Download Ezra Hausman

Addressing Climate Change
while Protecting Consumers
(…and a New Idea)
NASUCA Annual Meeting
November 16 2010
Ezra D. Hausman, Ph.D.
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From America’s Finest News Source…
Report: Global Warming Issue From 2 Or
3 Years Ago May Still Be Problem
The Onion, November 10 2010
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Basic Assertions
•
Human-caused, global climate change is a serious
environmental, economic, social, and national security issue
•
Climate change will have significant and harmful impacts on our
lives and on our children’s lives
•
The severity of this threat will become increasingly obvious and
difficult to dismiss over the next decade
•
The U.S. Government will ultimately take action to progressively
and severely restrict the emissions of greenhouse gases into
the atmosphere
•
Consumer advocates and commissions have a role to play
TODAY to protect consumers’ interest as this debate moves
forward
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Basic Assertions
“If the climate-deniers are right—but we combat
climate change anyway—we’ll have slightly higher
energy prices but cleaner air, more renewable
energy, a stronger dollar, more innovative
industries and enemies with less money. If the
climate deniers are wrong, and we do nothing…”
-Thomas Friedman, NY Times,
November 14 2010
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4
…There Have Been some Setbacks
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5
Cap and Trade Works for Acid Rain…
DAILY PRICING
TERM
BID PRICE
OFFER
PRICE
SO2
2009
$8.000
$10.000
SO2
2010
$5.000
$9.000
Annual NOx
2010
$300.000
$320.000
Seasonal
NOx
2010
$45.000
$50.000
SPEC
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Taxes Worked for Cigarettes…
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7
…But CO2 is Different
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8
Regulatory/Market Innovations
•
Renewable Portfolio Standards
•
Production and Investment Tax Credits
•
Feed-in Tariffs
•
Renewable Power Authority
•
Requirements or prudence determinations for long-term
contracts
Each of these provides benefits, but none
has the broad, market-based impact of
cap-and-trade or a carbon tax
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A New Idea…
CO2RCs (“Corks” – Named by Steve Michel of WRA)
…or ZEEKs (ala Jeremy Fisher)
•
Tradable, technology-independent low-carbon generation
attributes
•
Based on a CO2 emissions threshold of 1 ton per MWh
(“efficient coal generation”)
•
ZEEKs are earned (or burned) for deviating from the
threshold with each MWh of energy generated
•
A zero-CO2 MWh produces 1 ZEEK, while a gas CC might
produce 0.5 ZEEK per MWh; inefficient coal would have to
buy ZEEKs down to the threshold
•
ZEEKs would be fully fungible and separable from energy
deliveries
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ZEEKs vs. Renewable Portfolio Standards
•
Pretty similar, actually.
•
LSEs must “hold certificates” based on a regulated percentage
of electricity sales – compliance obligation is on load
•
We expect (hope?) that ZEEKs would be more standardized,
less beholden to parochial interests, independent of
deliverability requirements, and more fully fungible
•
Not Technology-Specific: and certifiable low-carbon source can
qualify, including demand resources—market picks technology
winners and losers
(May be some vintaging restrictions, as with RPS)
•
More directly targeted to produce GHG-displacement impacts
(this is a secondary benefit of RPS)
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ZEEKs vs. Cap and Trade: Similarities
•
Effectively places a price on greenhouse gas emissions, i.e.,
internalizes the externality
•
Provides a strong incentive for producers of low-carbon
electricity
•
Market-based, fully tradable, allows “the market” to find the least
cost sources of low-carbon energy
•
Sets a specific quantitative target for CO2 emissions from the
power sector and allows the market to find the lowest price/cost
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ZEEKs vs. Cap and Trade: Differences
ZEEKs do not increase the price of electric energy—although
their cost does get passed on to ratepayers
Emissions allowances (Cap-and-Trade) or taxes increase the
energy clearing price in electricity markets because they
increase the variable cost of production.
ZEEKs actually decrease the variable cost of production for
lower-carbon generators (i.e., gas) because they create a
secondary source of revenue for these generators.
Price-takers (i.e., nuclear, hydro, renewables, often coal)
receive a lower price for their energy, making higher-emissions
generation less economically viable
ZEEK-eligible resources make up the revenues in ZEEK sales
(or, for IOUs, obviated purchases)
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ZEEKs vs. Cap and Trade: Differences 2
•
Uncle Sam does not produce ZEEKs – generators do
•
Uncle Sam does not sell or allocate ZEEKs – no fighting over
money or allowances, nor are there opportunities to pilfer
•
Identical (?) impacts (on consumers) in regulated and
deregulated electricity markets
•
ZEEKs are electricity-specific, although there is no reason that
they could not be a part of an economy-wide cap-and-trade
system or carbon tax.
•
ZEEKs target consumer funds towards GHG mitigation, not to
windfalls and payoffs
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ZEEKs: Some Numbers
Total US Electric Sector Energy: 3.8 Billion MWh/year
Total US Electric Sector CO2 Emissions: 2.3 Billion Tons
Pre-Policy ZEEKs: 3.8 - 2.3 = 1.5 Billion (assumes all
generation qualifies)
Total ZEEKs required for 20% reduction in electric sector
emissions: 3.8 – (0.8 * 2.3) = 1.96 Billion
A 31% Increase in ZEEKs
0.46 Billion MWh of carbon-free electricity, or
0.92 Billion MWh at half-ZEEK levels
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15
ZEEK Numbers: Some Perspective
Total natural gas generation in the US: 0.85 Billion MWh
– doubling this (and displacing coal) would almost meet
20% reduction target
A new 1000 MW nuclear plant would add 8.3 Million
ZEEKs per year –55 new such plants (replacing coal)
would meet 20% reduction target
So would 55,000 3MW wind turbines replacing coal,
operating at 33% capacity factor
So would reducing load by 1%/year for 20 years (if
displacing coal)
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Wrap-up
ZEEKs (or CO2RCs) represent a way to price carbon
and directly support EE, renewables, and any other
source of energy that is truly low-carbon.
Would replace hodgepodge of state, regional, and
federal incentives with a single, market-based approach
while avoiding many pitfalls
Steady ramp-up of requirement would provide a stable
price signal for low-carbon resources in a large, liquid
market
Not the only idea out there for regulating carbon, but
perhaps the best?
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