Energy & Technology
At a time when political gridlock in Washington has blocked climate legislation, EPA and NHTSA have jointly come forward with a sensible proposal that will substantially reduce oil consumption and greenhouse gas (GHG) pollution from heavy-duty trucks. EPA and NHTSA’s proposed new rules build on their recent success in finalizing GHG and fuel efficiency standards for cars and light-duty trucks. Once again, the two agencies collaborated with industry to make sure their standards accomplish environmental and energy security goals in a practical manner.
The transportation sector is responsible for 27 percent of our nation’s GHG emissions. Within this sector, heavy-duty vehicles are the second largest source of emissions (after light-duty vehicles), accounting for 20 percent of the sector’s total. The new proposal covering heavy-duty vehicles (long-haul trucks, large pick-ups and vans, school and transit buses, and utility trucks) manufactured from 2014 through 2018 is estimated to reduce emissions by 7-20 percent from these vehicles (depending on the category of truck) from current levels, achieving an overall reduction of 250 million metric tons of carbon dioxide over the life of the vehicles sold during this five-year period. As a result, emissions in 2030 from this fast growing subsector will be 9 percent below what they would have been in the business as usual case. The proposed rule is also estimated to reduce oil consumption by 500 million barrels over this same period.
Cost and Benefits
To achieve the proposed standards, truck manufacturers will need to modify their vehicles drawing from a range of existing technologies including improvements in aerodynamic designs, lower rolling resistant tires, advanced transmissions, and reduced idling. The agencies report that the cost of meeting the standard for many trucks will be recouped in less than 2 years in the form of fuel savings. The regulatory impact analysis accompanying the proposed rule looks at both the costs and benefits of meeting the proposed standards. It shows the following:
Estimated Lifetime Discounted Costs and Benefits for 2014-2018 Model Year Heavy-Duty Vehicles
|3 percent discount rate||$ billions|
The bottom line is clear – with a net benefit to society of $41 billion, the proposed rule is a worthwhile investment in reducing both our reliance on foreign oil and our emissions of greenhouse gases.
Steve Seidel is Vice President for Policy Analysis
On September 23, the California Air Resources Board (CARB) announced the adoption of ambitious, though aspirational, greenhouse gas (GHG) emission reduction targets associated with the total miles traveled by California drivers. This is the latest step in the process of implementing Senate Bill 375, signed by Governor Schwarzenegger in 2008. The significant increase in stringency of the CARB target levels over recommendations made by Metropolitan Planning Organizations (MPOs) last May was surprising and although praised by some, has received significant criticism.
The law provides incentives, not mandates, for MPOs to use regional transportation strategies that encourage smart growth. Incentives for MPOs, which meet the GHG targets, can include easier access to federal funding and exemption from certain environmental review requirements. Although called ‘precedent setting’ by the media, it establishes growth policies considered similar to others that have already been implemented in California, and this law would not have a strong impact without stringent GHG reduction targets. SB 375 required CARB to set the targets, giving it the power to determine how seriously MPOs would have to invest in new development plans if they wish to take advantage of the incentives. Using 2005 as a baseline, the GHG emissions per capita reduction targets set by CARB for 2020 and 2035 were, respectively:
|Region||2020 Target||2035 Target|
|San Diego Area||7%||13%|
|Bay Area Region||7%||15%|
|San Joaquin Valley (to be revisited in 2012)||5%||10%|
|Targets for the remaining six MPOs making up 5 percent of the population match or improve upon their current plans for 2020 and 2035|
The targets CARB defined were more ambitious than what the largest MPOs recommended in May. For example, recommendations for the Bay Area were 5 percent per capita for 2020 and 5 percent for 2035 (the same to account for projected population growth, which would make higher targets more difficult to achieve in 2035). Critics complained that these targets were “hijacked” by environmentalists, as CARB did not provide an explanation for the increase.
