Weathervane: A Climate Policy Blog from Resources for the Future

May29

Renewables Standard is Broad, Flexible and Complex

Istock Photo

While the Waxman-Markey energy bill would impose a renewable source standard on electric utilities, the standard, as written, is broad and flexible. It is designed to reduce emissions of carbon dioxide, the most common greenhouse gas, rather than specifically to promote renewable fuels.

Conservation by a utility’s customers, for example, would count against the renewable requirement. The renewable requirement would not apply to electricity generated by a nuclear reactor built after the bill is enacted, or by hydropower, or by a coal-fired plant that captures and sequesters its emissions. (See HR 2454, Title I, Subtitle A.)

The House Energy and Commerce Committee approved the bill on May 21.

As renewable sources, it lists, among others, wind, solar, and geothermal energy, as well as energy from biomass, landfill gas, coal mine methane, wastewater treatment gas and certain types of waste.

The renewables standard would go into effect in 2012, when each utility would have to cover 6 percent of its total output—with the exceptions as noted—either with renewable sources or conservation. The standard would gradually rise to 20 percent in 2020.

A utility would be allowed to cover up to one-fourth of its requirement by conservation, a fraction that could be raised to two-fifths at the request of the governor of the state in which it operates. Utilities could buy conservation credits from other generators, or from distributors or third parties such as conservation organizations.

A utility that failed to meet the requirement would have to pay for the shortfall at a rate of 2.5 cents per kilowatt hour. The average price of electricity delivered to a residential customer is currently just over 11 cents per kilowatt hour.

John Anderson is the journalist in residence at Resources for the Future.

Published: May-29-09 | 0 Comments

May28

A Call for Product Carbon Labeling

Congress, United States, CO2, Voluntary Programs, Waxman-Markey

Image Courtesy thingermejig via Flikr

A provision in the Waxman-Markey energy bill—currently making its way from the House Energy and Commerce Committee to a floor vote—calls for a carbon content product disclosure program, similar to ENERGY STAR and other voluntary labeling program. Many of these programs have been shown to reduce adverse environmental impacts through changes in product design and consumer purchasing decisions.

The little-known amendment, inserted by Rep. Tammy Baldwin (D-Wisc.), requires the U.S. Environmental Protection Agency to establish “a national program for measuring, reporting, publicly disclosing, and labeling products or materials sold in the United States for their carbon content … ”

Carbon footprint labeling is in its infancy but is expected to grow by leaps and bounds. Efforts are already underway in the U.K.—where the Carbon Trust is labeling hundreds of products, and Japan where a voluntary program is being tested with 30 major manufacturers.

Even if most consumers do not directly search for “low carbon” products, carbon footprint labels might help drive innovation as companies seek to differentiate their products to “green consumers.” Large intermediaries such as Tesco, a grocery store chain in the U.K., are beginning to use carbon footprint labels as one of the product attributes they use in deciding which items to stock.

Image Courtesy thingermejig via Flikr

Carbon footprint labeling might also be a mechanism that helps reduce leakage without imposing direct border restrictions. By encouraging all products (regardless of where they are produced) to have a carbon label, there will be pressure to reduce the carbon content of products even in countries that have not agreed to greenhouse gas restrictions.

For more on environmental disclosure labeling, check out this post about Senior Fellow Kate Probst's suggestions for tailpipe carbon emissions labeling and Senior Fellow Richard Morgenstern's Weekly Policy Commentary on the effectiveness of voluntary programs.

Mark Cohen is vice president for research at Resources for the Future.

Published: May-28-09 | 1 Comment

May27

EIA Releases Global Energy Demand Forecasts

CO2, International, Mitigation

The Energy Information Administration released the findings of its 2009 International Energy Outlook (here) today, projecting a 73 percent growth in energy demand from developing, non-OECD nations, and a 44 percent demand growth globally by 2030.

Based on its consumption projections the EIA forecasts a 39 percent increase in carbon dioxide emissions, assuming no large-scale mitigation plan is implemented. Over 90 percent of the increase comes from the developing world, and EIA forecasts that by 2030, non-OECD emissions will exceed OECD emissions by 77 percent compared to 2006.

Tiffany Clements is managing editor of Weathervane.

