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Regulating Existing Power Plants Under Clean Air Act 111(d) (Part I): The CAA's Language & Structure

In late September, the EPA proposed regulation of new power plants’ greenhouse gas emissions (GHGs) under the Clean Air Act’s “New Source Performance Standards” (NSPS) provisions.  Now an often little noticed follow-on provision—Section 111(d)--- is suddenly in the spotlight.  Section 111(d) requires regulation of existing sources that are in categories of polluters subject to NSPS regulation.  President Obama, EPA, industry, environmental groups, and states have all entered the fray about what Section 111(d) requires and allows. 

This issue presents several important choices and issues.  First, regulation of existing US fossil fuel burning power plants—the source of over 30% of US carbon dioxide emissions-- is unavoidably central to US efforts to reduce GHG emissions.  Second, in the face of the federal government’s long climate change inaction, many states and regions have already created programs and laws designed to reduce GHG pollution.  Some have embraced variants on cap-and-trade schemes, or enacted renewable portfolio standards, or developed demand reduction strategies focused on other sectors, technologies, and consumer use.  How would new Section 111(d) mandates mesh with diverse state efforts? Over the long term, Section 111(d) regulation could demonstrate to congress, states, industry and perhaps the world what is possible by providing a major testing ground and microcosm for more comprehensive climate regulation, whether at the national or international level. 

A major dividing line in early comments is whether states can adopt diverse strategies that consider or allow strategies such as pollution trading, or whether such regulation needs to focus “inside the fence line,” meaning regulatory limits no more stringent than could be derived through a more individualized unit or plant-based analysis.  Much of the early commentary may just reflect taking of sides, but if taken seriously seems to show misunderstandings of the actual language of Section 111(d) and several crucially important cross references.

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Nuclear Power and Clean Energy Policy

As we consider designing a future clean energy policy, nuclear power cannot be ignored because of its near zero carbon emissions even when considering the entire nuclear fuel cycle.  It is also the case that public opinion of nuclear power has been increasingly positive, largely for those environmental reasons, though certainly it decreased after the accident at the Daiichi plant in Fukushima, Japan.

 Nevertheless, a strong argument can be made that nuclear power should not be considered as a clean resource in our energy portfolio for two significant reasons.  First, nuclear power cannot pass a market test.  Second, and complementarily, we can achieve greater gains in energy efficiency and in reduced carbon emissions by investing in alternative and renewable resources.  

Today, we hear the phrase that the United States is experiencing a “nuclear renaissance.” Evidence of such a renaissance can be found in the fact that approximately 30 nuclear units are in some stage of planning and that the Nuclear Regulatory Commission has granted combined construction and operating licenses permits for two reactors in Georgia and two reactors in South Carolina.

Compared to the situation of nuclear power over the last 30 years, these licenses indicate a significant change in the course of commercial nuclear power.  Indeed, until last year, no new plants were built or ordered since 1978, and all plants that had been ordered since 1974 were canceled. Consequently, these new licenses evince a notable change in direction.  It must be recognized, however, that this change has been facilitated by the financial supports, including substantial multi-billion dollar loan guarantees, authorized by the Energy Policy Act of 2005 (EPAct 2005).

Still, serious problems remain.  Most importantly, nuclear power cannot pass a market test to the point at which the electricity generated from that resource is cost competitive with coal, natural gas, or even alternative resources.

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Natural Gas in the Big Picture:

With advancements in hydraulic fracturing technology, shale gas has dramatically altered domestic energy in the United States.  Some commentators claim that shale gas can address all of our major energy problems. Some consider natural gas a bridge fuel to a clean energy future.  Bills in Congress proposing a federal “Clean Energy Standard” have included natural gas as a qualifying “clean” fuel source. President Obama’s recent State of the Union address emphasized natural gas and renewable energy as important to reshaping American energy use.   

Given the projected impacts of climate change, we have reached a point when the air and water impacts of natural gas development call on policymakers to sort through some key questions with care: How will current and future energy policy position natural gas, explicitly or by default, relative to fossil energy alternatives like renewable energy?  What role should natural gas play in the U.S. energy landscape in the coming decades?  If it is a bridge fuel, where is it leading? Are we poised to over-rely on natural gas, at the expense of rapid renewable energy development?

