Business

Climate Change 101: Cap and Trade

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There are a variety of policy tools to reduce the greenhouse gas emissions responsible for climate change. This installment of the Climate Change 101 series explains how a cap-and-trade program sets a clear limit on greenhouse gas emissions and minimizes the costs of achieving this target. By creating a market and a price for emission reductions, cap and trade offers an environmentally effective and economically efficient response to climate change.

 

 

 

 

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Reducing Greenhouse Gas Emissions from U.S. Transportation

January 2011

By: David L. Greene and Steven E. Plotkin

Download this paper (pdf)

Press Release

E&E TV Interview

Project Director: Judi Greenwald

Project Manager: Nick Nigro

 

Executive Summary:

This report examines the prospects for substantially reducing the greenhouse gas (GHG) emissions from the U.S. transportation sector, which accounts for 27 percent of the GHG emissions of the entire U.S. economy and 30 percent of the world’s transportation GHG emissions. Without shifts in existing policies, the U.S. transportation sector’s GHG emissions are expected to grow by about 10 percent by 2035, and will still account for a quarter of global transportation emissions at that time. If there is to be any hope that damages from climate change can be held to moderate levels, these trends must change.

This report shows that through a combination of policies and improved technologies, these trends can be changed. It is possible to cut GHG emissions from the transportation sector cost-effectively by up to 65 percent below 2010 levels by 2050 by improving vehicle efficiency, shifting to less carbon intensive fuels, changing travel behavior, and operating more efficiently. A major co-benefit of reducing transportation’s GHG emissions is the resulting reductions in oil use and improvements in energy security.

It develops three scenarios that diverge from “business as usual,” based on the assumption that the United States is willing to change the incentives and regulations that affect the design of vehicles, the types of fuels that are used, the choices made by individuals and businesses in purchasing and using vehicles, and how communities and their transportation infrastructure are built and used.

This report is an update of the Center's 2003 report on Reducing Greenhouse Gas Emissions From U.S. Transportation

 

Related white papers on Transportation Reauthorization:

A Primer on Federal Surface Transportation Reauthorization and the Highway Trust Fund

Saving Oil and Reducing Greenhouse Gas Emissions through U.S. Federal Transportation Policy

 

 

About the Authors:

David L. Greene is a Corporate Fellow of Oak Ridge National Laboratory, Senior Fellow of the Howard H. Baker, Jr. Center for Public Policy and a Research Professor of Economics at the University of Tennessee.  He is an author of more than 200 publications on transportation and energy issues.  Mr. Greene is an emeritus member of both the Energy and Alternative Fuels Committees of the Transportation Research Board and a lifetime National Associate of the National Academies. He received the Society of Automotive Engineers’ Barry D. McNutt Award for Excellence in Automotive Policy Analysis, the Department of Energy’s 2007 Hydrogen R&D Award, and was recognized by the Intergovernmental Panel on Climate Change for contributions to the IPCC’s receipt of the 2007 Nobel Peace Prize. He holds a B.A. from Columbia University, an M.A. from the University of Oregon, and a Ph.D. in Geography and Environmental Engineering from The Johns Hopkins University.   

Steven Plotkin is a staff scientist with Argonne National Laboratory’s Center for Transportation Research, specializing in analysis of transportation energy efficiency. He has worked extensively on automobile fuel economy technology and policy as a consultant to the Department of Energy, and was a co-principal investigator on ANL’s Multi-Path Transportation Futures Study. Mr. Plotkin was a lead author on the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report Climate Change 2007:  Mitigation of Climate Change and has been selected to participate on the Fifth Assessment Report. He was for 17 years a Senior Analyst and Senior Associate with the Energy Program of the Congressional Office of Technology Assessment (OTA) and prior to that he was an environmental engineer with the U.S. Environmental Protection Agency. Mr. Plotkin has a B.S. degree in Civil Engineering from Columbia University and a Master of Engineering (Aerospace) degree from Cornell University. He is the 2005 recipient of the Society of Automotive Engineers’ Barry D. McNutt Award for Excellence in Automotive Policy Analysis.

