U.S. States & Regions

States and regions across the country are adopting climate policies, including the development of regional greenhouse gas reduction markets, the creation of state and local climate action and adaptation plans, and increasing renewable energy generation. Read More
 

Joint ICAP/NA2050 Public Workshop: Developing Industrial Benchmarks

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North America 2050 (NA2050), which C2ES helps facilitate, and the International Carbon Action Partnership (ICAP) co-hosted a public workshop featuring policymakers and representatives from industry, academia, and nonprofits from around the globe to share experiences and ideas on how benchmarking can be used to improve industrial energy efficiency. Power Point slides from the event are available. 

Joint ICAP/NA2050 Public Workshop

“Developing Industrial Benchmarks”

September 24, 2012 – New York

Pace University, 1 Pace Plaza, NY 10038

 

Jump to Workshop Presentations
 

Background

In major OECD countries, direct and indirect emissions of GHG from industry account for up to one-third of total end-use greenhouse gas (GHG) emissions. Policymakers at a variety of government levels are considering policies to address these emissions. Benchmarking, which assesses GHG emissions performance across facilities or against a common standard, can be used in various policy approaches, including:

·      Regulation of GHG emissions through a cap-and-trade program, along with free allocation of emissions allowances to industry sectors in proportion to output based on an emissions performance benchmark;

·      Regulatory GHG performance standards, where individual facilities are required to meet an emissions performance standard;

·      Energy efficiency targets, either regulatory or voluntary; and

·      Voluntary performance goals, in which participating companies commit to achieving a particular emissions benchmark by a particular year.

Against this background, the North American greenhouse gas (GHG) regulatory landscape has recently been evolving at both federal and sub-national levels, putting GHG emissions benchmarks up on the agenda of U.S. states and Canadian provinces committed to reducing their emissions. Beyond North America, other jurisdictions are also developing benchmarks as a means to reduce GHG emissions, particularly in the European Union as part of the revision of its emissions trading system (ETS) in preparation of Phase III.

Workshop Objectives

·      Explore approaches to developing industrial greenhouse gas emissions benchmarks that could inform either allowances allocation under a GHG cap and trade program or performance-based GHG (i.e. performance standards) regulations;

·      Gain understanding of current approaches to industry benchmarking, including those being implemented in the EU, California and elsewhere;

·      Examine international best practices to identify appropriate sectors with which to begin benchmarking and how to design benchmarks;

·      Identify benefits of coordinating benchmarking approaches, inter alia with regard to competitiveness and leakage issues;

·      Generally foster broader communication and collaboration on climate policy by the example of benchmarking; and

·      Identify possible next steps for continued collaboration between NA2050 and ICAP.

Format

1 day public workshop in New York City with presentations and participation from ICAP and NA2050 representatives and from selected experts from various backgrounds (academia, non-profit, industry). Presentations will be followed by open discussions amongst the participants. About 60 attendees are expected.

Participants

·      Representatives from ICAP members and observers engaged in and/or interested in developing benchmarks for allocation in an emissions trading system;

·      Government officials from U.S. States and Canadian provinces, e.g. from RGGI, WCI and NA2050 jurisdictions, as well as from the U.S. and Canadian federal governments;

·      Industry representatives e.g. from the refinery, steel, cement, pulp and paper sectors;

·      Representatives from the non-governmental sector and from academia.

Co-hosts:  International Carbon Action Partnership (ICAP) and the North America 2050 Initiative (NA2050)

For further information, please visit www.icapcarbonaction.com or na2050.org, or contact us at events@icapcarbonaction.com.

 

Workshop Presentations

(Presentations linked where available)

 

Welcome and introductions

Objective: Welcome speakers and participants. Outline objectives for the workshop. Provide overview of the agenda.

·           Jared Snyder, N.Y.S. Department of Environmental Conservation and ICAP Co-Chair

·           Stuart Clark and Craig Golding, NA2050 Industry Working Group Co-Chairs

Session 1: The Context/Rationale for Benchmarking

Chair: Hans Bergman, European Commission

Objective: Provide a theoretical introduction by defining the concept, key elements and rationale of benchmarking in current regulatory contexts in North America, Europe and elsewhere.

·           Franz Litz, Pace Energy and Climate Center

·           Hubert Fallmann, Austrian Federal Environment Agency

Session 2: Existing and Innovative Approaches to Benchmarking Policy around the World

Chair: Dirk Weinreich, German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

Objective: Provide an overview of current approaches to benchmarking around the world with a focus on policymaking, while exploring similarities and differences while exploring similarities and differences among existing programs. Present the general approach to elaborating benchmarks. Discuss reasoning behind decision to utilize benchmarking and compare to alternatives. This session will also touch on potential uses of benchmarking not yet put in practice.

·           Maarten Neelis, Ecofys

·           Elizabeth Dutrow, U.S. Environmental Protection Agency

·           Ian Bingham, Arizona Department of Environmental Quality

·           Mark Wenzel, Climate Change Unit, California Environmental Protection Agency (via webcast)

Session 3: Constructing Benchmarks

Chair: Pete Erickson, Stockholm Environment Institute

Objective: Focus on the technical aspects of benchmark construction and implementation in selected industry sectors. Highlight similarities and differences among existing programs and industry sectors and why these differences exist.

