The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
Opportunities for low-carbon innovation are growing, driven by policy changes, market shifts, and continued growth in energy demand, particularly in developing countries. This Sunday in Rio de Janeiro, ahead of the UN’s “Rio+20” Conference on Sustainable Development, C2ES will have a chance to share what it’s learned about low-carbon innovation with partners from around the world.
With the Global Environment Facility (GEF), we will convene a panel of companies (Johnson Controls, DuPont), small-business innovators (from the Cleantech Open), and government and business representatives (from UNIDO and ABDI) to share stories and lessons from the front lines of clean-tech entrepreneurship. The event, to be held at the U.S. Center pavilion, will examine the keys to successful low-carbon innovation, and the benefits for climate mitigation and adaptation, energy security, resource efficiency, and job creation.
Last week, the Union of Concerned Scientists released a new report, A Climate of Corporate Control: How Corporations Have Influenced the U.S. Dialogue on Climate Science and Policy. It’s an important topic, as we know there are professional merchants of doubt whose sole purpose is to exaggerate scientific uncertainty on environmental issues where in fact the science is quite clear. As the report points out, we have seen this time and again with topics such as tobacco, leaded gasoline, SO2, asbestos, DDT, and now climate change.
Here’s how the authors describe their aim: “…Ultimately, we seek a dialogue around climate science and policy that prioritizes peer-reviewed scientific information over the agendas of specialized interest groups.” That’s a goal we at C2ES certainly share. And toward that end, we’d encourage a somewhat more nuanced and realistic perspective on how companies behave and why. Let me explain.
A Senate Transportation Committee hearing tomorrow will be the latest show of ire against the European Union’s effort to regulate greenhouse gas emissions from international aviation through its mandatory Emission Trading System (EU ETS). From Beijing to Delhi to Washington, governments claim the EU’s unilateral move violates international aviation law.
Indeed, in Washington, this is one of the rare issues these days where Democrats and Republicans find themselves on the same side opposing the EU’s action. The Obama Administration has weighed in with a strongly worded letter from Secretaries Clinton and LaHood urging the EU to drop its unilateral efforts and to work through the International Civil Aviation Organization (ICAO) to reduce aviation sector emissions.
But if tomorrow’s hearing before the Senate Transportation Committee is simply another round of EU-bashing, it will be a missed opportunity to focus on the one solution that virtually everybody (including the EU) appears to support—effective action by ICAO. Frustrated by years of inaction within ICAO, the real motivation behind the EU’s move may be to reignite efforts to reach agreement within ICAO.
June 6, 2012
Contact: Rebecca Matulka, 703-516-4146, email@example.com
Report Highlights Climate Change Risks to Key Gulf Coast Industries
Recommends Steps to Reduce Impacts on Region’s Energy and Fishing Sectors
Climate change is already having major impacts on the Gulf Coast region and action is needed to protect its vital industries from the likely impacts of continued warming, according to a new report from the Center for Climate and Energy Solutions (C2ES).
The report, Impacts and Adaptation Options in the Gulf Coast, examines the risks that climate change poses to the region’s energy and fishing industries, and to its residents and local governments. It concludes that climate impacts are already being felt across these sectors, and outlines measures that can be taken to adapt to the growing risks, reducing the region’s vulnerability and the costs associated with future impacts.
The convergence of several geographical characteristics—an unusually flat terrain both offshore and inland, ongoing land subsidence, dwindling wetlands, and fewer barrier islands than along other coasts—make the Gulf Coast region especially vulnerable to climate change. Among the impacts and risks cited in the report:
- Over the past century, both air and water temperatures have been on the rise across the region;
- Rising ocean temperatures heighten hurricane intensity, and recent years have seen a number of large, damaging hurricanes;
- In some Gulf Coast locations, local sea level is increasing at over ten times the global rate, increasing the risk of severe flooding; and
- Saltwater intrusion from rising sea levels damages wetlands, an important line of coastal defense against storm surge and spawning grounds for commercially valuable fish and shellfish.
“Nowhere else in the U.S. do we see the same convergence of critical energy infrastructure and high vulnerability to climate change,” said C2ES President Eileen Claussen. “These risks are not borne by the Gulf Coast alone. A major energy supply disruption, for instance, would be felt nationwide. We must respond on two fronts: We have to work harder to reduce the greenhouse gas emissions causing climate change. And we must take steps, in the Gulf Coast and elsewhere, to prepare for the impacts that can’t be avoided.”
The report’s lead author is Hal Needham, a researcher at Louisiana State University’s Southern Climate Impacts Planning Program (SCIPP) and an expert on hurricane storm surges in the Gulf Coast. The co-authors are David Brown, an assistant professor in LSU’s Department of Geography and Anthropology, and Lynne Carter, associate director of SCIPP.
In their analysis of the Gulf Coast’s energy industry, which comprises about 90 percent of the region’s industrial assets, the authors found significant risks from hurricanes, sea level rise, rising temperatures and drought. The report noted the considerable damage the energy industry sustained from recent hurricanes in 2004, 2005 and 2008. Thirty percent of the nation’s refineries are located in Texas and Louisiana, and Louisiana Offshore Oil Port in Port Fourchon is the country’s only deep-water oil import facility. At its current elevation, Louisiana Highway 1, the only access to the port, is projected to be flooded 300 days a year by 2050.
For the region’s other major industry, fishing, the report details major infrastructure risks, especially relating to coastal docking and fish processing. Fish and shellfish populations are also vulnerable to climate impacts, with a combination of warmer water, ocean acidification, and excessive runoff from the Mississippi River combining to increase the risk of large-scale changes in the Gulf ecosystem.
The authors emphasize that advance planning can reduce the region’s vulnerability and the costs incurred from future climate impacts.