David L. Greene
Steven E. Plotkin
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EPA’s Regulation of Greenhouse Gases: What are the Facts?

With EPA’s recent announcement of timelines for additional regulation of greenhouse gases (utility and refinery sectors) and the arrival in town this week of the new Congress, the shouting about EPA’s regulatory actions has already begun. Many of these claims are clearly political posturing – the facts are that schools, churches, and libraries will NOT be subject to regulations, there will NOT be a moratorium on all new industrial facilities for at least 18 months, and new coal plants will NOT be banned. But it is also true that regulating greenhouse gases (GHGs) has the potential to substantially impact our economy and is critical to reducing the risks and costs associated with climate change. The critical challenge facing EPA is how to properly balance the costs of reducing GHG emissions against the benefits of limiting climate change. How EPA balances these interests demands a serious discussion. In an effort to lower the volume and better inform future discussions about EPA’s use of its regulatory authority, the following are key factors that should be considered.

1. EPA is not overreaching by regulating greenhouse gases (GHGs) under the Clean Air Act but is doing so in direct response to the Supreme Court’s 2007 ruling in Mass. v. EPA.

Some have incorrectly claimed that EPA has overstepped its authority in regulating greenhouse gases and is attempting to regulate GHGs even though Congress failed to pass climate legislation last year. In fact, it is the Supreme Court in 2007 that clarified that EPA had the authority to regulate GHGs under the existing Clean Air Act. EPA had denied a petition by some states and environmental groups calling on it to begin regulating GHGs under the existing Clean Air Act. The Supreme Court rejected EPA’s claim that the Clean Air Act does not apply to GHGs and held that these emissions meet the definition of an “air pollutant” under the Act. The court held that “under the Act’s clear terms, EPA can avoid promulgating regulations only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.” Based on its extensive review of the scientific evidence in its endangerment finding, EPA reached the only conclusion that the evidence supported – that GHG emissions cause or contribute to air pollution, which may reasonably be anticipated to endanger public health or welfare and, therefore, are subject to regulation under the Clean Air Act.

2. EPA’s regulations will not require unproven technologies, impose excessive costs at a time when our economy is hurting, or harm small and previously unregulated sources.

There are legitimate concerns that the Clean Air Act was not developed specifically with GHGs in mind and these emissions are different in fundamental ways from traditional hazardous and criteria pollutants covered by the Act. As a result, EPA has gone to great lengths to “tailor” its regulations -- for example, with respect to new source permitting -- in such a way that only the largest sources of GHGs are covered. This tailoring rule has been challenged in courts (along with all other GHG regulations). If it is overturned, Congressional intervention would likely be necessary. But the Clean Air Act includes many provisions that minimize compliance costs, and many of its fundamental requirements apply equally well to regulating GHGs. For example, the Act requires that technological feasibility and costs be considered in setting emission performance standards and allows for different requirements for new and existing sources. In its guidance to states on what constitutes “best available control technology,” EPA has focused on energy efficiency technologies as a means to achieve both reductions in GHG emissions and cost savings to firms. The agency has also made it clear that the use of coal as a fuel can be continued under its guidelines. While EPA regulations will impose some costs on firms, based on guidance to date, those costs are likely to be modest and will result in far greater benefits than costs to society.     

3. Delaying any EPA regulatory actions would be bad for business and bad for the climate.

Delaying regulations by EPA will allow some firms to avoid compliance costs in the near term but will increase overall costs over the longer term. For firms in states already facing GHG requirements (e.g., utilities in 10 northeast and mid-Atlantic states, large emitters in California), any delay in EPA regulations are not likely to alter the requirements they face. For firms in other locations that are planning facilities with long lifetimes, some are likely to install the same technology that would be required by EPA in an effort to avoid more expensive retrofits in the near future. These firms would prefer the certainty of knowing what regulatory requirements they must meet prior to making large capital investments. Finally, delay in reducing GHG emissions will result in greater economic harm throughout our society as families and communities face the costs associated with increases in extreme weather (droughts and floods), impacts from sea level rise, limits on the availability of water resources, and other climate impacts.

