Author: rogercaiazza

I am a meteorologist (BS and MS degrees), was certified as a consulting meteorologist and have worked in the air quality industry for over 40 years. I author two blogs. Environmental staff in any industry have to be pragmatic balancing risks and benefits and (https://pragmaticenvironmentalistofnewyork.blog/) reflects that outlook. The second blog addresses the New York State Reforming the Energy Vision initiative (https://reformingtheenergyvisioninconvenienttruths.wordpress.com). Any of my comments on the web or posts on my blogs are my opinion only. In no way do they reflect the position of any of my past employers or any company I was associated with.

NYS Carbon Pricing: Implications of Observed CO2 on Peak Hour of 2017

New York’s energy planning process continues its efforts to meet the aggressive goals of a reformed energy system that relies on renewable energy. The latest boondoggle in that effort is a plan to price carbon in the wholesale electric market. I have been following the process and submitting comments as an unaffiliated public party to the process. This post describes a vivid example of the difficulties of implementing economic theory related to carbon dioxide reduction programs.

 Introduction

I am motivated to submit comments in this process so that there is at least one voice of the unaffiliated public whose primary interest is an evidence-based balance between environmental goals and costs to ratepayers. There are significant hurdles to implementing carbon pricing in general and as proposed in the straw proposal that should be considered by the Integrating Public Policy Task Force (IPPTF). The questions in these comments are related to the total costs of the program.

This post is based on comments submitted as a private retired citizen. They do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone. The majority of New York State (NYS) ratepayers are unaware of the ramifications of this proceeding or have any idea of the ramifications of incorporating the cost of carbon emissions into New York State (NYS) wholesale electricity markets. The basis of this initiative is a Brattle Group analysis that outlined a scheme to incorporate a state policy defined cost of carbon in the wholesale market to improve the overall efficiency of the New York Independent System Operator (NYISO) energy and capacity markets.

As of the date of this post one thing that has been conspicuously absent from the discussions has been the total expected cost. In my latest submitted comments I argued that it would be beneficial for all stakeholders to have the NYISO provide an analysis of historical data that shows what would have happened to the markets if the carbon price were in effect. I illustrated the problem estimating this cost by considering one historical hour. It appears that there is a significant overlooked component to this initiative. One feature of a carbon price scheme is usually revenue neutrality where the carbon costs are returned to the consumers to make it less regressive. However, in the New York State wholesale electric market case it looks like in addition to the carbon price itself there will be a general increase in market clearing prices. There is no mechanism to make that component revenue neutral.

Input Data

In order to evaluate the emissions data I obtained data from the United States Environmental Protection Agency Clean Air Markets Division (CAMD) website for July 19, 2017 at hour 17. The CAMD website has hourly data for all emissions sources affected by national emissions trading programs. There are significant limitations to the data for this application but they should be indicative of the situation. I manually added the NYISO electric load control zones, made some guesses about whether some small units should be included or not, estimated CO2 emissions at some sources that are not required to provide that data, and revised some inconsistent numbers. There also is an inherent flaw in this approach because the EPA data set includes gross load whereas the NYISO loads are net loads. Also note that I excluded combined heat and power units and steam units from these calculations. My data are available upon request and the submitted comments describe the methodology in more detail.

Energy Markets

The NYISO manages the state’s power grid and de-regulated energy market. In order to understand the implications of carbon pricing on New York electricity market costs some background information is necessary. There is an overview of the price setting approach used in the NYISO document NYISO Markets:

The energy market provides a mechanism for Market Participants to buy and sell energy at prices established through a competitive auction process designed to meet energy demands, or “loads,” with the least-cost resources available; or, through contractual, bilateral transactions where quantities and prices are arranged directly between wholesale suppliers and “load-serving entities” (LSEs) such as utilities. For energy purchases arranged through the NYISO’s auctions, the NYISO administers day-ahead and real-time auctions, resulting in a two-settlement process that sets the price of energy based on market and grid conditions at specific times. Further, the NYISO’s auctions reflect geographic conditions , establishing “Locational Based Marginal Prices” (LBMP) for energy that reflect local demand and supply conditions as well as any constraints that may exist when moving energy across the grid to meet demand. The first settlement is based upon the day-ahead bids and the corresponding schedule and prices, or day-ahead commitment. The second settlement is based upon the real-time bids and the corresponding real-time commitment (RTC) and real-time dispatch (RTD). Market Participants may participate in the DAM and/or the real-time market. Roughly 94% of energy is scheduled in the day-ahead market, while the remaining 6% is accounted for in the real-time market. About 40% of the energy settled in the day-ahead market is scheduled through bilateral contracts.

CO2 Summary

The NYISO Zone CO2 Cost July 19 2017 at hour 17 table lists the gross load, heat input, CO2 mass, and CO2 rate in lbs per mmBtu and tons per MWhr for the entire state, by LBMP zone and aggregating Downstate and Upstate zones. The source data show that the hourly CO2 emissions range from 681 tons per hour at the remaining coal plant to 1.2 tons for a partial operating hour at a natural-fired turbine. More importantly the CO2 emission rate (lbs/mmBtu) data only lists three general emission rates corresponding to natural gas, oil, and coal fuels. If the results for this hour are generally consistent throughout the year then the efficacy of this program to lower CO2 emissions is questionable. There are slight differences within these rate categories but there are relatively minor. The New York Department of Environmental Conservation recently announced a new regulation that will for all intents and purposes ban the future use of coal so this program cannot be expected to shut down the use of coal. The oil generating units do not burn oil for economic reasons so this program cannot be expected to change the use of those units relative to natural gas units. The difference in CO2 emission rate for the natural gas units is so small that this program cannot be expected to lead to the use of lower emitting units. Therefore, this program will not likely cause fuel switching due to the price of carbon.

Carbon Prices

According to the NYSERDA Patterns and Trends report, in 2014 the electric sector CO2 emission rate was 39,406,671 tons per year. If the carbon price is $50 per ton then we can expect this program to generate a minimum of over $1.5 billion dollars per year. The hourly carbon price based only on emissions ($50 per ton times the total tons in the previous table) gives a state-wide cost of $440,373 with $173,995allocated Upstate and $266,978 allocated Downstate.

The Brattle report proposed that the only impact to consumers would be directly related to the carbon price. However, the NYISO has not done an analysis of the potential impact of the carbon price on the wholesale electric market to determine if there could be a general increase in market clearing prices. If that is the case then the consumers will be paying a whole lot more than just the carbon price and there will be no way to even to try to make any extra costs revenue neutral.

 I used the hourly data to estimate LBMP zone costs in theNYISO Zone CO2 Cost July 19 2017 at hour 17 table. I assumed that the zone cost equals the total load times the maximum CO2 rate (tons per MWhr) times the Social Cost of Carbon (Tab “LBMP”). Because of the magnitude of the carbon price I also assumed that the price of carbon sets the price of the most expensive unit in the zone. If that presumption is correct then the results are far different than the example estimate simply multiplying emissions by the cost of carbon. The total statewide cost is $773,644 and the Upstate portion is $209,394 and Downstate is $564,251. Note that most of the additional cost is due to a $306,048 increase Downstate because the Upstate cost only increases $35,999.

Conclusion

Based on this example I believe it is necessary and appropriate for the NYISO to provide estimates of the expected historic market response to the carbon price for an entire year based on hourly LBMP values. The NYISO knows the marginal economic unit and can use the USEPA data to show the marginal and maximum emission rates, CO2 mass/MWH and CO2 mass/mmBtu. At the proposed price of carbon that analysis could determine what would happen to the LBMP prices.

In addition to the financial impacts we can estimate what kind of impacts the carbon price will have on generation patterns. Based on the CO2 rates in the example hour it appears that we will find very small shifts in the marginal economic unit. Only when we have annual results can we verify whether this proposed program will have any effect on carbon emissions.

Finally, the analysis I recommend will not only estimate how the carbon price will affect LBMP prices but also provide information about where those revenues end up.  If my assumption that the LBMP prices are based on the maximum emission rate but the residual that goes back to the consumers is based on the actual rates for each generator then the only facility that fully pays its residual is the maximum emission rate unit. All the other units contribute less to the consumer. The NYISO should provide the analysis so that we can determine what portions of the LBMP price increases remain with which generator sectors and what residuals could be returned to the LSEs. Finally, we can estimate the portion of LBMPs that could be credited to new renewables.

