Category Archives: Risks of climate change

Even if we don’t know if the magnitude is large, can we afford to be wrong?

Calculating the risk reduction benefits of closing Germany’s nuclear plants

Max Aufhammer at the Energy Institute at Haas posted a discussion of this recent paper reviewing the benefits and costs of the closure of much of the German nuclear fleet after the Fukushima accident in 2011.

Quickly reading the paper, I don’t see how the risk of a nuclear accident is computed, but it looks like the value per MWH was taken from a different paper. So I did a quick back of the envelope calculation for the benefit of the avoided consequences of an accident. This paper estimates a risk of an accident once every 3,704 reactor-operating years (which is very close to a calculation I made a few years ago). (There are other estimates showing significant risk as well.) For 10 German reactors, this translates to 0.27% per year.

However, this is not a one-off risk, but rather a cumulative risk over time, as noted in the referenced study. This is akin to the seismic risk on the Hayward Fault that threatens the Delta levees, and is estimated at 62% over the next 30 years. For the the German plants, this cumulative probability over 30 years is 8.4%. Using the Fukushima damages noted in the paper, this represents $25 to $63 billion. Assuming an average annual output of 7,884 GWH, the benefit from risk reduction ranges from $11 to $27 per MWH.

The paper appears to make a further error in using only the short-run nuclear fuel costs of $10 per MWH as representing the avoided costs created by closing the plants. Additional avoided costs include avoided capital additions that accrue with refueling and plant labor and O&M costs. For Diablo Canyon, I calculated in PG&E’s 2019 ERRA proceeding that these costs were close to an additional $20 per MWH. I don’t know the values for the German plants, but clearly they should be significant.

“Making the perfect the enemy of the better” for a carbon tax

In an opinion article published on Utility Dive, Kenneth Costello argues that adopting a carbon tax would be a mistake. As he says, “(i)nstead of a carbon tax, why not give more consideration to adaptive strategies, which can evolve over time in response to new information?” His arguments make several key errors and underestimate the political will required to deliver his preferred option.

We need not rely on the social cost of carbon (SCC) to set a tax. Instead of using a benefit-cost approach implied by the SCC, we can use a cost-effectiveness approach by setting the tax to achieve an expected amount of greenhouse gases reduction. This is really no different than how we conduct most of our private transactions–we don’t directly weigh the monetary benefits of buying a new car against its costs–we decide what type of car that we want and then spend the money to buy that car. We may not achieve the mythical “positive net benefits” using such a strategy, but the the truth is that benefit-cost analysis is problematic in the context of climate change, as Martin Weitzmann among others pointed out.

We have a good idea of how increased prices that would result from a carbon tax impact demand, contrary to Costello’s assertion. We have seen that over and over with changes in gasoline and electricity prices in the last half century. (One paper found that the early CAFE standards did not affect automobile fleet fuel economy until gas prices fell in 1984.) We can adaptively manage a carbon tax (which also can be implemented as a global trade tariff framework) to steer toward our emissions reduction target.

Costello instead proposes that we focus solely on climate adaptation by hardening our infrastructure and other measures. This illustrates a lack of understanding of the breadth of the expected impacts and the inability of a large segment of the world’s population to undertake such mitigation without a large wealth transfer. Further, such adaptation focuses largely on the direct impacts to humans and ignores the farther ranging ones on our global environment. Those latter effects, such as ocean acidification and melting of the tundra, can lead to catastrophic outcomes that cannot be readily adapted to, no matter what is spent. And there other effects that that we may not even know about. Focusing so narrowly on what might be adaptive strategies will lead to a gross underestimation of the costs to adapt.

Finally, Costello overestimates the political barriers to implementing and managing a carbon tax and overestimates the political will to implement adaptation strategies. Contrary to his assertion, environmental groups such as EDF and NRDC have been at the forefront of using prices and taxes to regulate environmental pollutants. (I have worked for several of them on such proposals.) Yes, politicians want to avoid taxes, but that reflects the more general problem of wanting to avoid any hard choices. And we only need to look at the state of the U.S. infrastructure to see how difficult it is to persuade the political system to make the investments that Costello recommends. This will be a tough road either way, but the carbon tax option cannot be simply dismissed based on Costello’s analysis.

 

Nuclear vs. storage: which is in our future?

Two articles with contrasting views of the future showed up in Utility Dive this week. The first was an opinion piece by an MIT professor referencing a study he coauthored comparing the costs of an electricity network where renewables supply more than 40% of generation compared to using advanced nuclear power. However, the report’s analysis relied on two key assumptions:

  1. Current battery storage costs are about $300/kW-hr and will remain static into the future.
  2. Current nuclear technology costs about $76 per MWh and advanced nuclear technology can achieve costs of $50 per MWh.