While more stringent targets are a victory for champions of climate change policy, some Californians have claimed CARB’s numbers as irresponsible because MPOs cannot afford to implement the plans needed to meet the targets. Given the state’s budget deficit and lingering impacts from the global economic recession in 2008 and 2009, budget crises for transit agencies have resulted in decreased service and increased fares. To combat expected costs, CARB has promised to help seek out more state and federal funding, although CARB member and San Diego County Supervisor Ron Roberts is pessimistic about their chances. Business groups angrily predict that such funding will have to come from increased transportation taxes such as vehicle miles traveled fees, parking fees, and congestion pricing. Critics (Example 1, Example 2) also cite the prediction by the Metropolitan Transportation Commission (MTC) of San Francisco that gas would reach a cost of $9.07 per gallon if there were a carbon or ‘vehicle miles traveled’ (VMT) tax.
CARB could address these concerns by clarifying the rationale for its decision and exposing half-truths propagated by some of its critics. For example, whether or not targets are too ambitious, SB 375 requires CARB to review them regularly and consider revisions based on economic and demographic conditions, as well as actual results achieved. The critics’ references to the MTC’s $9.07 per gallon gas are disingenuous warnings. The MTC’s gas price forecast is actually for 2035, not the immediate future, and the MTC considers a carbon or VMT tax as just one of multiple policy options. Only when this tax is added to the MTC’s unlikely forecast of gas prices (a linear extrapolation based on gas prices in 2008, the highest price ever, hitting $7.47 per gallon by 2035) does the cost of one gallon reach $9.07 in 2035. This forecast is significantly different from that of the U.S. Energy Information Administration, which, as of 2010, expects a national average of $3.91 per gallon gas in 2035. In addition, sustainable development experts Calthorpe Associates’ ‘Vision California’ study highlights attainable smart growth savings for Californians that would provide a significant boost to the economy. It quantifies savings, potentially achievable through SB 375, at $6,400 per year per household by 2050, among other significant opportunities.
While it is natural to be wary of the ambitious goals, California has previously defied naysayers and achieved ambitious policy goals at lower costs than initially predicted, as happened with Title 24 building energy efficiency standards in 1978. Furthermore, it is worth noting that SB 375 will remain intact no matter the fate of Proposition 23, which seeks to suspend the Global Warming Solutions Act, Assembly Bill 32, in the upcoming elections. By providing incentive-based aggressive targets, MPOs now have greater reason to invest significantly in future transportation and land use plans. With such an investment, Californians can look forward to a more comfortable life with shorter commutes, reduced air pollution, and long-term economic growth.
Sam Wurzelmann is the Innovative Solutions intern
In our previous posts, I described some of the benefits to national security and the environment with the use of plug-in electric vehicles (PEVs). This final post takes a look at what is often the most important issue to Americans: their wallets. PEVs are not cost-competitive with conventional vehicles in most situations yet, but there are some considerations that could be compelling for consumers to consider this winter when the first PEVs hit the market.
The United States is at a crucial crossroad in its stance on clean energy policy. Once the leader in emerging clean technology markets, the U.S. now trails European nations and China in the research, development, and deployment of many new energy technologies. Financial analysts and industry insiders presented a stark choice at a standing-room only hearing hosted by the House Select Committee on Energy Independence and Global Warming last week: either we can adopt and extend policies that promote domestic growth of clean energy industries, or we can continue to fall further behind other countries around the world in our ability to compete in the markets of the 21st century. Chairman Ed Markey (D-MA) echoed the experts in saying that without clear long-term and short-term incentives, companies will invest clean energy dollars in other countries, most notably China. In effect, we will be trading our addiction to Middle Eastern oil for an addiction to Asian clean energy technologies.
Clean energy technology markets are already substantial in scope and are likely to grow in the coming decade. According to Bloomberg New Energy Finance, global investments in new forms of clean energy have already surged from under $50 billion in 2004 to more than $170 billion four years later. And as mentioned in our brief on Clean Energy Markets, annual investments in global renewable energy could reach $424 billion a year in 2030.