Environmental Advocates of New York “RGGI at a Crossroads” Report

Environmental Advocates of New York recently released a report, “RGGI at a Crossroads”, that details the allocation of funds raised by the Regional Greenhouse Gas Initiative (RGGI) in New York State. I have previously posted on New York State’s RGGI Operating Plan which is supposed to determine the best use of RGGI auction proceeds and thought it would be instructive to compare the two analyses.

This is another in a series of posts on RGGI (see my RGGI posts page).  I have been involved in the RGGI program process since its inception. Before retirement I was actively analyzing air quality regulations that could affect electric generating company operations and was responsible for the emissions data used for compliance. As a result, I have a niche understanding of the information necessary to critique RGGI. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

The overview for RGGI at a Crossroads states:

For the past seven years, the Cuomo Administration has used funding made available to New York through the Regional Greenhouse Gas Initiative (RGGI) for some authentic climate mitigation purposes as well as some highly questionable ones. While programs like Green Jobs – Green New York, 76West, and the Drive Clean Rebate owe their success to RGGI funding; the Governor has also diverted RGGI funds to subsidize power rates for Long Islanders and plug budget holes. These diversions are bad policy precedents that squander the opportunity to better the environment. An upcoming revision to state regulations offers the Governor an opportunity to take his hand out of the cookie jar and invest RGGI proceeds in a way that will propel New York to the forefront of climate justice.

I agree with Environmental Advocates that the Cuomo Administration has used funding for some highly questionable purposes. The Administration claims that climate change is an existential threat but still is not above taking money to mitigate that alleged harm to further political goals. The Environmental Advocates analysis does a good job uncovering a number of areas where RGGI funding decisions have deviated from the original intent of the program. I concur with their conclusion that RGGI’s purpose has always been to supplement and not supplant the state’s existing clean energy initiatives.

In my previous analysis I showed that New York investments from the RGGI allowance auction revenues are expected to only reduce emissions 89,531 tons at an average investment rate of $81.5 million. It turns out that, based on historical results, the RGGI investments are only expected to provide about 10% of the needed future emissions reductions mandated by RGGI. This is important because it means that supplanting existing programs that also reduce CO2 emissions are further contributing to a potential future problem meeting the RGGI allowance cap.

In general I agree with the RGGI at a Crossroads recommendation that a priority for RGGI proceeds should be investments that directly benefit low-income communities. I am firmly convinced that Cuomo’s clean energy plans will significantly increase costs to all ratepayers and it is important that we protect those least able to afford those increases. Unfortunately, the recommendations developed through a collaborative process involving the New York City Environmental Justice Alliance, UPROSE, PUSH Buffalo, New York Lawyers for the Public Interest, New York Working Families, and Environmental Advocates of New York include program funding for programs that only peripherally impact low income ratepayer rates. In my opinion, especially considering the fact that RGGI funded CO2 mitigation has not been particularly effective, the emphasis should be on energy efficiency and energy conservation for lower income ratepayers. If higher rates occur, funding should also be provided for

Cuomo Pledges No New Natural-Gas Fired Power Plants

On May 10, 2018, a Food and Water Watch organizer cornered Governor Andrew Cuomo on the topic of natural-gas fired power plants. According to their press release, “Tonight in New York City, Governor Andrew Cuomo committed on camera that he would reject any new natural-gas fired power plants”.   It is not often that I have any sympathy for the Governor but in this case I do.

The press release headline is that Governor Cuomo pledged to not permit any new gas power plants. I leave it to the reader to review the video “proof” and decide if this was a substantive pledge.   My transcription of the conversation between Laura Shindell, the organizer with Food & Water Watch and Andrew Cuomo:

Shindell: “Will you protect our climate and communities by rejecting all fracking infrastructure?”

Cuomo: “I have.”

Shindell: “The Sheridan Hollow power plant in Albany and CPV power plants…”

Cuomo: “That is not fracked.”

Shindell: “The fracking infrastructure pipelines and power plants that transport …”

Cuomo: “Pipelines we have. “

Shindell: “Yes”

Cuomo: “Power plants that burn gas we have all over the state. We would have to close them and that is the long term plan.”

Shindell: “And will that conflict with your climate goals”

Cuomo: “Yes, they do”

Shindell: “to remove all fossil fuels? So building Cricket Valley and CPV make it harder for us to make your own climate goals”

Cuomo: “We are not building any new ones. But we have to find a replacement for the old ones.”

Shindell: “Cricket Valley is getting built now”

Cuomo: “It was approved like eight years ago. I have not approved any new ones and I won’t. Thank you”

According to the Food and Water Watch press release:

Asked about new natural-gas fired power plants, Cuomo said, “I have not approved any new ones, and I won’t.” The press release notes correctly that several power plants, including the CPV plant in Orange County and the Cricket Valley power plant in Dover, NY have in fact been approved on Cuomo’s watch. The governor was clear in saying that these plants conflict with the state’s climate goals, adding: “We’re not building any new ones.”

Unfortunately neither Cuomo nor Shindell are energy literate. Shindell does not want the proposed combined heat and power plant in the Sheridan Hollow neighborhood of Albany. On my companion blog I posted an analysis that showed there is no viable alternative to replace the existing system. The existing system needs steam and there is no renewable energy technology that provides steam.  Either you replace with a much cleaner natural gas system or use the existing old dirtier power plant.

Cuomo was correct to say that we have to find a replacement for old natural gas fired power plants when he said that he won’t approve any new natural gas-fired power plants. I hope that he knows, but did not want to extend the conversation to explain, that if we have to replace old natural gas-fired power plants some, if not all, will have to be with natural gas fired power plants.

For example, there are around 70 old, small (~15 to 25 MW), peaking combustion turbines in New York City that are inefficient and have high NOx emission rates. The NYS Department of Environmental Conservation has been threatening to promulgate new pollution limits that will either require new pollution control equipment or shutdown. Because they are so old it does not make much sense to invest in expensive control equipment so the more likely option is to shut them down and replace them with a new modern, efficient and very low emitting facility.

The fact of the matter is that there is no viable alternative for completely replacing 1000 MW of peaking turbines that need to be replaced. Some of the peak can be shaved and there are other options to make the system more efficient so you might not need all 1000 MW. Turbines can run for hours so even if you cut the peak hour load by half they can still provide 3000 MWh of generation if they run six hours. Because renewable energy is diffuse and intermittent New York City has to rely on transmission to get enough renewable power to cover normal load much less peak load. Importantly, there is a requirement to rely on in-city generation when storms threaten to sever transmission lines into the city based on lessons learned from the July 1977 New York City blackout. Absent any consideration of economics or tradeoffs the only solution is natural gas fired power plants or run the risk of another blackout.

According to the Food and Water Watch press release:

After the exchange, Food and Water Watch activists pledged to hold Governor Cuomo accountable to his new commitment to reject new fracked gas power plants. “The age of fossil fuels is over, and it’s exciting to hear Governor Cuomo commit to reject new fracked gas power plants. Since he acknowledged that fracked gas plants conflict with New York’s climate goals, Governor Cuomo should rescind existing permits for power plants like CPV and Cricket Valley as well.  The governor can rest assured the climate movement will hold him to his words,” said Laura Shindell.

I can only hope that at some point energy facts and tradeoffs between alternate sources of energy will be considered so that natural gas power plants can be developed where they are appropriate and necessary. Alas it is an election year and the energy illiterate climate movement appears to be calling the shots.

Carbon Pricing Initiative Discussion of Social Cost of Carbon

New York’s energy planning process continues its efforts to meet the aggressive goals of a remodeled energy system that relies on renewable energy. The latest boondoggle in that effort is a plan to price carbon in the wholesale electric market. As part of that process a recent meeting had a presentation on the social cost of carbon. I submitted the following comments.

Introduction

These comments are submitted as a private retired citizen. They do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone. The majority of New York State (NYS) ratepayers are unaware of the ramifications of this proceeding and have never heard of the Social Cost of Carbon (SCC). I am motivated to submit these comments so that there is at least one voice of the unaffiliated public whose primary interest is low electricity rates.

This attempt to incorporate carbon pricing in wholesale electric prices flies in the face of carbon price theory. In theory, the idea is to apply a carbon price across all energy sectors in as broad a market as possible so that market forces determine the most cost-effective solution. This plan to put a price on carbon on one sector in one state is therefore bound to fail to do anything other than raise NYS electricity prices at the expense of all NYS ratepayers.

I have an understanding of the basis of the rationale for a carbon price as embodied in the SCC as discussed in the April 23, 2018 IPPTF meeting. Based on the discussion at the meeting I got the impression that even many of those in attendance who have heard of the SCC don’t understand the short-comings of the parameter. Therefore, I am submitting a third set of comments that addresses the SCC presentations at the meeting. I also want to point out a recent article to readers unfamiliar with the SCC: Julian Morris, Climate Change, Catastrophe, Regulation and the Social Cost of Carbon.

