New York State Comments on the Clean Power Plan – February 2018

Officials from twelve states including New York submitted a comment labelled as State Environmental and Energy Regulators’ Comment on Advance Notice of Proposed Rulemaking, Docket ID No. EPA-HQ-OAR-2017-0545 on February 26, 2018. The comments, facilitated by the Georgetown Climate Center, were from: California, Connecticut, Massachusetts, Minnesota, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington. The letter discusses the need to reduce emissions of the greenhouse gases that cause climate change and this post reviews their rationale for that need.

EPA requested comments on a proposed rulemaking to revise the Obama-era Clean Power Plan which was a regulation to limit CO2 emissions from power plants. From my pragmatic standpoint the ultimate issue is whether the regulation can actually impact the purported effects better than an alternate response.

The comment starts as follows:

We are environmental and energy regulators from a group of 12 states, and we are providing comment on the Environmental Protection Agency’s (EPA) Advance Notice of Proposed Rulemaking on State Guidelines for Greenhouse Gas Emissions from Existing Sources (ANPRM)[1].

We represent states that are already suffering the economic and human consequences of climate change, and that are leaders in working to reduce the emissions that cause it. Extreme weather events in recent years have continued to cause record damages that disrupt state economies and require years for recovery. For example, in 2017 California experienced almost twice as many wildfires burning six times as many acres as the average over the last five years[2], and these fires were among the deadliest in the state’s history, killing a total of 47 people[3]. The National Oceanic and Atmospheric Administration (NOAA) estimates that Hurricane Sandy caused damages of over $70 billion, and projected damages from Hurricane Harvey total $125 billion[4]. With over $300 billion in estimated losses from disaster events in 2017, last year was by far the costliest year for climate and weather related events, and it also tied the record for the number of billion-dollar disaster events in a single year[5]. Our states are working to reduce harmful climate pollution individually and jointly. Minnesota’s GDP grew by 23.1 percent between 2000 and 2014, while its emissions decreased by 3.6 percent[6]. North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard has resulted in investments of over $10 billion in clean energy technologies[7], created 34,000 clean energy jobs,[8] and reduced CO2 emissions by 14.6 percent between 2004 and 2014[9]. Since the launch of the multi-state Regional Greenhouse Gas Initiative, carbon emissions from power plants in the region have decreased by 40 percent[10]. EPA should act urgently to reduce the risk to American citizens from further climate impacts, and should take into account the methods our states have already proven as effective and affordable in reducing carbon pollution.

My problem with this rationale is that it only lists a series of weather events but does not explain how much of the observed events are the result of climate change and, therefore, could be affected by the control program they support. Ultimately, the alleged effects of human impacts on climate are not creating new weather-related hazards. Climate change could make weather hazards more frequent and more intense but will not prevent them from occurring in the future.

Consider, for example, the statement “projected damages from Hurricane Harvey total $125 billion”. Hurricane Harvey was “A category 4 hurricane (on the Saffir-Simpson Hurricane Wind Scale) before making landfall along the middle Texas coast. The storm then stalled, with its center over or near the Texas coast for four days, dropping historic amounts of rainfall of more than 60 inches over southeastern Texas.” “Harvey was the most significant tropical cyclone rainfall event in United States history, both in scope and peak rainfall amounts, since reliable rainfall records began around the 1880s”. Not surprisingly with this much rain there was catastrophic flooding and the fact that it happened over the major metropolitan area of Houston made it very costly.

The comment letter states “Extreme weather events in recent years have continued to cause record damages that disrupt state economies and require years for recovery” and uses the very large damage estimate as an example. Not addressed was whether climate change affected the rainfall and thus the damage.

In the first place, using damage estimates is a weak argument for climate change affecting Harvey. If the storm had not stalled over Houston there would have been much less to damage and the costs would have been lower. A recent paper makes the point that “Growth in coastal population and regional wealth are the overwhelming drivers of observed increases in hurricane-related damage”. The paper also shows that there has been no significant change since 1900 in hurricanes that land in the United States for frequency or intensity. So the real argument that the state comments should have made is that Hurricane Harvey itself was affected by climate change.

