Weathervane

Mar11

Picking Policies to Promote Green Power

A variety of market-based policies have been adopted around the globe to reduce greenhouse gas emissions for the power sector and promote clean fuel technologies. To what extent is there a case for preferring one policy instrument over another, and are combinations of policies more efficient than one policy alone?

In a new Weekly Policy Commentary, RFF Senior Fellow Carolyn Fischer says while there is a clear policy winner when it comes to efficiently cutting emissions—a price on carbon—the best course of action to stimulate clean technology while reducing power-sector emissions may involve using a little bit of everything:

The optimal policy combines an emissions price with policies to capture spillovers in the market for knowledge—namely, a proportional R&D subsidy and a small subsidy for renewable production associated with learning-by-doing. These corrective policies provide positive benefits and allow the emissions price to fall by one-third to meet the same target. Together, they can achieve emissions reductions at significantly lower cost than any single policy alone.

Read Fischer’s Reducing Emissions While Promoting Green Power: A Look at the Options here.

Published: Mar-11-10 | 0 Comments

Feb03

Cutting Fossil Fuel Subsides to Cut Emissions

Oil, Subsidies, Renewables

President Obama’s FY 2011 budget proposal puts the kibosh on some $39 billion in tax breaks for oil and coal companies over the next 10 years. The president seems to be taking a step in the direction of making good on last year’s G20 agreement to phase out subsidies for fossil fuels.

The connection between a fossil fuel phase-out and global emissions reductions is undeniable, according to RFF Senior Fellow Ray Kopp. He explains in that in order to meet worldwide emissions reductions, fossil fuel consumption will have to be curtailed. One way to encourage using less, reducing subsidies on fossil fuel costs, he says:

Fossil energy subsidies hamper all government efforts to increase energy conservation, provide a viable market for renewable energy sources, and accelerate the transition to a low carbon economy. The OECD estimates that removal of the $300 billion of consumer subsidies would reduce carbon dioxide emissions by 13 percent in 2050.

Of course, removal of the subsidies is easier said than done. Consumer energy subsidies are very popular among the groups receiving them and therefore politically difficult to dismantle. Moreover, they are seen as government support for poor households. It is arguable whether a significant portion of these subsidies (for example gasoline) target very low-income households; but, in some countries the only link households have to the monetary based market world is through the purchase of fossil fuels. In these cases the fossil markets provide governments with a mechanism for income support—perhaps the only mechanism.

A U.S. proposal to end fossil fuel subsidies to oil, diesel and gas “in the medium term” was accepted by world leaders at a G-20 summit in Pittsburgh in September. While no deadline was set, the action by the G-20 to end subsidies is clearly a step in the right direction, but the political hurdles and issue of poor household income support must be addressed and overcome.

Read Kopp’s entire post, “Fossil Subsidies: Yet Another Call for Getting Prices Right” here. Raymond J. Kopp is a senior fellow and director of Resources for the Future’s Climate Policy Program.

Published: Feb-03-10 | 0 Comments

Feb02

2011 Energy Funding Forecast: Sunny, Breezy with a Chance of Nuclear

Obama Administration, Congress, Subsidies, Oil, Renewables

Given the scope of problems associated with climate change—economic, environmental, foreign and domestic concerns, to name a few—it seems virtually every federal department plays some part in President Barack Obama’s policy response. Here’s a look at where climate and energy issues have cropped up in the president’s FY 2011 budget proposal.

Environmental Protection Agency

Even in the absence of accounting for a federal cap and trade program—a move some see as an acknowledgement of cap and trade’s demise—the budget throws some $44 million toward the EPA’s efforts to regulate greenhouse gases under the Clean Air Act. Moreover, it seeks to help states do the same.

The Office of Management and Budget sums up the EPA’s climate change mitigation requests:

$21 million—an increase of $4 million from 2010—to implement the Mandatory Greenhouse Gas Reporting Rule and ensure the availability of high-quality emissions data.

$56 million—including $43 million in new funding—for the EPA and states to address climate change effectively through regulatory initiatives to control greenhouse gas emissions

$25 million to aid states in permitting activities for greenhouse gas (GHG) emissions under the New Source Review and Title V operating permits programs

$7 million to develop New Source Performance Standards (NSPS) to control GHG emissions from major stationary sources

$6 million in new funding to implement the 2010 light duty vehicle rule and to develop regulations for large mobile sources

$5 million to develop guidance regarding the best available practices and technologies to control GHG emissions under permitting programs

Department of Energy

The DOE’s budget requests underscore a strong political will to wean the U.S. economy off fossil sources (and make good on G20 commitments) by cutting $36 billion worth of fuel subsidies and shift renewable energy sources with requests for investment in wind and solar energy research.

