adjustments to their output. Dr. Hausman’s research explores the potential for ancillary service markets to interact with and affect the wholesale energy market.

Her research studied the PJM frequency regulation market in the northeastern United States from 2012-2014 to show how generators responded in the wholesale energy market. Her team discovered significant spillovers across markets, as generators adjusted both the amount of energy they generate as well as the fuel and technology type. For example, because the frequency regulation market requires generators to fluctuate their generation, some may need to increase their daily generation significantly in order to allow for the footroom needed to make these adjustments. These results suggest that the ancillary services markets interact directly with generation markets in ways that academic economists haven’t previously considered.

Renewables, batteries and climate change are leading to a rethinking of ancillary services, she argues. If system operators aren’t careful, the utilization of batteries to provide frequency regulation could lead to the unintended consequences of increasing CO2 emissions. For example, if a battery enters the frequency regulation market, this may reduce the need for a coal plant to participate in frequency regulation, resulting in an increase in coal-fired capacity in the wholesale market and, in turn, emissions. “In a world without the ideal carbon emissions regulation that we might hope for,” Dr. Hausman argued, “we need to be careful about the unintended consequences of our policies, especially around things like new technologies or changes to electricity markets.”

Managing the unpredictability of wind

Dr. Lo Prete’s research examined why the increasing penetration of wind in U.S. energy markets poses a unique challenge. Markets operated by Independent System Operators (ISOs) rely upon forecasts to schedule dispatch of both wind and non-wind resources one day ahead of time (with adjustments to dispatch happening in real time as demand and supply varies). While weather forecasts have improved dramatically, predictions for wind are not as precise, and any inaccuracy can impact other forms of energy, which need time to adjust their generation (for example, coal plants take 10-20 hours to reach 70% capacity).

If the wind does not blow as expected, “peaker” plants (dirty, inefficient fossil fuel-based generators that run only a few hours of the year) must ramp up quickly to meet demand. Conversely, if the wind blows unexpectedly hard, some non-wind generation units that had ramped up the day before in response to the forecast lose their spots in real time, leading them to burn fuel while sitting idle (units that have committed to turning on can’t easily turn back off, and then run at their minimum output level). “Once they’re committed, they can’t be de-committed,” Dr. Lo Prete explains.

Both these outcomes are inefficient and can increase the need for uplift payments, or out-of-market payments to generation or demand response resources that ensure generators are adequately compensated when they’re ordered to either produce or reduce power. Ensuring that forecasts are more accurate is one way in which these inefficiencies can be reduced.

She also found an interesting interaction between the wholesale and ancillary service markets that creates greater inefficiencies due to wind variability and inaccurate forecasting. Specifically, for baseload plants (including coal and natural gas combined cycle) that participate in both the energy and reserve markets, if the wind ends up blowing less than expected, these plants can shift capacity towards generating, thereby reducing their reserves. Because these plants are cheaper to operate than peaker plants, this reduces the market clearing bid below peaker plant marginal costs, thereby requiring more uplift. Dr. Lo Prete was surprised by this finding, and said she originally had not planned to incorporate both markets into her research. But her findings demonstrate the need for researchers to think about the system in a holistic manner, incorporating all market participation into their modeling efforts. She encouraged researchers in the audience to take this approach, stating that “it’s going to become more and more important to look at the combination of ancillary services with energy markets, and with other markets as well (such as capacity markets).”

FERC exploring market reform

Ms. Teeter noted that as the resource mix is changing, FERC (the agency that regulates transmission and wholesale markets) is exploring how market design in both the wholesale and ancillary service markets can address the need for greater operational flexibility. Given variable energy resources’ inability to ramp up or down generation on demand, the remaining generation needed to meet total load will need to be much more flexible in real time.

It is therefore critical that market rules do not create participation barriers for generators that can quickly ramp up or down. The Commission is exploring whether new market products can help compensate those generators able to meet this ramping need, as well as how market designs can better incentivize resources to reflect their operational flexibility in their price bids. Given that new resource types such as batteries have greater operational flexibility, the Commission is also examining whether market rules create any undue barriers that prevent these resources from providing this much-needed service.

Need for continued interaction between academics and policymakers

During a robust discussion among panelists, Dr. Hausman noted the critically important link between researchers and regulators. Because the grid is changing so quickly in the absence of a national climate policy on carbon emissions in electricity markets, researchers should be looking into unintended consequences and presenting their findings to agencies like FERC to find adequate solutions. “The market is not just going to automatically take care of itself,” she said.

