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
Fixing A Broken National Flood Insurance Program: Risks And Potential Reforms
by Dan Huber
The National Flood Insurance Program (NFIP) insures 5.6 million American homeowners and some $1 trillion in assets. For many years, however, the premiums collected have not been sufficient to cover losses, resulting in a current debt to the U.S. Treasury of more than $18 billion. A number of factors, including increased flooding as a result of climate change, are likely to further widen the gap between revenue and risk. Reforms are needed to put the NFIP on the path to solvency and to reduce homeowners’ exposure to chronic and catastrophic flooding risk. Ideally, such reforms should fully account for the increased risks posed by climate change. At a minimum, steps are needed to adjust premiums, improve flood mitigation measures, and prepare for the catastrophic risk of events like Hurricane Katrina.
With government budgets still reeling from the effects of the recent recession, and ongoing debates over the future costs of Medicare and Social Security, unfunded public liabilities are of growing concern. The National Flood Insurance Program (NFIP) is one such liability that is often overlooked. The NFIP is already significantly in debt due to premiums that have not reflected the true risk of flood damages. Looking forward, the risk of further losses only increases, as demographic trends place more infrastructure in harm’s way, watersheds are developed and climate change increases flood risk over time.
This paper explores the structural issues underlying the growing gap between flood insurance premiums and actual flood risk. It also examines reforms that can put the program on a more sound financial footing and the incentives needed to reduce the potential costs of future flooding. A report by the American Enterprise Institute found that insurers have “a huge opportunity today to develop creative loss-prevention solutions.”  Using both adaptive and financial tools to manage the rising risks posed by climate change will be critical to preventing losses and maintaining the insurability (and therefore property values) of trillions of dollars in at-risk property assets.
Between 1980 and 2005, U.S. insurers paid out a total of $320 billion in weather-related insurance claims. While not all weather-related claims are flood claims, losses from weather events are increasing. Today, the NFIP covers over $1.2 trillion in assets, representing more than a fourfold increase since 1980. If providing this coverage is to remain affordable, Congress must provide FEMA with the tools to accurately price and manage risk.
2. Kunreuther and Michel-Kerjan, (2009, January 15). Market and Government Failure in Insuring and Mitigating Natural Catastrophes: How Long-Term Contracts Can Help. Washington D.C., USA: American Enterprise Institute Conference on Private markets and Public Insurance Programs
Below are the comments C2ES submitted on June 25, 2012, on EPA's proposed greenhouse gas emissions standard for new power plants.
Comments of the Center for Climate and Energy Solutions on
Standards of Performance for Greenhouse Gas Emissions for
New Stationary Sources: Electric Utility Generating Units;
United States Environmental Protection Agency
(77 Fed. Reg. 22392 (April 13, 2012))
Docket ID No. EPA-HQ-OAR-2011-0660; FRL-9654-7
This document constitutes the comments of the Center for Climate and Energy Solutions (C2ES) on the proposed standards of performance for greenhouse gas (GHG) emissions for new electric utility generating units (Proposal), proposed by the U.S. Environmental Protection Agency (EPA) and published in the Federal Register on April 13, 2012. 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. As such, the views expressed here are those of C2ES alone and do not necessarily reflect the views of members of the C2ES Business Environmental Leadership Council (BELC). In addition, the comments made in this document pertain to new sources in the specific industrial sector addressed by the Proposal and may not be appropriate for other industrial sectors or for existing electric utility generating units.
Preference for Market-based Policy
C2ES believes market-based policies—such as emissions averaging among companies, a cap-and-trade system, an emissions tax, or a clean energy standard with tradable credits – would be the most efficient and effective way of reducing GHG emissions and spurring clean energy development and deployment. Properly-designed market-based policies create an appropriate division of labor in addressing climate change, with the law establishing the overarching goal of reducing GHG emissions, and private industry determining how best to achieve that goal. Under market-based policies, the government neither specifies a given company’s emission level nor requires the use of any given technology—both of these questions are determined by the company itself.
Beyond providing an incentive for the use of best available technologies, market-based policies provide a direct financial incentive for inventors and investors to develop and deploy lower-cost, clean energy technologies, and leave the private market to determine technology winners and losers. Market-based policies can be designed to minimize transition costs for companies and their customers in moving from high-emitting technologies to low-emitting technologies; to prevent manufacturers in countries without GHG limits from using this as a competitive advantage over U.S. manufacturers; and to reverse any regressive impacts of increased energy prices. At the federal level, market-based policies have been used to reduce sulfur dioxide emissions at a fraction of the originally estimated cost, while at the state level they have been used successfully in renewable energy programs and cap-and-trade programs.