For the energy sector, adaptation strategies include learning from recent hurricanes to more rigorously assess vulnerabilities; strengthening design standards for drilling platforms and other infrastructure; and undertaking projects such as the planned raising of sections of Highway 1 to Port Fourchon. To reduce vulnerability in the fishing industry, options include strengthening docking facilities and other infrastructure subject to storm surges, and limiting fertilizer use upstream on the Mississippi River to reduce the incidence of hypoxia (oxygen-starved waters) in the Gulf.
“Climate change is already taking a toll on the Gulf Coast, but if we act now to become more resilient, we can reduce the risks, save billions in future costs, and preserve a way of life,” said Needham. “The Gulf Coast is one of the first regions to feel the impacts of climate change. It only makes sense to be a first mover on climate adaptation as well.”
The Center for Climate and Energy Solutions (C2ES) is an independent non-profit, non-partisan organization promoting strong policy and action to address the twin challenges of energy and climate change. Launched in November 2011, C2ES is the successor to the Pew Center on Global Climate Change, long recognized in the United States and abroad as an influential and pragmatic voice on climate issues. C2ES is led by Eileen Claussen, who previously led the Pew Center and is the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
Impacts and Adaptation Options in the Gulf Coast
by Hal Needman, David Brown, and Lynne Carter
The central and western U.S. Gulf Coast is increasingly vulnerable to a range of potential hazards associated with climate change. Hurricanes are high-profile hazards that threaten this region with strong winds, heavy rain, storm surge and high waves. Sea-level rise is a longer-term hazard that threatens to exacerbate storm surges, and increases the rate of coastal erosion and wetland loss. Loss of wetlands threatens to damage the fragile coastal ecosystem and accelerates the rate of coastal erosion.
These hazards threaten to inflict economic and ecological losses in this region, as well as loss of life during destructive hurricanes. In addition, they impact vital economic sectors, such as the energy and fishing industries, which are foundational to the local and regional economy. Impacts to these sectors are also realized on a national scale; Gulf oil and gas is used throughout the country to heat homes, power cars, and generate a variety of products, such as rubber and plastics, while seafood from the region is shipped to restaurants across the country.
This report reviews observed and projected changes for each of these hazards, as well as potential impacts and adaptation options. Information about the scale and relative importance of the energy and fishing industries is also provided, as well as insight into potential vulnerabilities of these industries to climate change. This report also identifies some adaptation options for those industries.
Analysis for Carbon Dioxide Enhanced Oil Recovery: A Critical Domestic Energy, Economic, and Environmental Opportunity Detailed Methodology and Assumptions
The Center for Climate and Energy Solutions (C2ES) and the Great Plains Institute (GPI) conducted an analysis, with extensive input from the participants of National Enhanced Oil Recovery Initiative (NEORI), to inform NEORI’s recommendations for a federal production tax credit to support enhanced oil recovery with carbon dioxide (CO2-EOR). In particular, C2ES and GPI explored the implications of the recommendations for CO2 supply, oil production and federal revenue. This document describes the research, assumptions, and methodology used in the analysis.
C2ES and GPI compared the likely cost of a federal tax credit for greater CO2 capture and supply with the federal revenues expected from applying existing tax rates to the resulting incremental oil production. C2ES and GPI quantified two key relationships for CO2-EOR develop-ment and a related tax credit program:
- Cost gap – the difference between CO2 suppliers’ cost to capture and transport CO2 and EOR operators’ willingness to pay for CO2. The goal of the tax credit is to bridge the cost gap. Thus, the cost gap determines the expected level of the tax credit in a proposed competitive-bidding process.
- Revenue neutrality/revenue-positive outcome - the federal government will bear the cost of a CO2-EOR tax credit program, yet it will enjoy increased revenues from the expansion of CO2-EOR oil production when existing tax rates are applied to the additional production. C2ES and GPI analyzed when the net present value of expected revenues would equal or exceed the net present value of program costs.
C2ES and GPI calculated the tax credit required to bridge the cost gap, and the cost and revenue implica-tions. C2ES and GPI developed input assumptions based on real-world physical and market conditions after consulting with NEORI participants and other industry experts and reviewing available literature. C2ES and GPI developed a core scenario based on “best guess” inputs and conducted several sensitivity analyses of key inputs. C2ES and GPI demonstrated that a program can be designed that will become “revenue positive” (defined as when the federal revenues from ad¬ditional new oil production exceed the cost of a carbon capture tax credit program after applying a discount rate to both costs and revenues) within ten years after tax credits are awarded. Sensitivity analysis reveals that the program remains revenue positive using a realistic range of likely assumptions.
My C2ES colleague, Judi Greenwald, will be testifying on Thursday at a hearing of the Senate Energy and Natural Resources Committee on the Clean Energy Standard Act of 2012, a bill written by Sen. Jeff Bingaman (D-NM), the committee chairman. As mentioned in my previous blogs (The Bingaman Clean Energy Standard: Let the Conversation Begin and The Bingaman Clean Energy Standard: What is "Clean"?) and in our primer on the design of a clean energy standard (CES), we think a CES holds a lot of potential for maintaining a diverse energy mix, advancing clean energy technology and associated industries, and reducing the environmental footprint of the electric power sector—including the sector's greenhouse gas emissions, which account for about one third of the U.S. total.
As Judi will attest, we also think Sen. Bingaman's bill is a great start, and balances the multiple objectives we would have for such a measure. On Thursday, we get to hear what a few other people think.
Watch this space Thursday morning as I live blog from the hearing and post updates below.
Update May 17, 11:58 am: It’s a standing-room-only crowd at this morning’s hearing before the Senate Energy and Natural Resources Committee on Senator Jeff Bingaman’s proposal for a federal clean energy standard.