Regulators rely upon this type of input for making informed decisions. Ms. Teeter described some recent technical conferences during which stakeholders, experts and academics discussed key issues related to changing system needs. Conferences like these, as well as the public docket, she noted, are ideal venues for academics to share some of their latest thinking on market issues and challenges that may exist.

“Commission staff appreciates the ability to dive into these issues and understand the technical thinking that’s been done and have that thinking inform their decisions,” Ms. Teeter notes. Research like that conducted by the other panelists can be useful to the commission and its staff as it examines whether energy and ancillary service market reforms are necessary to address changing system needs in the evolving electricity sector.

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People of color hit hardest by air pollution: EPA needs to consider this in benefit-cost assessments of policies

This blog was co-authored by Jeremy Proville, Director: Office of the Chief Economist, and Ananya Roy, Senior Health Scientist at EDF.

New analysis finds that prevalent methods of assessing impacts of air pollution underestimate pollution’s health impacts on people of color.

Everyone has the right to breathe clean air. Yet communities of color, falsely labeled as “hazardous” in the 1930s, experienced decades of depressed property values and higher siting of industrial facilities and highways, resulting in higher exposure to air pollution. Environmental racism like this causes unjust, unequal health harms.

Yet the issue of Environmental Justice and its impact on health extends beyond disparate exposure alone. Communities of color are exposed to higher levels of air pollution and are more vulnerable to that air pollution. Racist policies, institutional practices, and disenfranchisement have caused disinvestment in housing, transportation, economic opportunity, education, food, access to health care, and beyond in these communities. All of these overlapping inequities not only manifest in health disparities for these families, but also result in greater health impacts from pollution exposure. In fact, a recent study of 60 million Medicare beneficiaries found that older Black people are three times more likely to die from exposure to pollution than white people when exposed to the same levels of fine particle air pollution or soot.

The federal government usually assumes that air pollution exposes everyone to the same risk. Yet the risks are not the same. The disparate harm caused by pollution to Black and Hispanic communities cannot be ignored, and should be addressed directly in estimating the benefits and costs of pollution policies in order to ensure that everyone’s health and wellbeing is protected.

New research uncovers how pollution impacts have been underestimated

In a new journal article in Environmental Health Perspectives, EDF researchers and Carnegie Mellon University professor Nicholas Muller leverage this new understanding of racial/ethnic disparities in air pollution-caused mortality risks. The work seeks to understand the policy impacts of using race/ethnic-specific inputs rather than using data inputs that average the effects across all populations.

We find that using data inputs that average health response across race/ethnicity (effectively ignoring these real differences across groups) leads to:

  • An underestimate of the overall mortality impacts of air pollution to all populations by 9%
  • An undervaluation of the total costs of pollution across the country by $100 billion.

But this is even more damaging for Black families, as taking into account the larger impact of pollution on their health would increase their estimated pollution-caused burden by 150%.

This has real-world implications for cost-benefit analyses associated with air pollution improvement policies. For example, the Mercury Air Toxics Standard (MATS), a policy that helped reduce pollution from the electric sector, provided much larger benefits to Black people than previously understood: by not accounting for the fact that air pollution is more harmful to these communities, an assessment of the policy would underestimate MATS’ benefits to Black families by 60%.

Changing approaches at the federal level

In EPA’s Policy Assessment for the Reconsideration of the Particulate Matter National Ambient Air Quality Standards (PM NAAQS), the agency has used, for the first time, methods similar to our study to assess the distributional benefits of strengthening the standard.

The results indicate that, when considering both exposure and vulnerability differences across race/ethnicity, older Black people in 30 metropolitan areas bear 27% (13,600 premature deaths) of the mortality burden of PM2.5 at an annual PM2.5 standard of 12 µg/m3, despite making up only 13% of the total population. Strengthening the annual PM2.5 standard from 12 to 8 µg/m3 would result in 4,260 fewer air pollution-attributable premature deaths in Black communities (representing 31% of the total prevented PM2.5– mortality benefits).

Without this type of race/ethnicity-specific information on pollution vulnerability, the EPA would not have been able to accurately estimate the benefits to communities from lower pollution concentrations. This kind of assessment needs to become the rule rather than the exception.

