Weathervane: A Climate Policy Blog from Resources for the Future

Dec21

Carbon’s Costly Paradox

If the domestic and international policy debates of 2009 have taught us anything, it’s that shifting the world’s economies to energy sources that are both abundant and carbon-friendly presents countless challenges. Not the least of which is cost.

According to RFF Senior Fellow Joel Darmstadter, the following image—originally appearing in the Fall 2006 edition of Resources Magazine and updated for a forthcoming report entitled, "Toward a New National Energy Policy: Assessing the Options"—offers a useful illustration of just how costly, under present conditions, a low-carbon economy could be. Joel takes it from here:

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Imagine a downward-sloping line from the upper-left quadrant to the lower-right quadrant and you’ll appreciate the paradox conveyed by the accompanying figure: liquids that are CO₂-friendly are widely judged to be costly; those that seem competitive with crude oil are CO₂-intensive.

The vertical and horizontal ranges of each bar reflect uncertainty about, respectively, cost and emissions. (Note that, while most discussion of global warming centers on CO₂, the figure covers all greenhouse gases; these sum to about a 1.2 multiple of CO₂ alone.)

Cost and emission data for alternatives to crude oil are estimated to roughly approximate 2008-2009 conditions. The $70-$90 per barrel range of crude oil prices is intended to reflect the situation prevailing towards the end of 2009 rather than the much higher projected level and range of those inflation-adjusted prices by DOE’s Energy Information Administration for the year 2030. Emissions (for both crude oil and its alternatives) are calculated on a lifecycle (“well-to-wheel”) basis—spanning extraction or production at one end to utilization and combustion at the final-demand stage.

Technological advance that could spur a clustering of various fuel options in the “clean-and-cheap” bottom-left area is obviously a desirable, though for now, still elusive goal.

Joel Darmstadter is a senior fellow at Resources for the Future. Since joining RFF in 1966, his research has centered on energy resources and policy.

Published: Dec-21-09 | 0 Comments

Dec14

Hopenhagen?

COP-15, International, CO2

In this post, University of Gothenburg economics professor Thomas Sterner chronicles his journey to and through Copenhagen. From troubling policy framework to Hopenhagen, Sterner says as long as the world is talking about the troubles of climate change, there’s still reason to hope.

COPENHANGEN -- I took the three-hour train trip from Gothenburg to Copenhagen without major illusions. Although I prefer to be an optimist it is clear that a good, viable, treaty is not within easy reach during this meeting. Positions on basic issues such as finance are too simply far apart. The most basic issue is, of course, the allocation of emission allowances or abatement burdens.

The news media constantly offering up information on different country commitments to emissions reductions—Japan 25 percent, EU 20 percent, maybe 30 percent, USA 14 percent to 17 percent. Then they start asking, “What will India do?”

The devils are, as usual, in the details. A careful look at the different proposals reveals, unsurprisingly, that each country chooses a combination of accounting principles, base years, sectors and gases that suits their domestic cause.

The very fact the debate over emissions cuts is about percentage reductions is a gigantic bias in favor of countries that are currently big emitters and is totally unacceptable to India and low-income countries like, for instance, those in Africa. It is nowhere near enough to “give them” somewhat lower percentage reductions or a few years of grace before they join in on the reduction commitments. Percentage reductions imply grandfathering or prior appropriation and are deeply ingrained into legal and popular thinking in the West, particularly in the USA. Similar principles underlie the allocation of sulfur rights in the SO2 trading program as well as—in a more general way—water law in California. It also underlies the Kyoto Protocol.

But think of this issue from the Indian perspective. Suppose the USA reduces its emissions by 14 percent from around 7 tons of CO2/per capita to 6 tons. How is that a fair answer from India’s perspective? They are currently at some 300 Kg of C02/per capita and if they tripled that their emissions would still only be one ton—or a sixth—of the USA’s. This is a far-reaching sacrifice for a country that aspires to 10 percent to 12 percent growth in GDP.