The panel of expert witnesses advised the Committee that if the United States wants to be a leader in clean energy, it needs to foster innovation by extending successful programs like tax credits, loan guarantees and grants, and adopt a renewable energy standard (RES). Tom Carbone, Chief Executive Officer of Nordic Windpower, said firms like his need clear market signals, such as a price on carbon or a RES, so they can respond to market demand.
Michael Liebreich, Chief Executive of Bloomberg New Energy Finance, emphasized the importance of market signals. Under an RES, the government would require that a certain percentage of utilities’ power plant capacity or generation come from renewable sources by a given date, and mechanisms such as credit trading would allow flexibility in meeting this requirement. However, the RES needs both to be ambitious and to have stiff penalties for noncompliance in order to be successful. Such a policy solution could help create the market demand clean energy firms need to establish footholds and ultimately achieve significant, self-reinforcing growth.
Mark Fulton, Global Head of Climate Change Investment Research at Deutsche Bank, urged the adoption of policies that are transparent, have longevity, and have certainty (TLC) in order to ensure the United States has a competitive advantage in global energy markets. Investors want transparent policies that clearly define the rules and create a level playing field. So to attract private funding, these policies should be in place for the length of the investment and should not be subject to the kind of frequent and uncertain renewal that has stymied the production tax credit and investment tax credit.
In addition to their environmental benefits, Ravi Viswanathan, General Partner at New Enterprise Associates, believes that these policies are exactly what are needed at this uncertain economic time. Mr. Viswanathan argued that clean energy investments can lead to job creation and energy independence. If we have the right incentives, clean energy jobs would be created domestically rather than abroad. Innovation has long been a source of our competitive advantage. Other countries, such as China, have speed, capital, and scale, and they are exercising their manufacturing advantage. Now, these countries are beginning to do something that investors had not anticipated: foster innovation. Once other countries start innovating in earnest, unless the United States takes action, the economic benefits associated with these technologies will go elsewhere.
In his closing statement, Chairman Markey highlighted the role government has played in fostering innovation and developing new markets, citing examples from the Manhattan Project to the internet. In all past cases, the United States showed leadership in developing a national plan that incentivized private investment. We need a similar plan today in the energy sector that incorporates Fulton’s principles of TLC and harnesses the power of the markets to spur innovation. As mentioned in our Clean Energy Markets brief, well-crafted climate and clean energy policy can give nascent clean energy industries a foothold by creating domestic demand and spurring investment and innovation. The time to act is now: through policy leadership at home and abroad, the United States can position itself to become a market leader in the industries of the 21st century.
This month I joined John Donahue, the CEO of eBay, at a National Press Club event to discuss the climate benefits created by small, online retail businesses. The retail sector—and the private sector more broadly—has a huge opportunity to innovate and drive us toward a more climate-friendly clean energy economy, and we are encouraged that eBay is stepping forward to make this point.
Active business community engagement is fundamental both to achieving effective climate policy and to achieving real reductions in greenhouse gas emissions. Industry must work with their employees, their supply chain, and policy makers to make the case that addressing a changing climate is essential and can be good for business—providing policy certainty, leading to innovation and investment, and ultimately helping to move our economy towards a low-carbon future.
According to the new eBay-commissioned white paper, small e-retailers facilitate the reuse of products and eliminate the need for carbon-intensive brick-and-mortar stores, both of which are climate-friendly compared to big box retail. For instance, it suggests that since eBay’s founding 15 years ago, the infrastructure savings from its online marketplace alone have cumulatively displaced emissions equivalent to approximately 4 million tons of CO2 per year, or the annual output of 760,000 cars—roughly the number registered in the state of Kansas or West Virginia.