4. EPA’s regulatory actions are not a form of backdoor cap and trade or an energy tax.

Congress rejected a comprehensive cap-and-trade approach to regulating GHG in its last session. EPA’s approach does not rely on a cap-and-trade regime and is far from comprehensive. EPA’s regulations focused first on the transportation sector with the issuance of widely supported standards for light-duty vehicles and proposed standards for medium and heavy-duty vehicles. On the stationary source side, EPA first targeted the largest new sources and major modifications of existing sources and recently announced plans to develop new source performance standards for the electric utility and refinery sectors. Such standards are the traditional approach used under the Clean Air Act and are generally implemented through state programs.The regulations are being developed on a timeframe consistent with Clean Air Act requirements covering other pollutants to allow covered sources the flexibility of developing compliance plans that cost-effectively meet a comprehensive set of requirements.

5. EPA is not attempting to meet the same reduction requirements that were rejected by the last Congress.

The House-passed climate change bill called for reductions in GHG emissions of 17 percent of 2005 levels by 2020, increasing to reductions of over 80 percent by 2050. EPA’s use of the Clean Air Act is not likely to produce emission reductions of the magnitude or in the timeframe set forth in the legislation proposed last year.

6. Important questions do need to be addressed in moving forward.

EPA’s initial set of regulations represent an important beginning in addressing the risks associated with climate change but also raise important issues. In moving forward, several questions will need to be addressed:

* How will EPA’s regulation be implemented in a manner consistent with current and future state actions?

* Given market forces driving utilities toward increased use of natural gas, the regulatory uncertainty that currently exists, and the age and fuel mix of the current utility fleet, what is the likely future role of coal in this sector?

* As EPA moves forward in regulating stationary sources through the use of emission performance standards, how might it be able to provide flexibility to regulated sources to achieve cost-effective reductions?  

* How might EPA regulatory actions specific to utilities interact with possible Congressional interest in a clean energy standard?   

Steve Seidel is Vice President for Policy Analysis

Solutions in Steps, Not Leaps: The Year in Review and a Look Ahead

By Eileen Claussen
December 20, 2010

2010 was a year of highs and lows.

On the high side were global temperatures; 2010 will mark the hottest year in recorded history. At the start of the year, there was also the short-lived high of thinking we might be on the precipice of meaningful action in the U.S. Congress to protect the climate. Finally, at year’s end the climate talks in Cancún delivered (surprise!) tangible results in the form of agreement on key elements of a global climate framework.

But alas, the lows won out for most of 2010 as a trumped-up email controversy, continuing economic unease, and growing anti-government sentiment in the United States undermined the effort to forge lasting climate solutions at all levels. 

Congress. Until quite recently, the Pew Center and many others were actively supporting cap and trade as the number-one climate policy solution. After the House passed a fairly comprehensive energy and climate bill in June 2009 that had a cap-and-trade system at its core, we actually thought that it might become the law of the land.

Before long, however, it became eminently clear that the Senate would not be able to pass a similar bill. The 2010 U.S. elections, which brought more doubters of climate change into the halls of Congress, only made it clearer that comprehensive climate action is off the table for now.

EPA. With Congress unable to pass comprehensive climate legislation in 2010, attention turned to what EPA might be able to do under existing authorities. And it turns out that EPA can do quite a lot by taking reasonable steps that have garnered critical support from the business and environmental communities. In late October, for example, the agency announced a sensible proposal to reduce greenhouse gas emissions and improve fuel efficiency for medium and heavy-duty vehicles. This was followed by a November announcement that will go a long way to making sure that new industrial facilities use state-of-the-art technologies to boost efficiency and reduce emissions.