·      Erika Guerra, Holcim

·      Nate Aden, World Resources Institute

·      Alan Reid, CONCAWE

Session 4: Implementation Challenges and Lessons Learned

Chair: Justin Johnson, Vermont Department of Environmental Conservation

Objective: Reflect on the challenges encountered in the implementation of benchmarks and on lessons learned, both from a regulator’s and industry’s perspective. Discuss the benefits arising from benchmarking programs, and how industries have changed their practices.

·      Jasmin Ansar, Union of Concerned Scientists

  • Perspective of non-governmental organizations on the benefits of benchmarking in decarbonizing the industry and energy sectors.

·      Christophe Ewald, French Ministry of Ecology, Sustainable Development and Energy

·      Denise Viola, Shell

  • Experience with and lessons learned from using benchmarks in the refinery sector.

·      Michelle Ward, New Zealand’s Environmental Protection Agency (via webcast)

  • NZ Experience with benchmarking for industrial allocation under the NZ ETS

·      Alexander Caroly and Jeewantha Karunarathna, Australian Department for Climate Change and Energy Efficiency (via webcast)

Session 5: Conclusions and Outlook

Chair: Judi Greenwald, Center for Climate and Energy Solutions

Objective: Lessons learned from international experiences on benchmarking application in various policy contexts, sectors and countries. Review how challenges were overcome and if those solutions are applicable in all jurisdictions.

Exchange views and discuss possible features that allow for comparable benchmarks at international scale, and appropriate sectors with which to begin benchmarking. Discuss the replicability / transferability potential of examples presented during the workshop to other policy areas, approaches and sectors.

Open discussion facilitated by session chair

 

 

New York develops tax incentives to increase solar energy capacity

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On August 17, three new pieces of legislation establishing and expanding financial incentives for solar energy projects were signed into law in New York by Governor Andrew Cuomo. Such incentives are necessary to ensure the competitiveness of solar energy production given its current high price relative to conventional sources of electrical generation. 

Bill A34B provides for a 25 percent tax credit to homeowners, up to $5000, of the cost of installation of certain solar energy equipment. The law also extends this tax credit to homeowners either leasing solar equipment or purchasing power produced by solar equipment in agreements lasting at least ten years. This law takes effect immediately and lasts 14 years. 

Bill A10620 extends a maximum $62,500 real property tax abatement of 2.5 percent between January 2013 and January 2015 for homeowners installing solar energy equipment through 2014. Bill A05522B provides for exemptions to sales taxes imposed by the state on commercial solar energy equipment and also allows for localities to provide the same exemption. These laws will take effect in January 2013. 

Governor Cuomo enumerated benefits of these incentives, stating that the laws “demonstrate the state’s commitment to reducing energy costs, growing our green energy sector, creating jobs, and protecting the environment.” The New York legislature cited the importance of these initiatives in achieving the ambitious goal set by New York’s renewable portfolio standard of generating 30 percent of the state’s electricity using renewable sources by 2015. In 2011, 24 percent of electricity consumed in New York was produced by renewable sources. 

This legislation furthers the goals of the Governor’s NY-SUN Initiative, which aims to rapidly increase solar energy generation in the state, doubling the level of photovoltaic capacity installed in 2012 and to quadruple the amount of installation in 2013 compared with 2011. These three laws represent the latest legislative tools in a larger set of policies to increase solar generating capacity including competitive grants financing large-scale commercial solar projects and noncompetitive grants funding smaller scale residential projects

 

For more information:

Climate Techbook: Solar Power

Capitol Confidential: Future Brightens for Solar Power Thanks to Legislation

California holds trial allowance auction in preparation for cap-and-trade implementation

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On August 30, 2012 the California Air Resources Board (CARB) conducted a test run of the online allowance auction system for the state’s greenhouse gas emissions trading program. The trial auction, which involved no exchange of money or allowances, was conducted to enable market participants to gain firsthand experience with the auction user interface and to allow CARB to discover and correct problems before the first real auction, scheduled to take place on November 14, 2012. The real event will involve the auctioning of 60 million allowances, each representing the right to emit one metric ton of carbon dioxide equivalent.

Auction participants were able to practice completing the online auction application, opening accounts with the financial services administrator, and having bid guarantees processed in the days before the practice auction was held. CARB further provided online training before the event. On the day of the trial run, participants had a three-hour window to submit bids. More recently, CARB surveyed participants for feedback to improve the system. CARB will not release the auction settlement price or the number of allowances sold to avoid creating improper price signals in the allowance market.

The development of a cap-and-trade system for greenhouse gases was required by the California Global Warming Solutions Act, otherwise known as AB 32, which was signed into law by former Governor Schwarzenegger in 2006. The aim of this legislation is to reduce greenhouse gas emissions in California to 1990 levels by 2020. To that end, the law also requires mandatory GHG emissions reporting, determination of baselines emissions, and establishment of early actions.

Enforcement of the cap-and-trade program begins on January 1, 2013 when electric utilities and large industrial emitters will be covered. The program will expand to include fuel distributors in 2015, eventually covering 85 percent of California’s GHG emissions. The cap is set to decline initially at a rate of two percent annually until 2014 and three percent annually thereafter until 2020. Compliance costs are minimized through trading of allowances and maintaining four percent of allowances in a reserve that will become available if the price exceeds a specified threshold. Allowances may be banked by emitters to be used in the future and compliance periods are three years long to smooth variations in allowance price and product output, respectively. To further increase flexibility, the program allows emitters to purchase a limited number of offset credits, which represent emission-reduction projects taking place outside of the cap-and-trade program. Regulated entities must report emissions annually and face penalties for exceeding allowances or missing compliance deadlines.