The second article immediately refuted the first assumption in the MIT study. A report from BloombergNEF found that average battery storage prices fell to $156/kW-hr in 2019, and projected further decreases to $100/kW-hr by 2024.

The reason that this price drop is so important is that, as the MIT study pointed out, renewables will be producing excess power at certain times and underproducing during other peak periods. MIT assumes that system operators will have to curtail renewable generation during low load periods and run gas plants to fill in at the peaks. (MIT pointed to California curtailing about 190 GWh in April. However, that added only 0.1% to the CAISO’s total generation cost.) But if storage is so cheap, along with inexpensive solar and wind, additional renewable capacity can be built to store power for the early evening peaks. This could enable us to free ourselves from having to plan for system peak periods and focus largely on energy production.

MIT’s second assumption is not validated by recent experience. As I posted earlier, the about to be completed Vogtle nuclear plant will cost ratepayers in Georgia and South Carolina about $100 per MWh–more than 30% more than the assumption used by MIT. PG&E withdrew its relicensing request for Diablo Canyon because the utility projected the cost to be $100 to $120 per MWh. Another recent study found nuclear costs worldwide exceeded $100/MWh and it takes an average of a decade finish a plant.

Another group at MIT issued a report earlier intended to revive interest in using nuclear power. I’m not sure of why MIT is so focused on this issue and continuing to rely on data and projections that are clearly outdated or wrong, but it does have one of the leading departments in nuclear science and engineering. It’s sad to see that such a prestigious institution is allowing its economic self interest to cloud its vision of the future.

What do you see in the future of relying on renewables? Is it economically feasible to build excess renewable capacity that can supply enough storage to run the system the rest of the day? How would the costs of this system compare to nuclear power at actual current costs? Will advanced nuclear power drop costs by 50%? Let us know your thoughts and add any useful references.

Our responsibility to our children

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Greta Thunberg’s speech at the UN has sparked a discussion about our deeper responsibilities to our future generations. When we made the huge effort to fight World War II, did we ask “how much will this cost?” We face the same existential threat and should make the same commitment. We can do this cost effectively, and avoid making most stupid decisions, but asking whether this effort is worth it is now beyond question. We will have to consider how to compensate those who have invested their money or their livelihoods in activities that we now recognize as damaging to the climate, and that will be an added cost to the rest of us. (And we may see this as unfair.) But we really have no choice.

J. Frank Bullit posted on “Fox and Hounds” a sentiment that reflects the core of opposition to such actions:

What if the alarmists are wrong, yet there is no counter to the demands of enacting economic and energy policies we might regret?”

So our energy costs might be a bit more than it would have otherwise, but we get a cleaner environment in exchange. And even now, renewable energy sources are competing well on a dollar to dollar basis.

On the other hand, if the “alarmists” are correct, the consequences have a significant probability of being catastrophic to our civilization, as well as our environment. We all have insurance on our houses for events that we see as highly unlikely. We pay that extra cost on our house to gain assurance that we will recover our investments if such unlikely events occur. These are costs that we are willing to accept because we know that the “alarmists” have a point about the risks of house fires. We should be taking the same attitude towards climate change assessments. It’s not possible to prove that there is no risk, or even that the risk is tiny. And the data trends are sufficiently consistent with the forecasts to date that the probabilities weigh more towards a likelihood than not.

Unless opponents can show that the consequences of the alarmists being wrong are worse than the climate change threat, we have to act to mitigate that risk in much the same way as we do when we buy house insurance. (And by the way, we don’t have another “house” to move to…)

U. of Chicago misses mark on evaluating RPS costs

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The U. of Chicago just released a working paper “Do Renewable Portfolio Standards Deliver?” that purports to assess the added costs of renewable portfolio standards adopted by states. The paper has two obvious problems that make the results largely useless for policy development purposes.

First, it’s entirely retrospective and then tries to make conclusions about future actions. The paper ignores that the high initial costs for renewables was driven down by a combination of RPS and other policies (e.g. net energy metering or NEM), and on a going forward basis, the renewables are now cost competitive with conventional resources. As a result, the going forward cost of GHG reductions is much smaller than the historic costs. In fact, the much more interesting question is “what would be the average cost of GHG reductions by moving from the current low penetration rate of renewables to substantially higher levels across the entire U.S., e.g., 50%, 60% etc. to 100%?” The high initial investment costs are then highly diluted by the now cost effective renewables.

Second, the abstract makes this bizarre statement “(t)hese cost estimates significantly exceed the marginal operational costs of renewables and likely reflect costs that renewables impose on the generation system…” Um, the marginal “operational” costs of renewables generally is pretty damn close to zero! Are the authors trying to make the bizarre claim (that I’ve addressed previously) that renewables should be priced at their “marginal operational costs”? This seems to reflect an remarkable naivete on the part of the authors. Based on this incorrect attribution, the authors cannot make any assumptions about what might be causing the rate difference.