However, enactment of federal legislation that would establish a comprehensive market-based policy to reduce GHG emissions does not appear imminent. Given the urgency of addressing the rising risks that climate change poses to U.S. economic, environmental and security interests, C2ES believes that in the absence of Congressional action to reduce greenhouse gas emissions, EPA must proceed using its existing authorities under the Clean Air Act.
The Context of the Proposal
The Proposal is consistent with the EPA’s authority to implement the Clean Air Act, as interpreted by the U.S. Supreme Court. On April 2, 2007, in the case of Massachusetts v. EPA, the court found that the harms associated with climate change are serious and well recognized, the EPA has the authority to regulate CO2 and other GHGs under the existing Clean Air Act, and, although enacting regulations may not by itself reverse global warming, that is not a reason for EPA not to act in order to “slow or reduce” global warming.
The Court required that the EPA determine whether GHG emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare. The EPA released a draft Technical Support Document (TSD) in 2008 that provided technical analysis of the potential risks of GHGs for human health and welfare and contribution of human activities to rising GHG concentrations, and adopted a final endangerment finding in December 2009. The finding explained and documented the determination that (1) the ambient concentration of six key GHGs—CO2, methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)—contribute to climate change, which results in a threat to the public health and welfare of current and future generations, and (2) emissions from motor vehicles contribute to the ambient concentration of the GHGs.
The EPA’s endangerment finding did not, by itself, impose any restrictions on any entities. It was, however, a required step in the EPA’s process of regulating GHG emissions. The EPA has already issued several requirements pertaining to GHG emissions—two as a consequence of the endangerment finding, and two in response to specific Congressional mandates regarding the reporting of GHG emissions.
Reporting CO2 emissions from power plants. Under section 821 of the Clean Air Act Amendments of 1990, the EPA requires power plants to monitor their CO2 emissions and report the data to the EPA, which makes the data available to the public. Under this provision, power plants have been reporting their CO2 emissions since the early 1990s, and the data have been made publicly available through the EPA’s website.
GHG Reporting Rule. As part of the Fiscal Year 2008 Consolidated Appropriations Act, signed into law in December 2007, the EPA was ordered to publish a rule requiring public reporting of GHG emissions from large sources. The GHG Reporting Program database was published for the first time in January 2012, and consisted of data reported under the rule.
Vehicle tailpipe standards. The first and most direct result of the Supreme Court’s ruling in Massachusetts V. EPA and the EPA’s subsequent endangerment finding was the EPA’s promulgation of GHG emissions standards for vehicles. In April 2010, the EPA and the U.S. Department of Transportation issued a joint regulation to establish new light-duty vehicle standards for Model Year (MY) 2012 to MY 2016; in August 2011, they issued the final rulemaking for heavy-duty vehicles for MY 2014-2018; and in November 2011, they issued a joint proposal for light-duty vehicle standards for MY 2017 to MY 2025.
New Source Review/Best Available Control Technology. Under the Clean Air Act, major new sources or major modifications to existing sources must employ technologies aimed at limiting air pollutants. Once GHGs were regulated as air pollutants through the vehicle tailpipe standard, the requirement that new or modified sources must use “best available control technology” (BACT) for GHGs also took effect. In November 2010, the EPA released guidance to be used by states in implementing BACT requirements for GHG emissions from major new or modified stationary sources of air pollution. Under the BACT guidance, covered facilities are generally required to use the most energy-efficient technologies available, rather than install particular pollution control technologies. More than a dozen facilities have received permits under the program.
The Proposal is the first GHG standard proposed by the EPA under the New Source Performance Standard provision of the Clean Air Act. Electric power plants account for about one-third of U.S. GHG emissions—nearly twice the contribution of light-duty vehicles.
Comments on the Proposal
C2ES has some concerns with the Proposal, as discussed below. If the concerns are adequately addressed, C2ES supports moving the rule forward.
The EPA should set the emissions standard at a level that can be reliably achieved by currently available technology under reasonably expected operating conditions.
The technology on which the standard in the Proposal is based is natural gas combined cycle (NGCC). It is imperative that the EPA set the GHG emissions standard at a level and in a form that can be reliably achieved by currently available NGCC technology under the full range of reasonably expected operating conditions. A recent study raises questions about the extent to which currently available NGCC units can reliably achieve the standard in the Proposal. In order to maximize the efficiency of the overall interconnected electric system – and often to minimize the overall GHG emissions – it is sometimes necessary to run a particular plant at less than peak efficiency. The standard should reflect this reality.
C2ES agrees that, as proposed, the standard should not cover simple cycle combustion turbines and biomass-fueled boilers.