Of course, opponents of these and other EPA regulations will surely raise a ruckus, and there will be loud cries in Congress to delay the regulations and even cut funding for the EPA. But the possibility remains that the agency could conceivably begin to chip away at U.S. emissions in the months and years ahead.

State Actions. Looking beyond Washington, state capitals were the focus of creative thinking and leadership on the issue of clean energy in 2010. Massachusetts, for example, set a statewide energy efficiency standard in 2010 supported by $1.6 billion in incentives. Meanwhile, California voters upheld the state’s greenhouse gas reduction law by defeating Proposition 23. This marked the first direct vote on addressing climate change in the United States, and it won in an overwhelming fashion.

But the overall story regarding climate action in the states was more mixed. While several regional climate initiatives continued to push forward, the November elections brought to the nation’s statehouses a group of new leaders who adopted strong stands against climate action in their campaigns. We will stay tuned to see how their campaign rhetoric translates into governing.

International. The agreement reached by international negotiators in Cancún in December closed out 2010 on a positive note. The Cancún Agreements import the essential elements of the 2009 Copenhagen Accord into the U.N. Framework Convention on Climate Change, including a stronger system of support for developing countries and a stronger transparency regime to better assess whether countries are keeping their promises. The Cancún Agreements also mark the first time that all of the world’s major economies have made explicit mitigation pledges under the Convention.

Of course, the ultimate goal of the continuing international talks should be a legally-binding climate treaty, but in Cancún we saw countries agreeing on incremental steps that will deliver stronger action in the near term and lay the foundation for binding commitments down the road.

Looking Ahead. Looking ahead, I believe 2011 holds promise only if those of us who support climate action can learn from what happened in 2010. In recent years, domestic and international efforts largely centered on a “big bang” theory of trying to achieve everything at once. Instead, it’s instructive now to take a cue from Cancún and accept that a step-by-step approach to building support for climate solutions offers our best shot at progress. 

Calling on the new Congress to pass cap and trade or similarly comprehensive solutions will be a nonstarter, for example.  But there may be an opportunity on Capitol Hill for less sweeping steps to reduce U.S. emissions.  

Supporters would do well to spend the next several months laying the groundwork for incremental solutions by strengthening communications with the public. We need to do a better job of helping people understand both the risks and the opportunities presented by climate change. In the same way we buy fire insurance to protect against an event that has a statistically small chance of happening but would result in severe damage, acting now to cut emissions reduces our vulnerability to severe events that are likely to become more common in a warming world. And the success of the “No on Prop 23” campaign in California suggests that there remains a healthy appetite among the general public and in the business community (which provided substantial support for the effort) to back well-framed climate solutions. 

After a year of highs and lows, we still must aim high in our efforts to address one of the greatest challenges of our time. But we should also heed the lessons of the past year and work for more modest victories now that can keep us on the path to longer-term solutions. 

by Eileen Claussen, President, Pew Center on Global Climate Change-- December 2010
Eileen Claussen
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BACT guidance

On November 10, 2010, the Environmental Protection Agency (EPA) released guidance to be used in implementing “best available control technology” (BACT) requirements for greenhouse gas (GHG) emissions from major new or modified stationary sources of air pollution. Under the Clean Air Act (the Act), major new sources or major modifications to existing sources must employ technologies aimed at limiting emissions from these sources.

Under the Act, the BACT requirements for a given facility are to be established in a way that addresses the specific conditions of the facility and reflect the maximum degree of emission reduction that has been demonstrated through available methods, systems, and techniques, while accounting for the economic, energy and environmental considerations of the facility. In most states, the state environmental agency, rather than US EPA, will be issuing the permit to the facility.

The use of BACT to limit emissions of regulated pollutants from facilities has been part of the Clean Air Act for decades. Its first application to GHG emissions occurred in February 2010, when Calpine Corporation voluntarily agreed to an air permit that included a BACT determination for GHGs at a new power plant in California. The approved power plant included a slightly more efficient generation unit than had been initially proposed.