Senators in attendance: Committee chairman Sen. Bingaman (D-NM), top committee Republican Sen. Murkowski (R-AK), Barrasso (R-WY), Cantwell (D-WA), Coons (D-DE), Corker (R-TN), Franken (D-MN), Manchin (D-WV), Risch (R-ID), Shaheen (D-NH), Udall (D-CO), Wyden (D-OR)
Here are some highlights of the question-and-answer session during the hearing’s first panel, with witnesses David Sandalow, Assistant Secretary for Policy and International Affairs at the U.S. Department of Energy, and Dr. Howard Gruenspecht, Acting Administrator of the Energy Information Administration:
Sen. Bingaman pointed out that EIA projects that electricity rates would increase by 2035 under the CES, but then asked how would electricity bills will be affected. Mr. Sandalow answered that the modeling shows that the average household energy bill would actually decline by $5 a month by 2035, in large part because of the energy efficiency promoted by the bill. Dr. Gruenspecht agreed.
Sen. Murkowski asked whether the cost of renewable energy being used by federal agencies under the Energy Policy Act of 2007 is an indication of the costs that would be seen under Sen. Bingaman’s bill. Mr. Sandalow pointed out that a key difference between Sen. Bingaman’s bill and the 2007 law is that the CES would give credit not only for renewable energy, but for nuclear power, natural gas, and clean coal, which would lead to lower prices than renewable energy alone.
Sen. Barrasso asked whether the Obama administration would rescind greenhouse gas regulations promulgated under the Clean Air Act if Sen. Bingaman’s bill were enacted. Mr. Sandalow said the administration would not support such an amendment to the Clean Air Act. For the record, C2ES believes that if a CES, or any other measure, led to significant reductions in GHG emissions from a given economic sector, we should be open to using that measure rather than the existing provisions of the Clean Air Act that pertain to that sector.
Sen. Franken suggested that it might be worth setting aside a fraction of the bill’s requirement for clean energy specifically for renewable energy. In fact, while most states have renewable energy standards in place, four—Michigan, Ohio, Pennsylvania, and West Virginia—have alternative energy standards, similar to Sen. Bingaman’s clean energy standard proposal, and each of the four takes an approach that favors renewable energy sources over the other qualifying clean energy sources.
Update May 17, 1:55 pm: Here are some quick notes on the second panel of this morning’s hearing. The room is still full even though many of the Senators and journalists have left—thus missing a discussion on preemption that was arguably the most noteworthy exchange of the entire hearing.
After the opening statements, Senators Bingaman and Murkowski had an extended back-and-forth with the panelists about the overlap between the Bingaman bill and other regulatory programs. The panelists offered a range of views, with a couple supporting preemption of the Clean Air Act authority. C2ES’s Judi Greenwald expressed a more nuanced view:
The key issue is environmental results. If a CES is ambitious enough, and can achieve greater environmental benefits than we can get under existing Clean Air Act Authority, it might make sense to consider replacing some Clean Air Act provisions with a CES. However, we need to be very cautious. The Clean Air Act has very broad authority to address GHG emissions throughout the economy and the CES only applies to power plants. We would need to ensure that EPA maintains its authority to continue to make progress in other sectors, for example, as with the successful greenhouse gas standards for vehicles.
Perhaps the biggest obstacle to exploring this issue is the deep partisan divide over EPA and the Clean Air Act. With members of Congress calling for an evisceration of EPA and the Clean Air Act, there is a legitimate concern that opening up the Act for an ostensibly narrow revision would lead to a gutting of provisions having nothing to do with greenhouse gases.
On another topic, Sen. Franken discussed Minnesota’s energy efficiency resource standard, and asked whether incentives for energy efficiency could be incorporated into the Bingaman bill. Judi Greenwald pointed out that many of the bill’s features would indeed promote energy efficiency: crediting of combined heat and power, the use of revenues raised through the alternative compliance payment, and the very structure of the proposed standard—it would be set as a percentage of total electricity production; if electricity use goes down, the requirement is easier to meet.
One thing we wish we could've said:
During the first panel, Sen. Corker said carbon capture and storage (CCS) will be broadly deployed when donkeys fly. Sen. Manchin, who takes a decidedly more favorable view towards CCS, was nevertheless concerned that the bill does not promote CCS.
Here's what we would have said, had they raised those points during the second panel:
While EIA projects that CCS is not deployed under the bill, it could be. CCS could play a bigger role under this bill if we can bring down its costs. There are a number of options for doing that. For example, C2ES co-convenes the National Enhanced Oil Recovery Initiative, which is calling for a federal tax credit to capture and transport CO2 from power plants and industrial sources for use in enhanced oil recovery. In addition to driving a lot of domestic oil production, and reducing CO2 emissions, it would generate additional revenue to cover the cost of CCS. We would expect that as CCS costs come down, it would enable coal to have a bigger role. A CES could help in other ways as well. AEP put the Mountaineer project on hold and withdrew from its partnership with DOE on this project because regulators in several states could not justify the expense for a technology that is not required by law. The CES could make the case for projects like Mountaineer to go forward.
Testimony of Judi Greenwald, Vice President for Technology and Innovation,
Center for Climate and Energy Solutions
Committee on Energy and Natural Resources United States Senate
May 17, 2012
Hearing on The Clean Energy Standard Act of 2012
Mr. Chairman, Senator Murkowski, and members of the Committee, thank you for the opportunity to testify on the Clean Energy Standard. My name is Judi Greenwald, and I am Vice President for Technology and Innovation at the Center for Climate and Energy Solutions (C2ES – formerly known as the Pew Center on Global Climate Change).
C2ES is an independent nonprofit, nonpartisan organization dedicated to advancing practical and effective policies and actions to address our global climate change and energy challenges. Our work is informed by our Business Environmental Leadership Council (BELC), a group of 36 major companies, most in the Fortune 500, that work with C2ES on climate change and energy risks, challenges, and solutions. The views I am expressing are those of C2ES alone.
C2ES recently published two papers on the topic of this hearing, Clean Energy Standards: State and Federal Policy Options and Implications (jointly with the Regulatory Assistance Project), and An Illustrative Framework for a Clean Energy Standard for the Power Sector. I'd like to ask that they be entered into the record.
