greenhouse gas regulations and policy: …...greenhouse gas regulations and policy: implications for...
TRANSCRIPT
Center for Energy Studies
David E. DismukesCenter for Energy StudiesLouisiana State University
Greenhouse Gas Regulations and Policy: Implications for Louisiana Industry
Praxair Customer SeminarHouston, TexasAugust 14, 2008
Center for Energy Studies
Overview and Preliminary Thoughts
Considerable national and international attention has been given to this issue.
The current increase in energy prices and challenges in supply capabilities confound climate change issues and approaches.
GHG regulation also raises considerable questions about market organization and structure in restructured energy markets.
Uncertainty and “policy volatility” creates challenges for the high levels of expensive investment considered needed to address this issue.
Center for Energy Studies
Take Away Points and Conclusions
Significant increases in the cost (price) of all forms of energy.
Potentially greater increases in energy price than reductions in energy demand.
Significant redistribution of wealth between sectors, income classes, and even various different regions and countries around the world.
High near and intermediate term reliance on natural gas particularly for power generation.
Very large increases in the price of electricity.
Center for Energy Studies
Climate Change Policy & Goals
Center for Energy Studies
Commonly-Cited Policy Goals
Policy movement is premised upon the belief that man-made (“anthropogenic”) emissions are leading to a significant rise in global temperatures that will result in considerable harm to physical and human systems.
Goal is straightforward: reduce emission levels to levels that will reduce (or even correct for) negative environmental impacts.
Will have the added benefit of reducing overall energy costs and the reliance on foreign sources of energy.
Center for Energy Studies
Commonly-Cited Specific Emission Goals
Reduce carbon (GHG) emissions to 1990 levels by 2020 (or reductions to some share of 1990 levels, like 80 percent of 1990).
For the U.S., this would result in a 20 percent reduction in emissions from current levels, potentially as much as 40-50 percent of 2010 levels based upon historic rates of emissions growth (assumes 1990 level is target).
For Louisiana, this would result in about a 1 percent reduction in emissions from current levels, 4 percent from levels anticipated in 2020 (assuming current average emissions growth rates).
Center for Energy Studies
Different Policy Frameworks
Policy Type Definition
CarbonTax Places afixedtaxonend‐userenergyusage.
CapandTrade(Upstream,CarbonContent)
Wouldrequireupstreamproducersofenergyresourcestoacquire creditsbaseduponthecarboncontentofthefuelminedorproduced.
CapandTrade (Downstream,EmissionsType)
Wouldrequirecertainemitting sectorstoacquireemissioncreditsforfuelburnedinproductionprocesses.
Standards Wouldchangetheefficiency(emissions)standardsofappliances,motors, equipment,automobiles,etc.
Center for Energy Studies
Carbon Policy Tradeoffs
PoliciesCriteria
Carbon Tax Cap & Trade-Upstream-
(carbon content)
Cap & Trade-Downstream-
(source emissions)
Standards (Vehicles,Appliances, Buildings)
Economic Efficiency
High to Medium –but depends on coverage of tax. Large number of exemptions reduces efficiency.
High to Medium --depends on potential exemptions, fuel quality issues and adjustments. Administrative costs can be lower than downstream C&T.
Medium to Low –addressing transportation is difficult and administratively complex. Sector exemption greatly reduces efficiency.
Medium to Low – highly dependent upon standards design, timing and implementation.
Sector Consistency High - without exemptions
Medium - Subject to allocations
Medium to Low – depends on sector coverage.
Low – some sectors (residential and commercial) would bear bigger burden.
ResistanceTo Gaming
High Medium to High – property right is “commoditized.”
Medium to High – property right is “commoditized.”
Low
Simplicity High Medium to Low Low Medium (in theory)
Cost Predictability High LowMedium with safety value
LowMedium with safety value
LowMedium with phase-ins.
Cost Transparency High Low Low Low
Ease of Integration into Global Policy Framework
Medium Low Low Medium to High
Political Feasibility Low Low to Medium High High
Center for Energy Studies
How Does Cap & Trade Work?
Simply speaking, sources “long” on credits will trade with those that are “short.”
Center for Energy Studies
20,000
25,000
30,000
35,000
40,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
emis
sion
s -t
ons
Emissions exceed
allowance –Shortfall must be made up from:
(1) credit purchases from those
facilities individually
long ; and/or
(2) capital investments to
lower emissions profile.