The standard must be consistent with the advancement of carbon capture and storage technology.
Carbon capture and storage (CCS) is not one of the technologies on which the Proposal’s standard is based. Rather, CCS is a method by which a facility could potentially comply with the NGCC-based standard.
CCS operations have been built at scale in other industrial sectors, but not yet in the electricity sector. The first commercial-scale U.S. power plant with CCS is currently under construction. Power companies are planning several additional CCS projects, some of which will be in conjunction with enhanced oil recovery (EOR). CCS power projects that would supply captured CO2 to EOR are in the planning stages in Texas, Mississippi, California, North Dakota, and Kentucky for the 2014—2020 timeframe. Several more power companies have had plans to build CCS operations that did not go forward primarily because of the cost of CCS and the uncertainty with respect to CO2 emission regulation and legislation.
The Proposal offers an alternative compliance mechanism in which a coal power plant could be operated for 10 years without CCS, followed by 20 years with CCS. While the standard and the alternative compliance mechanism could make it easier for public utility commissions to approve proposals to build coal power plants with CCS, given the current cost and limited demonstration and deployment of CCS technologies, these alone may not be enough to surmount the challenge of financing a plant with CCS. (Please see the discussion of CCS under “Related Matters” below.)
More concerning is the possibility that the standard could inadvertently inhibit the advancement of CCS. For example, one intermediate step in demonstrating the compatibility of CCS with large-scale electricity generation might be to capture and sequester only a fraction of the CO2 from a large coal plant – which might not be allowed under the Proposal. C2ES suggests that the EPA consider mechanisms by which CCS demonstration projects and other operations important to the advancement of CCS could go forward.
Given the unique circumstances of electricity generation today, it is on balance appropriate to set a standard that does not differentiate between fuel types for new power plants. A non-differentiated standard may not, however, be appropriate for other industry sectors or existing sources in this sector.
Perhaps the most novel aspect of the Proposal is that it does not issue separate NSPS for coal and natural gas. Under the Clean Air Act, section 111(b)(2), the EPA “may distinguish among classes, types and sizes within categories of new sources for the purpose of establishing [NSPS] standards.” (Emphasis added.) It has in fact typically been the case that Clean Air Act regulations have established separate air pollution standards for coal- and natural gas-fired power plants. While this differentiation is authorized, however, it is not required by the Clean Air Act. Because the proposed rule would apply to new units only, and because prospective owners have options in selecting the designs of their units, fuel switching (i.e., replacing coal use at existing plants with natural gas) would not be required by the rule.
Moreover, recent developments having nothing to do with GHG regulation, such as the availability of inexpensive natural gas and the regulation of other pollutants, have created conditions under which the GHG emissions intensity of electricity generation is declining. Aside from a small number of facilities far along in the planning process and specifically exempt from the Proposal, no new construction of conventional coal plants is currently foreseen at recent forward market natural gas prices through 2020 (when the Clean Air Act requires that the rule be reevaluated). The Proposal reflects the projections of independent analysts with regard to the future of new coal and natural gas electricity generation. For this reason, the Office of Management and Budget estimates that there will be no cost for industry compliance with the Proposal as compared with the status quo.
That said, it is important to recognize that widely fluctuating natural gas prices are a recent memory, and that, while the majority of independent analysts currently project an abundant and inexpensive supply of natural gas for decades to come, this forecast may prove wrong. Issuing a standard that in effect prohibits the construction of new high-emitting coal plants (i.e., those not using CCS) therefore poses risks – as would issuing a standard that allows the construction of such plants. If the construction of new high-emitting coal plants is effectively prohibited and natural gas prices rise higher than currently foreseen, electricity rates could face an upward pressure. On the other hand, allowing the construction of new high-emitting coal plants could lock in the emissions of those plants for decades to come, exacerbating the challenges the United States faces in reducing its GHG emissions and increasing the risks and costs of dangerous anthropogenic climate change.
On balance, C2ES believes the best choice in implementing the NSPS requirement for new power plants is to issue one standard, regardless of fuel type, but with a mechanism that allows for technological innovation (as discussed above). This should be accompanied by heavy federal investment in low-emitting technologies, including CCS, with the goal of maintaining a diverse set of energy sources in generating the nation’s electricity.
Finally, while the establishment of one emission standard regardless of fuel type may be appropriate with respect to new facilities in the power sector, it may not be appropriate for existing facilities in the power sector or for other sectors for which the EPA may issue regulations.
The United States needs a comprehensive energy strategy that delivers a diverse set of affordable low-emitting sources of electricity.