It is hard to overstate the significance of the energy transition that the United States is currently experiencing. Take a quick peak back: from 1949 until about 2005, U.S. energy exports were flat; imports continued to rise, particularly petroleum; and production and consumption largely grew in tandem.  In 1970, as domestic oil production peaked, consumption and production began to separate from each other.  Domestic production could not keep pace with consumption and, as a consequence, we grew more dependent on foreign energy resources, especially OPEC oil. Fossil fuels dominated our energy economy with renewable resources barely scratching 2-3% of total U.S. energy production.

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Not-So-Smart ALEC: The Right Wing vs. Renewable Energy

Cross-posted from Triple Crisis.

Renewable energy is clean, sustainable, non-polluting, reduces our dependence on fossil fuels, improves the health of communities surrounding power plants, and protects the natural environment. Who could be against it?

Answer: The American Legislative Exchange Council (ALEC), a lobbying group that is active in drafting and advocating controversial state legislation. They’re not just interested in energy: in recent years ALEC has supported Arizona’s restrictive immigration legislation, the “Stand Your Ground” gun laws associated with the shooting death of Trayvon Martin, and voter identification laws proposed in many states. ALEC’s priorities for 2013 include making it harder to bring product liability suits against manufacturers of defective products, ending traditional pension plans for public employees, promoting the diversion of public education funds into private schools and on-line education schemes, and supporting resistance to “Obamacare” health policies.

When it comes to energy, ALEC wants to speed up the permitting process for mines, oil and gas wells, and power plants – and to eliminate all state requirements for the use of renewable energy. The latter goal is packaged as the “Electricity Freedom Act.” In numerous states, ALEC has used studies by Suffolk University’s Beacon Hill Institute (BHI) to claim that the “Electricity Freedom Act” will free ratepayers from the allegedly immense costs and job losses of renewable energy standards.

In a recent study for the Civil Society Institute, my colleagues and I at Synapse Energy Economics analyzed the ALEC studies of the costs of renewable energy. Our report found fundamental flaws in both the energy data and the economic modeling used by BHI.

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Phasing out Fossil Fuels

We will phase out fossil fuels.  We have no choice. They are a finite resource and at some point they will run out.  Admittedly, coal will not run out nearly as quickly as oil, but sooner or later all fossil fuel resources will run out. 

The only question we face is whether we phase out fossil fuels before we have set in motion climate disruption’s worst effects or instead just allow a phase-out to occur through price shocks and shortages that we are ill-prepared to cope with, and risk a climate catastrophe.  Obviously, a managed phase-out makes much more sense.  Climate disruption will plague us with increasingly violent storms, flooding, drought, a spread of infectious diseases, and other calamities.  A reasonably rapid phase-out will help us avoid some of these impacts by first reducing and eventually eliminating emissions of carbon dioxide, the principal greenhouse gas.  At the same time, switching to cleaner fuels will save thousands of lives annually and many more illnesses right away, as burning the fossil fuels that cause climate disruption also causes particulate pollution and urban smog (tropospheric ozone).  A phase-out of fossil fuels also would gradually end destruction of land through coal mining and disastrous oil spills, like that of the Deepwater Horizon.

Although we cannot end fossil fuel use right away, we must move in the direction of a phase-out as rapidly as we can.  Carbon dioxide emitted in the atmosphere adds to the preexisting store of carbon and remains there for a very long time.  Hence, every year of inaction adds to a cumulative store of carbon in the atmosphere, making the climate disruption problem irreversibly worse.

We must rid ourselves of the illusion that we can drill our way to energy and price security.  Oil trades on a world market, even oil coming from the United States.  In 2011, we imported 45% of our oil from abroad, more than half from OPEC countries, and that was the lowest percentage since 1995.  Renewable energy, however, relies overwhelmingly on domestic fuels.  You cannot ship sunlight or wind to China.

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Subsidizing in Spurts: Our Production Tax Credit Policy, or Lack Thereof

This post was written by CPR Member Scholars Alexandra Klass and Lesley McAllister.