Our data choices matter

Our findings have a very clear implication for policy: when thinking about air quality policy, government agencies should use the most up-to-date race/ethnicity-specific inputs to understand and reduce environmental injustices, especially in the context of estimating benefits and costs of policies. Being agnostic to existing differences in pollution impacts across race/ethnicity obscures the benefits we could achieve by improving our air quality – both for communities of color, but also for society as a whole.

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Capturing the health benefits of climate policy is critical.

Over the past 30 years, numerous scientific reports have highlighted the health impacts of climate change, starting with the first Intergovernmental Panel on Climate Change Report in 1990. The report included a short summary on heat stress, vector and water borne diseases and air pollution health effects like asthma and heart attacks.

Yet health impacts are not fully accounted for in cost of carbon estimates – presenting a missed opportunity. Public health researchers and economists should continue to work together to more fully capture the health value of policies that cut climate pollution.

Climate and health

The most recent National Climate Assessment, published in 2018, provides an extensive review of climate change effects on human health in U.S. regions. Public health impacts include:

  • changes in mortality and hospitalizations due to extreme weather events including heat waves, floods, and droughts.
  • changes in vector-, food-, and waterborne infectious diseases.
  • changes in chemical exposures via air, food and water.
  • stresses to mental health.

The World Health Organization (WHO) quantifies global health impacts of climate change, utilizing the burden of disease methodology to estimate mortality and disability-adjusted life years. Based on heat-related mortality, diarrheal disease, malnutrition and malaria, the most recent WHO assessment projected 250,000 additional deaths per year in 2030 – despite only quantifying a subset of health impacts from climate change.

The Lancet has also commissioned several series of articles and reports detailing the human health implications of climate change. After the Paris Agreement, the outlet initiated the Lancet Countdown, tracking the status of health effects from climate change through reporting on numerous indicators across impacts, exposures and vulnerabilities, as well as adaptation and mitigation actions. For example, the most recent Lancet report estimated a 53.7% increase in heat-related mortality over the last 20 years and an estimated 15% increase in climate suitability for transmission of dengue.

Health benefits largely absent

Benefit-cost analysis – typically managed by economists – is a cornerstone of U.S. regulatory analysis. The U.S. Government is required to use a monetized estimate of the net impacts of global climate change, referred to as the social cost of carbon (SCC), in regulatory rulemakings of greenhouse gas emissions. The current models used to estimate the SCC incorporate impacts to agriculture productivity, energy use, property damage and, within the health sector, an estimation of changes in cold and heat-related mortality.

Yet, while the research community continues to provide more detailed characterizations of climate change’s health effects, health researchers have been less involved in applying these findings to estimate the SCC. As a result, health is still not fully represented in the SCC.

Quantification of health benefits, like lives saved and hospitalizations avoided, can provide critical justification for and evidence of success of environmental policies. For example, the regulatory impact analysis of the Clean Power Plan included an estimation of health and other benefits from reduced greenhouse gas emissions using the SCC estimate, as well as expected health co-benefits via reduced air pollution.

Improving health benefits estimates

A 2017 National Academies of Science Engineering and Medicine report recommended two critical research needs for advancing the science behind the SCC estimate:

  1. Updating health damage modules to incorporate recent health literature.
  2. Improving delineation of the different effects of climate change across regions of the world – e.g., trying to determine the different health impacts expected in different areas.

Since the release of this report, several groups have been working to address these recommendations. For example, the Climate Impact Lab has developed an improved temperature-related mortality estimate that incorporates adaptation and delineates distributional effects across areas of the globe.

A recent analysis utilized WHO, Climate Impact Lab, and Lancet Countdown temperature-mortality functions to produce estimated mortality costs associated with climate change – suggesting a seven-fold increase in estimated monetary damages from previous estimates. In other words, adding in more specific health damage estimates increased the estimated cost of carbon pollution by seven times—from $37 to $258 per metric ton of carbon dioxide emitted.

Although climate change is a global phenomenon, the impacts are unequal and disproportionately burden underserved, low-income and marginalized communities. For example, the U.S. Environmental Protection Agency found that socially vulnerable populations are likely to experience the most severe harms from climate change. Evaluating distributional health effects of climate change at a finer geographical scale could help policymakers address inequities.

It’s critical for policymakers to have accurate information to weigh the benefits and costs of cutting carbon. With health researchers involved, benefit-cost analyses can more accurately capture the threat that climate change poses to people’s health – and the benefits that come with acting on climate.

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