There are a couple of analyses that do claim that Harvey rainfall was affected by climate change. A team of scientists from World Weather Attribution claimed that human-caused climate change made the record rainfall that fell over Houston during Hurricane Harvey roughly “three times more likely and 15 percent more intense”. Another paper suggests that the annual chance of at least 500 mm (20”) of rain over Texas like that seen from Hurricane Harvey would increase from about 1% between 1981-2000 to 18% by the end of the 21st Century and concludes that the risk from a Harvey event has already increase six-fold in 2017 (a 6% chance of occurrence yearly) versus that from just a couple decades ago.

Both of these analyses use output from dynamical weather forecast models to project the effect of climate change. The theory is that a warmer atmosphere can hold more moisture so rainfall rates would be more intense. Landsea references a study that explains “Theory suggests that the amount of rainfall in the tropical latitudes would go up about 4% per deg F sea surface temperature (7% per deg C). Climate models forced by assuming continued emissions of greenhouse gases suggest around 2-2.5 deg F (1-1.5 deg C) warming by the year 2100, or about 10% more tropical rainfall. Landsea then notes:

Scaling the results from both theory as well as climate model projections suggest, then, that roughly 3% of hurricane rainfall today can be reasonably attributed to manmade global warming. This value is a rather tiny contribution. Thus only about 2” (50 mm) of Hurricane Harvey’s peak amount of 60” (1525 mm) can be linked to manmade global warming.

Landsea goes on to explain why he does not consider the other results reliable. I prefer to use all the results to provide a range of potential outcomes

So even if the State comments had properly considered the real effect of climate change on extreme weather events instead of the inappropriate total cost of a storm, there are a legitimate range of potential outcomes – (15% more intense to 3% more intense). These comments do not provide an appropriate rationale why they believe controls are necessary because they did not provide a science-based argument. Instead they have relied on emotion-based claims of damages without attributing them to climate change impacts.

The Landsea paper lists lessons to be learned from Harvey’s catastrophic flooding that summarize the important points that should be recognized that is written so well I want to include it here:

  1. Hurricanes (and Tropical Storms) have been associated for millenniums with extreme rainfall and freshwater flooding. There is nothing that one can do to prevent these storms from occurring, hitting land, and impacting people;
  2. Massive flooding and catastrophic impact from tropical storms and hurricanes occurs when the system moves slowly over a major city. This is precisely what happened because of Harvey as a tropical storm over Texas;
  3. Flooding is made worse when extreme rainfall occurs over impervious land (such as roads and buildings) and the rain cannot soak in. Land use decisions should better consider allowing building (or rebuilding) in flood prone areas;
  4. Studies should be made to see if evacuating people in advance of extreme flooding rain is feasible. (Currently, only evacuations from hurricanes are primarily issued from possible storm surge – salt-water – flooding. However, because the skill of in day-to-day rainfall amounts and locations continues to improve, it might be feasible to call for limited evacuations in the most vulnerable locations.);
  5. Linking hurricane rainfall to global warming today (and even decades from now) based upon such a tiny contribution is misleading. Moreover, such a fixation can delay steps that can be taken now to better mitigate the effects of extreme flooding from hurricanes. See the following sites for more action today that can be taken: the Federal Emergency Management Agency (FEMA), the Insurance Institute for Business and Home Safety (IIBHS), the Environmental Protection Agency (EPA), and academia (University of Colorado, University of Pennsylvania, and University of Iowa).

Paraphrasing Dr. Landsea, the fixation on reducing greenhouse gas emissions in the Obama-era Clean Power Plan is delaying actions that could and should be done today to mitigate the inevitable catastrophic hurricane damages. The comment letter by these states continues this inappropriate fixation. Moreover, the comments do not provide any indication how much their preferred control options would impact global warming in general or the alleged impacts listed in particular.

[1] 82 Fed. Reg. 61,507 (Dec. 28, 2017).

[2] “Incident Information,” California Department of Forestry and Fire Protection, http://cdfdata.fire.ca.gov/incidents/incidents_stats?year=2017.

[3] California Department of Forestry and Fire Protection, Large Fires 2017: 300 Acres and Greater, http://cdfdata.fire.ca.gov/pub/cdf/images/incidentstatsevents_273.pdf.