To summarize my testimony, C2ES applauds Senator Bingaman's leadership in introducing this bill. It begins the public debate on this promising approach to protecting the environment, diversifying energy supply, and promoting clean energy industries. C2ES believes that Senator Bingaman's proposal embodies a number of design features that are innovative and reasonably balance the multiple objectives of a Clean Energy Standard. In particular, we would highlight the following: a flexible, market-based approach including clean energy credit trading and banking; a target that starts off modestly but increases over time; a broad "all-of-the above" definition of clean energy; and a crediting system that rewards environmental performance based on carbon intensity.
My testimony will focus first on the general concept of a Clean Energy Standard, then on lessons from the state experience with such standards, and finally more specifically on Sen. Bingaman's proposed Clean Energy Standard Act of 2012.
Balancing our objectives with a Clean Energy Standard
I'd like to begin with a note on use of the word "clean." There is no commonly accepted definition of "clean" energy. Indeed, one person's definition of "clean" can differ dramatically from another's if their objectives for energy policy differ. Renewable energy, nuclear power, natural gas, coal with carbon capture and sequestration, energy efficiency, and emission offsets all have their advocates as falling under the definition of clean. Unless otherwise noted, in my testimony I will use the word "clean" to refer to these options generally and "conventional" to refer to all other forms of electricity generation.
Moving from conventional electricity generation to clean energy offers three types of possible benefit: the reduction of the environmental and public health damages associated with conventional electricity generation, the growth of new clean energy industries, and diversification of energy supply. A clean energy standard usually refers to a market-based approach that can achieve all of these objectives cost-effectively: it requires an increasing amount of clean electricity, but gives utilities the flexibility to comply by generating or buying clean power, or purchasing tradable clean energy "credits" (CECs), typically denominated in megawatt-hours.
One objective is the protection of public health and the environment. Electric power plants are the leading U.S. source of emissions of sulfur dioxide, mercury and many other metals, and acid gases. The electricity sector also ranks third among all U.S. sources of nitrogen oxide emissions and fourth in emissions of fine particulates. The vast majority of the emissions in this sector are associated with coal-fired power plants. Clean energy sources emit zero or very low levels of these pollutants.
Today, the power sector is the source of about a third of U.S. greenhouse gas emissions. As we heard during the hearing the committee held on sea level rise a few weeks ago, recent findings in the peer-reviewed science provide only more cause for concern about the impacts of climate change. A properly designed clean energy standard would lead to the reduction of these emissions from power plants.
A second objective is to advance the position of the United States in the global competition to deliver the next generation of energy technologies. In a world hungry for energy services, we can be confident that modern energy technologies, especially those with a smaller environmental footprint than those we have today, will be a global growth area for decades to come. A recent report finds that global renewable energy finance and investment grew significantly in 2011 to $263 billion, a 6.5 percent increase from the previous year. The renewable energy sector is emerging as one of the most dynamic and competitive in the world, witnessing 600 percent growth in finance and investments since 2004. A clean energy standard would spur technology and economic development in the United States, allowing the market to determine the winners among clean technologies.
A third objective is to ensure a diverse energy supply. Currently we obtain 42 percent of our electricity from coal, 25 percent from natural gas, 19 percent from nuclear, and 13 percent from renewables. Under business as usual, this energy mix is not expected to change significantly over the next two decades; while new builds are expected to be primarily natural gas, overall electric generation is growing fairly slowly.
In many respects, a properly designed clean energy standard would advance all three objectives. There are a few aspects in the design of a clean energy standard, however, that require one to choose between the objectives, or at least to strike a balance between them. Design choices may be evaluated in light of additional criteria, including:
- Effectiveness – what is the magnitude of the policy's desired impacts?
- Affordability – does the policy balance the benefits associated with increased clean power generation against the cost impacts of the policy?
- Cost-effectiveness – how efficiently does the policy achieve its intended aims?
- Fairness – does the policy unfairly burden particular groups or regions or lead to any undue burdens or unearned windfalls for particular utilities, power generators, or customers?
- Innovation – does the policy drive innovation in the lowest-emitting and/or least mature technologies with the greatest potential long-term benefits?
I'll elaborate on a few examples of how design choices can involve tradeoffs and affect costs.
Targets, coverage, and alternative compliance payments. More ambitious clean energy targets will achieve greater benefits and drive greater innovation in the lowest-emitting technologies, but at higher cost. Broader inclusion of electric utility companies will increase the effectiveness of the standard and more broadly share the costs, but could impose greater administrative burdens. Allowing utilities to pay an alternative compliance payment if clean energy credit prices get too high limits the rate impacts but can also reduce the effectiveness of the targets.
Definition of clean energy. In general, a broader definition of clean energy will lower the cost because it allows greater scope for identifying the least expensive solutions. It also makes the standard more equitable across regions, because different regions have different natural endowments of different types of clean energy. Supply diversity is also a hedge against price volatility. However, because different types of clean energy have different characteristics, policy-makers might not be neutral with respect to the role each type plays. There are many possible compromises on this issue, depending on the attribute of concern.
As an illustration, natural gas is lower-emitting than coal but higher-emitting than nuclear or renewables. A compromise is to award natural gas partial credit. In addition, advances in shale gas production have increased the availability of inexpensive natural gas. Thus, providing credit for natural gas reduces the cost of achieving the CES target. However, since natural gas is already the dominant choice for new power plant builds, there is a risk that the power sector will become too reliant on natural gas, crowding out other options.
Inherently, a clean energy standard will favor the lowest-cost clean energy source. But policy-makers may want to drive innovation and cost reduction in less mature, advanced clean energy technologies. A compromise might be to place a limit on how many credits can be distributed to the lowest-cost clean energy source. Another option is to provide additional favorable treatment to the lowest-emitting or least mature technologies (e.g., by granting certain subcategories of technologies additional credits, or guaranteeing them a role by establishing "tiers" with separate targets). Finally, policy-makers can design the CES to be technology-neutral, and rely on complementary policies (such as loan guarantees or other financial assistance for nuclear power plants, subsidies for carbon capture and storage, and tax credits for wind and solar power) to drive innovation in less mature and lower-emitting technologies.