BAU Emissions Profile
Allowance
“Allowances” are issued for the allowed level of emissions.
How Does Cap & TradeImprove Overall Emissions?
Framework creates “scarcity” because the initial regulatory “design” is intentionally “short” in the aggregate.
Center for Energy Studies
How Are Allowances Determined?
Allowances are offered to participants based upon two different methods:
Allocated Auction
Regulator makes an administrative determination of who gets allowances.
Market makes the decision about who gets the allowances.
Allocations made on a wide range of considerations and metrics including:
Metric (Heat Input, Output)Baselines (Year, Updates)Growth PoolSet-Asides
Periodic auction (think “eBay”) for the credits. Can be done in a variety of methods, but general approach is to allocate credits to those with the highest willingness to pay.
There is an important issue associated with what to do with “auction proceeds.” Who gets those?
Center for Energy Studies
Anticipated Forms of Mitigation
Method Description Challenges
Alternative Technologies Fuel Switching (Nuclear, renewables, alt fuels)
Expensive, longer-term investments, questionable development realization (cost, scope, reliability).
Efficiency Improvements AutomotiveAppliancesBuilding measuresDemand-Side Mgt. Demand Response
Good short run opportunities, significant, but limited in scope. Also require investment to reach pay-back.
Demand Reduction (Destruction)
Reduced output and employment.Industries move offshore.
Lastly implications for economic growth, standard of living, wages, and balance of payments.
Center for Energy Studies
Impact Analysis Studies on Climate ChangeSenate Bill S2191 (National Data)
Real GDP DisposableStudy Growth Personal(Short Name) Author(s) Institution Date Output / Input Rate Employment Income/Wages Notes
Beach, Averages based onHeritage- Lieberman, Heritage predicitons betweenS2191 Study Kreutzer, Loris Foundation 5/12/2008 GDP: -$228.5 billion -0.10% -496,700 -$71.3 billion DI 2010 and 2030
NERA/ David Net Impacts to:NPRA- HarrisonS2191 Study Jr., PhD NERA 04/01/08 $ Billions in NPV
Montgomery, GDP:Smith, CRA- -$402 billion in 2015 -2.3% in 2015 Cost per
CRA- Tuladhar, prepared -$471 billion in 2020 -2.3% in 2020 Household byS2191 Study Yuan for EEI 1/31/2008 -$3.03 billion in 2050 -6% in 2050 2020: $1,740 DI
GDP (low cost case): low cost case: low cost case: DI low cost case:-$135 billion in 2015 -0.8 % in 2015 850,000 in 2015 -$1,010 in 2015-$151 billion in 2020 -0.8 % in 2020 -1.22 million in 2020 -$739 in 2020-$631 billion in 2030 -2.6 % in 2030 -3.04 million in 2030 -$4,022 in 2030
NEMS/ GDP (high cost case): high cost case: high cost case: high cost case:ACCF/ NEMS/ -$269 billion in 2015 -1.6 % in 2015 -1.86 million in 2015 -$2,779 in 2015NAM S2191 ACCF/ -$210 billion in 2020 -1.1 % in 2020 -1.80 million in 2020 -$2,927 in 2020Study SAIC NAM -$669 billion in 2030 -2.7 % in 2030 -4.05 million in 2030 -$6,752 in 2030 $ Billions in NPV
Skelly, SmithCymbalsky GDP: Present Value
EIA S2191 Smith, Jones -$444 billion from -.02% change using 4%Study Eynon, Kearney EIA 4/1/08 2009-2030 from 2009-2030 discount rate
GDP: GDP Rate:ADAGE1 -$238 billion ADAGE -0.90%
by 2030 by 2030-$1,012 billion by 2050 -2.37% by 2050
IGEM2 -$983 billion IGEM -3.76%EPA S2191 Francisco de by 2030 by 2030Study la Chesnaye EPA 3/14/2008 -$2,856 billion by 2050 -6.90% by 2050
Refining Sector -$98 billionPetrochemical -$2.1 billion
Center for Energy Studies
Impact Analysis Studies on Climate ChangeSenate Bill S2191 (Louisiana Data)
Real GDP DisposableStudy Growth Personal(Short Name) Author(s) Institution Date Output / Input Rate Employment Income/Wages
Employment loss:Beach, Non-farm Personal
Heritage-S.2191 Lieberman, GSP loss: -4,255 by 2030 income loss:LA Impact Kreutzer, Heritage -$1,631.88 million Manufacturing -$1,548.38 millionStudy Loris Foundation 5/20/2008 by 2030 -19,075 by 2030 by 2030
GSP (low cost case): low cost case: low cost case:-$2.144 million by 2020 -17,000 by 2020 -794 by 2020
NEMS/ACCF/ -$7.907 million by 2030 -46,000 by 2030 -3,343 by 2030NAM S 2191 GSP (high cost case): high cost case: high cost case:Study - NEMS/ACCF/ -$2.971 million by 2020 -25,000 by 2020 -2,574 by 2020Louisiana Data SAIC NAM -$9.336 million by 2030 -61,000 by 2030 -6,095 by 2030
Center for Energy Studies
EIA Estimates of S. 2191(Lieberman-Warner)
Allowance prices range from $30-76/ton in 2020 and $61-156/ton in 2030 depending the cost and availability of technology.