[4] Billion-Dollar Weather and Climate Disasters,” NOAA, https://www.ncdc.noaa.gov/billions/events/NY/1980-2017.

[5] Id., https://www.ncdc.noaa.gov/billions/overview.

[6] Devashree Saha & Mark Muro, The Brookings Institution, Growth, Carbon, and Trump: State progress and drift on economic growth and emissions ‘decoupling’ (December 8, 2016), Fig. 3.

[7] RTI International, Economic Impact Analysis of Clean Energy Development in North Carolina – 2017 Update (Oct. 2017), https://energync.org/wp-content/uploads/2017/10/Summary-Findings_Economic-and-Rate-Impact-Analysis-of-Clean-Energy-Development-in-North-Carolina%E2%80%942017-Update-October-Version.pdf

[8] U.S. Climate Alliance, 2017 Annual Report, https://static1.squarespace.com/static/5936b0bde4fcb5371d7ebe4c/t/59bc4959bebafb2c44067922/1505511771 219/USCA_Climate_Report-V2A-Online-RGB.PDF.

[9] North Carolina Utilities Commission, Annual Report Regarding Renewable Energy and Energy Efficiency Portfolio Standard in North Carolina Required Pursuant to G.S. 62-133.8(J) (October 1, 2017), http://www.ncuc.commerce.state.nc.us/reports/repsreport2017.pdf.

[10] “RGGI Emissions Fell Again in 2016,” Acadia Center (March 10, 2017), http://acadiacenter.org/rggi-emissionsfell-again-in-2016/.

Reality Slap to the REV Microgrid Concept

I believe that the Reforming the Energy Vision (REV) call for microgrids will result in the unintended consequence of encouraging the development of natural gas fired combined heat and power units. The most compelling reason is because that approach does not need to include storage in order to provide 24-7 power and any storage component will make that option much more expensive. However that reality does not comport with the dreams of those who believe a no-fossil future is necessary. This brings us to an ideal situation to see how this will be reconciled in New York State.

The ideal candidate for conversion to a combined heat and power unit is an office complex that has a power plant for steam heat and uses grid electricity. The Empire State Plaza in Albany NY is just such a complex. The New York Power Authority (NYPA) has proposed the Empire State Plaza Microgrid and Combined Heat and Power Plant to replace the existing system. However, their rationale ran aground against the idealism of local community members and environmentalists from across the state who assailed NYPA’s plan to replace aging steam turbines in the low-income, predominantly African-American Sheridan Hollow community with two new combined heat and power turbines to provide electricity and steam.

On February 5, 2018 NYPA caved to this pressure and announced that they will do additional studies of the proposed Empire State Plaza Microgrid and Combined Heat and Power Plant project in Albany in order to better evaluate renewable energy options for the project. The press release claimed that:

“This will allow a more comprehensive review of possible alternative energy sources that may be feasible to explore as part of the Sheridan Avenue project to improve reliability, resiliency and energy efficiency at the plaza. The project partners, the New York State Office of General Services and NYPA, will take this time to enlist ongoing engagement and input from members of the public, including local community members, energy experts and advocacy organizations and will incorporate community benefits into the project’s go-forward plan.”

According to slide 8 in the NYPA presentation on the Empire State Plaza CHP and Microgrid Project Overview the Plaza consumes 111,000,000 kWh per year and uses 1,003,084 klbs of steam per year. NYPA proposed two Taurus 70 combustion turbines that will produce more than enough electricity and steam heat to fulfill those needs. The key to the greater efficiency of a combined heat and power facility is that you use the waste heat, in this case to produce steam for heating. The proposed application is ideal because the CHP output can use the existing electrical and steam infrastructure thus saving costs.

According to slide 5 in the NYPA presentation Project Overview Slide 5, NYPA considered and rejected:

  • Solar Photovoltaic
  • Solar Thermal
  • Geothermal
  • Wind Power

Let’s review the feasibility of these alternative energy sources. As noted above my main rationale for using natural gas CHP is that you eliminate the need for storage. In their project overview this issue was not addressed because they noted fatal flaws without it. The more comprehensive review proposed in the press release must address that issue or be compromised.