Taxes and energy are subject to constant partisan debate. Both are at play in politically-charged discussions about the government’s role in promoting renewable energy, particularly wind energy. Since 1992, the federal government has granted a production tax credit (PTC) (currently 2.2¢ per kilowatt/hour (kWh)) for production of certain renewable energy. The credit initially focused on wind, closed-loop biomass, and poultry-waste energy resources; in 2004 Congress expanded the program to include open-loop biomass, geothermal, and several other renewable energy sources. With this support, the wind energy industry has begun to take off.  By 2011, installed wind capacity exceeded 45 gigawatts (GWs), accounting for about 4% of U.S. installed electricity capacity, 3% of total U.S. generation, and more than 10% of total generation in several states. And in 2012 alone, the industry added more than 13 GW of wind energy, surpassing the previous record of 10 GW in 2010.

Yet unlike the significant tax benefits for fossil fuels, which have been in place for many decades, the PTC has never been a permanent part of the tax code. Instead, it was created with set expiration dates, and expires on those dates unless Congress specifically reauthorizes it. This resulted in the PTC expiring at the end of 1999, 2001, and 2003, and almost expiring in numerous other years, including 2012.  Although Congress extended the deadline for one more year as part of the “fiscal cliff” budget negotiations in January 2013, this temporary fix means that the debates over the long-term use of tax benefits to encourage renewable energy will continue.

These expiration cycles have had a significant impact on project investment, wind energy jobs, and technology development.  Generally, investment increases in the 12 months leading up to the real or threatened PTC expiration and then drops afterward. These cycles create uncertainty, and research has shown that this uncertainty, even more than the lack of the PTC in “off” years and the pending expiration in other years, drives investment volatility and hurts the industry.  While 2012 was a record year for wind installations, most of the investments in those projects came in the previous year and the uncertainty over the PTC expiration in 2012 means that developers have not planned significant projects for 2013.

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The Legacy of Subsidizing Fossil Fuels

Often lost in today’s debates over whether to continue tax benefits for renewable energy is a historical perspective on the significant support the federal government has provided and continues to provide the fossil fuel industry. Tax benefits for the energy industry as a whole totaled over $20 billion in 2011, which is, and historically has been, about 2% of total U.S. tax expenditures. In general, the United States has used tax benefits to first support development of domestic fossil fuel and nuclear production for nearly a century and, more recently, to support the development of domestic renewable energy. Until 2005, virtually all energy-related tax expenditures and benefits went toward stimulating domestic oil and gas production with the amount claimed by renewable energy almost negligible.

In recent years, tax benefits for renewable energy have surpassed that of fossil fuel production. For instance, in 2011, the breakdown of tax expenditures and other tax-related benefits within the energy sector was as follows:  68% to renewable energy (including ethanol and biodiesel), 15% to fossil fuels, 10% to energy efficiency programs, 4% to nuclear energy, and 2% to other. These numbers can be misleading, however, because they do not take into account the decades of continued tax benefits the federal government provided to the fossil fuel sector, which helped those industries become the dominant economic and political forces they are today. For instance, one study shows that over the period of years the federal government has supported the oil and gas industry, the average annual subsidy for that industry sector was nearly $5 billion; for nuclear, the average annual subsidy was $3.5 billion; for biofuels, the average annual subsidy was just over $1 million; and for other renewables, the average annual subsidy was $0.37 billion.

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Climate Progress Possible With Energy Efficiency Standards for Appliances -- Under Laws Congress Already Passed

President Obama's focus in his second inaugural address on the need to address climate change was welcome after many months of near silence on this critical issue. While tackling climate change will require significant efforts limiting emissions from power plants, automobiles, and other sources, the President has recognized in the past that improving energy efficiency in general, and setting stricter energy efficiency standards for appliances specifically, can have a major impact on reducing both U.S. greenhouse gas emissions and consumer energy costs. Indeed, according to one recent study:

taking into account products sold from the inception of each national appliance standard through 2035, existing standards will net consumers and businesses more than $1.1 trillion in savings cumulatively. … On an annual basis, products meeting existing standards reduced U.S. electricity use in 2010 by about 280 terawatt-hours (TWh), a 7% reduction. The electricity savings will grow to about 680 TWh in 2025 and 720 TWh in 2035, reducing U.S. electricity consumption by about 14% in each of those years.