Published: May-27-09 | 0 Comments

May22

What Electricity Sector Allocations Could Mean for Households

Cap and Trade, United States, Allocations, Waxman-Markey

Average Projected Consumer Costs After Rebate Under $21/ton CO2 Tax, by Region

The introduction of a cap-and-trade program for carbon dioxide emissions could have important effects on households. Changes in the electricity sector are especially important because nearly 40 percent of emissions come from this sector and a majority of emissions reductions are expected to come from this sector in the early decades of a program.

Average Projected Consumer Costs with $21/ton CO2 Tax by Region

But the changes in the electricity sector may affect households in different regions and income groups in different ways, as electricity is derived from different sources and transmitted by distinct means. To reduce possible adverse effects on electricity prices, various proposals call for free allocation of emissions allowances to local electricity distribution companies.

Average Projected Consumer Costs with $21/ton CO2 Tax after Auction, by Decile

These companies are regulated throughout the nation and could be expected to act as trustees on behalf of consumers, using allowance value to offset the lion’s share of the increase in electricity prices that would otherwise occur under a cap-and-trade program. Free allocation to electricity consumers will mitigate the change in electricity bills; however the ultimate effect on households is uncertain.

Average Projected Consumer Costs with $21/ton CO2 Tax by Income Decile

The lower electricity prices that result lead to increased electricity consumption and associated emissions in the electricity sector. Achieving the same level of emissions reduction from the overall economy would require greater emission reductions in other sectors such as personal transportation, industry, etc. In turn, this raises the costs of goods and services from these sectors. Second, the allocation of free allowances to electricity consumption erodes the allowance value that otherwise might be returned to households or firms or directed to other purposes.

We model the household impacts of an allowance auction and free allocation in this technical paper, considering the differing impacts through the nation’s various regions. We found that with the exceptions of the Ohio Valley region and households with the highest income deciles, consumers would see smaller cost increases with an auctioning system than they would if allocations were given gratis to local electricity distributors ($139 annually per household with an auction as opposed to $175 a year with allowances).

A table of our results can be found here.

Rich Sweeney is a research assistant at Resources for the Future and regular contributor to Common Tragedies.

Dallas Burtraw is a senior fellow. His research interests include the design of environmental regulation, the costs and benefits of environmental regulation, and the regulation and restructuring of the electricity industry.

Published: May-22-09 | 0 Comments

May21

Weathervane Returns to Bring Context and Clarity to Climate Change

I am very pleased to announce the re-launch of Weathervane, a climate policy blog and an initiative of RFF’s Climate Policy Program.

Weathervane was originally created in 1997 and was designed to advance and inform debates surrounding the environmental and economic aspects of climate change. Before the era of blogs, it fostered an informed discussion of climate policy and developed a reputation for producing thoughtful, high-quality analysis. At the time, it was unique and became a very valuable resource for those interested in climate policy. In fact, long before I joined RFF, I was an avid consumer.

Although the world has changed quite a bit since its inception, there is still a need for a non-partisan, dispassionate forum where essential elements of climate policy can be discussed in an in-depth and accessible way. Weathervane will feature observations from our scholars on current climate policy developments, discussions of current RFF research, and contributions from distinguished experts.

As it moves forward, we hope the site will connect visitors to one another and promote an exchange of information, research and insight. I invite you to have a look, comment on the posts, and send any feedback to Weathervane’s managing editor, Tiffany Clements, at clements@rff.org

Phil Sharp is president of Resources for the Future.

Published: May-21-09 | 0 Comments

May20

Time for Automotive Emissions Labels?

EPA, CO2, Autos

As a companion the newly-announced plan for CAFE standards, the EPA is likely to use its authority under the Clean Air Act to regulate CO2 emissions from autos on a gram-per-mile basis.

With these new developments the time might be right for the government to provide car buyers with gram-per-mile information they can incorporate into their purchase decisions. RFF Senior Fellow Kate Probst has proposed a labeling scheme along those lines here.

Tiffany Clements is managing editor of Weathervane.

Published: May-20-09 | 0 Comments

May19

Waxman-Markey Auction Plan Draws Heavily from RGGI

Cap and Trade, Carbon Market, Congress, RGGI, Waxman-Markey

There are undeniable similarities between the proposed emissions auctioning scheme in the newly-released draft of the Waxman-Markey energy bill (H.R. 2454) and the approach adopted for allowance auctions in the ten-state cooperative arrangement in the Northeast, the Regional Greenhouse Gas Initiative (RGGI).