India would prefer an equal allocation per capita. This is an ethical principle we are well acquainted with and one we can hardly argue is unreasonable. This principle not only applies to our votes; it is also used, for instance, to distribute the rents from oil in Alaska. All Indians and Africans I have spoken to take it for granted that some version of equal per capita allocation is the only reasonable principle. Yet there is an abyss between grandfathering and equal allocation. The difference between the two would mean a difference of many billions of tons of CO2 per year for India—and each ton may be worth for instance $20. There is much discussion of side payments here but the Indian delegates know that they would need no side payments at all if they just got what they think is a fair share of permits.

In countries where you bargain over the price, you know that if you want to pay 10 and the seller says 12 then the price will eventually be around 11. If the seller asks for 5000 you just walk away—negotiations are too difficult and unlikely to give a satisfactory result. This is something we discussed yesterday at a CLIPORE side event in the EU Pavilion concerning long run goals. Interesting but depressing.

But on my way back to town however I stopped at “Hopenhagen” as Desmond Tutu took the stage. Within a few minutes he electrified the audience. In a few sentences he spanned everything from Apartheid to the Berlin Wall and said that God cries when he looks down and sees Zimbabwe and Darfur and says “Why did I create this?” But then he sees you in Copenhagen and he smiles.

Maybe the archbishop is right: as long as we are talking there is hope.

Thomas Sterner is a professor of economics at the University of Gothenburg, where he established and directs the Environmental Economics Unit. He is also an RFF University Fellow; his main research interests lie in the design of policy instruments.

Published: Dec-14-09 | 0 Comments

Dec14

Cross-Nation Consensus on Covering Costs of Changing Climate

International, Cap and Trade, CO2

As negotiations in Copenhagen seem to take two steps back for every two steps forward, it’s easy for observers to despair about there being a policy solution to the world’s problems with climate change.

One issue continually in the news is that large fractions of people in the U.S. do not believe in climate change and, by implication, would not be willing to pay to reduce the emissions that cause it; another is the perceived fairness of how the economic burden of reducing greenhouse gases should be divided among countries.

Yet, despite these national-level opinion polls, little is directly known about the willingness to pay to avoid the consequences of climate change in the U.S. and whether it differs among countries. This willingness can be taken as a barometer of the strength of political support for costly mitigation actions.

Perceptions of a fair distribution of costs are also expected to differ strongly across countries. Historically large emitters such as the U.S. and Europe may prefer a system where obligations are expressed in terms of current rather than historical emissions. Rapidly industrializing countries, such as China, may prefer a system based on historical emissions. Countries such as India or most African countries may find both of these unfair and have a material interest in supporting equal allocations in terms of emissions per capita. However, despite these conjectures, it is unknown how important the rule is to the average citizen in different countries.

In a multinational effort, a team of researchers from China, Europe, and the U.S. addressed these issues with an identical survey that was developed and administered in each of these countries just prior to the Copenhagen meetings. The survey follows best practices in asking citizens for their willingness to pay to avoid the consequences of global temperature changes as forecasted by the IPCC. The survey also uses techniques adapted from product marketing approaches where citizens choose among various burden-sharing rules, given alternative costs to their household of implementing such rules.

The first wave of responses has been returned from the U.S. and Sweden. To avoid the consequences of climate change that would arise from a 4°F temperature increase, 91.5% of Swedish respondents and 71% of US respondents were willing to pay some amount of money. However Swedish respondents are willing to pay more, averaging $306/year versus $204/year for the U.S. sample. Respondents in both countries were willing to pay even more if temperature increases could be held to 3°F ($330/year in the U.S.; $552/year in Sweden) and more still to hold the increase at 2°F ($430/year in the U.S.; $756/year in Sweden).

As hypothesized, having a higher income education level increased respondents’ willingness to pay. Willingness was lower for those who believe that the temperature has not increased over the past 100 years, that humans did not cause climate change, and that climate change cannot be stopped. Religiosity had the opposite effect in the two countries; religious people had a lower willingness in the U.S. and a higher willingness in Sweden.