Until 2009, with the rise of the Tea Party, energy efficiency had been one of the few bipartisan issues surrounding energy policy, with both Republic and Democratic Congresses and Presidents recognizing that new standards benefit a range of interests, including business groups, consumers and the environment. Moreover, appliance manufacturers and interest groups often favor new standards, which can lead to economies of scale, cost savings, and more predictability for the future development of products. Because of Congressional actions mandating stricter efficiency standards for a range of products, current legislation does not stand as a major barrier to improving appliance efficiency standards. Instead, the problem more often lies within Department of Energy and reviewing agencies such as the Office of Management and Budget. The lengthy and expensive process of setting efficiency standards, and then OMB review of those standards, has consistently resulted in significant delays and less-than-optimal standards, despite Congressional mandates and deadlines. Indeed, a report published last week by the Appliance Standards Awareness Project and American Council for an Energy-Efficient Economy concludes that “[d]elays in updating energy efficiency standards for certain appliances and devices could cost consumers and businesses $3.7 billion in lost savings -- and lead to an extra 40 million metric tons of excess carbon dioxide emissions.” The report found that “[d]uring the first two years of the Obama administration, DOE and OMB worked well to complete new standards on time. But over the past two years, OMB’s reviews have become lengthy—as long as 16 months in one case—and DOE has fallen behind.”

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Climate Economics: The State of the Art

Cross-posted from Triple Crisis.

Climate science paints an ever-more-detailed picture: irreversible, catastrophic events are becoming increasingly likely as greenhouse gas emissions continue to rise. Climate economics, particularly in its policy applications, lags behind: leading models and analyses frequently ignore the extreme risks and the intergenerational aspect of the problem – and rely on simplistic and dated interpretations of the underlying science. Yet the state of the art has progressed rapidly, in the research literature on climate economics as well as science.

To address this problem, Liz Stanton and I wrote Climate Economics: The State of the Art, which has just been published by Routledge. Our book grew out of a request from the World Wildlife Fund for an update on climate economics since the Stern Review. In that 2006 review, commissioned by the British government, Nicholas Stern argued persuasively for a new approach to the economics of climate change, emphasizing arguments for a very low discount rate and a focus on catastrophic risks.

As we explain, both science and economics have continued to advance since Stern’s path-breaking work. After a review of “climate science for economists,” we examine three major areas: the treatment of climate damages in economics; new developments in economic theory; and the economics of mitigation and adaptation. Here are a few highlights from our book:

Recent studies suggest that peak temperatures, once reached, will persist for centuries, if not millenia. Mitigation scenarios have often assumed that the world can “overshoot” a target such as 2°C of warming and then come back to it through later emission reductions; since this option is not available, much more stringent reductions are needed for climate stabilization.

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The Long Goodbye: On Seeing the Sundarban Islands

The Ganges River begins at the foot of the Gangotri Glacier in the Himalayas and culminates at the Sundarbans Delta, a massive sprawl of swamps, lakes, and scores of islands. (Find an earlier post on the Ganges here.) It’s the largest river delta in the world—home to endangered Bengal tigers, miles of mangroves, and nearly 12 million people (4.5 million on the Indian side and 7.5 million on the Bangladeshi side).

A student of the Mississippi River Delta, I had long wanted to visit the Sundarban Islands. So after giving a series of lectures in Kolkata, I accepted an invitation to visit some of the islands on a medical boat, operated by the Southern Health Improvement Samity, an organization in West Bengal that delivers health-care services to island villagers.

The experience was one of the high points of my semester sabbatical, which has now drawn to a close. The people were lovely. I chatted with a group of young girls about their new school building, which doubles as a safe house in times of flood. I learned about off-the-grid power from a farmer who had recently installed solar panels on the thatch of his mud hut. A local activist taught me about a program that employs women to grow mangrove saplings and replant them on fragile shores. And the lush forests were idyllic (once you looked past the plastic netting designed to keep the tigers in).

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