Climate Compass Blog
The federal government has an important role facilitating the acceleration of a clean, modern 21st century energy system. Ignoring that role or diminishing its effectiveness go against the tide of innovation and entrepreneurial spirit that is creating U.S. jobs and helping the economy flourish.
Companies, states, and cities are all pursuing clean energy and energy efficiency because it makes economic sense. The federal government needs to encourage this innovation, not try to slow it down.
Consider that clean energy is the fastest growing energy sector in the United States. Renewables have accounted for more than half of new U.S. power capacity for the past three years in a row. Thanks to market forces, including falling prices for renewables and relatively low and stable prices for natural gas, the U.S. energy system is getting cleaner.
The drive for clean energy and sustainability is also putting Americans to work. The latest U.S. Department of Energy report shows the solar workforce increased by 25 percent to about 374,000 in 2016, while wind employment increased by 32 percent to about 102,000. Almost 2 million Americans are employed in the design, installation, and manufacture of energy-efficiency products and services. The U.S. nuclear industry directly employs about 50,000, and growing global demand could generate thousands of U.S. industry jobs.
Private enterprise is leading this clean-energy transition. Since the election, Google announced it will meet its goal this year of running on 100 percent renewable power. HP pledged to reduce the greenhouse gas emissions from its global operations by 25 percent from 2015 levels by 2025. NRG completed the first retrofit of a U.S. coal-fired power plant to capture carbon emissions in Texas – on time and under budget.
Many states and cities are also embracing clean energy and clean transportation.
- Twenty-nine states have renewable portfolio standards requiring utilities to deliver a certain amount of electricity from renewable or alternative energy. Since the election, several states, including Maryland and Michigan, have taken steps to raise their standards.
- Eleven states already have limits on carbon dioxide emissions, and are using effective, market-based approaches to achieve the reductions economically.
- Several states, including California, Connecticut, and New York, have created Clean Energy Banks or Green Banks to facilitate more private investment in clean energy projects.
- More than two-dozen U.S. cities have committed to switch entirely to renewable energy.
- About 30 cities have told U.S. automakers they want electric street sweepers, trash haulers and other vehicles, potentially generating $10 billion in sales.
These steps by businesses, states, and cities are significant. The National Renewable Energy Laboratory estimates the average city alone could reduce its carbon footprint nearly 20 percent by taking steps like improving building codes, increasing access to public transit, practicing “smart” growth, incentivizing solar and localized electricity systems or “microgrids.”
But all these steps are not enough to address the climate and energy issues we face. Without federal leadership, we won’t maximize the benefits of state policies and we’ll see more lawsuits and regulatory uncertainty that slow business decision-making and investment.
Delaying federal climate action also increases the risk of climate impacts such as frequent and intense extreme weather, rising sea levels, droughts and heat waves that many communities are already experiencing. Failing to act now means paying more later.
In the near term, there are opportunities for bipartisan steps at the federal level that could help both the environment and the economy, including:
Incentivizing carbon capture. Bipartisan support is growing on Capitol Hill and beyond to accelerate carbon capture deployment on power plants and industrial sources like steel and cement plants. Senate and House lawmakers introduced bipartisan bills in April to help unleash private capital to scale up the number of carbon capture projects. This is the crucial first step to bring down capture costs, which could help create a market for using manmade carbon dioxide in useful products.
Advancing nuclear energy. Nuclear, our largest source of zero-carbon energy, will have to play a role in any long-term climate strategy. There’s bipartisan support for preserving existing nuclear plants, and spurring the research and development that will lead to the next generation of nuclear energy. House and Senate lawmakers have reintroduced the bipartisan Nuclear Energy Innovation Capabilities Act to enhance collaboration between private sector innovators and the Department of Energy’s national labs.
Modernizing our infrastructure. This key goal of the new administration could create jobs and improve climate resilience. A modernized grid and support for energy efficiency can make communities more resilient while reducing their carbon footprint. We could expand charging and refueling networks for electric, natural gas and hydrogen vehicles. And as we rebuild our roads and bridges, let’s make sure they’re built to last and can withstand more frequent extreme weather.