The role of energy efficiency. Energy efficiency is cleaner than any of the energy supply options. Providing credit for energy efficiency can lower cost, but increase the complexity of the standard and potentially diminish its effectiveness. Measuring electricity savings from energy efficiency is more challenging than measuring generation from qualified clean energy sources, and it is especially difficult to distinguish energy savings driven by the standard from business as usual.
Crediting existing clean generation. On the one hand, it is fair to reward early clean energy investment. On the other hand, such crediting could result in windfall profits and reduce new clean energy production.
State experience with renewable and alternative energy standards
We have substantial experience with renewable and alternative energy standards at the state level. At this point, 31 states and the District of Columbia have adopted some form of mandatory electricity portfolio standards through legislation, regulation, or public utility commission order. Another seven states have adopted non-mandatory renewable portfolio goals. These policies differ in a number of the design elements described above. Thus we have a wealth of state experience to draw from in designing a federal program. In addition, 22 states have established mandatory long-term electricity savings targets through an Energy Efficiency Resource Standard (EERS), with five other states having a non-mandatory electricity savings goal. In some of these cases, the state electricity portfolio standard is combined with or linked to the EERS policy.
Perhaps the most important lesson to be learned from state portfolio standards is that they succeed in accelerating the deployment of renewable resources. Ninety percent of the nonhydro renewable capacity added in the United States between 2004 and 2010 was built in states with a mandatory renewable portfolio standard. Another clear (and expected) lesson is that state portfolio standards tend to result in the deployment of the cheapest available renewable energy options. In most states, this means utility-scale wind power projects. State portfolio standards are given a good deal of credit for establishing a viable wind turbine supply chain in the United States, along with training and credential programs and some domestic manufacturing facilities. A number of states have driven some innovation in less mature technologies, for example by establishing "carve-outs" requiring that a certain fraction of the requirement be met using solar energy.
A third key lesson is that the impact of portfolio standards on electricity rates has been generally modest, though it is difficult to isolate this impact from other factors that influence prices. Of 14 states where compliance cost data are available, Arizona had the highest impact in 2010 of nearly 4 percent. No other of these states saw a rate impact above 2 percent. As a typical example, the Maine Public Utilities Commission estimates a 0.6 percent increase in rates in 2010 caused by its portfolio standard of 40 percent renewable energy by 2017, and expects a 1.9 percent increase by 2017. Due to the price stability of long-term renewable energy contracts, the portfolio standard may even help reduce rates in some states.
While most of the state portfolio standards focus on energy sources that are renewable, nonrenewable electric generation technologies are given credit in the programs of four states – Michigan, Ohio, Pennsylvania and West Virginia. Natural gas, coal with carbon capture and storage (CCS), coal gasification and liquefaction, coal bed methane, nuclear power, industrial combined heat and power, and greenhouse gas offset projects are given credit under one or more of these programs, in addition, of course, to the traditional renewable energy sources. All of these states have taken an approach that favors renewable sources compared to the other qualifying sources, either by establishing "tiers" that define some fraction of the clean energy targets that must be achieved by renewable sources, or by giving renewable sources extra credits.
The proposed Clean Energy Standard Act of 2012
Let us now turn to Sen. Bingaman's bill, the Clean Energy Standard Act of 2012. The bill would, beginning in 2015, require covered electric utilities to supply an increasing share of their electricity sales from qualifying clean energy sources. Utilities could comply by building their own clean power plants, buying clean power from others, or buying tradable clean energy credits.
Senator Bingaman's CES proposal embodies a number of design features, including the following, that are innovative and reasonably balance the multiple objectives I described earlier:
- A target that starts off modestly but increases over time, balancing effectiveness and cost, and driving innovation;
- A broad, "all-of-the above" definition of clean energy, maximizing flexibility and minimizing cost;
- Appropriately rewarding environmental performance by calculating credits based on carbon intensity;
- Providing some credit for existing nuclear and hydropower, balancing the goal of fairly sharing costs with the goal of recognizing clean energy investment;
- Allowing banking of clean energy credits, affording additional compliance flexibility;
- Allowing utilities to pay an alternative compliance payment if clean energy credit prices get too high, but escalating the payment over time; and
- Advancing energy efficiency by providing credit for combined heat and power, and using alternate compliance payments to fund state efficiency programs.
At Sen. Bingaman's request the Energy Information Administration has analyzed the implications of the bill using the National Energy Modeling System. As with all economic modeling, we should look at the EIA's work for insights, rather than for hard and fast predictions about the future. In that spirit, we offer the following additional observations about the bill.
The Act and natural gas
Pertaining to the balancing of natural gas against the other clean energy technologies, the EIA projects that under the proposed standard, in 2035, natural gas will be 31 percent, nuclear power will be 30 percent, and renewables will be 20 percent of the total generation mix. According to EIA's scenario, the bill drives the largest increase in natural gas use in the early years, but as the standard becomes more ambitious, we see an increase in lower-emitting technologies. In 2020, natural gas-fired generation under the proposed standard is 13 percent higher than in the reference scenario; by 2035 it is 8 percent higher. Thus the bill takes advantage of natural gas's near-term price and availability while still driving innovation in much cleaner technologies. Additionally, the investment in a range of low emitting technologies in response to the CES provides supply diversity, and a hedge against potential volatility in the price of natural gas.
Moreover, the EIA projects only a modest natural gas price increase, as increased consumption from the electric power sector leads to prices around 10 percent higher than the reference case from 2015 – 2018. Then, the price converges to reference case levels over the following five years. Given the very low projected price of natural gas, in absolute terms, this is actually a small increase. This is good news, considering the current investments being made by manufacturers on the basis of projected low natural gas prices.