In developing and implementing the cap-and-trade system, California has been working closely with the Western Climate Initiative, which is providing administrative and technical support. Such state and regional climate programs capping GHG emissions are important in the absence of national cap-and-trade legislation. 

 

For more information:

C2ES: California Cap-and-Trade Program Summary Table

C2ES: California Global Warming Solutions Act

California Air Resources Board: Cap-and-Trade Program Overview

Paul Hastings, LLP: California Holds Practice Auction for its Cap-And-Trade Program

What can Hurricane Isaac teach us about climate vulnerability?


As with any single event, Hurricane Isaac doesn’t tell us anything about whether hurricanes are getting worse due to climate change. But Isaac’s impacts should be examined to teach us about our vulnerabilities to the types of extreme events scientists tell us climate change will make more common.

Federal Vehicle Standards

Light-Duty Vehicle Standards Timeline (1975-2012)

Recent Legal History

Light-Duty Vehicle Standards (Model Years 2012 to 2025)

Medium and Heavy-Duty Standards (Model Years 2014 to 2018)

Why Consumers Undervalue Fuel Economy 

Calculating Light-Duty Vehicle CAFE Then and Now

Light-Duty Vehicle Program Flexibilities 

For more information

In August 2012, the federal government adopted the second of two rules dramatically increasing the fuel economy and decreasing greenhouse gas emissions from cars and light trucks.

The first rule, adopted in April 2010, raises the average fuel economy of new passenger vehicles to 34.1 miles per gallon (mpg) for model year 2016, a nearly 15 percent increase from 2011. The second rule, finalized in August 2012, will raise average fuel economy to up to 54.5 mpg for model year 2025, for a combined increase of more than 90 percent over 2011 levels. Fuel economy could reach 54.5 mpg if the automotive industry chooses to meet the greenhouse gas target only through fuel economy improvements.

The standards were adopted by the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) with the cooperation of major automakers and the state of California. Together, the standards represent the largest step taken by the federal government directed at climate change. Passenger vehicles were responsible for 17 percent of U.S. greenhouse gas emissions in 2011, and the August 2012 standards through 2025 will reduce the carbon intensity of these vehicles by 40 percent from 2012 to 2025.

Other important benefits include improving U.S. energy security and saving drivers money.

The rule for model years 2017 to 2025 is projected to cut annual U.S. oil imports by an additional 6 percent by 2025 from what would happen otherwise, or 400,000 barrels per day. When combined with the rule for model years 2012 to 2016, U.S. oil imports are expected to decline by over 2 million barrels per day by 2025, equivalent to one-half of the oil we import from OPEC countries each day according to EPA. 

Most of the U.S. transportation sector relies on oil as the single energy source, meaning any disruption can hurt the economy. A study by EPA and the Oak Ridge National Laboratory estimated that cutting demand for oil would produce an energy security benefit for the nation's economy of $13.91 (in 2011 dollars) for each barrel saved. In total, the rule for model years 2017 to 2025 is expected to save approximately 4 billion barrels of oil over the life of vehicles sold during this period.

Higher vehicle costs for fuel efficiency improvements will be far outweighed by fuel savings, with the average driver saving about $8,000 net over the lifetime of a model year 2025 car compared to a model year 2010 car.

Another rule adopted in August 2011 established the first-ever fuel economy and greenhouse gas standards for medium- and heavy-duty vehicles, which include tractor-trailers, large pickups and vans, delivery trucks, buses, and garbage trucks. These standards are projected to save a combined $50 billion in fuel costs, 530 million barrels of oil, and 270 million metric tons of carbon emissions over the lifetime of vehicles for model years 2014 to 2018.

President Obama directed EPA and the Department of Transportation to propose new rules by March 2015, with final implementation a year later, for medium- and heavy-duty vehicles for model years after 2018. According to a C2ES analysis, new standards could improve the fuel economy of these vehicles by an additional 15 percent, reducing annual emissions by 50 million metric tons of CO2-equivalent in 2035.

Transportation is second only to electricity generation as a source of U.S. greenhouse gas emissions.

Light-Duty Vehicle Standards Timeline (1975-2012)

The federal government has regulated fuel economy through standards for cars and light-duty trucks for decades. The 1973 Arab oil embargo prompted Congress to pass legislation in 1975 that introduced Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles only. The purpose was to improve the fuel economy of the passenger vehicle fleet to reduce oil imports.

NHTSA, an agency within the U.S. Department of Transportation (DOT), administered the original CAFE program while EPA was responsible for establishing the testing and evaluation protocol for assessing compliance and calculating the fuel economy for each manufacturer. These responsibilities are the same today.

CAFE is the sales-weighted average fuel economy (in mpg) of the passenger cars or light-duty trucks for a manufacturer's fleet. See Calculating Light-Duty Vehicle CAFE Then and Now below for details of how EPA determines compliance. NHTSA fines manufacturers that are out of compliance. NHTSA has so far collected almost $819 million in fines over the life of the CAFE program.

Since 1975, a number of changes have been made to the standards. Figure 1 provides an annotated history of the U.S. CAFE standards. A number of other countries have also instituted fuel economy standards, with most establishing more aggressive targets than the United States. See here for more details.