The new EPA guidance itself is technical in nature. Most importantly, under the guidance, covered facilities will generally be required to use the most energy efficient technologies available – much as was the case with the Calpine facility – rather than be required to install particular pollution control technologies. Among other things, carbon capture and sequestration technology will not be considered BACT except in extremely rare circumstances, such as when a facility is located next to an operating oil field whose operator wants to purchase carbon dioxide for enhanced oil recovery. Nor will the guidance require that specific types of fuels be used. In particular it does not require that proposed coal burning power plants switch to natural gas. The guidance also includes particular guidance for biomass facilities, stating that biomass itself could be considered BACT. EPA has indicated that it intends possibly to pursue additional rulemaking next year that may eliminate biomass burning facilities altogether from this permitting process. Overall, the BACT guidance maintains the same steps for individual BACT determination for GHGs that have long been used for BACT determination for traditional air pollutants. 

In an earlier rulemaking, EPA established the threshold limits for which major new or modified sources would be required to meet BACT requirements. In its “tailoring” rule, EPA specified that beginning January 2, 2011, only sources that were already subject to BACT for “criteria” air pollutants (such as sulfur dioxide and nitrogen oxides) and had emissions of GHGs that exceeded 75,000 tons per year would have to meet BACT for GHGs. In July 2011, these requirements will be extended to apply also to any new source with GHG emissions above 100,000 tons per year and any modified source that increases GHG emissions by more than 75,000 tons per year.

 

More information from C2ES:

Frequently Asked Questions about the EPA and GHG Regulations
Sequence of Events Leading to EPA Regulation of GHGs

Other information: 

Clean Air Act Regulation for Greenhouse Gases overview from EPA
BACT Guidance from EPA
Fact Sheet on Proposed Rules on Clean Air Permits from EPA

The Days After

For many of us in the climate world, these days feel a bit like being in the movie The Day After, where nuclear winter had descended and John Lithgow was on the HAM radio calling out, “…Is there anybody out there? Anybody at all…?”

OK. So it’s not quite that bad.  But as we all know, Congress has been reshaped, and some long-time supporters of climate action (and coal) such as Rick Boucher (D-VA) are out, while others who ran ads literally shooting a rifle at a cap-and-trade bill, are in. And the number of actual climate deniers walking the halls of Congress has also increased.

So with the picture seemingly so bleak, and the chances of comprehensive climate legislation highly unlikely in at least the next couple of years, it would be natural for many in the corporate community to relax and think that they no longer have to think about climate change.

I think this would be dead wrong.  And lest you wonder about my grasp on reality, let me explain why.

First, let’s look to California.  Voters forcefully rejected Proposition 23, a measure that was a full-frontal assault on the nation’s most aggressive climate bill.  They also rejected a gubernatorial candidate who had promised to postpone AB32 for at least a year, and instead elected a governor who campaigned on aggressively implementing the same law.

California is the world’s 8th largest economy and typically leads the nation in environmental protection. The fact that it will soon be implementing a cap-and-trade system and other aggressive measures to reduce GHGs should be an indication that the issue is not going to quietly disappear into the night.  It is also remarkable that much of the financial support for the “No on Prop 23” campaign came from the venture capital and tech industries, which understand the market opportunities that clean energy and energy efficiency provide.

And while the political landscape may have changed this week, the businesses' case for taking climate action has not.  Leading companies should continue to keep climate and sustainability as an element of their core corporate strategies, and in my conversations over the past few weeks, they are. Regardless of whether federal climate legislation is adopted, “climate change” is a proxy for a number of critical operational issues such as energy, water, waste, and supply chain efficiency.  Companies that have a comprehensive plan to reduce their impacts in these areas realize not only bottom-line benefits, but reputational benefits as well.