Social Cost of Carbon Presentation

Bethany Davis Noll gave a presentation (Agenda 2 – Social Cost of Carbon) on the SCC at the April 23 meeting. I submitted comments on 10/31/17 advocating a range of values for the SCC. I argued that there are three technical reasons that the single value the IWG developed and proposed for use in this initiative should not be used exclusively: global benefits, discount rates and equilibrium climate sensitivity. Ms. Noll addressed two of those topics in her presentation but ignored the more important climate sensitivity issue.

The IWG SCC value considers global benefits and impacts not just New York State benefits and impacts. In other words New Yorkers are being asked to pay today for some estimated far future impact mostly elsewhere. Given that the State has limited resources to provide benefits to New Yorkers today is reason enough to consider whether the State can afford that luxury.

The EPA RIA for the revised Clean Power Plan includes an “interim” SCC value that uses a domestic rather than international social cost of carbon value which I think makes more sense for New York policy. Ms. Noll’s presentation argues that it is more appropriate to consider global impacts. The presentation responds to the use of domestic only damages as follows:

    • But existing models cannot accurately calculate a domestic‐only estimate because they were not built to include spillover effects.
    • Even if the models could calculate an accurate domestic‐only number, the calculation ignores the need to spur reciprocal actions from other countries to curb emissions.

Ms. Noll only gave one spillover effect example but a Columbia Journal of Environmental Law paper addresses the spillover effect in more detail:

In 2010, the interagency working group used the results of one economic model as well as the U.S. share of global GDP to generate an “approximate, provisional, and highly speculative” range of 7–23% of the global SCC as an estimate of the purely direct climate effects to the United States. Yet, as the interagency group acknowledged, this range is almost certainly an underestimate because it ignores significant, indirect costs to trade, human health, and security likely to “spill over” to the United States as other regions experience climate change damages.

In the paper spillover effects described include:

  • Climate change disruption of the economies of other countries will spill over to the US as decreased availability of imported inputs, intermediary goods, and consumption goods and “may cause supply shocks to the U.S. economy. Shocks to the supply of energy, technological, and agricultural goods could be especially damaging. As seen historically, economic disruptions in one country can cause financial crises that reverberate globally at a breakneck pace.”
  • The human dimension of climate spillovers includes migration and health effects. Water and food scarcity, flooding or extreme weather events, violent conflicts, economic collapses, and a number of other climate damages could precipitate mass migration to the United States from regions worldwide.
  • Infectious disease could also spill across the U.S. borders, exacerbated by ecological collapses, the breakdown of public infrastructure in poorer nations, declining resources available for prevention, shifting habitats for disease vectors, and mass migration.
  • Climate change is predicted to exacerbate existing security threats—and possibly catalyze new security threats—to the United States.

Ultimately whether or not a domestic SCC approach fails to include spillover effects matters only if decision makers decide that those effects should be a driver of NYS policy. While these spillover scenarios could entail a variety of serious costs to the United States the question for New York is whether the surety of increased costs of a price on carbon to our wholesale electric market is appropriate relative to those speculative effects. If we decide that we should worry about those effects then it is as important to decide whether New York should fund mitigation efforts like a carbon price or adaptation efforts that avoid climate damages to foreign countries to reduce the chance that these impacts will radiate benefits back to New York. It is likely that investments in foreign infrastructure adaptation will be a more cost-effective response.

The Columbia Journal of Environmental Law paper also claims that the need to spur reciprocal actions from other countries to curb emissions is a rationale for a global rather than a domestic SCC. The paper states that:

Game theory predicts that one viable strategy for the United States to encourage other countries to think globally in setting their climate policies is for the United States to do the same, in a tit-for-tat, lead-by-example, or coalition-building dynamic.

The fundamental issue for New York is that even the domestic SCC is not really appropriate for this program. If a New York SCC economic model were developed the direct impacts to New York would be a fraction of any global SCC value. I believe that our potential to lead-by-example potential is proportional to our proportional NY-only SCC value. As a result, advocates for this policy must explain how this New York action will lead to a “coalition-building dynamic” that will have anything more than a symbolic effect on global policies as opposed to simply adding cost to New York electric bills.

In previous comments I noted that the IWG SCC value did not follow Office of Management Budget Circular A-4 guidance that states that regulatory analyses “should provide estimates of net benefits using both 3 percent and 7 percent.” The 7 percent rate is intended to represent the average before-tax rate of return to private capital in the U.S. economy. The 3 percent rate is intended to reflect the rate at which society discounts future consumption, which is particularly relevant if a regulation is expected to affect private consumption directly.

In response to the 7 percent discount rate used in the “interim” SCC value in the EPA RIA for the revised Clean Power Plan Ms. Noll noted that:

    • The7 % discount rate obscures the harm that emissions will have on the younger and future generations.
    • It was rejected by the IWG as inappropriate.

I am not enough of an expert on economics to argue these points. However, I am a cynic and suggest that the fact that it was rejected by the IWG was as much because when it was used it indicated much less cost as any other reason.

Throughout Ms. Noll’s presentation and the Columbia Journal of Environmental Law paper the harms of climate change impacts were repeatedly emphasized. For example, the paper includes the following: “greenhouse gas pollution can impose great harms”, “significantly increased risks of severe harms”, and “A handful of geographic regions may experience short-term benefits from climate change, such as temporary agricultural gains in colder regions, but even in those areas, long-term, catastrophic scenarios would bring significant harms.” The problem is that the estimates of catastrophic impacts are directly related to the likelihood of high sensitivity of temperature to carbon dioxide levels.

My fundamental problem with the IWG SCC value is that they did not use the latest value of the Equilibrium climate sensitivity (ECS). This is the expected change in temperature when the atmospheric CO2 concentration doubles. As noted, the costs of this warming are dominated by the higher possible values of the ECS. This problem was documented on July 23, 2015 by Patrick Michaels who presented relevant testimony to the House Committee on Natural Resources.  Excerpts:

“In May 2013, the Interagency Working Group produced an updated SCC value by incorporating revisions to the underlying three Integrated Assessment Models (IAMs) used by the IWG in its initial 2010 SCC determination. But, at that time, the IWG did not update the equilibrium climate sensitivity (ECS) employed in the IAMs. This was not done, despite there having been, since January 1, 2011, at least 14 new studies and 20 experiments (involving more than 45 researchers) examining the ECS, each lowering the best estimate and tightening the error distribution about that estimate. Instead, the IWG wrote in its 2013 report: “It does not revisit other interagency modeling decisions (e.g., with regard to the discount rate, reference case socioeconomic and emission scenarios, or equilibrium climate sensitivity).”

“Clearly, the IWG’s assessment of the low end of the probability density function that best describes the current level of scientific understanding of the climate sensitivity is incorrect and indefensible. But even more influential in the SCC determination is the upper bound (i.e., 95th percentile) of the ECS probability distribution. Apart from not even being consistent with the AR4, now, more than five years hence, the scientific literature tells a completely different story. And this is very significant and important difference because the high end of the ECS distribution has a large impact on the SCC determination—a fact frequently commented on by the IWG2010.”

I previously commented that Dr. Judith Curry had prepared a table of different values of the ECS that illustrates the relative impacts of the indefensible cherry picking of a value that suited the agenda of the IWG rather than a more recent value.

Because the extreme values are a key driver of the ECS, the 95th percentile values are of most interest. Refer back to the Michaels testimony above to see that the IWG had lower values available to it for years but chose not to use them.

Furthermore, a paper just published by the Journal of Climate concludes that high estimates of future global warming from most computer climate simulations are inconsistent with observed warming since 1850. The implication is that future warming will be 30 to 45% lower than suggested by the simulations. This continues the trend of more recent data reducing the likelihood that temperature is highly sensitive to CO2 and therefore reduces the probability of the high impact “harms” that advocates for this carbon pricing initiative claim justify the use of the IWG SCC value.

Conclusion

For the purposes of this effort to develop a system that could put a price on carbon in the New York State wholesale electric market I agree that the IWG SCC estimate minus the RGGI cost is the appropriate parameter to use. However, when the time comes for policy decision makers to decide whether to proceed, a range of SCC values should be provided.

The fundamental problem is that the IWG SCC value does not accurately reflect the current state of the science relative to the probability of temperature being highly sensitive to CO2. As a result that value over-estimates the potential benefit of New York emission reductions. The final report must also explain the rationale for NYS ratepayers to definitely increase our cost of electricity with a price on carbon is appropriate relative to the speculative effects of any SCC value.