NYPA noted that there is not enough roof space or appropriate acreage in Albany and that the option does not provide heat for solar photovoltaic as issues. At the simplest level if we assume 0.75 kWH per day per square yard of solar photovoltaic, then you would need 84 acres of space for enough PV cells so I have to agree with the NYPA space argument. Furthermore that is the minimum level needed because PV output varies over the year. In order to do the calculation correctly you would need to match the PV output with the actual daily and seasonal load curves. In any event you would still need to provide energy for heating and that requirement is exacerbated by the fact that the fact that when you need the heat the most the solar energy is lowest.

With regards to solar thermal, NYPA noted that the technology cannot generate steam, space is an issue and it does not provide electricity. If your only requirement is hot water then solar thermal may have value but in this case I agree with NYPA. To use solar thermal for heating you would have to replace the existing heating system, you need the solar thermal collectors contiguous to the facility so space is an even bigger constraint, and the peak need for energy is in winter when the solar energy available is lowest. The final nail in the coffin is that this option does not provide electricity.

Geothermal has two flaws. In the first place it cannot generate steam heat so that means that the existing heating system cannot be used. Secondly, it does not produce electricity.

NYPA noted that wind power is hard to site in urban areas, has safety issues in urban areas, and noted that the area does not have enough wind potential for the project. In addition they could have noted that wind does not produce steam so the heating system would have to be changed.

The press release course of action notes:

NYPA will engage community stakeholders, energy experts, and community advocacy organizations to examine renewable options including large scale net metering for solar and wind inputs. The Authority will further assess the feasibility of incorporating any renewable energy options as part of a proposed locally-sourced mini-power grid. The grid will be connected to the statewide grid, and also be able to operate independently, to power the Governor Nelson A. Rockefeller Empire State Plaza in Albany. The goal for the proposed project is to be able to supply 90 percent of the power for the 98-acre downtown Albany complex and be able to save the Plaza an estimated $2.7 million in annual energy costs.

In my opinion, this will be difficult to justify and meet the criteria listed. The ultimate problem is that renewable energy is intermittent and diffuse. Any meaningful renewable energy component to this project will have to include storage to address intermittency or it is simply a virtue signaling symbolic gesture. As noted by NYPA and confirmed in my simple estimates, renewable energy’s Achilles Heel of diffusivity means that in order to include any substantive wind or solar it will have to be collected beyond the Empire State Plaza boundary. When that happens the goal of being able to operate independently is contradicted because the existing grid will be used to transmit the power.

Judith Enck, the former EPA regional administrator for the Obama administration claims “If the state of New York is serious about climate change, it has to stop investing in fossil fuels.” While for this particular project I concede that it is technologically feasible to use renewable energy I don’t see how it could be implemented without substantially higher costs to address intermittency with storage and without contradicting the basic tenet that it will be able to operate independently. NYPA is a New York agency controlled by the Governor. It will be interesting to see how the short-comings of renewable energy are reconciled with the reality of the electrical and heating needs of the Empire State Plaza.

Cuomo State of the State 2018 Climate Agenda “Really?”

Governor Cuomo unveiled a comprehensive agenda to combat climate change by reducing greenhouse gas emissions and growing the clean energy economy in the 2018 State of the State on January 3, 2018. My reaction to one aspect of this reminded me of the VW Sign then Drive Event – “Really?” commercials. In the commercial a kid rows a gutter ball and says “Really?”, a lady gets no responses to a party and says “Really?”, and so on. The 20th proposal of the 2018 State of the State: a comprehensive agenda to combat climate change by reducing greenhouse gas emissions and growing the clean energy economy made me think the same thing. In particular is this little gem to undertake “revisions to strengthen RGGI by grouping together and thereby covering peaking units that collectively exceed RGGI’s capacity threshold of 25 megawatts”.

The rationale in the agenda is that:

RGGI only covers power plants with a capacity of 25 megawatts or greater, leaving out many smaller but highly-polluting, high demand “peaking” units, which operate intermittently during periods of high electricity demand. These polluting units are often located close to population centers that come online to meet peak electricity demand on excessively hot or cold days, and disproportionately impact low-income and minority communities that already face a multitude of environmental burdens.