Further, the authors appear to attribute the entire difference in rates to imposing an RPS standard. The fact is that these 29 states generally have also been much more active in other efforts to promote renewables, including for customers through NEM and DER rates, and to reduce demand. All of these efforts reduce load, which means that fixed costs are spread over a fewer amount of kilowatt-hours, which then causes rates to rise. The real comparison should be the differences in annual customer bills after accounting for changes in annual demand.

The authors also try to assign stranded cost recovery as a cost of GHG recovery. This is a questionable assignment since these are sunk costs which economists typically ignore. If we are to account for lost investment due to obsolescence of an older technology, economists are going to have go back and redo a whole lot of benefit-cost analyses! The authors would have to explain the special treatment of these costs.

Why do economists keep producing these papers in which they assume the world is static and that the future will be just like the past, even when the evidence of a rapidly changing scene is embedded in the data they are using?

Moving beyond the easy stuff: Mandates or pricing carbon?

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Meredith Fowlie at the Energy Institute at Haas posted a thought provoking (for economists) blog on whether economists should continue promoting pricing carbon emissions.

I see, however, that this question should be answered in the context of an evolving regulatory and technological process.

Originally, I argued for a broader role for cap & trade in the 2008 CARB AB32 Scoping Plan on behalf of EDF. Since then, I’ve come to believe that a carbon tax is probably preferable over cap & trade when we turn to economy wide strategies for administrative reasons. (California’s CATP is burdensome and loophole ridden.) That said, one of my prime objections at the time to the Scoping Plan was the high expense of mandated measures, and that it left the most expensive tasks to be solved by “the market” without giving the market the opportunity to gain the more efficient reductions.

Fast forward to today, and we face an interesting situation because the cost of renewables and supporting technologies have plummeted. It is possible that within the next five years solar, wind and storage will be less expensive than new fossil generation. (The rest of the nation is benefiting from California initial, if mismanaged, investment.) That makes the effective carbon price negative in the electricity sector. In this situation, I view RPS mandates as correcting a market failure where short term and long term prices do not and cannot converge due to a combination of capital investment requirements and regulatory interventions. The mandates will accelerate the retirement of fossil generation that is not being retired currently due to mispricing in the market. As it is, many areas of the country are on their way to nearly 100% renewable (or GHG-free) by 2040 or earlier.

But this and other mandates to date have not been consumer-facing. Renewables are filtered through the electric utility. Building and vehicle efficiency standards are imposed only on new products and the price changes get lost in all of the other features. Other measures are focused on industry-specific technologies and practices. The direct costs are all well hidden and consumers generally haven’t yet been asked to change their behavior or substantially change what they buy.

But that all would seem to change if we are to take the next step of gaining the much deeper GHG reductions that are required to achieve the more ambitious goals. Consumers will be asked to get out of their gas-fueled cars and choose either EVs or other transportation alternatives. And even more importantly, the heating, cooling, water heating and cooking in the existing building stock will have to be changed out and electrified. (Even the most optimistic forecasts for biogas supplies are only 40% of current fossil gas use.) Consumers will be presented more directly with the costs for those measures. Will they prefer to be told to take specific actions, to receive subsidies in return for higher taxes, or to be given more choice in return for higher direct energy use prices?

Study shows RPS spillover positive to other states

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A study in the Journal of the Association of Environmental and Resource Economics entitled “External Impacts of Local Energy Policy: The Case of Renewable Portfolio Standards” finds that increasing the renewable portfolio standard (RPS) in one state reduces coal generation in neighboring states through trading of renewable energy credits (RECs). This contrasts with findings on greenhouse gas emission “leakage” under California’s cap and trade program put forth by the authors at the Energy Institute at Haas at the University of California here and here.

These latter set of findings has been used California Public Utilities Commissioners to argue against the use of RECs and implication that community choice aggregators (CCAs) are not moving forward increased renewables generation. This new study appears to land on the side of the CCAs which have argued that even relying on RECs in the short run have a positive effect reducing GHG emissions in the West.

Misunderstanding the Green New Deal

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The media and the public appears to have confused the Green Party’s platform calling for 100% renewable energy by 2030 with the goals in the Joint Resolution for a Green New Deal introduced by Senator Edward Markey (D-MA) and Representative Alexandria Ocasio-Cortez (D-NY). The Joint Resolution calls for a “10-year national mobilization,” but contains no deadlines other than zero greenhouse-gas emissions by 2050, which is 30+ years from now. Given that we went from horse and buggies and wood stoves to widespread automobile use and electrification in 30 years at the beginning of the twentieth century, such a transformation doesn’t seem imposing.