Ultimately the SCC relies on a complex causal chain from carbon dioxide emissions to social impacts that are alleged to result from those emissions. Richard Tol testified that these connections are “long, complex and contingent on human decisions that are at least partly unrelated to climate policy. The social cost of carbon is, at least in part, also the social cost of underinvestment in infectious disease, the social cost of institutional failure in coastal countries, and so on.”

Temperature Related Deaths

Environmental advocates claim heat results in more deaths than any other weather-related event but I recently read a conflicting claim about weather-related deaths. The New York City Environmental Justice Alliance released a new report, NYC Climate Justice Agenda 2018 – Midway to 2030: Building Resiliency and Equity for a Just Transition, that claims “Extreme heat results in more deaths than any other weather-related event”. On the other hand, a study in Lancet, “Mortality risk attributable to high and low ambient temperature: a multicountry observational study”, notes that “most of the temperature-related mortality burden was attributable to the contribution of cold”. I did some research and now I think I know what is going on for these two differing claims.

The NYC Climate Justice Agenda bases their claim that extreme heat causes more deaths than cold based on an EPA reference. The EPA extreme heat webpage uses data from the National Oceanic and Atmospheric Administration Natural Hazard Statistics: Weather Fatalities website. The home page for that site lists 508 fatalities from all weather events in 2017, including 107 from extreme heat, 26 from extreme cold, 10 from winter storms, 1 from ice, and 3 from avalanches. Those data that show that the more people died due to extreme heat than other cause, narrowly beating out flash floods, and that more people die from heat than cold-related events. The data for the website are compiled from information in the National Weather Service (NWS) storm events database.

The Global Warming Policy Foundation April 9 2018 newsletter reported that 48,000 Britons died this winter due to cold weather.   Those numbers are obviously far different than the NWS data. The Lancet paper by Gasparrini et al. notes that:

Although consensus exists among researchers that both extremely cold and extremely hot temperatures affect health, their relative importance is a matter of current debate and other details of the association remain unexplored. For example, little is known about the optimum temperatures that correspond to minimum effects for various health outcomes. Furthermore, most research has focused on extreme events and no studies have comparatively assessed the contribution of moderately high and low temperatures. The underlying physiopathological mechanisms that link exposure to non-optimum temperature and mortality risk have not been completely elucidated. Heat stroke on hot days and hypothermia on cold days only account for small proportions of excess deaths. High and low temperatures have been associated with increased risk for a wide range of cardiovascular, respiratory, and other causes, suggesting the existence of multiple biological pathways.

I believe that the reason for the difference in the two conclusions is explained by this statement by Gasparrini et al.: “The dose-response association, which is inherently non-linear, is also characterised by different lag periods for heat and cold—i.e., excess risk caused by heat is typically immediate and occurs within a few days, while the effects of cold have been reported to last up to 3 or 4 weeks.”

According to the NWS instructions for storm data preparation the storm data report documents:

  • The occurrence of storms and other significant weather phenomena having sufficient intensity to cause loss of life, injuries, significant property damage, and/or disruption to commerce;
  • Rare, unusual, weather phenomena that generate media attention, such as snow flurries in South Florida or the San Diego coastal area; and
  • Other significant meteorological events, such as record maximum or minimum temperatures or precipitation that occur in connection with another event.

The key point is that the storm data report makes a distinction between direct and indirect deaths.  Only direct deaths are tabulated when a local weather office prepares the storm report. For example, in winter storms deaths from heart attacks from shoveling snow are indirect.  If a person wanders outside and freezes to death that’s a direct death. Furthermore, while indirect deaths are included in the storm narratives the numbers are not included in the tabulated data and storm reports are prepared within days of the event so any indirect deaths due to excessive cold caused by weeks-old impacts would not be included. Details on the difference between direct and indirect deaths are found in the instruction document on pages 9 to 12.

In their study of Gasparrini et al. found that temperature is responsible for 7.7% of mortality. Cold was responsible for “most of the burden”. Although in the study over 90% was attributed to cold the paper noted that “This difference was mainly caused by the high minimum-mortality percentile, with most of the mean daily temperatures being lower than the optimum value”. I interpret that to mean that some of the difference was due their classification methodology. In line with the indirect death distinction it is notable that over 85% of the mortality attributable to temperature was related to moderate cold. Offhand I think there must be more causes of death associated with freezing weather than hot weather. For example, auto accidents on icy roads has to cause more deaths than any hot weather impact on travel.

In conclusion, there is a data base that does show that extreme heat results in more deaths than any other weather-related event. However, the database used to justify that claim only includes direct deaths. An epidemiological study that does include indirect deaths concludes the majority of deaths are associated with moderate cold weather.

Relative to climate change policy the distinction between heat and cold is important. If the argument is that we must mitigate human impacts on climate to reduce mortality due to temperature than because a warming climate will result in less moderate cold then that means warming will have a beneficial effect. An unintended consequence of climate change mitigation through the implementation of renewable energy is the universal increase in cost. Given the impacts on indirect deaths I believe that increased heating cost will adversely affect mortality if low income people cannot afford to keep their homes warm enough to prevent potential health impacts of cold weather. Finally, the fact is that climate is a reason many more people move to Phoenix AR than move to the “ice box of the nation”, International Falls, MN, suggests we are better able to adapt to warm than cold.

RGGI Allowance Status March 2018

This is a post on an implication of two Regional Greenhouse Gas Initiative (RGGI) reports: the Report on the Secondary Market for RGGI CO2 Allowances – Q4’17 (Secondary Market Report) and the Market Monitor Report for Auction 39 (Market Monitor Report). It is becoming clear that timing for one unique aspect of the RGGI allowance market – the need for compliance entities to go to the open market to purchase allowances from non-compliance entities – is getting closer.

This is another in a series of posts on RGGI that discusses how RGGI has fared so far (see the RGGI posts page). I have been involved in the RGGI program process since its inception. Before retirement from a non-regulated generating company, I was actively analyzing air quality regulations that could affect company operations and was responsible for the emissions data used for compliance. As a result, I have a niche understanding of the information necessary to critique RGGI. I am motivated to prepare these posts because most reports about RGGI are advocacy pieces with very few critiques. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

There is a difference in the Regional Greenhouse Gas Initiative (RGGI) cap and auction program relative to a cap and trade program that allocates all allowances to affected sources or compliance entities. In particular, when the allowances are allocated directly to affected sources in a traditional cap and trade program the allowance bank is either allowances held by affected sources for compliance obligations or those deemed surplus by compliance entities because of investments in controls to meet their compliance obligations under the cap. The success of cap and trade programs to date is related to the fact that this enables the market to develop a least cost control strategy.

In the RGGI program allowances are purchased for compliance obligations or as an investment so there are allowances that have not been deemed surplus in the bank. This makes a difference to the allowance bank because a significant fraction of the allowances are owned by entities without a compliance obligation. I have previously noted that at some point the regulated sources are going to have to rely on non-compliance entities for allowances necessary for compliance (as the cap tightens over time) and it is not clear how the market will react.

Analysis

RGGI provides reports that describe the status of the market but does not provide the information to easily estimate the number of compliance entity allowances in the allowance bank because there is no status report that trues up emissions, allowance surrenders and allowances. This analysis calculates the size of the compliance entity allowance bank on March 16, 2018 after allowances matching emissions from the third compliance period are surrendered, allowances from the first auction in the fourth compliance period are added, and the Market Monitor Report for Auction 39 lists the share of allowances owned by compliance entities. I also estimate what the compliance entity allowance bank will be at the end of the fourth compliance period in 2020, absent the addition of Virginia and New Jersey who appear committed to join RGGI.

RGGI’s Secondary Market Reports report on allowance status but do not include emissions status. According to the Market Monitor Secondary Market Report for Quarter 4 2017 updated on 2/22/18, at the end of the fourth quarter of 2017:

  • There were 255 million CO2 allowances in circulation.
  • Compliance-oriented entities held approximately 156 million of the allowances in circulation (61 percent).
  • Approximately 175 million of the allowances in circulation (69 percent) are believed to be held for compliance purposes.
  • According to Secondary Market Report there were 255 million allowances in circulation on 12/31/2017. That value is the sum of the allowances allocated in the first and second control periods less the allowances surrendered in those control periods and allowances allocated in the third control period less the allowances surrendered in 2015 and 2016 (50% of the emissions). This report could not include the number of allowances that had to be surrendered for the entire third compliance period because the 2017 emissions were not finalized until the end of January 2018.
  • This report does not account for the surrender of allowances at the end of the third compliance period and without that information it is not possible to calculate the number of compliance entity allowances.