The Act and very low-emitting technologies
This modestly increased role for gas, however, depends on a significant increase in one or more very low-emitting technologies. EIA projects especially large growth in nuclear power that may or may not come to pass. EIA also projects some increase in biomass, wind and solar power, but no increase in coal (or gas) with carbon capture and storage. In EIA's analysis of a case in which new nuclear plant builds were constrained, and other assumptions were held constant, natural gas played a more significant role, and this uniformly raised the projected price of natural gas. One could still project a more modest role for natural gas with less growth in nuclear power but with more optimistic assumptions for renewables and/or carbon capture and storage.
If policy-makers are interested in ensuring innovation in zero-emitting technologies, policy options are available, as discussed earlier. In any event, C2ES would strongly recommend making a Clean Energy Standard just one component of a comprehensive strategy to advance the very low-emitting technologies – nuclear power, renewable energy, and carbon capture and storage – a strategy that includes support for R&D, as well as subsidies to allow power companies and others to deploy the technologies.
Nuclear power plants face a number of major hurdles. One hurdle that policy-makers could address is obtaining financing, for example by continuing and potentially expanding the current loan guarantee program and/or providing other forms of financial assistance to a few "first mover" next-generation nuclear plants. This could demonstrate to potential investors that these plants can indeed be built with lower cost and improved safety features, setting the stage for second, third, and nth movers to obtain private financing. This would increase the likelihood of nuclear power playing a significant role in achieving a clean energy standard.
For wind and solar power, EIA projects increases that are significant but not nearly as large as for nuclear power, relative to the reference case. Also, EIA assumes that the production tax credit (PTC) for wind expires in 2012, and the investment tax credit (ITC) for solar expires in 2016. Extending the PTC and ITC could incentivize additional solar and wind investment beyond what would be built solely to comply with the CES.
EIA projects that additional coal (or gas) with CCS will not be deployed under this bill because it is not cost-competitive with other clean energy options. It is technically feasible today to build a commercial-scale CCS operation, which several power companies are doing. However, CCS is very expensive due to its current stage of development, and planned projects are limited primarily because of uncertainty with respect to the regulation of CO2 emissions. Coal- and natural gas-fired generation will likely be significant sources of electricity in the United States, and indeed in most of world's major economies, for decades to come. Thus, ultimately, in order to deeply reduce U.S. and global GHG emissions, we need CCS.
One approach for advancing CCS would involve utilizing the CO2 as a resource, rather than treating it as a waste product. C2ES is a co-convener of a coalition of industry, state, environmental and labor leaders, known as the National Enhanced Oil Recovery Initiative (www.neori.org), which has called for a federal tax credit for capturing and transporting CO2 from industrial sources and power plants for use in enhanced oil recovery. In addition to driving a lot of domestic oil production, a benefit of such a program would be to generate an additional revenue stream to cover the cost of CCS. We would expect that as CCS costs come down, it would enable coal to have a bigger role.
Other Impacts of the Act
EIA projects that under the CES, electricity prices would not experience a significant impact until the mid 2020s. The projected average end-use electricity price under Senator Bingaman's bill exceeds the Reference case by only 1.5 percent in 2023, but that grows to more than 18 percent by 2035. There would be almost no impact for the first ten years, with a gradual increase over the next dozen years, giving people and companies both an incentive to increase their energy efficiency (and potentially reduce their energy bills even as prices increase) and ample time to do so.
Also, total combined heat and power (CHP) generation would benefit from the policy provision that allows qualified CHP generators to earn and sell clean energy credits. According to the EIA, CHP generation fired by natural gas under the bill exceeds the Reference case by 8 percent in 2025 and by 21 percent in 2035. CHP saves energy and promotes industrial competitiveness.
Senator Bingaman, thank you for introducing this bill and beginning the public debate on this promising approach to protecting the environment, diversifying energy supply, and promoting clean energy industries. C2ES is grateful for your leadership, and we look forward to working with you and your colleagues on the Committee to analyze, refine and advance this proposal.
Keynote speech by Eileen Claussen, President of the Center for Climate and Energy Solutions
11th Annual Conference on Carbon Capture, Utilization and Sequestration
May 1, 2012
Thank you very much. It is a pleasure to be here in Pittsburgh. And I want to thank Exchange Monitor Publications and Forums, together with the Department of Energy and the National Energy Technology Laboratory and their partnering organizations, for convening this very timely and very important conference.
Everything is so well organized and the breakfast spread was so perfect and so tantalizing … for a moment I thought I was at an event put together by the General Services Administration.
I also congratulate you for putting added emphasis this year on the utilization of carbon emissions and for changing the title of the conference to reflect this … Now it can officially be said that this is the event that put the “you” in CCS. If only we could add an “A” word to the end and make it CCUSA, then we could add some patriotic flair to this whole endeavor.
In all seriousness, I want to talk with you today about why CCS (or any acronym we choose to employ for it) is so important … not just for the future of fossil fuels—but also for the future of this country and its efforts to get a handle on the twin challenges of energy and climate change.
And I also want to discuss one of the most promising technologies available for making large-scale CCS a reality. I am talking, of course, about CO2-enhanced oil recovery, or CO2-EOR, which is an issue that my organization has been working intently on as a co-convener of the National Enhanced Oil Recovery Initiative.
Whether you spend the bulk of your waking hours worrying about the potential dangers of climate change or not, CO2-EOR makes a huge amount of sense for a number of reasons that I intend to go over later in my remarks. But first I want to talk about why we are even having this conversation and why the United States and the world must finally get serious about taking full advantage of big opportunities CO2-EOR.