Empowering states. Reasonable people can debate the relative roles for state and federal government in environmental regulation, however it is unreasonable to expect states to take on more responsibilities with less federal funding and support. We urge Congress to include funding for states and important agency support at the Environmental Protection Agency and the Department of Energy.
Promoting American energy, putting Americans to work, and powering the American economy shouldn’t be partisan issues. Putting “America First” also means recognizing the climate risks to U.S. communities and companies and the economic benefits of a clean energy future. As an organization committed to building bridges, C2ES is prepared to work with the private sector and public officials at all levels of government to find practical climate solutions.
California has demonstrated leadership in setting ambitious goals for reducing greenhouse gas emissions. The state’s target: Reduce emissions to 40 percent below 1990 levels by 2030.
While California is reducing emissions and expanding clean energy through many means, including a cap-and-trade program, the state appears to be underestimating the effectiveness and readiness of carbon capture technology and how it could help California reach its goal.
In consensus comments on the California Air Resources Board’s (CARB) draft 2017 Climate Change Scoping Plan Update, a diverse group of nonprofits (including C2ES); environmental groups; and oil, gas, and ethanol companies outlined the current state of carbon capture deployment, the technology’s benefits, and how California could address roadblocks that may be hindering its deployment.
State of technology
Carbon capture technology has been deployed in U.S. commercial-scale industrial facilities since the early 1970s, including at natural gas processing plants and fertilizer production plants. The comment letter lists more than a dozen notable U.S. projects.
Most recently, Archer Daniels Midland’s Illinois Industrial Carbon Capture and Storage project – the world’s first commercial-scale carbon capture project on ethanol — began operations in April. More than 1 million tons of CO2 will be captured and stored in Mount Simon sandstone. Carbon capture on biofuels could one day lead to negative emissions, since bioenergy crops absorb greenhouse gases as they grow.
Earlier this year, NRG finished – on time and under budget – the first American retrofit of a coal-fired power plant with carbon capture technology and the largest of its kind in the world.
The NRG Petra Nova project near Houston, Texas, is capturing about 1.6 million tons of CO2 annually for use in enhanced oil recovery (CO2-EOR). Studies have documented the net benefit to the climate of CO2-EOR using manmade CO2.
Carbon capture benefits
Carbon capture plays an important role in reducing emissions at a lower cost than other scenarios modelled by the Intergovernmental Panel on Climate Change. In the industrial sector, the International Energy Agency (IEA) concluded there are no practical alternatives to the use of carbon capture technology to achieve deep decarbonization.
Accelerating carbon capture deployment also could have co-benefits for environmental justice because carbon capture retrofits are often accompanied by improvements to promote efficiency and reduce sulfur oxide and nitrogen oxide emissions.
Next generation technologies could do even more:
- NET Power’s Allam Cycle technology, which is being tested at the 50-megawatt scale, could generate power from natural gas with near zero CO2 and nitrogen oxide emissions, while also eliminating the need to use water for cooling.
- The Lake Charles Methanol project in Louisiana, which recently received a conditional commitment for a Department of Energy loan guarantee, would capture CO2 from a process that converts waste petcoke from refining into methanol, hydrogen, and other chemicals, eliminating harmful emissions.
- FuelCell Energy’s technology isolates carbon emissions from power plants, while simultaneously producing power. The fuel cells also eliminate 70 percent of the plant’s nitrogen oxide emissions.
What California can do
California has certainly taken positive steps on carbon capture. As noted in our comments, a major step forward is CARB’s progress toward drafting and adopting a Quantification Methodology (QM) for determining how to account for emissions reductions from carbon capture and storage. The concept paper was released April 17.
Looking forward, the pace of carbon capture deployment in California may be determined largely by legal, regulatory and policy considerations. Among the recommendations for CARB in our consensus comments were:
- Identify carbon capture on the menu of CO2 reduction strategies not only for industrial sources, but also in the power sector, and identify a range of emission reductions that could come from carbon capture deployment in those sectors. ?
