Category Archives: Risks of climate change

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

Understanding the Challenges of Modeling AB 32 Policy

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A summary of the review of the AB 32 Scoping Plan we conducted in 2008 for EDF.

clotworthy's avatarEnvironmental & Energy Valuation News

The Aspen Environmental Group, M.Cubed for Environmental Defense / by Richard J. McCann
http://www.edf.org/documents/8902_AB32%20EconModeling%20M3%20final.pdf (full report)
http://www.edf.org/documents/8901_AB32%20AspenEnv%20Modeling%20PolicySum.pdf (summary)

[From press release] A new study released today concludes that state-of-the-science economic models, including those used for the California Air Resources Board’s economic analyses of California’s Global Warming Solutions Act (AB 32), are not capable of simulating the fundamental changes in California’s economy that AB 32 measures are likely to cause. While critics of ARB claim that costs might be underestimated, this new study shows that many benefits also are not represented by models and more modeling isn’t as useful as consideration of lessons from prior policies and economics literature.

The study is timely because CARB will vote on the Proposed Scoping Plan to implement the Global Warming Solutions Act of 2006 (AB 32) on December 11, less than a week away.

In the new study, Dr. McCann reveals that current techniques…

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Yet another misconstrued view of “economics” in the climate change debate

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Charles Mann wrote an interesting review of several books on climate change in The Atlantic Monthly. He portrays the debate as “Environmentalists” vs. “Economists.”  Unfortunately he describes economists as relying entirely on using central tendency expected values in standard cost-benefit analyses. And he fails to give economists full credit for creating the cap and trade system that he praises as an effective means of generating the change that is required.

The fact is that many economists are changing the debate on climate change to focus on deep uncertainty, to assess the costs of unlikely but catastrophic outcomes, to design effective technology subsidies, and to focus California’s climate change policies on global goals. All of these are important innovations that are affecting the debate over how to address the risks of potential climate change.

It’s important to recognize that we need to decide to act without full knowledge about whether climate change is driven by human activity or will it be of sufficient consequence to affect our civilization. If we live in a forest and there’s risk from a distant fire, we assess whether we need to buy insurance, clear brush around our house or evacuate. The fire may never come to pass–in fact the probability may be quite low, but we know the catastrophic consequences if it arrives. Is acting now to address climate change risk, both mitigation or adaptation, worth it? Economists have the tools to address this question–the problem is that key individuals in the media such as Charles Mann don’t seem to be aware of these, and so neither does the public or decision makers.

Repost: Californians Can Handle the Truth About Gas Prices

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Sev Borenstein writes about the two sides of the argument on whether transportation fuels should be rolled into the cap-and-trade program in January 2015.

I have an observation that that has only been alluded to indirectly in the debate. The main point of the legislators’ letter calling for a delay in implementation is that low income groups may be particularly hit. The counter argument that we need the inclusion of transportation fuels under the cap to incent innovation seems to pit the plight of the poor against the investment risk of wealthy entrepreneurs. We haven’t really done a good job of addressing affordability of the transformative policies that can change GHG emissions. The proposal to use carbon tax revenues to rebate to low income taxpayers has been floated at the national level, but of course that died with the rest of the national cap and trade proposal. A similar proposal was made to mitigate electricity price impacts.

Our state legislators are rightfully concerned about the impacts on those among us who have the least. Nevertheless, that problem is easily addresses with the tools and resources that are already available to the state. Those families and households who now qualify for the CARE and FERA electric and natural gas utilities rate discounts can be made eligible for an annual rebate equal to the average annual gasoline consumption multiplied by the amount of the GHG allowance cost embedded in the gasoline price. This rebate could be funded out of the state’s allowance revenue fund. For example, if the price is increased by 15 cents per gallon and the average automobile uses 650 gallons per year, an eligible household could receive $97.50 for each car.

About 30% of households are currently eligible for CARE or FERA. On a statewide basis, the program would cost about $650 million, which is comparable to the cost for CARE for a single utility like PG&E or Southern California Edison. Those legislators who are most concerned can coauthor legislation to put this program in place.

(BTW, I think the DOE fuel use calculator is outdated–on my many trips to LA I haven’t seen these types of fuel economy changes. My average MPG is pretty much the same no matter how much traffic there is on I-5.  But that’s just a fun fact aside…)

What is the true price for renewable energy power?

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The renewable energy market has been in upheaval since the collapse of the financing sector in 2008. The withdrawal of easy money and uncertainty over federal tax policy has increased perceived risk.  Large firms have been shedding renewables subsidiaries and promising newcomers have dropped high-profile projects. Waste Management just sold Wheelabrator, exiting the waste-to-energy market. Brightsource suspended its Hidden HIlls solar thermal project. Much of this activity is driven by the perception that wholesale electricity market prices are falling and the underlying fundamentals will lead to further declines.