RGGI lists the allowance allocations by control period but for some reason does not summarize the totals but that information is necessary to generate the necessary numbers. I downloaded the allowance allocations for each compliance period from the RGGI website to Table 1 RGGI allowance allocation 2009 – 2017 data extracted from individual period spreadsheets. (Note that I did not include all the footnotes and endnotes in Table 1.) RGGI emissions data are available on the RGGI CO2 Allowance Tracking System. I downloaded the control period emissions and summed the facility totals by compliance period to generate Table 2 RGGI Control Period CO2 Emissions.

Table 3 Compliance Period Allowance Allocations and Compliance Period Emissions combines all these data. In order to check my numbers I included the annual 2015, 2016 and 2017 columns with the annual emissions allocations, emissions and 50% of the emissions surrender values to calculate the number of allowances in circulation on 12/31/2017. I get 249 million allowances in circulation compared to the Secondary Market Report value of 255 million. Because that difference does not change my findings I did not try to reconcile the reason. The compliance period emissions and allowance allocations can also be used to estimate the size of the allowance bank. I estimate that there were 85,146,494 allowances in the allowance bank after allowances for the third compliance period emissions were surrendered.

The Market Monitor Report for Auction 39 dated March 16, 2018 notes that: After settlement of allowances sold in Auction 39:

  • Thirty-five percent of the allowances in circulation will be held by Compliance-Oriented Entities.
  • Forty-five percent of the allowances in circulation are believed to be held for compliance purposes. The number of allowances that are believed to be held for compliance purposes includes 100 percent of the allowances held by Compliance-Oriented Entities and a portion of allowances held by Investors with Compliance Obligations.

In order to get the current number of compliance purpose allowances we have to use that information and the 2018 allocation data as shown in Table 4 2018 CO2 Allowance Allocation. The number of allowances in circulation equals the allowance bank calculated above (85,146,494) and the number of allowances sold in Auction 39 (13,553,767). The current number of compliance purpose allowances is 45% of the 98,770,261 total or 44,415,118.

The ultimate reason for this analysis was because I wondered when compliance entities would have to start relying on the non-compliance share to get enough allowances to meet compliance obligations. In order to project when that will happen we have to guess at how many allowances will be purchased by compliance entities in the upcoming auctions and what future emissions will be like. Table 5 Current and Projected Allowance Status lists the current status of the number of compliance entity allowances in the top section. In the middle section, Projected End of 2018, I assumed that emissions in 2018 would be the same as 2017 but looked at three scenarios for compliance entities to purchase allowances: the % purchased in the first quarter of 2018 and the historical high and low rates. In all three scenarios compliance entities will not run out in 2018. However, in the bottom section I show that if there is a 5% reduction from 2017 CO2 emissions annually for the fourth compliance period then by the end of 2020 the compliance entity share will be negative unless compliance entities purchase at least 80% of the allowances.

Summary

Although there is an inconsistency between my calculation methodology and the RGGI reported total allowance bank at the end of 2017, these numbers show that the compliance entity share of allowances is getting smaller. This is truly unprecedented in any cap and trade allowance program so we do not know how the market will react.

If RGGI were static then this analysis shows that this issue could come to a head before the end of the current compliance period in 2020. However, both Virginia and New Jersey have indicated that they want to join the program. I have no idea how their allowances will be allocated relative to their emissions so cannot estimate any effect on this issue.

In addition to the changing relative share of compliance entity allowances the overall market is getting tighter relative to emissions and allowances available. Theory says that in a tight market the price goes up and I personally cannot imagine that not happening. This is especially troubling because the “easy” CO2 reductions in RGGI have already been implemented.

There are two potential problems looming. Advocates for RGGI claim that the RGGI allowance price costs to the consumer are offset by investments made by the RGGI states. However, when compliance entities have to purchase allowances from non-compliance entities the cost difference between the price that the non-compliance entities relative to the price they sell to the compliance entities is a cost that consumers have to bear. Even though there were investments using the original non-compliance entity price there are no offsetting investments for the cost differential. According to this analysis there are 54 million non-compliance entity allowances. If the market reacts strongly to the overall shortage and the price goes up, the resulting added burden to the consumer could be significant.

The other problem is that for CO2 compliance, power plants have limited options. For the most part fuel switching is the most effective. Eventually if you have the allowances you can run and if you don’t have them you either don’t run or assume that you can get the allowances on the market to cover your obligations. I have been involved in cap and trade compliance programs since 1993 and I can safely say that environmental staff in electric generating companies are universally opposed to assuming that allowances will be available. As important as a potential compliance problem is the fact that the power plant cannot estimate its cost unless it knows how much it paid for allowance obligation. That is impossible unless you have the allowances in hand. I worry that the logistics of getting allowances from the non-compliance entities for compliance needs could lead to problems in this regard.

Pragmatic Earth Day Success Story

I am an air quality meteorologist and a pragmatic environmentalist. My blog usually addresses topics where I appeared opposed to mainstream environmentalist dogma so it has been asked why I even consider myself an environmentalist. I support evidence based environmental controls. Since I started work in my field in 1976 there has been tremendous air quality improvement that addressed serious health and welfare problems. I want to document some of the improvements I have been a party to as an environmentalist in the electric generating industry on Earth Day 2018.

The two primary pollutants associated with acid rain are sulfur dioxide and nitrogen oxides. They are also associated with small particulate matter. United States sulfur dioxide emissions in 1970 31.2 million tons but were only 2.7 million tons in 2016 (91% reduction). United States nitrogen oxide emissions in 1970 26.9 million tons and in 2014 12.4 million tons (54% reduction).

I have been working in New York State most of my career. According to the EPA Clean Air Markets Division, over the twenty year period 1997 to 2016, the sulfur dioxide emission rate dropped 98% from 0.83 to 0.017 lbs per mmBtu. In the same time period, nitrogen oxides emissions dropped 75% from 0.24 to 0.061 lbs per mmBtu.

I am proud of the pollution control improvements at the facilities I worked with before I retired. In particular, I supported the Huntley and Dunkirk coal-fired power plants in Western New York from 1981 to 2010. My job was to report the emissions. The earliest sulfur dioxide and nitrogen oxides data I have for those two plants is from 1984 when the sulfur dioxide emission rate was 2.04 lbs of SO2 per mmBtu and the nitrogen oxide emission rate was 0.56 lbs of NOx per mmBtu. When I retired in 2010, the sulfur dioxide emission rate was 0.527 lbs of SO2 per mmBtu (81% reduction) and the nitrogen oxide emission rate was 0.159 lbs of NOx per mmBtu (73% reduction).

We worked with the New York State Department of Environmental Conservation to implement the control equipment necessary to reduce the emissions. Sulfur dioxide emissions were reduced by changing the sulfur content of the fuel, ultimately using Powder River Basin coal from Wyoming that had a much lower sulfur content that what was used in 1984. It is a testament to the operating staff at those plants that they figured out how to use a much different coal than what the plants were designed to burn when the plants were built before 1960. Nitrogen oxides were controlled by changing the burners a couple of times to more advanced technology and ultimately by adding selective non-catalytic reduction control systems. The addition of a baghouse with activated carbon injection also markedly reduced particulate, opacity and Hg emissions. Sadly despite all these improvements the cost of coal relative to natural gas made both plants uneconomic and they have since shut down.

As a result of these emission reductions, there has been a similar reduction in air pollution concentrations. EPA provides pollutant concentration trend data that documents those reductions. At EPA’s 42 nation-wide SO2 trend monitoring sites the annual average concentration has gone from 154 micrograms of SO2 per cubic meter in 1980 to only 20.2 in 2016 (87% reduction). At EPA’s 23 nitrogen dioxide trend monitoring sites the annual average concentration has gone from 111 micrograms of SO2 per cubic meter in 1980 to only 43.7 in 2016 (61% reduction).

Unfortunately, there has not been a similarly large relative concentration decrease for ozone. At EPA’s 206 nation-wide ozone trend monitoring sites the annual fourth maximum of daily maximum 8-hour average has gone from 0.101 ppm in 1980 to 0.070 in 2016 (31% reduction). Ozone is much more complicated pollutant because it is not directly emitted. Instead it is created in a photo-chemical reaction between nitrogen oxides and volatile organic compounds. As a result there are many more categories of sources to control which complicates improvements.