- Consider and update the recommendations of the CCS Review Panel to identify steps needed to ensure that carbon capture could be implemented by 2025.
- In addition to developing a regulatory monitoring, reporting, verification, and implementation methodology, identify any barriers in current regulatory programs that impede carbon capture deployment.
- Identify the potential for synergies between carbon capture and the reduction of other emissions (toxics and criteria pollutants) at large point sources and recommend additional work to analyze these synergies.
- Consider whether the state’s Low Carbon Fuel Standard should be revised so that carbon capture is not required to take place onsite at the crude oil production facility. The highest priority should be for the CO2 to be transported to and injected at a site with suitable geological characteristics for safe storage.
- Consider allowing credit for CO2 emissions captured outside of crude oil production facilities if it leads to a lower-carbon energy input into the fuel supply chain of the crude oil.
California should be commended for its leadership in setting an ambitious emissions-cutting goal and charting a path toward reaching it. California can also lead by addressing key policy and regulatory questions to ensure that carbon capture is part of its overall plan.
Comments, posted here, were from: California Resources Corporation, Chevron, Clean Air Task Force, Center for Climate and Energy Solutions, Conestoga Energy, EBR Development LLC, 8 Rivers, Global CCS Institute, Natural Resources Defense Council, Occidental Petroleum, Shell, Steyer-Taylor Center, and White Energy.
California’s cap-and-trade program received court affirmation this month that the state has authority to auction allowances. But questions remain about the program’s future.
California lawmakers are evaluating ways to achieve the state’s 2030 greenhouse gas reduction goal. One option, championed by Governor Brown, is to extend its cap-and-trade program. But some lawmakers are concerned the program isn’t delivering the expected revenues for state clean energy programs. Others worry it doesn’t do enough to provide equitable environmental co-benefits.
Could the single step of extending the program address these concerns? To some extent, yes.
The debate in Sacramento
Under California’s cap-and-trade program, operating since 2013, emissions are down and economic productivity is up.
But there are some areas of concern. Auction revenues are down. As I’ve noted before, low carbon prices don’t mean a cap-and-trade program isn’t working. They just mean the required emissions reductions are cheap. But California legislators want to use auction revenue to fund other projects like planting trees in urban areas and putting rooftop solar panels in disadvantaged communities. More importantly, a recent analysis shows emitters are more likely to be near disadvantaged communities, raising concern Californians won’t enjoy the co-benefits, like cleaner air, equally.
Legislators have proposed extending the cap-and-trade program through 2030, although they are debating restricting how it operates. Discussion continues about replacing cap-and-trade with a carbon tax approach. This tax proposal would seek to address the first concern, that allowance prices are too low to fund desired programs. Other debate centers around restrictions to force more emissions reductions to occur inside the state. Current rules allow for reductions at sources of electricity outside California, or at limited offset project sites in the U.S. and Canada.
Economic theory tells us that limiting emissions through a cap-and-trade program will achieve the environmental objective at the least cost, through business innovation. Could lowering the cap address other key concerns as well?
Tighter cap = higher revenues
The California Air Resources Board’s (CARB) 2017 Climate Change Scoping Plan Update (Scoping Plan) evaluates policy options to achieve the 2030 goal. The regulator’s preferred approach is to keep existing programs (like the state’s aggressive 50 percent Renewable Portfolio Standard), extend the cap-and-trade program, and require extra emissions reductions at in-state refineries. Its analysis concludes this would meet the 2030 goal, using market-based approaches to minimize costs while prioritizing in-state reductions.
Using the information in the Scoping Plan, let’s examine how CARB’s preferred policy approach would address concerns about revenue and equity.
First, compare actual auction revenue in 2016 with projections of how revenue might change if the cap-and-trade program were extended (see Table 1). Making some conservative assumptions, revenues could double by 2020, from $2 billion without an extended cap to $4 billion with an extended cap. The increase comes mostly from increased allowance demand that would be expected if the business community receives a long-term policy signal in favor of cap-and-trade. Auction revenue could reach $5 billion in 2025, even as the cap (and the number of allowances sold) declines.
Table 1. Relationship between allowance supply and state revenue.