CCAs add renewables while utilities stand pat

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California’s community choice aggegrators (CCAs) are on track to meet their state-mandated renewable portfolio standard obligations. PG&E, SCE and SDG&E have not signed significant new renewable power capacity since 2015, while CCAs have been building new projects. To achieve zero carbon electricity by 2050 will require aggressive plans to procure new renewables soon.

Make “Sustainable Food” the Economic Engine of Downtown Davis

 

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Many communities around the region, such as Sacramento and Woodland, have jumped on the “farm to fork” bandwagon to promote their relationships with agriculture. Davis can distinguish itself from the crowd by taking this a step further to promote itself as the center of “sustainable food.” In doing this, Davis can develop placemaking that is the key to economic development and vitality.

Davis is home to one of the top-rated food production research universities in the world in UC Davis. The City of Davis should leverage this position and strengthen its relationship to reinvigorate the downtown. The City has an opportunity as part of its Downtown Davis or Core Area Specific Plan to define a vision to achieve that goal.

Sustainable food minimizes damages to the planet in its cultivation, production, preparation, consumption and disposal. It is largely plant-based because this is the most direct way to deliver calories and protein to our diets. Animal production has much higher waste products, resource consumption, greenhouse gas emissions, and tainted food per calorie or gram of protein. For example, based on U.S. Department of Agriculture statistics, beef production emits four times as much greenhouse gases (GHGs) per calorie than soybeans or wheat and twice as much GHGs per gram of protein. Given California’s goal to be a “net carbon zero” emitter by 2045, the state will need to take a wide range of steps to cut emissions across the board, including in food production and consumption. Sustainable food is also more ethically consistent and healthful than our current food production and consumption patterns.

Sustainable food has been in the press frequently of late, with numerous stories in the Bay Area media. San Francisco has become the venture capital center of the world—especially for sustainable food–but real estate is becoming too expensive there to allow an industry that focuses on physical products sufficient space. Davis is close enough to that center for easy communication, but still has comparatively inexpensive land.

Creating a sustainable food ecology in Davis would have five aspects:

  1. Supporting innovation in sustainable food production and distribution
  2. Providing sustainable infrastructure to support companies that are innovating
  3. Serving and delivering sustainable food locally
  4. Preparing food that is consumed locally in a sustainable manner
  5. Attracting sustainable food-oriented tourism

The City can focus development of a sustainable food industry hub in the “Flex District” proposed for the G Street Corridor in the Downtown Plan. This area could house a wider range of facilities, such as test labs, within easy access distance of the UCD campus and the Capitol Corridor train to the Bay Area. Larger research facilities can be housed in other parts of the City where larger, industrial facilities are more appropriate.

Part of the attraction to companies locating here could be a sustainable infrastructure configuration starting in this district, with a district energy network and electric microgrid supporting fully electrified space conditioning and water heating systems. The other sustainability attributes identified in the Downtown Davis Plan should be incorporated and highlighted.

We can also encourage existing restaurants to serve more sustainable food on their menus, and attract new restaurants to cater to the new sustainable food businesses and their employees. The investors and workers at these companies are much more likely to follow their ethical beliefs in their consumption choices. The City could provide incentives through reduced fees to existing businesses, and evaluate how to speed the start up of new businesses.

As part of establishing a sustainable environment, the City should facilitate switching restaurants to more sustainable preparation practices. This includes switching from natural gas to induction cooktops and convection ovens, district water heating and space conditioning, and better management of waste. (Yes, we may need to recruit chefs for this new challenge.)

Finally, Davis can become a sustainable food destination. Less than 20% of our downtown visitors are from out of town according to analysis by consultants to City working on the Downtown Davis Plan. Given our location on the Capitol Corridor train route and Interstate 80, the community has much room for growth in tourism to boost our economy beyond UCD students’ parents visiting in September and June.

Davis already has a core attraction in its world-famous Farmers’ Market. With the addition of plant-based oriented restaurants and closer integration with the Mondavi Center entertainment area, a visitor could easily spend a whole day in Davis with a quick trip on the train from the Bay Area. Implementing this vision just needs closer coordination with UCD to bring events to Mondavi and the new Shrem Art Museum on Saturdays and setting up an electric bus shuttle between there and downtown.

UCD’s Robert Mondavi Institute for Wine and Food Sciences provides an example of how local development can be both sustainable and invigorating. That locale now has a microgrid that relies on renewable power. Both UCD and the City could benefit from a closer relationship centered around sustainable food in several dimensions.

Implementing all of this vision requires going beyond the form-based zoning codes that will come out of the Core Area Specific Plan. The City needs a comprehensive economic development plan, direction and resources for its economic development staff, and a willingness to focus on removing the barriers to bringing and supporting these businesses in Davis.

(with Anya McCann, COOL Cuisine)