And finally, let’s not forget the climate science.  The reality is that regardless of the state of policy, the climate continues to change, impacts are already being felt in our own backyards, and by not acting we continue to load the dice in favor of deeper floods, longer droughts, and bigger wildfires.  While politicians move at one pace, nature does not react to polls or get voted out of office.  And as one of my favorite cartoons of the last year points out, even if this were all just an elaborate hoax, the biggest risk of investing in clean energy, energy efficiency, water and waste management is that we would have created a healthier, safer world all for “nothing.”

Tim Juliani is Director of Corporate Engagement

Prop 23's Regional Repercussions

This post also appeared today in National Journal's Energy & Environment Experts blog.

As others have pointed out in the discussion of California’s Proposition 23, which would suspend the landmark climate law (AB32), passage would have wide-ranging implications for both the state itself and the national debate on comprehensive climate and energy policy in the U.S.  These concerns for both California- and national-level climate action are valid – by creating a policy environment of extreme uncertainty, Prop 23 threatens to freeze the currently expanding investment in clean technology in the state.  It is also arguably the new “battleground” on comprehensive climate legislation in the U.S., given the current state of affairs in the U.S. Congress. 

But there’s an intermediate level of climate action that also is at stake with passage of Prop 23.  Success for the fledgling cap-and-trade portion of the Western Climate Initiative (WCI) hinges on California continuing to be a leader in the development and implementation of the program.  WCI states account for nearly 15% of U.S. greenhouse gas emissions and WCI would be the first emissions-trading scheme in the U.S. to cap emissions from economy-wide sources.  While it may take some time for all WCI states to adopt cap-and-trade, all environmental programs have to start somewhere. And California’s leadership – not to mention the large quantity of emissions the state will add to the new market – is critical to the most comprehensive (in terms of emissions coverage), ambitious climate action initiative in the U.S.  Perhaps this is something the backers of Prop 23 are acutely aware of?

While we’re on the topic of threats to this singularly unique climate law, let’s not forget Prop 23’s much less well-known cousin, Prop 26.  This initiative seeks to tighten how the state constitution defines taxes and regulatory fees, and require a two-thirds supermajority vote in the state Legislature to enact new taxes and many fees.  Perhaps seemingly harmless, lawyers from UCLA this week argued that Prop 26 is a threat to the state's ability to assess fees on polluters for the external costs they impose on the public and will affect a number of existing laws, including the state’s landmark climate law (as well as a green chemistry initiative, two laws blocking chemical products in landfills, and rules on lead).  It’s ironic that Prop 23 could be defeated, while Prop 26, backed with multimillion-dollar contributions from the California Chamber of Commerce, Chevron Corporation, and Philip Morris USA Inc., might slide through and have the same effect on AB32, albeit via different means.  Passage of either proposition would be a setback to California’s ability (and thus, the WCI’s ability) to move forward on climate.

Eileen Claussen is President

No Props for Props (23 & 26)

I will be the first to admit that I don’t really understand the California election process. Governors are recalled and propositions seem to proliferate at every election cycle.  What I do understand is that these propositions can have dramatic consequences—after all, elections do matter.  Most folks who are reading our blog have likely heard of Prop 23, which would effectively stop the implementation of California’s landmark climate change law, AB32.  Environmental groups, clean energy entrepreneurs and big names such as Bill Gates and James Cameron have poured large amounts of attention and $25 million into the “No on 23” campaign, even as refiners Valero and Tesoro—and the now infamous Koch Brothers—fund the Yes campaign.  Luckily the opponents have been getting the upper hand recently, with polls saying just over 50% of likely voters plan to vote against the prop—including both gubernatorial candidates.

Regulations Do Impose Costs – But So Does Not Regulating

Steve Seidel, vice president for policy analysis, co-wrote this post.

With the failure of the Senate to act on climate change legislation, the focus of attention now shifts to possible regulatory actions by EPA. The Supreme Court in 2007 made it clear that greenhouse gases (GHGs) are pollutants under the existing Clean Air Act (CAA), and the overwhelming scientific evidence (spelled out in great detail in the endangerment finding) demonstrates that such pollutants represent possible harm to public health and welfare. 