In our current period of policy uncertainty, one thing we do know is that energy efficiency matters and it works. We also know from the work we do on employee engagement that individuals and consumers are a huge untapped resource in the effort to seriously address our energy-climate challenges. It’s clear that the key role for retailers—both online and “offline”—is to connect consumers to low-emission/energy-efficient goods and services, and companies such as eBay and Best Buy, a featured case study in our recent report on corporate energy efficiency, are doing just that.
Eileen Claussen is President
Last week, I discussed why consuming oil is bad for U.S. national security. In this post, I’ll look at another reason to consider a plug-in electric vehicle (PEV) – helping the environment. I’ve previously explored the effect PEVs will have on greenhouse gas (GHG) emissions. It is clear that PEVs have the potential to reduce GHG emissions significantly so long as society also reduces the carbon intensity of the electrical grid. But the environmental benefits of PEVs are not limited to climate change.
Figure 2: It's hard to see through all the smog, but that’s the Brooklyn Bridge in NYC in 1988. (Source)
PEVs also benefit local air quality, which might matter a lot if you live in a city with poor air quality. Despite enormous strides in the U.S. to reduce air pollution, the EPA estimated in February of this year that nearly 127 million Americans live in areas where air quality concentrations are above the National Ambient Air Quality Standards (NAAQS). The Clean Air Act requires the EPA to establish and periodically update and evaluate the NAAQS. While air quality has improved significantly since 1990, nearly half of Americans still face air quality-related health risks, including decreased lung function, aggravated asthma, and premature mortality.
Air pollution primarily comes from stationary fuel combustion, industrial processes, and vehicles. Transportation mainly contributes to two air pollution problems: ground-level ozone and particle pollution. Particle pollution or particulate matter (PM) consists of solid particles and liquid droplets in the air; coal fired power plants, as well as diesel vehicles including cars, trucks, and buses, are some of the sources of PM. Ground-level ozone, a serious air pollutant also known as smog, results when sunlight reacts with oxides of nitrogen (NOx) and volatile organic compounds (which are components, for example, of vehicle exhaust).
The health effects of air pollution include decreased lung function, respiratory infection, and even increased risk of heart attacks and strokes under certain conditions. While the U.S. EPA and state governments are moving ahead with regulations that improve the air quality for Americans, most people (especially in urban areas) remain at risk of effects from excessive ozone and PM. The American Lung Association recommends the EPA reduce air pollution from vehicle tailpipes. One way consumers can help is by purchasing vehicles with lower tailpipe emissions such as PEVs.
The more miles Americans travel in passenger vehicles powered by electric motors, the more local air quality will improve according to a study completed by the Electric Power Research Institute (EPRI) and the National Resources Defense Council (NRDC). It is difficult to quantify air quality benefits from using PEVs since air pollution can come from multiple sources, including vehicle tailpipes as well as power plants. All-electric vehicles in cities will almost certainly improve local air quality since a mile traveled that is powered by electricity does not produce any vehicle emissions and the power plants that produce the electricity are often located away from city centers. For plug-in hybrid electric vehicles, those improvements are tempered by the percentage of miles that rely on the gasoline or diesel-powered backup energy source rather than by the batteries. In fact, using PEVs can result in more local air pollution at the electricity generation source, especially if the source is a coal power plant. This potential problem underscores another reason (in addition to the goal of reducing GHG emissions) that we should work on reducing power plant pollution as we green the vehicle fleet.
PEVs will not end air pollution in the United States, but increasing the market penetration of these vehicles will help reduce air pollution in cities throughout the country. In the next post, I’ll look into how the financial numbers might work out with a PEV for your next vehicle purchase.
Nick Nigro is a Solutions Fellow
Though it is unlikely that the first generation of plug-in electric vehicles (PEVs) will be adopted by the masses, there is a compelling case for everyday consumers to take a look at these vehicles when they become available this winter. There is no silver bullet to solving climate change, but PEVs could play an important role as one of a broader set of solutions. As is the case for many climate solutions, the benefits from PEVs are more than environmental. In this three part series, I’ll make the case for PEVs based on the gamut of issues that matter to Americans – national security, the environment, and their wallets.