FIGURE 1: Fuel economy standard for passenger vehicles from MY1978-2025.


Source: NHTSA Summary of Fuel Economy Performance, NHTSA MY2017-2025 Factsheet

1.     1978-1985: Congress sets car standard (1978-1985)
2.     DOT sets truck standard to max feasible (1979-1996)
3.     DOT decreased car standard (1986-1989)
4.     DOT sets car standard to 27.5 mpg (1990-2010)
5.     Congress freezes truck standards at 20.7 mpg (1997-2001)

6.     Bush Admin issues new truck targets (2005-2007)
7.     EISA changes CAFE to footprint standard (2008-present)
8.     Obama Admin issues new car & truck standards (2012-2016)
9.     Obama Admin issues new car & truck standards (2017-2025)

Recent Legal History

Under the federal Clean Air Act, California is the only state with the ability to set air emission standards for motor vehicles, as long as these standards are as stringent as the federal standards and the state receives a waiver from the EPA. Once California receives an EPA waiver, other states can adopt California's standards.

In 2002, California enacted the Clean Cars Law (AB 1493) to set vehicle emissions standards for greenhouse gases. In April 2007, the Supreme Court ruled that the EPA has the authority to regulate greenhouse gas emissions from the transportation sector under the Clean Air Act. In December 2007, a judge threw out a lawsuit by automakers attempting to block California from implementing AB 1493. The intersection of fuel economy standards and greenhouse gas emission standards was beginning to become clear (see here for more on California vehicle standards).

Back in December 2005, California had applied for an EPA waiver to implement its greenhouse gas standards. In March 2008, EPA denied California's waiver request. Upon taking office in January 2009, President Barack Obama ordered EPA to reconsider that denial.

In June 2009, EPA granted a waiver allowing California to regulate greenhouse gas emissions from vehicles within the state beginning with model year 2009. On September 15, 2009, EPA and NHTSA issued a joint proposal to establish new vehicle standards for fuel economy and greenhouse gas emissions for model years 2012 to 2016, which were finalized on April 1, 2010. The joint proposal reflected an agreement among EPA, NHTSA, California, and most major automakers. California promptly agreed to adopt the federal standards in lieu of its own separate standard; and did so again with the latest standards covering model years 2017 to 2025.

Light-Duty Vehicle Standards (Model Years 2012 to 2025)

The latest passenger vehicle standards, finalized in August 2012 and published in the Federal Register in October 2012, cover passenger cars, light-duty trucks, and medium-duty passenger vehicles, from model year 2017 to 2025. The standards build off those set in April 2010 for model years 2012 to 2016. The standards are based on the vehicle's footprint, which is a measure of vehicle size (see Calculating Light-Duty Vehicle CAFE Then and Now). 

Because NHTSA cannot set standards beyond model year 2021 due to statutory obligations and because of the rules' long time frame, a mid-term evaluation is included in the rule. Thus, standards for model years 2022 through 2025 are considered "augural" by NHTSA. The comprehensive evaluation by both EPA and NHTSA will allow for any compliance changes if necessary for the later years covered by the rule.

As seen in Table 1, the greenhouse gas standard from EPA requires vehicles to meet a target of 163 grams of carbon dioxide equivalent (CO2e) per mile in model year 2025, equivalent to 54.5 mpg if the automotive industry meets the target through only fuel economy improvements.

TABLE 1: Projected Emissions Targets under the Greenhouse Gas Standards (g CO2e/mi)

 

2012

2013

2014

2015

2016

2017

2018

Passenger Cars

261

253

246

235

225

212

202

Light Trucks

352

341

332

317

298

295

285

Combined Cars & Light Trucks

295

286

276

263

250

243

232


 

2019

2020

2021

2022

2023

2024

2025

Passenger Cars

191

182

172

164

157

150

143

Light Trucks

277

269

249

237

225

214

203

Combined Cars & Light Trucks

222

213

199

190

180

171

163

As seen in Table 2, the fuel economy standard from NHTSA requires vehicles to meet an estimated combined average of up to 48.7 mpg in 2025. This estimate is lower than the mpg-equivalent of the EPA target for 2025 mentioned above (54.5 mpg) , because it assumes that manufacturers will take advantage of flexibility available under the law designed to reduce the cost of compliance. See Light-Duty Vehicle Program Flexibilities for more information.

TABLE 2: Projected Fuel Economy Standard (mpg).

 

2012

2013

2014

2015

2016

2017

2018

Passenger Cars

33.6

34.4

35.2

36.4

38.2

39.6

41.1

Light Trucks

25

25.6

26.2

27.1

28.9

29.1

29.6

Combined Cars & Trucks

29.8

30.6

31.4

32.6

34.3

35.1

36.1


 

2019

2020

2021

2022

2023

2024

2025

Passenger Cars

42.5

44.2

46.1

48.2

50.5

52.9

55.3 

Light Trucks

30.0

30.6

32.6

34.2

35.8

37.5

39.3

Combined Cars & Trucks

37.1

38.3

40.3

42.3

44.3

46.5

48.7

 

This table is based on CAFE certification data from model year 2010, a car-truck sales split from the Energy Information Administration's Annual Energy Outlook for 2012, and future sales forecasts by JD Powers.