Swedish and American respondents saw eye to eye when it comes to who should foot the bill to address the problems. Preferences for four burden-sharing principles were examined by this study: distributing the costs among countries by levels of current emissions, historical emissions, income, and emissions per capita. Respondents from both nations ranked the principles in the same way in both nations. The current emissions principle—the least costly principle for the U.S. and second least costly principle for Sweden, as well as the one where the U.S. and China share costs about equally—clearly emerges as the most preferred. Respondents were willing to pay $16/year (Sweden) and $17/year (U.S.) more than for the next preferred principle, income. The third preferred principle is historical emissions, with emissions per capita least preferred.

Our results show that significant majorities of the public in the U.S. and, particularly, Sweden are willing to shoulder the cost burdens of climate mitigation—about 2% to 3% of their per capita income (or analogously, GDP)—to prevent a warming of more than 2°F. Furthermore, while the burden-sharing principles favorable to one’s own country are preferred, the willingness to pay for such a principle over others is small.

The Chinese survey is currently being administered and results are forthcoming.

Tiffany Clements is managing editor of Weathervane.

Published: Dec-14-09 | 0 Comments

Dec14

Abundant Natural Gas: Two-Edged Sword for CO2 Emissions

Renewables, Cap and Trade, CO2, Natural Gas

As part of the ongoing debate about how best to cut carbon emissions, the buzz about natural gas is growing. Use of natural gas produces CO2 emissions that are about 45 percent lower per Btu than coal and 30 percent lower than oil, making it the cleanest fossil fuel (at least in terms of CO2 emissions). Given its lower carbon content, many see natural gas as a potential bridge fuel for electricity generation between coal and the future use of renewables and other non- or low-carbon sources.

Natural gas offers another key benefit: abundance. The United States has it in droves and can now access it more cheaply than ever thanks to recent improvements in drilling technology. Over the last two years, these improvements—by many accounts—have dramatically lowered the costs of recovering so-called “shale gas” trapped in formations under large swaths of the country. The Potential Gas Committee, which updates its natural gas resource estimates every two years, reports an unprecedented increase in potential shale gas resources between its 2006 and 2008 assessments.

What effect will this vast new supply of natural gas have on CO2 emissions and energy prices? A new Resources for the Future report highlights how more abundant natural gas supplies result in lower gas prices and greater natural gas use in most sectors of the economy, including electricity generation. And with a carbon pricing policy in place (such as a cap‐and‐trade system or a carbon tax), abundant natural gas acts an attractive bridge fuel to a low‐carbon future, lessening the economic cost of reducing CO2 emissions and offering savings of about $1 billion over the 20-year study period.

A key finding of the study, however, is that a carbon pricing policy is crucial to obtaining the benefits of abundant natural gas as a bridge fuel to a low-carbon future. Without such policy in place, increased natural gas supply can actually contribute to an increase (albeit a modest one) in CO2 emissions. Although greater natural gas resources reduce the price of natural gas and displace the use of coal and oil, they also boost overall energy consumption and reduce the use of carbon-free nuclear power and renewables.

Although the resource estimates look promising, considerable uncertainty remains about just how much shale gas the U.S. can recover, how technology will further improve, and at what cost. These uncertainties have significant policy implications. Accordingly, policymakers would be well served to design policies that are robust across different futures. Pricing policies, such as carbon taxes and cap and trade, provide market participants an incentive to seek out the most cost-effective means for reducing CO2 emissions irrespective of how the future turns out.

Kristin Hayes is a Research Associate at Resources for the Future.

Published: Dec-14-09 | 1 Comment

Sep22

EPA Unveils Greenhouse Gas Reporting System

CO2, EPA

It looks like President Obama and Chinese President Hu Jintao aren’t the only ones making big statements about climate change today.

From Environmental Protection Agency Press Release:

On January 1, 2010, the U.S. Environmental Protection Agency will, for the first time, require large emitters of heat-trapping emissions to begin collecting greenhouse gas (GHG) data under a new reporting system. This new program will cover approximately 85 percent of the nation’s GHG emissions and apply to roughly 10,000 facilities.