Coal generation is expected to cost between 161% and 413% more in 2020 and 305% to 804% in 2030.
Power prices overall could climb from 5% to 27% in 2020 and 11% to 64% in 2030.
The average home’s energy bills could grow from $30 to $325 per year by 2020 and from $76 to $725 in 2030.
By 2030, GDP could shrink between $27 billion and $163 billion –about 0.1% to 0.8%.
Gasoline prices are only expected to rise 22-49 cents/gal in 2020 and 41cents to $1.01 per gallon in 2030, though use will shrink since mandatory fuel economy standards are set to rise to 35 miles per gallon.
Center for Energy Studies
16
Value at Stake with a Cap-and-trade ProgramAssumes 100% Pass Through of Carbon Costs in Electricity Prices
0%
2%
4%
6%
8%
10%
12%
14%
16%
Per
cent
0% Free Allocation100% Free Allocation
Note: Assumes $15 per ton CO2. Includes process emissions.Source: Nicholas Institute for Environmental Policy Solutions and The Center on Global Change, Duke University
Center for Energy Studies
17
Value at Stake with a Cap-and-trade ProgramAssumes 100% Pass Through of Carbon Costs in Electricity Prices
Note: Assumes $15 per ton CO2. Includes process emissions.Source: Nicholas Institute for Environmental Policy Solutions and The Center on Global Change, Duke University
Elasticity of Demand
0% Allocation100% Allocation
16%
14% -
12% -
10% -
8% -
6% -
4% -
2% -
0% --2 -1.8 -1.6 -1.4 -1.2 -1 -0.8 -0.6 -0.4 -0.2 0
Paper
Iron &Steel
ChemicalsAluminum
TransportationEquipment
Food
Petroleumand CoalProducts
Cement
Least Needfor Allocation
Most Needfor Allocation
Separates relatively elastic demands from
relatively inelastic demands.
Center for Energy Studies
Regional, State & Local Initiatives
Center for Energy Studies
Regional Initiatives
Regional Greenhouse Gas Initiative“RGGI”
Center for Energy Studies
State Initiatives on Climate ChangePolicies & Activities
States with GHG Emissions TargetsStates with Climate Policy Groups
States with GHG Registries
Regional Initiatives
Source: Pew Center on Global Climate Change
States with Climate Plans
Center for Energy Studies
Municipal Activities on Climate Change& Activities
Center for Energy Studies
States with Renewable Portfolio Standards
Currently there are 31 states that have RPS policies in place. Together these states account for more than 64% of the electricity sales in the US.
ME30%
VT Goal:20% by 2017
NH: 23.8%by 2025
WI: 10%by 2015
MT: 15%by 2015
IA: 105 MW
MN: 25%by 2025
WA: 15%by 2020
CA: 20%by 2010
NV: 20%by 2015
AZ: 15%by 2025
NM: 20%by 2020
UT: 20%by 2025
TX: 5,880 MWby 2015 (5%)
MO:11%
by 2020
IL: 25%by 2025
NC: 12.5% by 2021
VA: 12%by 2022
PA: 8/10%Tier I/IIby 2020
NY: 24% by 2013
State RPS
State Goal
OR: 25%by 2025
CO: 20%by 2020
ND: 10%by 2015
SD: 10%by 2015
OH: 12.5%by 2025
MA: 4% by 2009RI: 16% by 2020CT: 23% by 2020NJ: 22% by 2021PA: 18% by 2020MD: 20% by 2022DE: 20% by 2019DC: 11% by 2022
Note: As of May, 2008.Source: Database of State Incentives for Renewables and Efficiency.