2016 values are calculated from CARB data. Projections for 2020 are based on CARB’s projected auction volumes and our conservative price estimates. Projections for 2025 are estimated assuming a linear cap decline and no significant changes to program allocation rules. Current program rules set a minimum auction price of $15.40 in 2020. The minimum price would be $19.70 in 2025 under the current escalation rate.
Annual allowance sales at auction (tons, all vintages*)
Annual average auction clearing price ($/ton)
Annual state revenue ($)
2016 actual values
2020 projection, BAU policy**
2020 projection, extended cap-and-trade policy***
2025 projection, extended cap-and-trade policy***
*The vintage is the first year in which the allowance is eligible for compliance. California currently auctions a small number of allowances three years in advance (“future vintages”), to promote price discovery and liquidity in the market.
**Assumes auctions are subscribed at same level as 2016, but no future vintages offered.
***Assumes current and future vintage auctions are fully subscribed
Source: CARB data and C2ES calculations.
These calculations are based on the observation that allowance demand (and prices) increase when businesses receive policy signals that buying allowances will be a good long-term investment. Experience in both Europe and the U.S. Northeast’s Regional Greenhouse Gas Initiative has borne this out. Each of those markets has had periods of low prices. When rulemakers responded by tightening the cap, allowance prices increased.
A key point from those experiences is that the market didn’t wait to respond after the agreed cuts took place – prices increased as soon as the legislation was passed. Legislators can boost state revenue for greenhouse gas reduction programs today by committing to the market through 2030.
Tighter cap = greater co-benefits
But what about concerns that the trading provision doesn’t allow disadvantaged communities to enjoy equal co-benefits, like fewer criteria air pollutants (SO2, NOx, PM 2.5), from the regulation?
It is worth noting that the cap-and-trade program is not the state’s sole policy measure aimed at reducing greenhouse gases. Figure 1 shows the reductions each measure in CARB’s preferred plan is expected to produce. The total reductions needed to meet the 2030 target are estimated at 680 million tons (Mt). CARB expects other policies will reduce at least 339 Mt and potentially 489 Mt (the figure shows the high value). The cap-and-trade program is expected to make up the difference, or 28-50 percent of the required reductions.
While a detailed analysis is required to estimate cap-and-trade compliance pathways, it is reasonable to assume that improved energy efficiency and substituting cleaner fuels would play a major role. These actions also reduce criteria air pollutants as a co-benefit. A potential 50 percent cut in these pollutants would make a big difference in the air quality near covered sources.
Figure 1. Projected emissions reductions from the policies included in the Scoping Plan analysis.
Solid black dashes show historic statewide emissions. The dotted line shows a trajectory to meet California’s 2020 and 2030 targets. The colored areas show the reductions from each policy measure, including the potential new refinery reduction measure. The blue dashed area shows the reductions that the cap-and-trade program would need to achieve to meet the 2030 goal.
Source: California Air Resources Board
While cap-and-trade is not a perfect policy tool, it provides emissions certainty while minimizing costs to society. Economic theory and experience show that extending (and lowering) the cap can cause near- and long-term market impacts. These include increased auction revenue and reduced criteria air pollutant emissions, and help address concerns about revenue and equity through the existing cap-and-trade program alone. Other policy options are available – such as modifying the trading rules or creating additional location-specific reduction targets. But legislators may have a simpler option that takes advantage of the flexibility of market mechanisms: Cut the cap, and let businesses respond.
(Ashley Lawson is a Senior Solutions Fellow at C2ES. Next on the Climate Compass blog: How carbon capture could play a greater role in the ARB Scoping Plan.)
|NRG Vice President for Sustainability Bruno Sarda and Bank of America Senior Vice President for Environmental Operations Lisa Shpritz at the 2017 Climate Leadership Conference.|
To winners of the 2017 Climate Leadership Awards, leadership means more than taking action in their own businesses; it’s about leading partners, suppliers, and customers as well.
Social responsibility was one of several themes running through the 2017 Climate Leadership Conference in Chicago, where officials from business, government and the nonprofit sector celebrated their achievements and discussed strategies to advance climate action.