“This is a major step forward in our effort to address the greenhouse gases polluting our skies,” said EPA Administrator Lisa P. Jackson. “For the first time, we begin collecting data from the largest facilities in this country, ones that account for approximately 85 percent of the total U.S. emissions. The American public, and industry itself, will finally gain critically important knowledge and with this information we can determine how best to reduce those emissions.”

More details from EPA’s Website:

Under the rule, suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. The gases covered by the proposed rule are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF₆), and other fluorinated gases including nitrogen trifluoride (NF₃) and hydrofluorinated ethers (HFE).

Published: Sep-22-09 | 0 Comments

Aug11

Carbon Reductions and Canadian Oil Sands

CO2, COP-15, International, Obama Administration, Oil

Image Courtesy Manitoba Ag Day News Canadian Prime Minister Stephen Harper, Mexican President Felipe Calderón, and U.S. President Barack Obama emerged from a summit Monday in Guadalajara, Mexico with this set of trilateral climate policy goals. In the document, the North American leaders pledge to work together to set mid and long-term emissions reductions goals, share information on adaptation efforts, and offer support to Mexico’s proposed Green Fund.

And while the pledge marks a show of good faith—not unlike a memorandum of understanding that emerged from a U.S.-China economic summit last month—its underscores the tricky balance each nation must strike in aspiring to global cooperation while guarding its own interests.

Permits for a 1,000-mile long pipeline to carry oil from Alberta's oil sands to northwest Wisconsin could be approved by the U.S. State Department by the end of the month. If permits are approved and a pipeline constructed both nations will benefit from the reliable flow of oil and money between countries with a positive, long-standing relationship.

But while the supply of oil to be derived from the sands is massive, there is still debate about the environmental effects of its extraction and refining.

In a 2008 Weekly Policy Commentary RFF Senior Fellow Joel Darmstadter said the life cycle CO2 emissions of oil sands are about 20 percent greater than those involved in conventional crude oil processing. Citing a RAND Corporation study, Darmstadter said that the only real way oil sands can compete under a carbon-constrained regime will be with the successful implementation of carbon capture and sequestration. But while the trilateral agreement included a pledge for further research and a “carbon atlas” to locate major emissions sources and potential storage sites for captured carbon, the technology is still in its formative years.

So while he is pledging to reduce carbon emissions, some are wondering if President Obama can have energy security without compromising his environmental goals.

Tiffany Clements is managing editor of Weathervane.

Published: Aug-11-09 | 0 Comments

Jul20

Policy, Innovation and Climate: Strategies to Spur Climate-Friendly Technology

CO2, Renewables, Mitigation

Image Courtesy solarpowerforyou via Flickr China and Great Britain made headlines in recent weeks with their large-scale plans to develop and implement clean energy technologies. With international climate negotiations looming, policymakers around the world are drafting plans, searching for new ways to reduce emissions of greenhouse gasses through green energy technology.

The main policy tools for developing climate-friendly technologies should be those that encourage the market to make good choices—pricing carbon emissions and other environmental damages, removing distorting subsidies and barriers to competition, and supporting research and development broadly, according to RFF Senior Fellow Carolyn Fischer.

In "The Role of Technology Policies in Climate Mitigation," a new RFF issue brief, Fischer suggests key ways to bring about clean-energy advances through public policy.

"The most important technology-neutral policy and the core of any cost-effective approach must be a strong and increasing price signal across the entire economy that carbon emissions are costly," she writes.

Emissions pricing can be implemented either through a carbon tax or a broad-based cap-and-trade system, she notes, but there are strong arguments for a primary reliance on carbon pricing.

First, technologies are only useful if people want to use them, and financial self-interest is the primary driver for most participants in a market economy. "Carbon pricing makes clean technologies more cost-competitive and provides 'market pull' by encouraging their adoption," says Fischer.