I never really thought too much about the CO2 emissions from the peakers because after all they don’t run much and they are small although admittedly relatively inefficient. So I looked into it. Table 1 New York State CO2 Emissions by Control Program lists operating data and CO2 emissions. Of course you run into a problem immediately inasmuch as about two thirds of the peakers don’t even report CO2. Nevertheless I managed to come up with an estimate. I downloaded all the Environmental Protection Agency Air Markets Program New York unit annual emissions for all reporting programs from 2009 to 2016. I categorized the units by RGGI program; Other Program, 5-month reporting; and Other Program 12-month reporting. In 2016 the RGGI unit CO2 total was 31,194,515 tons and the peaker units already included in RGGI CO2 total was 245,987 tons.

In order to estimate CO2 emissions from the units that don’t report I assumed that the CO2 rate per operating time would be the same for peakers that report and those that don’t to calculate a conversion for the 5 month units. I multiplied that conversion factor by the reported operating times and assumed that it should be pro-rated across the entire year by multiplying by 12/5. Using those assumptions the total CO2 peaker emissions increase 215,000 tons to 460,987 tons or about 1.4% of the total emissions.

One of my biggest problems with the New York State clean energy programs is the apparent lack of an end game. I think the primary rationale for this is the environmental justice angle that the peaking units “disproportionately” impact low-income and minority communities. So it looks like the goal is to shut these units down.

Peak load days correspond to highest emissions days but the problem is that the peaking turbines needed to provide the peak load are old, inefficient and relatively high emitting. Consequently there is an extra kick of NOx pollution which as a precursor to ozone creates problems meeting the ozone ambient air quality standard. That is a real problem but conflating that with CO2 “pollution” is silly at best.

The State has never explicitly produced a game plan to replace the turbines in question. For example, consider July 20, 2015 which is the highest emissions day that year. The total gross load from all electric generating units in New York on that date was 303,967 MWh. Units covered by the RGGI program generated 297,350 MWh or 97.8% of the load. There already are combustion turbines covered by RGGI and they accounted for 19,960 MWH or 6.6% of the load. The non-RGGI combustion turbines targeted by the agenda only accounted for 2.1% of the load but that was still 6,369 MWh. The problem is that all of the combustion turbine generation was dispatched when it was needed, where it was needed in the New York City transmission system, and was not subject to weather. It is a non-trivial exercise for the Governor’s renewable energy program to replace that generation with those constraints.

I suppose proponents for including these units in RGGI could think that the revenues resulting from the sale of the RGGI allowances necessary to run could be invested to replace the peaking turbines. But 215,000 allowances at even $5 per ton is only $1,075,000. If those funds were allocated to the Clean Energy Fund then you could expect 3,575 MWh reduction based on calculations derived from my estimate of the NY RGGI operating plan. On the face of it that is pretty close to the 6,369 MWh number above but the gob smacking issue is that the 6,369 MWh is for one day and the 3,575 MWh is for a year!

NY RGGI Stakeholder Meeting February 2018

UPDATE: The stakeholder meeting was held on 2/13/2018 and I never received a response to my request for a webinar and the meeting did not include remote access.  Ironically, I understand one of the topics of conversation was an initiative to control CO2 emissions from the transportation sector. 

On January 25, 2018 several New York State (NYS) agencies announced a stakeholder meeting for NYS interests in the RGGI proceeding. These agencies should be leading by example but this announcement demonstrates to me their actual lack of commitment to their espoused goal.

The notice stated:

On February 13, 2018, the Department of Environmental Conservation (DEC), New York State Energy Research and Development Authority (NYSERDA), and Department of Public Service (DPS) will host a New York State stakeholder meeting to follow the Regional Greenhouse Gas Initiative (RGGI) regional stakeholder webinar scheduled for January 26th, and to discuss next steps related to the conclusion of the 2016 RGGI Program review. The meeting in Albany will build upon the regional meetings held to date and provides an opportunity to discuss New York specific topics related to the RGGI model rule implementation in New York. This includes forthcoming proposed revisions to DEC’s regulation implementing RGGI in New York, 6 NYCRR Part 242, CO2 Budget Trading Program.