Medium and Heavy-Duty Standards (Model Years 2014 to 2018)

NHTSA and EPA released medium- and heavy-duty vehicle standards for model years 2014 to 2018 in August 2011. Tighter standards for these vehicles for model years after 2018 are due to be proposed by March 2015 and finalized a year later. Table 3 defines the breakdown for medium- and heavy-duty vehicles by weight.

TABLE 3: Vehicle class breakdown for medium- and heavy-duty vehicles

Class

2b

3

4

5

6

7

8

Gross Vehicle Weight Rating (lb)

8,501 – 10,000

10,001 – 14,000

14,001 – 16,000

16,001 – 19,500

19,501 – 26,000

26,001 – 33,000

>33,001

 

The medium- and heavy-duty standards for tractor-trailers, buses, etc., are the first of their kind in the world. The standards are divided into three segments:

1.       Tractor-trailers, which are responsible for almost two-thirds of fuel consumption from medium- and heavy-duty trucks, will have to achieve about a 20 percent reduction in fuel consumption by model year 2018, or about 4 gallons of fuel every 100 miles traveled. The following table defines the fuel consumption standards for tractor-trailers.

TABLE 4: Fuel Consumption Standards for Tractor-Trailers

 

Day cab

Sleeper cab

 

Class 7

Class 8

Class 8

2014–2016 Model Year Gallons of Fuel per 1,000 Ton-Mile

Low Roof

10.5

8.0

6.7

Mid Roof

11.7

8.7

7.4

High Roof

12.2

9.0

7.3

2017 Model Year and Later Gallons of Fuel per 1,000 Ton-Mile

Low Roof

10.2

7.8

6.5

Mid Roof

11.3

8.4

7.2

High Roof

11.8

8.7

7.1

 

2.       Heavy-duty pickup trucks and vans will have to improve fuel economy by model year 2018 by 10 percent for gasoline vehicles and by 15 percent for diesel vehicles, or one gallon of fuel per 100 miles traveled. The standards are phased in, increasing in stringency from model years 2014 to 2018. The standards rely on a "work" factor, which considers the vehicle's cargo capacity, towing capabilities, and whether it has 4-wheel drive. Similar to the light-duty standards, the standards are based on the manufacturer's sales mix. To provide flexibility, manufacturers can conform to the standards using one of two phase-in approaches:

FIGURE 2:

3.       Vocational vehicles (delivery trucks, buses, garbage trucks) will have to improve fuel economy by 10 percent by model year 2018, or about one gallon of fuel per 100 miles traveled. The following table defines the fuel consumption standards for vocational vehicles.

TABLE 5: Fuel Consumption Standards for Vocational Vehicles.

Regulatory subcategories

Light Heavy-Duty Class 2b-5

Medium Heavy-Duty Class 6-7

Heavy Heavy-Duty Class 8

Fuel Consumption Mandatory Standards (gallons per 1,000 ton-miles) Effective for Model Years 2017 and later

Fuel Consumption Standard

36.7

22.1

21.8

Effective for Model Years 2016

Fuel Consumption Standard

38.1

23.0

22.2

Fuel Consumption Voluntary Standards (gallons per 1,000 ton-miles) Effective for Model Years 2013 to 2015

Fuel Consumption Standard

38.1

23.0

22.2

 

NHTSA and EPA designed the standards based on the kind of work the vehicles undertake. Heavy-duty pickup trucks and vans must meet a standard specified similarly to passenger vehicles, gallons of fuel per mile and grams of CO2e per mile. The other two categories must meet a standard based on the amount of weight being hauled (fuel consumed or grams of CO2e emitted per ton of freight hauled a defined distance).

Why Consumers Undervalue Fuel Economy

U.S. fuel economy and greenhouse gas standards exist because individual drivers tend to value savings from fuel economy much less than society as a whole, which leads to more oil consumption than would occur if soceital benefits were taken into account. The benefits to society of higher fuel economy include, but are not limited to, reduced impacts on global climate, improved energy security, and overall consumer savings. But those benefits are not top of mind when a consumer buys a car.

In addition, when making purchasing decisions, most people assume a dollar today is worth more than a dollar in the future since the dollar today can be invested and grow in value over time. The value people assign to a dollar in the future compared to a dollar today is known as the discount rate, or the interest rate they would expect on a dollar invested today. For example, a discount rate of 20 percent means consumers assume they will make 20 percent interest annually on money invested today, which is unlikely. Thus, the higher the discount rate a consumer uses, the more likely a consumer is to invest that money instead of spending it on a product. Consumers can exhibit different discount rates depending on the product.

For passenger cars, David Greene from Oak Ridge National Laboratory found that the value consumers place on fuel economy savings varies widely, but empirical research reveals a discount rate between 4 and 40 percent. The discount rate that society put on fuel savings is much closer to 4 percent, meaning consumers often substantially undervalue fuel economy compared to society.

Calculating Light-Duty Vehicle CAFE Then and Now

Each automaker's fleet-wide average fuel economy consists of three potential fleets: domestic passenger cars, imported passenger cars, and light-duty trucks. (The split between domestic and imported cars exists to support domestic automobile production.) With its focus on fuel efficiency, the standard must capture the fuel economy of each vehicle traveling the same number of miles. The harmonic mean of the fleet accomplishes this task (versus the simpler arithmetic mean). That is, instead of dividing the sum of the fuel economy rates in mpg for each vehicle by the total number of vehicles (the arithmetic mean), the reciprocal of the arithmetic mean is used as follows:

 

Where Production is the number of vehicles produced for sale for each model and TARGET is the fuel economy target for the vehicle.