But, perhaps most notably, the proposal makes a strong statement about U.S. nuclear power, guaranteeing $55 billion in loan funding to build new nuclear power plants and recording a departmental goal to “Commit (conditionally) to loan guarantees for two nuclear power facilities to add new low-carbon emission capacity of at least 3,800 megawatts during 2010.” Reaction to the news has been predictably mixed. (And—I assume since he didn’t address the budget directly—predictably satirical from Stephen Colbert.)

OMB breaks down DOE requests further:

$36 billion in new loan authority – for a total of $54.5 billion – to expand support for DOE loan guarantees for nuclear power facilities.

$500 million in credit subsidy to support $3 billion to $5 billion in loan guarantees for innovative energy efficiency and renewable energy projects.

$144 million for research, development, and demonstration activities to modernize the grid including smart-grid technologies that will spur the transition to a smarter, more efficient, secure and reliable electric system, resulting in energy- and cost-saving choices for consumers, reduced emissions, and growth of renewable energy sources.

$4.7 billion in clean energy technology investments at DOE, including:

Nearly $2.4 billion, an increase of $113 million, for energy efficiency and renewable energy programs including $302 million for solar energy, $220 million for biofuels and biomass R&D, $325 million for advanced vehicle technologies, and $231 million for energy efficient building technologies.

$545 million for advanced coal climate change technologies to focus resources to develop carbon capture technologies with broad applications to advanced coal power systems, existing power plants, and industrial sources.

$300 million for the Advanced Research Projects Agency–Energy to accelerate game-changing energy technologies in need of rapid and flexible experimentation or engineering.

$793 million for clean energy activities and civilian nuclear energy programs, including research and development and infrastructure programs. The budget includes a new cross-cutting research program to address technology needs for all aspects of nuclear energy production.

Department of State

In conjunction with U.S. Agency for International Development (USAID) and the Treasury Department, the State Department put forth a budget that will provide developing nations $1.4 billion in FY 2011 to address climate change.

A drop in the bucket toward $100 billion a year by 2020, the proposal would concentrate international efforts on adaptation, energy development, and ecosystem management programs to improve agricultural practices and support carbon sequestration and storage. Combined with last year’s final tally of about $1.0 billion, even meeting the U.S.’ share of the $30 billion by 2012 pledge in the Copenhagen Accord (likely to be about 25 percent) will require a substantial increase in FY 2012 or some creative accounting.

Other notable requests, via OMB:

The Department of Transportation: $530 million as part of the President’s Partnership for Sustainable Communities to help State and local governments invest in sustainable transportation infrastructure that integrates with housing development and other critical investments.

The Department of the Interior: $73 million—a $14 million increase—to build agency capacity to review and permit renewable energy projects on federal lands. DOI has set a goal to permit at least 9,000 megawatts of new solar, wind, and geothermal electricity generation capacity on DOI-managed lands by the end of 2011.

So where does it go from here?

The road from proposed budget to actual budget runs directly through Congress; more specifically it runs through a process outlined in this interactive graphic. (And, while we’re on the subject, NYT has this really cool graphic illustrating funding request sizes. I love alternative ways to illustrate governmental functions. I was a huge fan of School House Rock as a kid.)

The process of hearings and congressional consideration got underway in earnest today with Treasury Secretary Timothy Geithner testifying before the Senate Budget Committee and OMB Director Peter Orszag testifying before the House Budget Committee.

Tiffany Clements is managing editor of Weathervane.

Published: Feb-02-10 | 0 Comments

Jan14

Expired Subsidy More Bad News for Biodiesel

Biofuels, Congress, Subsidies

Biodiesel isn’t currently contributing much to the country’s effort to reduce its dependence on oil. But it’s emerging as a classic example of how not to make energy policy.

In 2004, hoping to reduce the country’s dependence on petroleum, Congress decided to boost biodiesel, a fuel which can be made from vegetable oils or animal fat. To do so it provided a subsidy of $1 a gallon.

The American biodiesel industry took off rapidly. The subsidy was originally written with a short life, but two extensions passed smoothly through Congress. In addition to domestic sales, American producers were building a substantial market in Europe.

But the year 2009 turned into a series of misfortunes for the burgeoning industry. Last spring the European Union found the American subsidy to be illegal and imposed a countervailing tariff that greatly diminished American sales there.