My problem is the following:

This meeting will be in-person only to better facilitate dialogue as New York kicks off it’s stakeholder process. Additional meeting dates, including webinar opportunities may be made available to interested parties that cannot attend this meeting.

In my opinion, New York has set aggressive emission reduction targets more as a slogan and support for Governor Cuomo’s political ambitions than a rational action. At the top of the list of support for that statement is the decision to eliminate 10% of the state’s total electrical energy and 17% of the carbon free electrical energy by closing Indian Point. The fact of the matter is that in order to meet the Reforming the Energy Vision goal of an 80% reduction of GHG emissions by 2050 it will take enormous effort, require NYS citizens all to make sacrifices and accept some inconveniences. See for example this article on tradeoffs. State agencies should be leading by example. That the agencies would prefer to require attendees to increase their carbon footprint to attend a meeting solely “to better facilitate dialogue” is inconsistent with that reality. As Glenn Reynolds said: “I’ll believe global warming is a crisis when the people telling me it’s a crisis start acting like it’s a crisis.”

I submitted a comment to the contact address that included that point on January 27, 2018 and asked for remote access. If the agencies respond to that request I will update this post.

News from NY Office of Climate Change

The New York State Department of Environmental Conservation (DEC) Office of Climate Change publishes a regular email that lists the latest climate news. The latest edition shows that news has to be consistent with their preconceived notions of global warming. In this edition they use information to prove their case for climate change problems at the same time as they claim similar information cannot be used to not suggest climate change is not a problem. Talk about trying to have their cake and not eating it too.

Before proceeding a disclaimer. Before retirement from the electric generating industry, I was actively analyzing air quality regulations that could affect company operations. 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.

There are two articles that show the inability of the Office of Climate Change to really understand that there are two sides to the issue of climate change. The lead article is a picture of extensive ice at Niagara Falls with the following caption: “Extreme cold at the end of 2017 has frozen all but the moving water at Niagara Falls. Recent research suggests that a warming arctic may be contributing to cold snaps like this one in the Northeastern U.S. as a result of a weakened polar vortex.”

Also included, under a title “Science” is a quote from A Response for People Using Record Cold U.S. Weather to Refute Climate Change, published December 28, 2017 on forbes.com:

“Weekly or daily weather patterns tell you nothing about longer-term climate change (and that goes for the warm days too). Climate is defined as the statistical properties of the atmosphere: averages, extremes, frequency of occurrence, deviations from normal, and so forth. The clothes that you have on today do not describe what you have in your closet but rather how you dressed for today’s weather. In reality, your closest is likely packed with coats, swimsuits, t-shirts, rain boots, and gloves. In other words, what’s in your closet is a representation of ‘climate.’”

I agree completely that weekly or daily weather patterns are no indicator of longer-term climate change. If it is not immediately obvious the “recent research” analysis about the cold weather is trying to make an argument about weather patterns as an indicator of longer-term climate change. I am sorry but you cannot have it both ways.

If the Office of Climate Change deigns to correct this that might also want to mention to the Governor that he consistently is guilty of the same thing. He consistently refers to Superstorm Sandy as devastation related to climate change and has mentioned the November 2014 Buffalo lake effect snowstorm as further proof. Both were caused by short-term weather patterns. In order to prove otherwise historical weather patterns would have to be evaluated to determine if there was a change over time. In my opinion running a climate model to claim causation is dubious at best.

NYS RGGI Operating Plan Expectations vs. Reality

This is a post on the New York State Operating Plan which is supposed to determine the best use the Regional Greenhouse Gas Initiative (RGGI) auction proceeds that accrue to New York State (NYS). It is another in a series of posts on RGGI that discusses how RGGI has fared so far (see my RGGI posts page).  This post shows how far the public face of RGGI is from reality relative to NYS emission reduction goals.

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 the operating plan. 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

The responsibility for RGGI implementation is shared by the Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA). DEC set up the regulatory requirements for the affected sources and NYSERDA handles the money from the allowance auctions. The operating plan outlines how the money will be invested in programs to reduce emissions. The problem is that the budgeted program investments coupled with historic CO2e emission reduction benefits from those programs calculated by the agencies are woefully short of what is needed to meet the NYS emission reduction goals.