The first two weeks of August saw two big news items from the U.S. Department of Energy (DOE) related to carbon capture and storage (or CCS, for an overview of CCS see the our Climate TechBook CCS brief). First, on August 5, DOE announced its plans for FutureGen 2.0. One week later, President Obama’s Interagency Task Force on CCS delivered its final report and recommendations regarding overcoming “the barriers to the widespread, cost-effective deployment of CCS within 10 years, with a goal of bringing five to ten commercial demonstration projects online by 2016” (see the separate post regarding the task force’s report).
Why is this FutureGen announcement from DOE important? CCS is anticipated to be a key technology for achieving large reductions in U.S. and global greenhouse gas (GHG) emissions (for example, see the recent projection from the International Energy Agency that CCS could provide nearly one fifth of all global GHG emission reductions by mid-century). Initial commercial-scale CCS demonstration projects are a critical step in advancing CCS technology; these projects provide valuable experience and confidence in “scaling-up” CCS technologies and technology improvements and cost reductions from “learning by doing.” The aforementioned report from the Interagency Task Force on CCS notes that FutureGen is one of ten planned CCS demonstration projects supported by DOE (see Table V-2 of the task force’s report for the list of seven power-sector and three industrial CCS projects).
The FutureGen project has had a somewhat tumultuous history. In 2003, DOE announced its plan to work with an industry consortium on the FutureGen plant to demonstrate commercial-scale integrated gasification combined cycle (IGCC) technology coupled with (pre-combustion) CCS at a single new coal-fueled power plant (with DOE covering most of the project’s costs). In 2007, the industrial consortium selected a site in Mattoon, IL, for the FutureGen power plant. In 2008, though, DOE abandoned the idea citing the escalating cost estimates for the FutureGen project and decided instead to pursue cost-sharing agreements with project developers to support multiple CCS demonstration projects (this time with DOE covering a smaller fraction of project costs). DOE received only a small number of applications for this restructured FutureGen approach, and this change of plans came in for some criticism from the Government Accountability Office (the GAO report also provides a helpful overview and history of what might now be referred to as “FutureGen 1.0”).
In 2009, the Obama Administration revived plans for a single FutureGen plant and restarted work with the industrial consortium on preliminary design and other activities, promising a decision in 2010 on whether to move forward with the project. That decision came on August 5 and included another shift in DOE’s plans for the FutureGen project (now dubbed “FutureGen 2.0”). Energy Secretary Chu announced the awarding of $1 billion in Recovery Act funding for the repowering of an existing power plant in Meredosia, IL, as a coal-fueled power plant using oxy-combustion and CCS. With “FutureGen 2.0,” DOE decided to change from building a new plant to repowering an existing one and chose a different technology (oxy-combustion with CCS rather than IGCC with CCS).
When subsidizing initial CCS demonstration projects, policymakers should support a variety of relevant technologies and configurations. With respect to applying CCS technology to coal-fueled electricity generation, there are factors that are expected to make certain variants of CCS technology more appropriate for certain circumstances. These factors include the application of CCS with: new plants vs. retrofitting/repowering existing plants; different coal types; and various geologic formations for CO2 storage. Importantly, there are three types of CO2 capture technology—pre-combustion, post-combustion, and oxy-combustion—with the latter two appropriate for use at existing coal-fueled power plants (see our Climate TechBook CCS brief for details).
With its new approach for “FutureGen 2.0” DOE has focused on large-scale demonstration of oxy-combustion. Of the ten CCS demonstration projects supported by DOE, FutureGen will be the only one to use the oxy-combustion technology. Of the 34 large-scale power plant CCS projects worldwide tracked by MIT, only four (counting FutureGen) use or plan to use oxy-combustion, and FutureGen will be the only such oxy-combustion project in the United States. Given the greater focus so far given to the two other alternative CCS approaches, oxy-combustion is likely the CCS technology that can most benefit from the FutureGen large-scale demonstration project.
