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.
Severin Borenstein’s post raises an important issue that economists have ignore for too long. I posted the following comment there:
We gave politicians the tool of benefit-cost analysis which they have used to justify their policy objectives, but we completely failed to drive home the requirement that those parties who are on the losing end need to be compensated as well. I looked in my edition of Ned Gramlich’s book on Benefit-Cost Analysis (who taught my course), and the word “compensation” is not even in the index! Working on environmental regulations, I regularly see agency staff derive large positive ratios for the “general public” and then completely dismiss the concerns of particular groups that will be carrying all the burdens of delivering those benefits. If we’re going to teach benefit-cost analysis, we need to emphasize the “cost” side as much as the “benefit” that politicians love to extol.
Catherine Wolfram at UC Berkeley posted about their paper looking at costs of distributed energy systems in Kenya and concluding that these were too expensive for households compared to connecting to the grid. However, the paper came under immediate criticism.
Here’s my thoughts based on her representation of the paper’s findings, some of which are mirrored by other commentators:
First, the paper talks about costs on one side, but doesn’t put them in perspective to the alternatives. The post lists the cost of the individual systems, but not the expected connection costs to the grid.
Further the paper takes a static look at current costs and doesn’t account for the differential trends in the sets of costs for an home-based system versus connecting to the grid. The latter costs can be expected to be steady or even rising, while it’s well known that both solar and storage costs have fallen rapidly.
Different scales of “grid” also are important. For example, solar projects show scale economies up to about 3 MW but then modular construction flattens the per kW cost. A village microgrid separate from a national central grid may be quite cost competitive.
Finally, the paper appears to lump large hydro in with other utility-scale renewables. The environmental (and economic development) record for large-scale hydro projects in the developing world is dubious at best. There is evidence of significant methane emissions from tropical reservoirs. Habitat is destroyed and poorly designed projects don’t deliver expected benefits. Hydro is by far the largest energy supplier on these grids, and they may be little better than coal from an overall environmental perspective.
Severin Borenstein at the Energy Institute at Haas makes the case for giving customers the choice of TOU or fixed price rates. I’ve commented several times on the Energy Institute blog about this approach, and blogged myself about the need for this option.
Maximillian Auffhammer at UC’s Energy Institute @ Haas focuses on the issue of exporting coal from the Port of Oakland, but he turns to the issue I highlighted recently–the path to accomplishing environmental objectives should travel through compensating those who are worse off from such policies.
A study just released from the E2e Project finds that the investment costs in residential energy efficiency greatly exceed the realized benefits. Earlier the same research program found that even if the energy efficiency measure packages, costing up to $5,000, were given away for free, only 6% of low income homeowners would participate. This is one of the first projects to track from start to finish a full set of energy efficiency projects. Much controversy has swirled around the accuracy of the engineering calculations used to estimate energy savings, and whether market barriers are impeding participation in what appears to be obvious cost saving actions. This study calls into question the premise of “costlessly” promoting energy efficiency actions.
The Project is run jointly by the University of California’s Energy Institute at Haas, the University of Chicago’s EPIC, and MIT.