Opposition to EPA action rests in part on concerns that any regulations will be excessively costly and burdensome to households and U.S. manufacturers. While it is certainly true that regulating GHGs will result in costs, it is also important to look at whether the economic benefits from those regulations will be greater than the costs they impose. In other words, will societal costs of allowing global GHG emissions to continue unabated (costs that will come in the form of impacts from rising sea levels, increased extreme weather including heat waves and droughts, among others) be greater than the costs of regulating those emissions responsibly?

This basic regulatory framework – that regulatory costs should be less than the resulting benefits – is codified in OMB review of all major federal regulations by both Republican and Democratic Administrations, has historically been applied to all EPA regulations, and would certainly be applied to any future regulations of GHGs.

So what have been the costs and benefits of past EPA regulations under the CAA historically? Congress required EPA to undertake a retrospective assessment of the costs and benefits of regulations under this statute. The conclusion of this retrospective review is that the CAA resulted in total benefits that are around $37 trillion, while total costs were $0.874 trillion (in 2010 dollars) – an astounding 40 to 1 benefit to cost ratio! 

EPA has also produced a prospective assessment of the costs and benefits of the CAA – this time for the time period of 1990 through 2010. In this review, EPA estimated that the most likely benefit to cost ratio of the CAA for this period is 4 to 1. While a very strong and positive value, the ratio is substantially lower than the estimated benefits for the first 20 years of the CAA. 

This is not unexpected – early gains are usually greater, and more cost effective, because simple or cheap remedies are the first to be applied in response to regulatory requirements. As those requirements become more stringent, creating additional benefits becomes more costly (from an economics perspective this is described as moving up the marginal cost curve).  

How credible is EPA’s assessment of its regulations? Alan Krupnick, formerly of the President’s Council of Economic Advisors, has testified before Congress about the credibility of EPA’s analyses:  “Under the auspices of the agency’s Science Advisory Board, both studies were scrutinized throughout the decade-long preparation by at least three expert committees of outside economists, air quality modelers, epidemiologists, and other health experts.” 

In addition to these EPA assessments, there have been a handful of quality external analyses of the costs and benefits of the CAA. The Office of Management and Budget (OMB) found that the “major rules” from EPA’s Office of Air resulted in total benefits between $145 and $218 billion annually, for the years between 1992 and 2002. This is compared to costs of between $22 and $25 billion over that same period. A study by researchers at MIT found total annual benefits rising from $50 billion in 1975 to $400 billion in 2000. This report accounts for the monetary benefits of avoided premature death differently than the EPA studies, and as a result reports lower values for the total benefits. A sum of the total discounted benefits yields a total benefit of $6.85 trillion from 1975 through 2000 – a figure still substantially greater than the EPA estimate for the costs of the regulations. 

So how might this play out in terms of future regulations of GHGs? EPA’s first GHG regulations were standards set for light duty vehicles (which it coordinated with the efficiency standards set by NHTSA). These standards are expected to lead to net benefits of between $0.5 and 1.2 billion dollars (discounted back to present values using 7 percent and 3 percent discount rates, respectively) without even including a social cost of carbon. If a value is assigned to the avoided GHG emissions associated with this regulation, the net present benefits are even greater! 

If there is a lesson that can be drawn from these previous regulatory efforts it is that while regulations do impose real costs, EPA’s actions under the CAA have consistently led to positive environmental and economic outcomes. By not regulating, we would have foregone these positive net benefits and incurred the social costs imposed by unabated pollution.

So the next time someone tells you that the costs of reducing air pollution are too high, ask them what would be the costs to society of not reducing those emissions. 

Russell Meyer is the Senior Fellow for Economics and Policy. Steve Seidel is Vice President for Policy Analysis.