EPA and others tout the importance on human health of reductions in particulate matter, especially with small particulate matter known as PM-2.5 (the size of the particles is 2.5 microns). EPA only provides trends of PM-2.5 since 2000 because the monitoring equipment was not deployed until then. At EPA’s 455 nation-wide PM-2.5 trend monitoring sites the annual average concentration has gone from 13.4 micrograms per cubic meter in 2000 to only 7.7 in 2016. However, there is a strong correlation between ambient concentrations of PM-2.5 with SO2 and NO2. I did a multiple regression with the 2000-2016 PM-2.5 observations with SO2 and NO2 to guess at the ambient level in 1980. I predict that PM-2.5 concentrations have dropped 68% between 1980 and 2016.

The progress the United States has made in air quality improvement gets overlooked too often today when we seem to hear mostly about problems like ozone that still need to be addressed. However, before 1970 New York City was very polluted and that, for the most part, has been cleaned up. One should also keep in mind that there were some spectacularly wrong predictions made around the first earth day in 1970. Those predictions include the following air quality predictions:

  • In January 1970, Life reported, “Scientists have solid experimental and theoretical evidence to support…the following predictions: In a decade, urban dwellers will have to wear gas masks to survive air pollution…by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half….”
  • Paul Ehrlich predicted in 1970 that “air pollution…is certainly going to take hundreds of thousands of lives in the next few years alone.” Ehrlich sketched a scenario in which 200,000 Americans would die in 1973 during “smog disasters” in New York and Los Angeles.

Given the demonstrated improvement in air quality as opposed to apocalyptic projections of the past I hope readers keep that in mind when you hear current environmental doom and gloom stories.

Climate change soon to be main cause of heat waves in West, Great Lakes

A recent study entitled Early emergence of anthropogenically forced heat waves in the western United States and Great Lakes was publicized in the Syracuse New York Post Standard under the headline Upstate NY among first to have most heat waves due to climate change. Unfortunately, as Blair King writes “it actually represents a quite excellent example of how science is misrepresented to the public in the climate change debate.”

According to a press release: “Lopez and colleagues used climate models along with historical climate data to project future heat wave patterns. They based their findings on the projection for greenhouse gas emissions this century, known as the RCP8.5 scenario. This assumes high population with modest rates of technological change and energy conservation improvements and is often called the “business as usual” scenario. Lopez said he based the research on this climate scenario because historical greenhouse gas emissions have to date aligned with this projection.”

My concern and that of Blair King is the use of the RCP8.5 scenario. This is a representative concentration pathway that represents a forcing of 8.5 watts per meter squared that is used by climate modelers to represent the worst case atmospheric effect of greenhouse gases by 2100. Essentially this emissions scenario was developed to provide that forcing level.

Larry Kummer looked at the scenario in detail. He notes that “It assumes the fastest population growth (a doubling of Earth’s population to 12 billion), the lowest rate of technology development, slow GDP growth, a massive increase in world poverty, plus high energy use and emissions.” His post explains that RP8.5 assumes population growth at the high end of the current UN forecasts, assumes that the centuries long progress of technology will slow, and assumes no decarbonization of world power sources from new technology (e.g., solar, wind, fission, fusion) or regulations to reduce not just climate change but also air pollution and toxic waste.

Blair King explains that RCP8.5 has a storyline that describes the assumptions of the scenario in easy to understand language. He goes on to explain that the RCP8.5 scenario dates back to 2007 and is characterized by the following:

  • Lower trade flows, relatively slow capital stock turnover, and slower technological change;
  • Less international cooperation than the A1 or B1 worlds. People, ideas, and capital are less mobile so that technology diffuses more slowly than in the other scenario families;
  • International disparities in productivity, and hence income per capita, are largely maintained or increased in absolute terms;
  • Development of renewable energy technologies are delayed and are not shared widely between trade blocs;
  • Delayed land use improvements for agriculture resulting in increased pollution and increased negative land use emissions until very late in the scenario (close to 2100);
  • A rebound in human population demographics resulting in human population of 15 billion in 2100; and
  • A 10 fold increase in the use of coal as a power source and a move away from natural gas as an energy source.

Consider those assumptions against what actually has happened since 2007. I am not sure about the status of international disparities in productivity and land use improvements. However, I believe all the other parameters are not following those assumptions. Global trade is at all time highs, renewable technology is freely traded, renewable technology continues to mature and develop, and there is no sign of human population growth accelerating to reach 15 billion. Most importantly, this scenario pre-dates the fracking revolution that has flipped the use of coal and natural gas in the United States by making natural gas so cheap and plentiful. There is no reason to believe that the technology won’t expand elsewhere and markedly reduce any potential increase in the use of coal as a power source.

Lopez states that “he based the research on this climate scenario because historical greenhouse gas emissions have to date aligned with this projection.” He is either ignorant of the substantial change in greenhouse gas emissions observed in the United States or willfully ignored those numbers to misrepresent the science to the public.

My Comments on New York Carbon Pricing 3

New York’s energy planning process continues its efforts to meet the aggressive goals of a remodeled energy system that relies on renewable energy. The latest boondoggle in that effort is a plan to price carbon in the wholesale electric market. I have posted on previous submittals here and here.  The following is the comment that I submitted to the State on March 29 2018.

These comments are submitted as a private retired citizen. They do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone. I am motivated to submit these comments so that there is at least one voice of the unaffiliated public whose primary interest is low rates and an understanding of the basis of the rationale for a carbon price. New York State energy planning based on the Reforming the Energy Vision goal to change the energy system of New York to reduce greenhouse gas (GHG) emissions 80% from 1990 levels by 2050 is trying to choose between many expensive policy options like pricing carbon in the electric sector while at the same time attempting to understand which one (or what mix) will be the least expensive and have the fewest negative impacts on the existing system. If we make a good pick then we’ll spend the least amount of a lot of money, but if we get it wrong we will be left with lots of negative outcomes and even higher costs for a long time.

These comments are being submitted before the carbon charge setting and adjustment topic is discussed in April. The basic rationale of this policy to price carbon to offset the cost of its impacts hinges on the Social Cost of Carbon value used. I believe it is unfair and inappropriate to determine its viability based on the use of a single value so I recommend using a range and this comment provides further justification for alternative values.

I previously submitted two comments on this initiative. I have recommended that the carbon pricing initiative consider a range of SCC values including the proposed value and the values included in the Regulatory Impact Analysis for the Review of the Clean Power Plan: Proposal. In my other submitted comments I noted that there are serious issues with only including the electric sector. I noted that there are barely enough electric sector emissions available to meet the 2030 goal and nowhere near enough for the 2050 goal. Because the proposed carbon tax is on only one sector of the economy, the overall goal of carbon reductions could fail simply because driving up the price of electricity makes the conversion to electric based residential heating and transportation more difficult.

Because of the importance of the SCC on the very basis of this initiative, this comment provides another reference documenting the weaknesses of its use. I endorse the findings of Climate Change, Catastrophe, Regulation and the Social Cost of Carbon by Julian Morris as representing my views on the use of the SCC in this matter.

Julian Morris on the Social Cost Carbon

In the following section I only edit the summary of the analysis as published at the Reason Foundation for use in this comment. I refer the reader to the reference for the supporting graphs and figures and recommend reading the full document.

Federal agencies are required to calculate the costs and benefits of new regulations that have significant economic effects, but initially, different agencies applied different SCCs. To address this problem, the Office of Management and Budget and Council of Economic Advisors organized an Interagency Working Group (IWG) to develop a range of estimates of the SCC for use by all agencies. However, the IWG’s estimates were deeply flawed. In April 2017, President Trump issued an executive order rescinding the IWG’s estimates and disbanded the IWG. The question now is what value regulatory agencies should use for the SCC—if any—when evaluating rules that affect greenhouse gas emissions.

Mr. Morris writes that:

Most analyses of the social cost of carbon, including the IWG’s, have utilized “integrated assessment models” (IAMs), the basic methodology of which involves the following six steps:

  • Develop (or choose from existing) scenarios of future emissions of GHGs;
  • Use those scenarios to estimate future atmospheric concentrations of GHGs;
  • Project changes in average global temperature and/or climate resulting from these future atmospheric GHG concentrations;
  • Estimate the economic consequences of the resultant changes in temperature/climate;
  • Estimate the costs of abating specific amounts of GHG emissions;
  • Combine the estimates from steps 4 and 5 to produce an assessment of the net economic effect of different scenarios and thereby identify the optimum path of emissions.