Second, many options are available for reducing emissions. There is a huge array of technological solutions for electricity generation, production processes, building materials, and consumer appliances. "No command-and-control regulation could efficiently prescribe all the appropriate activities that should be undertaken," Fischer says. "Carbon pricing, on the other hand, creates incentives to do all these things: use less carbon-intensive fuels and products, conserve energy, and develop and deploy emissions-reducing technologies."

While necessary, emissions pricing alone is not sufficient for supporting the scale of technology development and deployment that is needed. Appropriate technology policies are needed to complement the price signals , among them such approaches as tougher building codes and energy efficiency standards, prizes for technical innovation, directed research in publicly funded laboratories, and international technology partnerships.

“Priority should be given to policies that enhance overall economic efficiency – broad R&D support, removing distortions, addressing regulatory barriers, reducing tax burdens, improving information, and supporting fundamental research,” says Fischer.

Stan Wellborn is director of public affairs at Resources for the Future.

Published: Jul-20-09 | 0 Comments

Jun22

The Lifecycle Measurement Dilemma

CO2, Cap and Trade, Congress, Waxman-Markey, Lifecycle Costing

Catchphrases, however tiresome their proliferation, can alert us to important issues. Take "carbon footprint,” an idea now routinely mentioned in corporate ads, political discourse, and environmental advocacy.

Recently a new and very important addition to the catchphrase glossary—lifecycle analysis—has morphed from academic writing to climate policy concerns. Indeed it is embodied in a number of current legislative proposals—among them the Waxman-Markey energy bill.

The concept, in principle, is straightforward. To calculate CO2 emissions associated with use of coal to produce electricity, you shouldn't just consider emissions during combustion in the power plant but also account for the energy (and CO2 emitted) in transporting the coal from mine to generating station. Or, you can't just revel in CO2 absorbed (through photosynthesis in the growth stage) to claim carbon "neutrality" when producing corn-based ethanol. You've got to account for how much energy is used in the ethanol distillery and, beyond that, how much (locked in) carbon is released from soil when planting corn. If such releases are large, they can negate the “offsets” designed to compensate for excess releases from conventional energy combustion activity.

The scope of how wide a net should be cast to catch indirect sources of emissions is anything but clear-cut. (In the case of ethanol land requirements may remove acreage devoted to food, whose cost may rise—yet one further indirect effect.) So, here we confront the dilemma of shifting from lifecycle costing as an analytical concept to a factor susceptible to unambiguous and enforceable policy and legislation. Indeed, a recent and widely-reported discord between Reps. Waxman and Peterson (respectively, Chairs of the House Energy and Commerce Committee and the Agriculture Committee) spotlights precisely concerns over the calculation of lifecycle biomass emissions and the appropriateness of EPA’s role as the monitoring agency.

Climate policy complications are not limited to carbon-containing resources. Non-CO2 greenhouse gases, while contributing less to global warming than carbon dioxide, cannot be ignored. They include methane, nitrous oxide, and a certain class of hydrofluorocarbons. (Combining the four into a single metric, denoted as “CO2e,” involves weights based on the potency of a particular gas, coupled to its residence time in the atmosphere.) Lifecycle and CO2e measurement can often figure jointly in a given situation. Production of fertilizer involves carbon-containing energy inputs like natural gas; application of fertilizer in farming can give rise to emissions of nitrous oxide. The carbon dioxide-equivalent measure gets us out of the apples-vs.-oranges bind.

Workable ways of dealing with the lifecycle and carbon dioxide-equivalence problems can no doubt be overcome. But we’re not there yet—neither in the case of domestic climate policy, nor in the more formidable task of harmonizing multi-country climate mitigation strategies.

More particulars on CO2e can be found on this EPA fact sheet. An exhaustive body of data and information is contained in the EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007, April, 2009.

Joel Darmstadter is a senior fellow at Resources for the Future. Since joining RFF in 1966, his research has centered on energy resources and policy.

Published: Jun-22-09 | 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

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