Taking Efficiency Out of the Box

A small company finding it hard to sell its residential energy usage monitoring devices starts a “parent-teenage contract” marketing campaign. The teenager gets the parents to buy the device, and then they both sign a contract stipulating that the teenager will keep half the money saved on reduced energy usage. As the savings start to roll in, the teenager becomes more motivated to improve the household’s energy efficiency as do the parents, while the company points to this positive experience as it seeks additional customers for its monitoring device. This model has achieved success on a small scale, but could it be adopted on a wider level as it is driven by a business case, contains ingredients for cultural transformation and taps into incentives that appear to be driving action?

This was one of the many thought-provoking anecdotes shared at the ninth Green Innovation in Business Network (GIBN) Solutions Lab held in Boston where the 90 or so participants spent the day coming up with solutions to barriers faced by companies pursuing energy efficiency. The Pew Center on Global Climate Change was a co-sponsor of the event, along with the Environmental Defense Fund, Ashoka, Microsoft, Net Impact Boston, and many other partners. (For more information on GIBN Solutions Labs and the topics discussed at this specific event please click here.)

The GIBN Solution Labs are one-day workshops structured in an “unconference” format where participants are divided into small groups of about eight or less. Each group brainstorms solutions to a specific issue or barrier and reports back to the whole group at the end of the day. With the umbrella theme of overcoming barriers to energy efficiency, the Boston GIBN Solutions Lab focused on 14 specific topics, such as financing, making the business case and motivating the public on energy efficiency. Participants including companies, consultants, academics, and non-governmental organizations spent the morning exploring a variety of topics and then chose one in the afternoon to focus on in depth through a problem identification and solution design process.

Peter Senge, founding chair of Society for Organizational Learning and senior lecturer at the Massachusetts Institute of Technology, kicked off the workshop with a thought-provoking speech that emphasized the need for a comprehensive vision for energy efficiency instead of piecemeal solutions. By the end of the workshop some pieces of the vision had emerged: establish energy efficiency as a social norm; create business models that support energy efficiency investments; and design methods to more effectively communicate the benefits of energy efficiency.

The day was filled with a constant buzz of conversations out of which emerged some “out of the box” ideas as well as best practices. The group tackling the issue of motivating the public on energy efficiency proposed a K-12 energy efficiency curriculum that would result in children passing along the learning to their parents. Interestingly, the group on improving energy efficiency of buildings also saw children as key players. It proposed student projects involving energy audits and efficiency implementation measures for school buildings. A “just do it,” results-oriented approach was suggested to get senior management buy-in for energy efficiency projects: do the energy audit (which many utilities will provide free of charge) and then use the results of potential energy savings to convince senior management to implement the energy efficiency measures. Creative employee communication methods were also suggested such as distributing figures on how much paper and printer toner is being used by the office or putting up a sign next to the printer asking “Do you really need to print this?” There were also some “out of the box” topics: one group looked at the water-energy nexus and noted that understanding the relationships between water usage and energy could spur new technical innovations such as water-less laundry systems.

Discussions also emphasized known best practices, which were useful to participants just getting started on energy efficiency and sustainability issues. For example, developing a detailed work plan and timeframe when proposing an energy efficiency project to senior management was essential in getting their approval to move ahead. Additionally, continuous monitoring and progress reports are critical in maintaining momentum and receiving the okay to pursue more projects in the future. Recommendations for embedding energy efficiency within corporate supply chains included clearly communicating energy efficiency expectations to suppliers; helping them find the right resources to implement energy efficiency measures; and auditing suppliers to ensure implementation and maintenance.

The end-of-day presentations highlighted that while each group was tackling different topics related to energy efficiency they struggled with some common barriers. For example, financing and communicating energy efficiency were issues that almost all groups found necessary and yet difficult to overcome.

In terms of specific solutions, not everyone went home with sure-fire answers to how they were going to fund their energy efficiency projects or convince senior management to make energy efficiency a priority. However, most participants did leave with at least a few new ideas to try out and the understanding that in order to be an effective component of the effort to reduce greenhouse gas emissions, energy efficiency required a comprehensive, system-based approach.

Aisha Husain is an Energy Efficiency Fellow

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