When it comes to energy and climate, the United States stands at a crossroads today. Indeed, we are standing there with the rest of the world. At this crossroads, we have a choice to make. We can continue with a business-as-usual or status quo approach to energy and climate issues. If that’s what we choose, we’ll continue to face the same questions and the same concerns not just about the environment and climate change but about energy-related risks to our national security, our economy and jobs, and more.
Or we can choose a new road to the future--that protects our economy, our security and our climate for decades to come.
The environmental case for doing this is compelling enough. According to most scenarios, global emissions of greenhouse gases need to peak by 2015 in order to have a reasonable chance of limiting global warming to no more than 2 degrees Celsius. This is the level where many scientists say we can manage the risks of climate change, but there is considerable debate even on this point and some think we will already be flirting with disaster at 2 degrees Celsius.
Whatever the case, 2015 is just three years away. Are emissions showing any signs of peaking? Not even close … After a brief downturn due to the recession, newly released figures from the EPA show that U.S. emissions resumed their upward march in 2010, rising by 3.2 percent compared to 2009. And global emissions are projected to grow 17 percent by 2020, and 37 percent by 2035. Under that scenario, we could see average global temperatures rise 3 to 4 degrees Celsius by 2100.
But, even if you are an ardent skeptic of the science of climate change or of our ability to dramatically reduce our greenhouse gas emissions, the energy case should be motivation enough for abandoning the status quo and following a new and different road to the future.
What do we care about? Reliability. Affordability. Security. Reduced environmental impact. These have to be the hallmarks of U.S. energy policy going forward, and carbon capture and storage can and must be an important component of that policy. It provides us with the means to continue using fossil fuels in a carbon–constrained future. It is especially critical for producing electricity from both coal and natural gas, while simultaneously reducing greenhouse gas emissions.
Coal, of course, has the most at stake in this discussion. Coal, in fact, is at a crossroads itself. The latest figures from the U.S. Energy Information Administration confirm that coal’s share of U.S. electricity generation is decreasing.
In 2006, coal-fired generation accounted for more than half (50.4 percent to be exact) of the total generation mix in this country. By the end of 2011, that figure had declined to 43.4 percent of the mix, a drop of 7 percentage points. The biggest factor in coal’s relative decline, of course, is dropping natural gas prices. According to EIA, natural gas prices are forecast to remain below $5 per million BTUs for the next 10 years. This is why we’re seeing so many new natural gas power plants. EIA’s latest estimates for 2011 and 2012 show around 20 gigawatts of added capacity planned for natural gas versus around 9 gigawatts for coal. Add to this the spare capacity of existing gas-fired power plants that were built to generate electricity during the daytime hours only and you can see the challenges facing coal.
New EPA rules also pose challenges for coal. The new Mercury Rule alone, which was issued last December, will affect 1,325 units at 525 power plants of all types around the United States. Some of these plants are more than 50 years old, and companies may retire older plants rather than paying to install new pollution control equipment.
In addition, there is EPA’s Cross-State Air Pollution Rule (CSAPR) and, on the industrial side, the 2011 rule imposing new emissions reductions requirements on coal-fired boilers. And most notably, of course, earlier this spring the EPA proposed the first-ever national standards for limiting greenhouse gas emissions from new power plants. In order to comply with the rules, new plants would have to install carbon capture and storage technologies. There is essentially no other way for these plants to reduce their emissions to the level required under this proposal.
After detailing all of these challenges for coal, I am inclined to ask the question, “Other than that, Mrs. Lincoln, how did you enjoy the play?”
The proposed GHG rules make it official: In order to keep coal’s share of the U.S. energy mix from declining further, we need to throw out old ways of thinking. We need to think big. This is not just about trying to compete with natural gas on price; it is about embracing new ideas and new technologies to ensure that coal can continue as a fuel of choice in a world that, whether you like it or not, will become increasingly focused on limiting and reducing carbon emissions.
Coal alone is responsible for 28 percent of U.S. greenhouse gas emissions. Worldwide, 43 percent of CO2 emissions from fuel combustion come from coal. Clearly, something has to give. In order for the world to get a handle on the climate problem, and in order for coal to hold onto its place as a major energy source in the decades to come, we need to show – and very quickly – that it is possible to achieve substantial cuts in emissions from coal-fired power generation.
In other words, we need to find a low-carbon solution for coal. And coal is not our only challenge – we need all the low-carbon and carbon-free technologies we can get. The good news about natural gas is that it generates half of the emissions of coal when used as a fuel source. But that’s also the not-so-good news about natural gas; it still generates substantial emissions, and in order to achieve the level of reductions that will reduce the risk of climate change, we need CCS for natural gas as well as for coal.
The potential for CCS to reduce emissions is undeniable. Studies show that CCS technology could reduce CO2 emissions from a coal-fueled power plant by as much as 90 percent. Modeling done by the International Energy Agency (IEA) forecasts that CCS could provide 19 percent of total global GHG emission reductions by 2050. That includes reductions from coal and natural gas-fired power plants, as well as all other sources.
But these are just studies, they are merely estimates of what could happen if CCS finally emerges from the world of drawing boards and demonstration projects to actual widespread deployment throughout this country and around the world. What we are doing right now to develop these technologies is not enough; it’s not even close to enough. We have two decades at most to deploy these technologies at the scale needed to achieve substantial reductions in emissions.
And one way to start is by taking a more serious approach to the development of CO2-Enhanced Oil Recovery in this country.
For nearly 15 years, my organization has sought to bring industry, government, NGOs and others together to explore innovative solutions to the climate and energy challenges we face in the United States and around the world. We see CO2-EOR as a very important piece of the puzzle. And this is why we worked with the Great Plains Institute to convene the National Enhanced Oil Recovery Initiative, or NEORI. NEORI is a coalition of industry, state, environmental and labor leaders who have come together to develop and present recommendations for boosting domestic oil production and reducing CO2 emissions through the expanded use of CO2-EOR.
The participants in this effort believe that EOR using captured carbon dioxide offers a safe and commercially proven method of expanding domestic oil production that can help the U.S. simultaneously address three urgent national priorities.