Before 2008, the target fuel economy was the same for all vehicles. In 2008, NHTSA changed the target to a bottom-up one based on attributes of each vehicle instead of a top-down uniform target across an entire automaker's fleet. The vehicle footprint target for light-duty trucks through model year 2016 and for automobiles through model year 2025 is determined as follows:

 

where FOOTPRINT is the product of the vehicle's wheelbase and average track width in square feet, a and b are high and low fuel economy targets that increase from 2012 to 2025 and are constant for all vehicles, and c and d are adjustment factors. Parameter c is measured in gallons per mile per foot-squared, and parameter d is measured in gallons per mile.

For light-duty trucks beginning in model year 2017, an additional variation of the TARGET calculation is considered. This additional variation establishes a "floor" term, which prevents any footprint target from declining between model years. The definitions of parameters a, b, c, and d correspond to e, f, g, h, accordingly. However, the values of these parameters are different.

 

The idea behind an attribute-based standard is that the level of difficulty of meeting the standards is the same for smaller and larger vehicles. A uniform standard, on the other hand, is easier to meet for smaller vehicles (i.e., those with a smaller footprint) than for larger vehicles.

Light-Duty Vehicle Program Flexibilities

The EPA and NHTSA programs have a number of features to make compliance for manufacturers more cost-effective, while also encouraging technological innovation like plug-in electric vehicles. Since there are two programs to comply with, the details of both programs are stipulated below.

  • Credit Trading System: Both programs include a credit system allowing manufacturers to carry efficiency and greenhouse gas credits forward by up to five years and backward up to three years to achieve compliance and avoid fines. Manufacturers can also transfer credits between cars and trucks of their fleet and trade credits with other manufacturers. Additionally, CO2 credits generated for EPA compliance from model year 2010 to 2016 can be carried forward as far as model year 2021.
  • Air Conditioning Improvements: Both programs allow manufacturers to use air conditioning (A/C) system efficiency improvements toward compliance. For the NHTSA program, credits will depend on fuel consumption reductions. The EPA program allows credits for reductions in fuel use and refrigerant leakage, as well as the use of alternative refrigerants with lower global warming potential.
  • Off-Cycle Credits: Current test procedures do not capture all fuel efficiency and greenhouse gas improvements available. Technologies that qualify for additional credit might include solar panels on hybrid vehicles, active aerodynamics, or adaptive cruise control. In addition, manufacturers can apply for credit for newer technologies not yet considered if they can provide sufficient data to EPA.
  • Zero Emission, Plug-in Hybrid, and Compressed Natural Gas Vehicle Incentives: To encourage plug-in electric vehicles, fuel cell vehicles, and compressed natural gas (CNG) vehicles, EPA has included a credit multiplier in the rule for model years 2017 to 2021. In the compliance calculation for GHG Emissions, all-electric and fuel cell vehicles count as two vehicles beginning with model year 2017 and phasing down to 1.7 by model year 2021. Plug-in hybrid electric vehicles begin with a multiplier of 1.6 in model year 2017 and phase down to a value of 1.3 by model year 2021. Electric and fuel cell vehicles sold during this period will count as emitting 0 grams of CO2e per mile. There is no multiplier for model years 2021 to 2025 and EPA limits the zero-grams credit based on vehicle sales during this period. The cap for model years 2021 to 2025 is 600,000 for companies that sell 300,000 of these vehicles from model year 2019 to 2021 and at 200,000 otherwise. Beyond that number, manufacturers of electric and fuel cell vehicles will need to account for their upstream emissions (i.e., electricity generation or hydrogen production) using accounting methodologies defined in the rule.

    EPA has also included credit multipliers for CNG equivalent to plug-in hybrid electric vehicles: 1.6 in model year 2017 and a phase down to 1.3 by model year 2021. Unlike electric and fuel cell vehicles, GHG emissions from CNG vehicles will be measured by EPA.

    In contrast, NHTSA does not believe it has the legal authority to offer credit multipliers. Existing legal authority does allow NHTSA to incentivize alternative fuels, like natural gas, however, by dividing vehicle fuel economy by 0.15; in other words, an electric, fuel cell, or CNG vehicle that has a fuel economy of 15 mpg-equivalent will be treated as a 100 mpg-equivalent vehicle.

  • Truck Hybridization: Both programs offer incentives to add battery-electric hybrid support to full-size trucks. Mild hybrid pickup trucks (15-65 percent of braking energy is recaptured) would be eligible for a per vehicle credit of 10 grams of CO2e per mile during model years 2017 to 2025 so long as the technology is incorporated into 20 percent or more of the company's model year 2017 full-size pickup production, ramping up to at least 80 percent by model year 2021. Strong hybrid pickup trucks (at least 65 percent of braking energy is recaptured) would be eligible for a credit of 20 grams of CO2e per mile per vehicle during model years 2017 to 2025 as long as the technology is used in at least 10 percent of the company's full-size pickup trucks.

For more information

Innovative financing program helps South Carolina homeowners save money through energy efficiency retrofits

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An innovative energy-financing program has helped customers of South Carolina rural electric cooperatives to undertake energy efficiency retrofits for their homes, substantially reducing their energy use and saving money. 