Each step in this process is fraught with difficulty:

  1. Future emissions of GHGs are unknown—and unknowable—but likely lower than assumed in most IAMs.

Future human-related emissions of GHGs will depend on many factors, especially: the human population, the extent and use of technologies that result in energy consumption, the types of technology used to produce energy, and the efficiency with which technologies use energy.

None of these factors can be forecast with any precision. Predicting future technologies is particularly challenging. However, greenhouse gas emissions from U.S. sources have declined from their peak, mainly as a result of using more energy-dense, lower carbon fuels (and by using energy more efficiently. Global emissions are rising but at a declining rate, in spite of robust economic growth. If these trends continue, future concentrations of greenhouse gases are likely to be at the low end of estimates used by the IWG when calculating the SCC.

  1. The relationship between emissions and concentrations of greenhouse gases is complicated.

Calculating future atmospheric concentrations of GHGs, based on estimates of future human emissions, requires knowledge of the length of time that these GHGs will remain in the atmosphere. That, in turn, requires knowledge about the rate at which they will break down and/or be absorbed. This is no simple task. The rate at which GHGs such as methane and dinitrogen monoxide break down depends on such things as temperature and the amount of water vapor and other chemicals in the atmosphere with which they might react. The rate at which CO2 is taken up by plants, soil and oceans varies considerably depending on factors such as temperature and the availability of nutrients. The dynamic and interactive nature of these effects complicates the picture further.

  1. The climate is likely much less sensitive to increased emissions of GHGs than has been presumed in most IAMs, including those used by the IWG.

Early estimates of the sensitivity of the climate to increased concentrations of greenhouse gases found that a doubling of atmospheric carbon dioxide would result in a warming of between 1.5°C and 4.5°C, with a “best guess” of 3°C. But those estimates were based on poorly specified models. Tests of models using those estimates of climate sensitivity predict about twice as much warming as actually occurred. Nonetheless, the IWG used those early, inaccurate estimates. More recent estimates of climate sensitivity suggest that future emissions are likely to result in much more modest warming of the atmosphere (with a doubling of carbon dioxide concentrations resulting in a warming of 1.5°C or less).

  1. The effects of climate change are unknown—but the benefits may well be greater than the costs for the foreseeable future.

If the recent lower estimates of climate sensitivity are correct and emissions follow a relatively low path, warming will likely be modest and its effects mild. Likely effects include:

  • Warming will be greater in cold places (i.e. farther from the equator), seasons (winter), and times (night) than in warm places (equatorial regions), seasons (summer) and times (day).
  • At higher latitudes, winters will be less extreme.
  • Precipitation will increase, but not everywhere, and some places will become drier.
  • Sea levels will continue to rise slowly, as the oceans expand and land-based glaciers melt. (If current trends continue, sea level will rise by about 11 inches by 2100.)
  • The incidence of extreme weather events will not change dramatically.

While increased temperatures in warm places and seasons may result in higher mortality among those who are less able to cope with higher temperatures, warmer winters will reduce the number of people who die from cold. Since 20 times as many people currently die from cold as die from heat, modest warming will reduce temperature-related deaths. These effects will be tempered by the use of heating and cooling technologies, but the costs of additional cooling will be more than offset by reduced expenditure on heating.While rising temperatures have the potential to increase the incidence of some diseases, such as diarrhea, these effects are likely to be moderated by the adoption of better technologies, including piped clean water and sewerage.

Increased concentrations of carbon dioxide and higher temperatures are likely to increase agricultural output in many places. While agricultural output may fall in other places, this effect is likely to be moderated by the adoption of new crop varieties and other technologies. On net, crop production is likely to rise in the U.S. and globally.

Many economic models of climate change, including two of the three IAMs used by the IWG assume very limited adaptation. Yet the history of human civilization is one of adaptation. Food availability per capita and access to clean water have risen dramatically over the past half-century, reducing malnutrition and water-borne diseases and increasing life expectancy. Rising wealth and the adoption of new technologies have reduced mortality from extreme weather events by 98% in the past century. It seems highly likely that continued innovation and more widespread adoption of adaptive technologies will continue to reduce mortality, mitigating most—if not all—the adverse consequences of rising temperatures.

  1. The costs of reducing future emissions of GHGs are unknown—and will depend very much on the extent and timeframe of any reduction.

Proponents of taking action now argue that any delay would increase the total cost of emissions reductions—because baseline emissions (i.e. the emissions that would occur without any mandated reductions) would be higher and the size of any such future reduction would have to be greater. But such arguments presume both significant increases in baseline emissions and a need dramatically to reduce such emissions. If the trends in technology identified earlier do continue, growth in baseline GHG emissions will continue to slow and in the longer term may even fall without any government mandates. Indeed, it is possible that baseline emissions in the future (i.e. after 2050) will be consistent with a pathway of emissions that results in atmospheric GHG concentrations that generate net benefits.

Even if baseline emissions rise to a level that justifies intervention in the future, that does not necessarily justify reducing emissions now. Humanity currently relies predominantly on carbon-based fuels for energy generation, and the costs of alternative sources of energy are in most cases relatively high. (If alternative sources of energy were less expensive, then it would make economic sense to adopt them.) Continued innovation will almost certainly result in lower emissions per unit of output in the future, so the costs of reducing a unit of GHG emissions in the future will be lower than they are today.

  1. When combining benefits and costs, the IWG used inappropriately low discount rates, giving the false impression that the benefits of reducing emissions are greater than the costs. At discount rates that reflect the opportunity cost of capital, the current costs of taking action to reduce GHG emissions now and in the near future are almost certainly greater than the benefits.

OMB guidelines state that, for the base case, “Constant-dollar benefit-cost analyses of proposed investments and regulations should report net present value and other outcomes determined using a real discount rate of 7%. This rate approximates the marginal pretax rate of return on an average investment in the private sector in recent years.”

Unfortunately, when discounting the benefits and costs associated with global warming, many analysts have used discount rates that do not reflect the opportunity cost of capital. For example, the IWG provided an estimate of the SCC at a 5% discount rate, but it is the highest rate given. In its guidance, the IWG emphasized the SCC calculated at a 3% discount rate. Its rationale for using the lower rate is that future benefits from avoiding climate change costs relate to future consumption, rather than investment. Policies to address climate change would affect both consumption and investment, but for the purposes of evaluation what matters is the effect on investment, since it is the effect of policies on investment decisions that will determine rates of innovation and hence economic growth, the ability to adapt to climate change, and future consumption. In other words, while future consumption is of primary concern, due to its relationship to human welfare, return on investment is the key factor determining future consumption. Thus, the appropriate discount rate is the rate of return on capital.

Changing the Assumptions

Changing the assumptions made in the IWG’s models can have a dramatic effect on estimates of the SCC. Anne Smith and Paul Bernstein of National Economic Research Associates ran the IAMs used by the IWG making four changes:

  1. They changed the emissions scenario to reflect more realistic assumptions regarding the relationship between emissions and economic growth;
  2. They changed the time horizon from 2300 to 2100;
  3. They changed the discount rate from 3% to 5%;
  4. They changed the scope from global to U.S. only.

When all these changes were combined, the effect was to reduce the SCC by 97%, from $43 to about $1.30. Smith and Bernstein’s analysis did not change any assumptions regarding climate sensitivity or other relevant climate parameters that might have been misspecified in the IAMs used by the IWG. Kevin Dayaratna, Ross McKitrick and David Kreutzer assessed the effects of using more-recent empirical estimates of climate sensitivity to calculate updated SCC estimates using two of the IWG models. They found that, for one model, the average SCC fell by 30%–50% and for the other it fell by over 80%. Moreover, at a 7% discount rate, one of the models generated a negative SCC.

If all of the adjustments made by Smith and Bernstein were combined with those made by Dayaratna et al. it seems likely that the SCC would fall to well below $1. Indeed, given uncertainties in the various parameters used, it seems difficult to avoid the conclusion that for practical purposes the SCC is effectively $0.

What About Catastrophic Climate Change?

Some economists have objected that conventional measures of the SCC fail adequately to account for the possibility of catastrophic climate change. However, such criticisms are based on assumptions concerning the probability of catastrophe that have no empirical basis. A recent attempt to estimate the SCC by surveying experts to find out what they would be willing to pay to avert catastrophe is so riddled with defects as to be of no utility.

Caiazza Conclusions

As Mr. Morris notes “The question now is what value regulatory agencies should use for the SCC—if any—when evaluating rules that affect greenhouse gas emissions.” I do not believe that this proceeding is an appropriate place to determine the most appropriate single value of the SCC to use. However, it would be clearly appropriate to consider a SCC range not only because there are technically justifiable differences in the key input assumptions but also because the SCC value originally proposed for this program was based on the flawed Obama Administration IWG assumptions that did not follow OMB guidance on the use of discount rates.