C2ES believes that as a matter of national policy and economic common sense, it is imperative to enhance energy diversity through programs that advance low-emitting uses of coal and natural gas; nuclear power; renewable energy; and efficiency in generation, transmission and end-use.
In particular, the United States needs an effective strategy for demonstrating CCS and making it inexpensive enough to use on future coal and natural gas power plants. Coal- and natural gas-fired generation will likely be predominant sources of electricity in the United States and most of world’s other major economies for decades to come. It will therefore be essential to advance CCS to the point that its use is economical in the context of electricity generation.
A CCS strategy should include a major research, development and demonstration effort, and subsidies to actively encourage the use of CCS with new and existing natural gas and coal power plants so that the technology can travel down the learning curve. C2ES strongly supports, among other measures, the federal grant programs that have allowed the construction of the previously-mentioned CCS projects. Another option is to establish a trust fund to support demonstration projects at commercial scale for a full range of systems applicable to U.S. power plants. CO2-enhanced oil recovery (CO2-EOR), a practice in which oil producers inject CO2 into wells to draw more oil to the surface, presents an important opportunity to advance CCS while boosting domestic oil production and reducing CO2 emissions. A coalition, co-convened by C2ES, has called for a federal tax credit for capture and pipeline projects to deliver CO2 from industrial and power plants to operating wells. (Note that the recommended tax credit is focused on plant and pipeline operators, rather than EOR operators.)
In addition to investing in CCS, it should be a national priority to invest in and otherwise advance a range of low-emitting energy technologies—for economic, as well as environmental, reasons. The diversity of energy sources used in electricity generation has been a valuable hedge against the unpredictable volatility of the various fuel sources, including natural gas. An electricity sector that increasingly relies on any single fuel would create unintended risks for our economy.
C2ES urges the EPA to move forward with the GHG NSPS for existing power plants, and to do so in a way that builds on existing state programs and allows states to use flexible market-based measures to implement the standards.
As mentioned, C2ES believes market-based policies would be the best way of reducing GHG emissions and spurring clean energy development and deployment. In the absence of a legislated solution, there appears to be an opportunity to utilize market-based policies in the regulation of GHG emissions from existing power plants.
Under section 111(d) of the Clean Air Act, the EPA, in concert with the states, is required to establish GHG emission standards for existing stationary sources—including existing power plants, which account for about one-third of U.S. GHG emissions today. The EPA has, in fact, entered into a settlement agreement under which it will implement section 111(d) for existing power plants. C2ES urges the EPA to move forward in implementing section 111(d) in a manner that can utilize market-based policies as soon as practicable.
Over the next few years, power plant owners will have to make billions of dollars’ worth of decisions about retrofitting, retiring, and replacing a large number of older, carbon-intensive coal plants in light of pending non-climate air, water, and waste regulations. Not knowing what GHG standards these existing facilities will have to meet presents facility owners with enormous uncertainty, greatly complicating and even delaying their decisions, ultimately at the expense of electricity rate payers. Because the Proposal addresses only new sources, this uncertainty pertains even to reconstruction or modification of existing sources. The Proposal mitigates some of the regulatory uncertainty faced by the power sector, but not all.
At the same time, several northeastern states already have an operational regional cap-and-trade program for CO2 from power plants (the Regional Greenhouse Gas Initiative), California is implementing an economy-wide GHG cap-and-trade program, and several states have renewable energy standards, alternative energy standards, or other programs that are effective in reducing the average GHG emission rate across all sources, as well as the overall level of GHG emissions.
C2ES strongly prefers that Congress establish a comprehensive, national market-based GHG reduction policy that would cover both new and existing sources and help to reduce this patchwork quilt of state and regional regulation. In the absence of such legislation, however, C2ES recommends that, in implementing section 111(d) for existing power plants, the EPA issue GHG emission rate-based performance standards in a manner that allows for averaging, banking and trading among sources, giving states the flexibility to adopt various market-based policies that will meet or outperform the standard.
3. Matthew J. Kotchen and Erin T. Mansur, “How Stringent is the EPA’s Proposed Carbon Pollution Standard for New Power Plants?” University of California Center for Energy and Environmental Economics, April 2012.
As Rio+20 negotiators rush to complete a consolidated text of outcomes before heads of state begin arriving tomorrow, participants at hundreds of side events are calling on business and government to take stronger action on clean energy, poverty elimination, food security, oceans, sustainable cities, green technology development, education, and more.
On Sunday at the U.S. Center pavilion, C2ES and the Global Environment Facility (GEF) convened a panel of companies, small-business innovators, and business representatives highlighting the critical roles played by each in promoting low-carbon innovation and sustainable development.
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, firstname.lastname@example.org
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.