Through on-bill financing (OBF), customers pay back the cost of the retrofit through monthly installments on their electricity bill. This strategy helps to expand access to costly energy retrofits to low-income residents and makes the financial benefits immediately apparent. If monthly energy savings are greater than or equal to the loan repayment, then OBF will be “bill neutral” and result in the same or lower monthly electricity bills . In addition, the financial obligation of OBF is tied to the electricity meter of each house and can be passed on to subsequent owners and residents; thus, customers only pay for the energy retrofits for as long as they live there. 

A preliminary review of South Carolina’s pilot program, called “Help my House,” found that the 125 participating households are projected to save an average of $400 each year after loan repayments. Energy use could be reduced by thirty-five percent, or approximately 11,000 kilowatt-hours each year. The retrofits, which included improvements to insulation, sealing, and heating, ventilation, and air-conditioning (HVAC) systems, cost an average of $7,200, with projected simple payback periods of 5.86 years. In addition, ninety-six percent of participants reported satisfaction with the efficiency installations and rated their homes as more comfortable after the retrofit.

The program was launched in 2011 by the Central Electric Power Cooperative, which supplies wholesale electricity to 20 rural South Carolina electric cooperatives, and the Electric Cooperatives of South Carolina, the co-ops’ marketing and policy partner, with support from the Environmental and Energy Study Institute. A full-scale OBF energy-efficiency program implemented by South Carolina cooperatives could save an estimated $270 million per year in electricity costs and create more than 7,000 jobs after 20 years, according to an analysis by Coastal Carolina University.

South Carolina utilities were authorized to offer OBF through the passage of Senate Bill 1096 in 2010. The bill eliminated the need for credit checks by tying the financial obligation to the meter rather than to the individual borrower, and allowed utilities to disconnect power if loan repayments are not made. Utilities in 22 other states offer OBF, with supporting state legislation in Illinois, Hawaii, Oregon, California, Kentucky, Georgia, Michigan, and New York.

In addition, “Help my House” was funded by a $740,000 loan from the U.S. Department of Agriculture’s (USDA) Rural Utility Service (RUS), which supports the development of electric, water, and telecommunications services in rural regions. This was the first time RUS funded an energy efficiency initiative, but more cooperatives around the country may follow South Carolina’s example. On July 17 USDA proposed a rule that would create a new RUS program to provide up to $250 million in loans for energy efficiency improvements. The proposed Energy Efficiency and Conservation Loan Program would allow rural electric cooperatives to provide energy efficiency retrofits, including those funded by OBF programs, audits, renewable energy systems, and more. 

For more information: 

Help My House Pilot Program – Summary Report

Environmental and Energy Study Institute – Fact Sheet

 

Business and government start preparing for climate impacts

Today’s Senate hearing isn’t just about the science of climate change. It’s also about the actions that need to be taken now to adapt to the reality of a changing climate. Businesses and governments each have a critical role to play in building resilient communities and economies.

Business-as-usual is already being interrupted by extreme heat, historic drought, record-setting wildfires, and flooding. Events from water shortages to floods are disrupting the supply chains for such companies as Honda, Toyota, Kraft, Nestle and MillerCoors. By the end of 2011, the United States had recorded more billion-dollar disasters than it did during all of the 1980s, totaling about $55 billion in losses.

New York adopts regulations limiting power plant carbon emissions

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On June 28, 2012, New York State finalized its rule limiting carbon dioxide emissions from new power plants, and capacity additions to existing plants, within the state. The rule, 6 NYCRR Part 251, would effectively prevent the construction of new coal-fired power plants unless they are combined with carbon capture and sequestration technology. The new state standard is stricter than the federal rule proposed by the U.S. Environmental Protection Agency in April 2012. The regulation takes effect July 12, 2012.

Please see our original news story for the details of the regulatory standard.

U.S. States: Emissions Caps for Electricity

New York Dept. of Environmental Conservation: Adopted Part 251 CO2 Performance Standards for Major Electric Generating Facilities
 

New Ohio law tackles broad sweep of energy measures

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On June 11, Ohio governor John Kasich signed a new energy law that establishes one of the United States’ strictest regulatory frameworks for new natural gas drilling technologies. The law, S.B. 315, also makes cogeneration an eligible option for meeting the state’s target of 12.5 percent renewable energy generation by 2025. Other measures address smart grids and electricity pricing, natural gas vehicles, alternative fuel loans, and green building standards for state-owned buildings. 

New Regulations for Natural Gas Drilling

Eastern Ohio’s deep shale formations may be among the largest natural gas reservoirs in the U.S., and the new law will regulate the horizontal drilling and hydraulic fracturing (commonly known as “fracking”) necessary to explore these resources. Fracking, in particular, raises concerns for its use of industrial chemicals and potential impacts on water quality.

S.B. 315 addresses those concerns with requirements for the disclosure of chemicals and additives used in all stages of the drilling and fracking process. It also requires developers to conduct tests of water wells in the vicinity before drilling a new horizontal well or any well in an urbanized area. Developers must also identify in their permit applications all water sources that will be used for drilling. 

Supported by the oil and gas industry, the law has met with criticism from environmental groups, since companies can avoid disclosing chemicals by claiming them as proprietary trade secrets. Other objections are that operators do not have to disclose chemicals until up to sixty days after the completion of drilling, and the lack of public commenting throughout the permit application process.