The analysis by Mr. Morris concludes that “it seems difficult to avoid the conclusion that for practical purposes the SCC is effectively $0.” Therefore, I recommend that this initiative determine what SCC value represents a breakeven point for implementing this program. It is only possible for policy makers to appropriately implement this initiative if they understand there is a reasonable and justifiable range of potential costs of carbon on society. The basic rationale of this policy hinges on the SCC value used and it is unfair to determine its viability based on the use of a single value.

Carbon Price SCC Value Recommendation

I recommend that the carbon pricing initiative consider a range of SCC values including the proposed value in the Brattle Report entitled Pricing Carbon into NYISO’s Wholesale Energy Market to Support New York’s Decarbonization Goals, the values included in the Regulatory Impact Analysis for the Review of the Clean Power Plan: Proposal, and because Climate Change, Catastrophe, Regulation and the Social Cost of Carbon concludes that “it seems difficult to avoid the conclusion that for practical purposes the SCC is effectively $0” that the breakeven point be calculated where the calculated value of the social cost of carbon benefit out-weighs the costs of a price on carbon.

Page 22 Pricing Carbon into NYISO’s Wholesale Energy Market to Support New York’s Decarbonization Goals Section V. Market Design Issues with a Carbon Charge, A. Establishing the Appropriate Carbon Price and Adjustments Over Time:

The first option is to set the carbon charge at the value New York ascribes to carbon abatement. The New York NYPSC has adopted using the SCC as estimated by the U.S. Interagency Working Group on the Social Cost of Carbon. The SCC serves an estimate of the damages associated with an incremental increase in carbon emissions. Specifically, the NYPSC has tied ZEC payments to the SCC, starting at $43/ton CO2 today and rising to $65/ton by 2029.

Page 44 Regulatory Impact Analysis for the Review of the Clean Power Plan: Proposal in section 3.4.1. Estimating Forgone Domestic Climate Benefits

Table 3-7 presents the average domestic SC-CO2 estimate across all the model runs for each discount rate for the years 2015 to 2050. As with the global SC-CO2 estimates, the domestic SC-CO2 increases over time because future emissions are expected to produce larger incremental damages as physical and economic systems become more stressed in response to greater climatic change, and because GDP is growing over time and many damage categories are modeled as proportional to gross GDP. For emissions occurring in the year 2030, the two domestic SC-CO2 estimates are $1 and $7 per metric ton of CO2 emissions (2011$), using a 7 and 3 percent discount rate, respectively.

For emissions occurring in the year 2015, the two domestic SC-CO2 estimates are $1 and $5 per metric ton of CO2 emissions (2011$), using a 7 and 3 percent discount rate, respectively.

Smithsonian Capture the Sun Harness the Wind

I am so tired of the Smithsonian’s unquestioning devotion of renewable energy in spite of obvious warning signs that I wrote a letter to the editor. In the April 2018 Smithsonian there is an article entitled “The Future’s so Bright (He’s Gotta Wear Shades)” by Dan Solomon and a related graphic article “Capture the Sun, Harness the Wind” by 5W Infographics. These articles are essentially puff publicity pieces for the renewable energy industry that clearly shows the bias in Smithsonian on renewable energy. Nonetheless they cannot escape inconvenient facts.

The most obvious problem with Solomon’s article on the bright future of renewable energy in Georgetown Texas is that renewable energy looks great for the early adopters but the reality of a 100% reliable electric system lies beneath that success. The situation is exactly the same as a pyramid scheme where the first ones in reap benefits. When Solomon’s article notes that “about 2% of the time the Georgetown utility draws electricity derived from fossil fuels”, an unbiased article would have followed up on the implications of that. The primary support for the fossil fuels necessary to keep Georgetown lights on comes from everybody else. As more rent-seekers pile onto the renewable energy bandwagon pyramid the costs necessarily increase for those on the outside. As you dig deeper it becomes apparent that price support for the rest of the electric system not only becomes more likely but because solar and wind don’t support grid services it becomes increasingly likely that another layer of support has to be added at some point over 30% renewable penetration. At this time Georgetown is not paying for that.

The first graph in the graphic article shows “The comparison to coal” which charts the 2016 actual coal and renewable sources electricity generation and projects changes in their use out to 2050. Comparing the 2016 coal use of 1,216 billion kwhr and 573 billion kwhr renewable source estimate of 573 with EIA numbers shows that those numbers are close enough to not quibble. However, the title of the article refers to sun and wind and the electricity generation in those categories is lumped together with hydro, biomass, geothermal, and other gases. As far as I can tell solar and wind account for less than half of the 573 billion kwhr number. On the other hand most of the future renewable growth will occur in the wind and solar sectors but the graphic does not provide that information. Neither article mentions just how much wind and solar generation will be needed to meet the projected 2050 number.

Another graphic notes that 800 MW of energy storage were built in the United States in the last five years and expects that amount will be built in just 2020. The important number is how many MW hours will be available from the energy storage built because that defines how much storage will be available to counteract renewable’s intermittency. Solomon’s article also did not address how much storage would be needed for Georgetown to get off the grid. Neglecting to point out that because intermittent renewables struggle to generate power over a third of the time we will likely have to over-build renewable capacity and add massive amounts of energy storage biases the renewable argument.

One of the inconvenient facts illustrated but not noted in the graphic article is jobs per energy produced. If you divide the number of coal-industry employees in 2016 into the total coal generation you get 24.3 million kWh produced per employee. If you divide the sum of the solar and wind employees in 2016 into half of the reported renewable sources generation you get 0.8 million kWh produced per employee. Coal is 30 times more man-power efficient. While that may be good for employment it does not portend well for cost.

Other than the fact that the duck curve is graphically interesting I am not sure why that was included in the graphics article. More importantly it illustrates a problem. When you have large amounts of solar on the system something has to be available to make up for the evening demand. That is where storage becomes necessary. In order to keep the lights on you also need enough storage to cover those days when there isn’t any sun. Dale Ross’s flippant we are in West Texas so “Cloudy, Really?” comment aside a quick check of the climatological data indicates that it is mostly cloudy 28% of the time in Georgetown. Obviously despite the claim that Georgetown is powered entirely by renewable energy the fact is that is not true.

The Solomon article has multiple instances of conveniently neglected facts to make the story. It notes that the City was able to get guaranteed rates of 20 years for wind power and 25 years for solar power. It would have been appropriate to note that these types of facilities have very little operational experience that long so the guarantees might not be as iron-clad as implied. Solomon quotes Adam Schultz as saying that solar and wind have gotten so much cheaper that “I can’t even tell you the costs because costs have been dropping so rapidly”. If that is the case then why do both solar and wind need direct subsidies? Finally, blowing off the environmental impact of renewables on birds by saying that more birds are killed by cats and buildings reminds me of the two wrongs don’t make a right parable. Furthermore, what about the bats and just how many raptors are killed by house cats? The fact is that because renewable energy is diffuse, wildlife issues are a legitimate concern.

Those are the superficial errors illustrating biases. The reality is that because wind and solar are diffuse the electric grid is essential for keeping the lights on. Digging down into this problem is more complicated but necessary for the complete unbiased story of renewables. I recommend this post by Planning Engineer at the Climate Etc. blog for an overview of the transmission planning difficulties raised by wind and solar energy. In brief, the modern power grid is a connected complex machine that balances various electrical and mechanical properties over thousands of miles. The system must be stable that is to say stay in synchronism, balance loads and generation and maintain voltages following system disturbances. The grid is built upon heavy rotating machinery at hydro, nuclear, and fossil-fired generating stations that provides that stability. Wind and solar power do not provide any stability support. Up to some point the present day grid is resilient enough to overcome that problem but at some point it has to be addressed. I don’t doubt that it can be addressed successfully but the costs necessary to do that are unknown and were certainly not a consideration in either article.

The reality of solar and wind renewable power not addressed in this article is that it is likely only to completely supplant fossil fuels in limited locations where both solar and wind potential are high, industrial load requirements are negligible, and the weather is mild in the winter because both resources are intermittent and diffuse. Texas has large wind and solar resources because of geography and because it is so large there is enough space to generate significant amounts. Georgetown TX does not have heavy industry that requires high amounts of electricity constantly so they can pretend to be powered entirely be renewable energy. Finally, Georgetown does not have to contend with winter impacts of higher latitudes particularly home heating. The solar resource is much reduced simply because the days are shorter but you must also consider reductions due to snow covered rooftop solar cells.