Climate leadership has become a habit at IBM, which won the Organizational Leadership Award for the second consecutive year. The company has taken home a Climate Leadership Award in five of the six years the awards have been given.
IBM has been reducing its greenhouse gas emissions since 1990, and has set three consecutive reduction goals. Its latest is to reduce absolute emissions by 35 percent from 2005 levels by 2020.
It is achieving the goal by becoming more energy efficient and procuring more renewable energy, with a goal of contracting renewable power equal to 20 percent of its own annual electricity use by 2020.
Since 2010, IBM has also required all its contracted suppliers to have an environmental management system, inventory their energy use and greenhouse gas emissions, establish reduction plans, and publically report their results.
IBM also helps other companies reduce their emissions through its own innovation, technology, and business acumen. For example, IBM’s cognitive computing and data analytics help energy suppliers deliver the right amount of renewable energy to the grid while minimizing the amount of conventional fuel they need to burn.
“As IBM stated a decade ago, climate change is one of the most critical global environmental challenges facing the planet, and that is even more true today,” said Wayne Balta, IBM’s vice president for corporate environmental affairs and product safety. “The company will remain committed to environmental sustainability. It’s good business and the right thing to do for humanity.”
Demonstrating leadership to effect change
Bank of America won an Excellence in Greenhouse Gas Management/Goal Achievement Award for reducing greenhouse gas emissions from its global operations 37 percent from 2010 through 2015. The bank accomplished more than twice its goal through energy efficiency programs like LED lighting and occupancy sensors, decommissioning unneeded equipment, and optimizing HVAC controls.
Its new goals are to cut emissions from its global operations in half from 2010 levels, purchase 100 percent renewable electricity, reduce energy use 40 percent, and maintain at least 20 percent LEED-certified space by 2020.
Senior Vice President for Environmental Operations Lisa Shpritz said the bank extends its own efficiency to its partners and uses its position of financial leadership to effect change.
“Leaders have to act responsibly so that others may follow,” she said. “It’s a big responsibility, but we’re up to it.”
The bank has committed to investing $125 billion in developing solutions to climate change and other environmental challenges, including at least $10 billion in high-impact clean energy projects, with partners contributing at least $8 billion to date.
The bank also extends its reach through its supply chain. Nearly 200 of its vendors respond each year to a voluntary survey regarding their climate risks and plans to address them, and the bank publishes the results.
“That’s our responsibility as an organization, to take others with us,” Shpritz said.
Creating an example for others
At NRG Energy, winner of a Goal-Setting Certificate, efficiency and sustainability are also part of a culture that extends to its electricity customers.
NRG is already making significant progress on its goals to reduce greenhouse gas emissions for U.S. operations 50 percent between 2014 and 2030, and 90 percent by 2050, through enhancing power plant performance, capturing and storing carbon emissions from fossil-fired power plants; retrofitting coal-fired power plants to accept natural gas; and deploying new renewable energy generation.
NRG Vice President for Sustainability Bruno Sarda said the company’s commitments make business and economic sense, and benefit customers as well.
“We support our customers’ energy objectives by providing renewable energy, distributed energy, and other efficiency solutions for commercial and industrial customers, retail offerings and large, utility-scale renewable energy projects,” he said.
NRG ranked No. 3 in the nation in renewable generation capacity in 2016, with assets that include 36 wind farms in 12 states.
This year, NRG completed the first retrofit of a U.S. coal-fired power plant to capture carbon dioxide emissions. The Petra Nova project, near Houston, was completed on time and under budget. The captured carbon dioxide is used for enhanced oil recovery, increasing production from already developed domestic oil fields while storing the carbon dioxide underground and creating U.S. jobs.
Such projects also show that the technology works and can be replicated.
“We need to create an example for others,” said Sarda. “A sustainable future is a better future.”