Cogeneration to Qualify as Renewable Energy

The new energy law reclassifies cogeneration as a renewable energy technology under Ohio’s alternative energy portfolio standard (AEPS). The portfolio standard, which governs the state’s electricity generation mix, includes separate targets of 12.5 percent each for both renewable (such as wind and solar) and advanced energy (such as clean coal or nuclear) generation by 2025. Previously, cogeneration counted toward the advanced energy target, but because the advanced energy standard lacks interim targets, electric utilities made little progress in developing new cogeneration projects.

To encourage faster development, S.B. 315 revises the AEPS to allow certain kinds of cogeneration to count toward the renewable energy standard, which does have yearly interim targets. Specifically, utilities can use electricity generated from waste energy recovery (WER) systems to fulfill either the renewable target or a separate energy efficiency standard, but not both. Under the new definition, Ohio is the only state to classify electricity generation from waste heat as a renewable energy source.

Critics worry that including WER systems under the renewable energy standard will undermine the development of renewable energy sources such as wind and solar in Ohio. Wind developers argue that the incremental targets are not ambitious enough to provide room for both renewables and WER systems, and may damage the prospects of several wind energy projects that are already underway.

Other Clean Energy Measures: Transportation, Grid, and Buildings

Finally, the new law includes several other clean energy measures, such as one supporting the wider adoption of natural gas vehicles. The Public Utilities Commission of Ohio (PUCO) and Ohio Department of Transportation (ODOT) will conduct a study on the cost-effectiveness of compressed natural gas vehicles, including the conversion of the state’s fleet to run on natural gas. The law also authorizes ODOT to work with other states on a regional study of the development of compressed natural gas infrastructure for transportation.

In addition, the law authorizes PUCO to undertake several electricity-related initiatives. The commission will periodically review any green pricing programs offered by utilities. It will also undertake a study on how increased energy efficiency, demand response, generation, transmission, and emerging technologies can increase opportunities for consumer choice. In addition, PUCO will review the electricity distribution and transmission infrastructure and evaluate the need for improvements, additions, and upgrades.

S.B. 315 also updates and expands several green-building codes for state-owned buildings. The law requires that cogeneration be considered as a potential energy source as part of the lifecycle cost analysis for state-funded facility projects with a construction cost of $50 million or more. The new law also expands the definition of energy conservation measures to include tri-generation systems (which produce electricity and both heat and cooling), renewable energy systems producing electricity for the building, and the optimization of computer servers, data storage devices, and other information technology infrastructure.

For more information:

Renewable and Alternative Energy Portfolio Standards

Climate Techbook: Cogeneration / Combined Heat and Power (CHP)

Climate Techbook: Natural Gas

Ohio General Assembly: S.B. 315

Ohio.gov: Senate Bill 315 – Improving Regulatory Framework

Bricker & Eckler LLP: Ohio Senate Bill 315: A Summary of Governor Kasich’s Energy Bill

Midwest Energy News: Ohio could pit cogeneration against wind farms

U.S.’s first mandatory, market-based program to reduce greenhouse gas emissions reports 23 percent reduction

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The Regional Greenhouse Gas Initiative (RGGI) is undertaking a review of its first compliance period, which ran from 2009 through 2011 and saw successful reductions in greenhouse gas emissions below its initial targets. The power sector of nine Northeast and North Atlantic states reported annual average carbon emissions of 126 million short tons during the three year-period, representing a 23 percent reduction compared to the previous three-year span of 2006 through 2008. 

Overall, 206 out of the 211 power plants within RGGI's jurisdiction achieved their compliance objectives. Emission levels in the first compliance period were 33 percent below the program's annual cap of 188 million short tons.

The decline in carbon emissions was achieved without a comparable decline in the total quantity of electricity consumption, which dropped just 2.4 percent during the same timeframe. The reasons for the emission reduction include a greater use of natural gas for electricity generation instead of coal, investment in energy efficiency, and the increased use of renewable energy as part of states' renewable portfolio standards.

RGGI includes nine states of the Northeast and Mid-Atlantic and is the United States' first mandatory, market-based program to reduce carbon emissions through cap and trade. Regulated entities are required to purchase and hold one allowance, or credit, for each short ton of carbon dioxide they emit. The program limits the total amount of emissions by issuing a set number of allowances (the cap). Entities whose emissions exceed their allowances can purchase more from those that emit less (the trade), creating an incentive to reduce emissions for those that can do so cheaply. The cap can be decreased each year to reduce overall emissions.

In addition, RGGI has created many benefits for participating states, generating 16,000 job-years of work and $1.6 billion worth of economic activity over the three years, according to an Analysis Group study. Energy efficiency improvements funded through RGGI allowance auctions will also help customers save $1.3 billion on their electricity, natural gas, and heating bills over the next decade.

The second compliance period extends from 2012 through 2014, with an annual emissions cap of 165 million short tons. Starting in 2015, the cap will be reduced by 2.5 percent each year, for a total reduction of 10 percent from 2009 levels by 2018. But because the program has already outperformed this target, six out of the nine RGGI states are now considering tightening the cap for even further reductions.   

For more information:

Regional Greenhouse Gas Initiative (RGGI)

Emissions Caps for Electricity

RGGI: 97% of RGGI Units Meet First Compliance Period Obligations

Analysis Group: New Analysis Quantifies Economic Impact of Regional Greenhouse Gas Initiative in Ten States
 

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