With little precedent to look to, it appears the framers of H.R. 2454 have taken a few pages from the recommendations of the RGGI auction design study, the basis for RGGI’s auction scheme. This plan was designed by RFF researchers Dallas Burtraw and Karen Palmer, with Charles Holt and William Shobe of the University of Virginia, and Jacob Goeree of the California Institute of Technology.

The proposed plan incorporates a number of elements included in RGGI’s auction framework like adopting a single round, sealed bid, uniform price auction format that incorporates both current and future “allowance vintages,” giving purchasers the opportunity to plan for future allowance needs. Waxman-Markey also establishes a similar quarterly timeframe for holding auctions, limits on the percentage of allowances any one entity may purchase, and calls for a minimum reserve price for allowances sold in the auction (as Ray Kopp discussed in this post).

Tiffany Clements is managing editor of Weathervane.

Published: May-19-09 | 1 Comment

May18

Waxman-Markey and the Important Price Collar

Cap and Trade, Congress, United States, Safety Valve, Price Collar, Waxman-Markey

While much attention in the discussion of the new draft of the Waxman-Markey energy bill (H.R. 2454) will be devoted to the gratis allowance allocations, don’t overlook the economic importance of a new provision establishing a floor on the price of allowances (Sec. 791(d)).

“(d) RESERVE AUCTION PRICE.—The minimum reserve auction price shall be $10 for auctions occurring in 2012. The minimum reserve price for auctions occurring in years after 2012 shall be the minimum reserve auction price for the previous year increased by 5 percent plus the rate of inflation (as measured by the Consumer Price Index for all urban consumers).”

Short-run demand and supply conditions can lead to significant allowance price volatility, as we have seen in the European Union’s carbon market. Very low allowance prices may not provide the needed incentives for conservation, and the development and deployment of new technology. H.R. 2454 adopts and minimum price auction ($10 reserve price in 2012) to set an allowance price floor. To the extent the Strategic Reserve Auction can act as a credible price ceiling, the bill now contains a price “collar,” the combination of a floor and ceiling designed to minimize allowance price volatility.

RFF researchers Dallas Burtraw and Karen Palmer (in this paper), and Harrison Fell and Richard Morgenstern (in this paper) have been developing the price collar for the past 24 months. Recent work by these scholars reveals the considerable economic advantages attaching to a collar over a standard cap & trade program or a program with only ceiling price (often known as a safety valve).

Raymond J. Kopp is a senior fellow and director of Resources for the Future’s Climate Policy Program.

Published: May-18-09 | 2 Comments

May14

In Indonesia, Conference Voices Concerns About the Oceans’ Future

COP-15, International, Oceans

The World Ocean Conference moved this week to press its concerns on the Copenhagen climate change policy meeting to be held at the end of this year. Speakers emphasized the damage to corals caused by warming water, the decline in fish stocks and the threat of rising sea levels.

The ocean conference, held in Manado, Indonesia, was attended by representatives of some 80 governments, as well as international agencies and environmental organizations. It is part of a complex and sometimes competitive process of preparation for Copenhagen, as a wide range of interests maneuver to ensure that their needs get a hearing. The Copenhagen meeting will try to set global goals for the reduction of greenhouse gas emissions.

As at many of these preliminary meetings, one issue in Manado has been the anxiety of small developing countries that the key decisions will be made by their larger and richer neighbors without any reference to them. Another has been the fear that Copenhagen will set demanding goals without adequately providing financing for poor countries to conform.

The United States, in a gesture indicating the Obama administration’s intention of playing an active part in world climate policy, sent a delegation of more than 40 officials and scientists to Manado. In a video message to the conference, Secretary of State Hillary Clinton expressed support for its work and stressed the humanitarian values at stake in climate policy.

John Anderson is journalist in residence at Resources for the Future.

Published: May-14-09 | 0 Comments

May12

RFF Alums Survey Mitigation Landscape

Mitigation, Obama Administration

For a look at what several recently-appointed federal environmental and economic officials (who happen to be RFF alums) consider top priorities in planning climate mitigation policy, check out this new RFF discussion paper, produced while Aldy and Pizer were senior fellows at RFF.

In it RFF Senior Fellows Alan Krupnick and Ian Parry, along with Joseph Aldy (on leave from RFF, now serving in the Obama Administration), William Pizer (now working for the Treasury Department), and recently-nominated Energy Information Administration Administrator Richard Newell outline current thinking about how policies should be structured, what goals should be, and what instruments could help policymakers reach those goals.

Tiffany Clements is Managing Editor of Weathervane.

Published: May-12-09 | 0 Comments

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