Center for Energy Studies
These differentials will have to be recovered from various funding sources
Total Overnight Cost for New Plants
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
Nuc
lear
Coa
l - IG
CC
Scr
ubbe
dC
oal N
ew
Con
vent
iona
lC
T
Bio
mas
s
MS
W -
Land
fill G
as
Geo
ther
mal
Con
vent
iona
lH
ydro
Ons
hore
Win
d
Offs
hore
Win
d
Sol
arTh
erm
al
Sol
ar P
V
$ pe
r kW
Source: Assumptions to the Annual Energy Outlook 2006
average cost of aconventional
combined-cycle
Resources are typically uneconomic without additional supportResources are typically uneconomic without additional support
uneconomic cost
Center for Energy Studies
These differentials will have to be recovered from various funding sources
$0
$20
$40
$60
$80
$100
$120
$140
Nuc
lear
Coa
l - IG
CC
Pul
veriz
edC
oal
Geo
ther
mal
Ons
hore
Win
d
Offs
hore
Win
d
Ope
n Lo
opB
iom
ass
Sol
arTh
erm
al
Sol
arTh
erm
al
$ pe
r MW
h
average cost of aconventional combined-
cycle at $8 gas
Resources are typically uneconomic without additional supportResources are typically uneconomic without additional support
uneconomic cost
Average LevelizedGeneration Costs for New Plants
Source: Statement of Howard Gruenspecht, US DOE before the House Committee on Ways and Means, May 24, 2005
Center for Energy Studies
Louisiana Issues and Activities
Center for Energy Studies
Total Louisiana Carbon Emissions
125
135
145
155
165
175
185
195
205
215
225
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
1990 Level
Total
MM
Tons
Center for Energy Studies
Estimated Louisiana Carbon Emissions By Major Sector
0
20
40
60
80
100
120
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
IndustrialTransportationElectric Power
Center for Energy Studies
Relative Sector ShiftsIn Carbon Emissions
Residential & Commercial,
3%
Industrial, 54%Transportation, 26%
Electric Power, 18%
Residential & Commercial,
2%
Industrial, 50%Transportation,
27%
Electric Power, 21%
1990 Emission Shares 2004 Emission Shares
Relative shift away from industrial concentration and toward power generation and transportation.
Center for Energy Studies
Louisiana Challenges
Carbon responsibility may fall disproportionately on “processing” states like Louisiana.
Auction proceeds from cap and trade likely to be equally disproportional.
Likely to be little state flexibility.
Raises very serious questions about the nature of our continued economic development (industrial development becomes exceptional challenge).
No single solution -- will require significant creativity and the work needs to begin soon.
Very large increases in the price of electricity.
Center for Energy Studies
Louisiana Opportunities
Opportunity Examples Challenges ActionsRenewable energy Solar, wind (onshore,
offshore), biomass/biofuels, algae,
Costly, regulatory & institutional frameworks not in place. Market development & infrastructure issues.
Green pricing tariff,solar tax breaks, hydrokinetics interest, ethanol and biodiesel.
Alternative technologies
Gasification, alt fuels Contractual, financial, and regulatory issues.
Gasificationannouncements, nuclear interest.
Efficiency CHP, DSM, DR Regulatory andinfrastructure issues.
DR pilot program.
Underground storage EOR, salt & reservoir storage
Regulatory, institutional, infrastructure issues.
Statutory changes, rulemaking soon.
Other sequestration Forestation, coastal restoration
Verification andmonitoring, advocacy.
Little to none.
Center for Energy Studies
Upcoming CES Initiatives
Center for Energy Studies
CES Climate Change Policy Studies & Initiatives
1. Identification/Engagement of Stakeholders.
2. Estimate Statewide GHG inventories.
3. Assess potential implications of federal policies on Louisiana.
4. Provide recommendations for strategically positioning Louisiana on any resulting opportunities.
Center for Energy Studies
Energy Summit 2008