American biodiesel is generally made from soybean oil, and here in the domestic market the spread between soy-based biodiesel and convention diesel fuel was stuck at slightly more than a dollar. In early December, a consultant to the National Biodiesel Bureau, a trade association, published a paper saying that production had dropped dramatically and capacity utilization was in the range of 15 percent.

And then on Dec. 31, 2009 with Congress was distracted by health care reform and out of time for other pending bills, the subsidy expired. The industry assumes that, in view of the influence of the farm lobby, it will be reinstated sometime later this year. But the expiration’s effect will compound the uncertainty hanging over producers.

Meanwhile biodiesel producers now face an environmental setback. Three years ago Congress decided that public support would go only to those renewable highway fuels that reduced greenhouse gas emissions by at least half, compared to the petroleum-based fuels that they replace. Further, it expanded the definition of emissions to include not only those generated by using the fuel on the road, but those resulting from growing the feedstock and from any changes in land use required by the crop.

The Environmental Protection Agency has calculated the emissions reductions of various biofuels under the new lifecycle definition, and last year it proposed a new rule embodying them. Biodiesel made from soybeans comes nowhere near meeting the new standard. Biodiesel made from waste animal fats passes the test, but the country doesn’t produce enough waste animal fats to make a significant difference. The EPA expects that the chief source for environmentally acceptable biodiesel will eventually be algae, but the technology is not yet capable of making a competitive product for a large market.

Robert Rapier, an analyst who has followed the subject closely, recently commented in his R-Squared Energy Blog, “If instead of picking technology winners, Congress had simply raised fossil fuel taxes, we wouldn’t be in this dilemma.”

J.W. Anderson is Resources for the Future’s journalist in residence.

Published: Jan-14-10 | 0 Comments

Dec15

Fossil Subsidies: Yet Another Call for Getting Prices Right

Subsidies, COP-15

COPENHAGEN -- More than 190 nations are gathered here in Copenhagen to forge a political agreement to reduce global emissions in 2050 by 50 percent. While it is surely an understatement to say there has been a great deal of discord (developing countries walked out of negotiations yesterday for several hours to protest the lack of progress), there is little disagreement over the underlying principal—global fossil energy consumption will have to be substantially curtailed to attain the 50 percent goal.

One of the significant impediments to achieving that goal is the wide-spread system of consumer and producer fossil energy subsidies that massively distorts fossil energy prices. The International Energy Agency (IEA) sampled 20 developing countries and estimated that consumer fossil fuel subsidies top $300 billion dollars each year. While consumer subsidies for transport fuels and natural gas for electricity generation are most often found in developing countries, many developed countries, like the U.S., offer subsidies to fossil energy producers through a variety of tax breaks.

Fossil energy subsidies hamper all government efforts to increase energy conservation, provide a viable market for renewable energy sources, and accelerate the transition to a low carbon economy. The OECD estimates that removal of the $300 billion of consumer subsidies would reduce carbon dioxide emissions by 13 percent in 2050. As pointed out by William (Billy) Pizer, Deputy Assistant Secretary, U.S. Department of the Treasury (and past RFF senior fellow) at an IISD side event yesterday on fossil subsidies, removal of the subsidies is an important and non trivial step moving us more than 20 percent of the way to our 2050 goal.

Of course, removal of the subsidies is easier said than done. Consumer energy subsidies are very popular among the groups receiving them and therefore politically difficult to dismantle. Moreover, they are seen as government support for poor households. It is arguable whether a significant portion of these subsidies (for example gasoline) target very low-income households; but, in some countries the only link households have to the monetary based market world is through the purchase of fossil fuels. In these cases the fossil markets provide governments with a mechanism for income support—perhaps the only mechanism.

A U.S. proposal to end fossil fuel subsidies to oil, diesel and gas “in the medium term” was accepted by world leaders at a G-20 summit in Pittsburgh in September. While no deadline was set, the action by the G-20 to end subsidies is clearly a step in the right direction, but the political hurdles and issue of poor household income support must be addressed and overcome.

Climate change may present the opportunity for subsidy reform. The imperative for immediate mitigation action might provide the political cover to needed to phase out subsidies to moderate income households (for example subsidies to transport fuels).

The problem of poor household income maintenance however remains. Money saved through elimination of the subsidies could be directed to the very poor households, but non-price distorting mechanisms to deliver those funds are crude to non-existent in many countries and would have to be created—a challenge RFF would like to help policymakers tackle.

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

Published: Dec-15-09 | 0 Comments