Learn more about all of this year’s Climate Leadership Award winners.
|A post-Paris climate action panel at the 2017 Climate Leadership Conference (left to right): UNFCCC Executive Secretary Patricia Espinosa, Microsoft Director of Sustainability Policy Michelle Patron, Business for Social Responsibility Managing Director Edward Cameron, Climate Policy Initiative Executice Director Barbara Buchner, C2ES Executive Vice President Elliot Diringer.|
Achieving the goals of the Paris Agreement requires not only commitments by governments, but also innovation and action by the private sector.
“This room is full of non-state actors,” remarked Patricia Espinosa, UNFCCC Executive Secretary, while addressing the audience at the Climate Leadership Conference in Chicago this month. Espinosa along with a panel of experts encouraged members of the private sector to not only continue these crucial efforts, but to take bolder steps as they turn the commitments made in Paris into concrete action.
Espinosa applauded the 12,000 voluntary climate commitments by companies, investors, cities, and sub-national governments, that are reported in the UNFCCC’s Non-State Actor Zone for Climate Action platform. She highlighted the positive domino effect of partnerships such as We Mean Business, C40 Cities, Under2 MOU, and the Global Covenant of Mayors in increasing ambition and encouraging transformational action to meet the Paris goals.
Solutions to mitigate and adapt to climate change
Michelle Patron, director of sustainability policy at Microsoft, who joined Espinosa on the panel, told the audience that climate action is good for business, good for the economy, and good for the environment. Nearly half of Microsoft’s data centers are now powered by wind and solar energy, and the company has committed to procuring half its electricity from renewable sources by 2018, and 66 percent by 2020.
The push for sustainability also extends to Microsoft’s customers. For example, the company collects and analyzes real-time performance from the bus fleet in Helsinki, Finland, using data generated by sensors on the vehicles. The results are reduced fuel consumption and costs, improved performance and safety, and a lower carbon footprint for the city.
To help with the Paris commitment to adaptation, Microsoft is providing cloud technologies to cities in the Middle East prone to heavy rainfall, to help improve flood management and reduce the costs of adapting to extreme weather.
Mobilizing private sector finance at scale
Barbara Buchner, executive director of the Climate Policy Initiative (CPI), told the group that although the total annual global public and private sector investment in climate finance is higher than ever at $392 billion, more is needed. She said funding levels of about $16.5 trillion by 2030 need to be mobilized to limit global temperature increase to 2 degrees Celsius.
CPI serves as the secretariat for The Global Innovation Lab for Climate Finance, created to bridge the finance gap. It links investors—such as financial institutions, insurance companies, and national governments—with low-carbon climate-resilient projects. The lab works to design both the projects and financing tools to help reduce any regulatory risks and knowledge barriers that prevent access to private finance. Since its inception in 2014, the lab has raised $600 million for pilot projects in energy efficiency, climate change risk assessment, and agricultural supply chains across developing countries.
Shaping public policy and taking extra steps
Edward Cameron, managing director of Business for Social Responsibility, told the audience the private sector is designing the architecture of deep decarbonization for the world.
He said the world notices when Wal-Mart pledges to reduce emissions by 50 percent, remove deforestation from supply chains, reduce landfill waste, and obtain 100 percent of its power from renewable energy – or when Apple, Amazon, Google, and Microsoft voice support for the U.S. Clean Power Plan. Such actions, he said, send signals to markets and government, thereby shaping public policy.
However, if businesses want to distinguish themselves as climate leaders and drive transformational change in the post-Paris world, Cameron challenged them to take extra steps:
Act: The benchmark to act on climate has increased. Companies should transition from setting carbon intensity targets to establishing science-based targets across supply chains.
Enable: Be enablers of others’ success. Provide financial and technological solutions to climate change, not only for business operations and consumers, but also for the most vulnerable populations of the world.
Influence: Manage not only a company’s footprint, but also the handprint—the measure of its positive social and environmental actions. Advocating for public policies that accelerate climate action will influence a company’s captive audience, and help them be good consumers and citizens.
Espinosa said non-state actors, including the private sector, will continue to play a crucial role giving governments the confidence to ramp up ambition on climate action as they build toward the 2018 United Nations climate summit, COP 24. That’s when the international community will take stock of the collective efforts toward the goals of the Paris Agreement.