- The first priority is increasing our nation’s energy security by reducing dependence on foreign oil, including oil that is imported from unstable and hostile nations. CO2-EOR potential in the United States equals 26 to 61 billion barrels of oil with existing technology; with next-generation techniques the potential rises to 67 to around 140 billion barrels. U.S. proven reserves are 20 billion barrels, so we are talking about at least doubling U.S. oil potential. That’s huge.
- The second priority that CO2-EOR addresses is creating economic opportunity – if we do this right, it will create jobs, boost tax revenues, and reduce the U.S. trade deficit. We can put dollars we now spend on oil imports to work right here in the U.S. economy. How much money are we talking about? One estimate, from Advanced Resources International, projects that the reduction in oil imports associated with CO2-EOR would total $600 billion by 2030.
- And the third priority addressed by CO2-EOR? Protecting the environment. Capturing and storing CO2 from industrial facilities and power plants will reduce U.S. greenhouse gas emissions, while getting more American crude from areas already developed for oil and gas production. By fully developing American reserves that are amenable to this practice, we could reduce CO2 emissions by 10 billion to 19 billion tons, an amount equal to 10 to 20 years of emissions from personal vehicle use in this country. And the bonus is that it can help us further the commercial deployment of the CCS industry in this country — not just with coal and natural gas power plants, but with other domestic industries such as natural gas processing, ethanol and ammonia production, and steel and cement manufacturing. Driving innovation in CCS technology will allow us both to take advantage of our nation’s vast fossil fuel resources and achieve much larger CO2 emission reductions.
I have worked on the climate issue for many years now, and I assure you this is a big deal. Reducing U.S. CO2 emissions by up to 19 billion tons while also advancing CCS technology would be a major achievement.
So if CO2-EOR is so important, why aren’t we doing more of it? Well, as all of you know, the major hurdle standing in our way is that there’s just not enough readily available CO2. And this is why our organization joined with the Great Plains Institute to convene the NEORI.
The idea behind this initiative was to bring together a diverse group of stakeholders and try to come to agreement about what needs to happen to realize CO2-EOR’s potential. More specifically, we wanted to develop a set of recommendations for federal and state incentives that will stimulate the expansion of CO2-EOR using carbon dioxide from power plants and industrial facilities.
Were these conversations easy? In a word, no. This is a group that included participants ranging from major coal companies and industrial suppliers of CO2 to environmental NGOs, organized labor, and state officials. The diversity of the group meant we had some very tough discussions. But in the spirit of the saying, “Nothing that is worthwhile is easy,” the final participants in this project stuck with it, and they came up with a plan that already has attracted bipartisan interest in Congress. We released this plan earlier this year at an event on Capitol Hill, and I want to give you a quick sense of what it entails.
NEORI’s centerpiece recommendation is a competitively awarded, revenue-positive federal production tax credit for capturing and transporting CO2 to stimulate CO2-EOR expansion. This federal tax credit would more than pay for itself because it will lead to additional oil production subject to existing tax treatment. The new incentive will enable a variety of industry sectors to market new sources of CO2 to the oil industry, and to reduce their carbon footprints. It will drive innovation and cost reduction in CO2 capture and compression, and help build out a national CO2 pipeline system.
For the near term and until the broader credit is in place, NEORI also recommends specific “good government” changes to improve the workability of the existing carbon capture and storage credit known as Section 45Q.
Of course, states also have an important role to play in fostering CO2-EOR deployment. This is why NEORI identifies existing state policies that should serve as models for policymakers in other states to adopt and tailor to their particular needs.
Later this morning, you will hear more about our recommendations from a panel of NEORI participants. And I encourage you to visit the website, www.neori.org, for more on the recommendations we have made.
So let’s cut to the chase. What will happen if we adopt these measures I have described? NEORI estimates that our proposed new federal production tax credit for CO2 capture will quadruple the amount of domestic oil currently produced annually through enhanced oil recovery – to 400 million barrels a year in the outyears – while cutting CO2 emissions by 4 billion tons over the next 40 years. In addition, we will be generating new tax revenue for states and for the federal government – as I said, these incentives will more than pay for themselves. And we will be gaining vital experience and creating valuable infrastructure supporting broader deployment of carbon capture and sequestration in the future.
At a time of economic struggle, fiscal crisis and political gridlock, at C2ES we believe the NEORI proposal is an encouraging example of how we can and must make progress on the climate and energy challenges we face. As much as we would like to see comprehensive solutions to our climate and energy challenges, those solutions are not on the immediate horizon. But if we come at these issues one by one, look for opportunities where interests converge, and are open to compromise, we can arrive at practical solutions benefiting our economy, our security and the environment.
At the Capitol Hill event where NEORI announced our recommendations in February, we also were able to welcome a bipartisan group of members of Congress who were on hand to express their support. Given the political gridlock in Washington in this election year, it was reassuring to see lawmakers from both political parties step up and say they agree that this is important work.
Will we see comprehensive legislation on this issue pass the Congress this year? That’s unlikely … but we do think we have a shot at Section 45Q reform this year. Still, the NEORI recommendations have started the conversation and we feel optimistic that we can see progress on this issue in the not-too-distant future no matter who controls the Presidency and the Congress next year.
All of which brings me to the closing segment of my remarks today, in which I simply want to appeal to all of you to help us keep pushing these issues forward.
Rarely in the current political climate do Republican and Democratic lawmakers in Washington rally together in support of anything. So we need to make the most of this opportunity. Everyone who supports CO2-EOR has an obligation to educate their representatives in Washington and in state capitals around the country about the benefits this can deliver for our economy, our national security and the environment.
We also need to help the general public understand what’s at stake here … why we need to reduce emissions, why CO2 use and sequestration in depleted oil fields is an important solution, and what this can mean for the future of our country, and for the future of fossil fuels as well.
Thank you very much.