This perception is misplaced, however. Short run electricity market prices are falling as natural gas becomes cheaper, and more importantly, fossil fuel generation is squeezed out by increasing renewables and falling demand. However, the electricity marketplace hasn’t yet adjusted to the fact that natural gas generation is no longer the only marginal generation resource. In California, the renewables portfolio standard (RPS) makes at least 33% of the marginal generation from renewable resources. When capital costs are correctly figured in, and more long-term contracts are offered to match those deferred resources, power purchase agreement (PPA) prices for the right types of resources should increase, not decrease.

The problem is that the industry hasn’t been able to adjust its procurement model to reflect this new reality. I think this is coming from a combination of utilities continuing to maintain their monopsony (single buyer) position, risk averse regulatory agencies still relying on an obsolete procurement regulatory process, and those agencies enforcing the monopsony power of the utilities in the name of protecting ratepayers. This may not change until there is public acknowledgement that this situation exists. The difficulty is finding the right stakeholders with enough sway to raise the issue.

Repost: California Dream – How Big Data Can Fight Climate Change in Los Angeles

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EDF and UCLA have created an interesting visual presentation on the potential for solar power and energy savings in the LA county, overlaid with socio-economic characteristics. (But I have some trouble with the representation of a few West LA communities as disadvantaged with high health risk–is that the UCLA campus?

Repost: What’s the Worst That Could Happen?

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How do we best induce technological innovation? We’ve already run that experiment

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Improvement in new and existing technologies’ performance and costs is a function of responses to a mix of market and regulatory signals. Finding empirical measures of differing innovation influences is difficult due to confounding influences. Yet we may be able to look at broader economic trends to discern the relative merit of different approaches.

The most salient example could be the assessment of comparative performances after the fall of the Berlin Wall. The Allies conducted a 45-year experiment in which Germany was first split after World War II with largely equivalent cultures and per capita endowments, but one used a largely market-based economy and the other relied on central economic planning. When the two nations reunited in 1990, the eastern centrally-planned portion was significantly behind in both overall well-being and in technological innovations and adoption. West Germany had doubled the economic output of centrally-planned East Germany.

More importantly, West Germany had become one of the most technologically-advanced and environmentally-benign economies while East Germany was still reliant on dirty, obsolete technologies. For example, a coal-to-oil refinery in the former East Germany was still using World War II-era technology. West Germany’s better environmental situation probably arose from the fact that firms and the government were in an adversarial setting in which the firms focused on the most efficient use of resources and were insulated from political interest group pressures. On the other hand, resource allocation decisions in East Germany had to also consider interest group pressures that tended to protect old technologies and industries because these were state-owned enterprises.

The transformation of the West German economy, both technologically and institutionally, was akin to what we will need to meet current GHG reduction goals and beyond. This more clearly than any other example demonstrates how reliance on central planning, as attractive as it appears to achieving specific goals, can be overwhelmed by the complexity of our societies and economies. Despite explicit policies to pursue technological innovations, a market-based system progressed much more rapidly and further.

Not talking past each other on California’s transportation fuels cap & trade implementation

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Last week, 16 Democratic legislators sent a letter to ARB Chair Mary Nichols asking for a delay in adding transportation fuels to the AB 32 cap and trade program starting January 1, 2015. The legislators raise concerns about how a 15 cent per gallon increase could impact the state’s poor.

I was asked by EDF to sign on to a letter in response. That letter focuses on how much of the anticipated innovation arising from AB 32 is dependent on implementing this phase of cap and trade. However, I think the proposed letter misses an important point by the legislators.

Our state legislators are rightfully concerned about the impacts on those among us who have the least.  Nevertheless, that problem is easily addressed with the tools and resources that are already available to the state. Those families and households who now qualify for the CARE and FERA electric and natural gas utilities rate discounts can be made eligible for an annual rebate equal to the average annual gasoline consumption multiplied by the amount of the GHG allowance cost embedded in the gasoline price.  This rebate could be funded out of the state’s allowance revenue fund. For example, if the price is increased by 15 cents per gallon and the average automobile uses 650 gallons per year, an eligible household could receive $97.50 for each car.

About 30% of households are currently eligible for CARE or FERA. On a statewide basis, the program would cost about $650 million, which is comparable to the cost for CARE for a single utility like PG&E or Southern California Edison. Those legislators who are most concerned can coauthor legislation to put this program in place.

 

Think Globally, Act Beyond Locally

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Two blog posts of interest on how climate change policy needs to focus on the much bigger picture and not just on local, or even statewide, strategies. If local and state policies are not attractive and readily transferable to other jurisdictions then we’re wasting our time (, California…)  Getting the last ton can be counterproductive if it creates too much complexity or becomes politically unpalatable.
Severin Borenstein from UC Berkeley on California’s policies.

And Jeffrey Rissman from Energy Innovation on three policy approaches.