With its new approach for “FutureGen 2.0,” DOE is taking an important step in demonstrating a portfolio of different CCS technologies. Such demonstrations, along with other supportive government RD&D policies, provide a critical “push” for low-carbon technologies. Long-term policy certainty (such as from a GHG cap-and-trade program) for the private sector regarding future GHG emission reduction requirements can provide the necessary technology “pull” to guide private investments in widespread deployment of CCS and other low-carbon technologies.
Steve Caldwell is a Technology and Policy Fellow
Last week, the Obama Administration’s Interagency Task Force on Carbon Capture and Storage (CCS) released its final report and recommendations. President Obama created the task force, co-chaired by the Department of Energy (DOE) and the Environmental Protection Agency (EPA) and involving 14 executive departments and federal agencies, in February. The President’s directive charged the task force with delivering “a proposed plan to overcome the barriers to the widespread, cost-effective deployment of CCS within 10 years, with a goal of bringing 5 to 10 commercial demonstration projects online by 2016.”
Despite the uncertain future of comprehensive federal climate legislation, states continue to move forward with energy policies that reduce greenhouse gas emissions and save consumers money on their electricity bills. One policy in particular is quickly gaining traction in the states: Property Assessed Clean Energy, or PACE, programs. Twenty-three states plus Washington, DC, have PACE legislation, and 13 others have proposals on the table including Kentucky, South Carolina, Nebraska, and Pennsylvania.
PACE is an innovative funding mechanism that addresses many of the financial barriers to energy efficiency and renewable energy retrofits on residential, commercial, and industrial properties. In general through PACE states delegate authority to local governments to designate an improvement district and issue bonds, which provide low-interest, long-term loans to property owners for energy saving measures. The loans are paid back through an addition on the property tax bill and often over a 20-year period. If the property is sold, the debt transfers to the new owner. PACE programs usually create a lien on properties that is “senior” to (i.e., takes precedence over) other obligations on the property.
Because PACE is run by local governments, there are different styles of implementation for the various program elements including: program administration, underwriting criteria, source of funds, eligible measures, and quality control. For example, San Francisco uses a third party for administrative functions and issues “mini-bonds” to be purchased by a pre-determined investor, while Babylon County, in New York, uses in-house staff to administrate and has repurposed an existing solid waste fund for financing.
The White House strongly supports initiatives that make it easier for homeowners to get loans for energy efficiency and renewable energy improvements, and PACE programs have benefited from $150 million in stimulus funding. In an effort to standardize best practices and ensure that PACE is good policy for all stakeholders, the White House released a Policy Framework for PACE Financing Programs in October 2009. The measures initially accelerated the adoption of PACE and served as a guide for the second generation of PACE programs.
However, both existing and developing programs have been slowed or halted entirely due to opposition from Freddie Mac and Fannie Mae. In May, both agencies sent letters to mortgage lenders reminding them that an energy-related lien may not be senior to a federally backed mortgage. The letters place a burden on the lender to determine if they originate mortgages in any state or locality that permits a first lien priority on energy loans. Proponents of PACE and its senior lien provision say it is a necessary requirement for local governments to raise funds.
Following Freddie and Fannie, on July 14 the Federal Housing and Financing Agency (FHFA) released a statement of their opposition to PACE. As a result, the California attorney general’s office has sued the FHFA, Fannie Mae, and Freddie Mac for their actions and unwillingness to guarantee properties with PACE assessments. The July 14 lawsuit asks the court to declare that PACE does not violate the standards of Fannie and Freddie and also requests an injunction to prevent the agencies from taking action against home owners with PACE loans. Congress is also working on legislation that would require Freddie and Fannie to use underwriting standards that would facilitate the use of PACE programs. With a scarcity of financing options that overcome the high upfront cost of retrofits, this is an issue worth watching closely.
Olivia Nix is the Innovative Solutions intern