On December 20, 2017 the annual operating plan stakeholder meeting was held. You can see the operating plan documents, slides presented and access a recording of the meeting at the NYSERDA Use of Auction Proceeds website. In the opening remarks at the meeting the story from the agencies was that RGGI has been a rousing success and the investments have been a significant factor in that success. Alicia Barton, NYSERDA President, said that RGGI was “extraordinarily successful in driving positive environmental outcomes and fostering clean energy” and would be useful implementing a “cleaner, more reliable and more affordable future in the electric system”. Julie Tighe, DEC Chief of Staff, said that “emissions from the power sector in New York have fallen more than 50% since the states agreed to set the cap in 2005.” This post addresses the claim that RGGI investments have been an effective tool driving positive environmental outcomes. Tighe’s statement conflating the emissions reductions with setting the RGGI cap clearly implies that the reason the emissions went down was because of RGGI. I have already evaluated the actual impact of RGGI on emissions here that shows that her statement is wrong.

Analysis

Two documents released as part of the Operating Plan stakeholder process provide the information necessary to determine the potential effectiveness of the operating plan programs on reducing CO2e emissions. The calculated expected (CO2e) tonnage benefits to date are in RGGI Operating Plan (“2017 Operating Plan”) Table 1: Cumulative RGGI Benefits by Program. In DRAFT – 2018 RGGI Operating Plan Amendment (“Draft 2018 Operating Plan Amendment”) Table 1: Revenues and Program Funding Allocations, the proposed RGGI allowance revenue program investments for the next three years are listed. Multiplying the total budget amounts by the observed emission reductions dollars per ton benefits is all that is necessary to estimate how much CO2e is expected to be reduced.

Table 1 Comparison of RGGI Program Investments in this post combines information from both of those tables and a slide (Program Investments of $245M for FY 18-21 below) in the stakeholder presentation that describes the proposed program investments for the next three years. It was an interesting exercise to figure out how the categories meshed between the Draft 2018 Operating Plan Amendment and the Program Investments slide but I think the listings in my table are close. The total program investments budgeted in Fiscal Years 2018-2019 are $244.5 million. At the stakeholder meeting five investment strategies were described:

  • Building capacity for long-term carbon reduction
  • Energy Efficiency and Renewable Energy technologies
  • Empowering New York communities and transition to cleaner energy
  • Innovative financing
  • Stimulating entrepreneurship and growth of clean energy

Those categories are listed under Stakeholder Presentation in Table 1 Comparison of RGGI Program Investments. The specific programs from the Draft 2018 Operating Plan Amendment are listed opposite those strategies.

For each of the specific programs the $ per ton annual benefit calculated values presented in the 2017 Operating Plan was included in the table. Note that the category “Directed to the State – Environmental Tax Credits category did not have a $ per ton benefit calculated. I used the lowest of the three EE/RE cost benefit numbers to give the most CO2e reduction bang for the buck. Neither of the Empowering New York communities and transition to cleaner energy categories in the 2017 Operating Plan had emission reduction benefits calculated. The Directed Electric Generation Facility Cessation Mitigation Program provides payments to municipalities that depended on large fossil-fired generating plant property taxes when those facilities are closed down which certainly does not translate into reductions. Community Clean Energy programs “support the transition to sustainable and resilient communities” which apparently does not translate into direct CO2e reductions

Finally, the program 3-year investments are divided by the $ cost per ton benefit to determine how much CO2e reduction can be expected. For the $244.5 million investments the projected annual (how much is expected each year from the investment) emission reductions total is 268,595 tons of CO2e. The annual investment emissions reductions expected is one third of that or 89,531.

Let’s put those numbers into context. The RGGI model rule states:

The regional emissions cap in 2021 will be equal to 75,147,784 tons and will decline by 2.275 million tons of CO2 per year thereafter, resulting in a total 30% reduction in the regional cap from 2020 to 2030.

The New York share of the total allocations is 38.9% so New York’s share of the emission reductions necessary is 885,721 tons per year. The 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. In other words the RGGI investments are only expected to provide about 10% of the needed emissions reductions. If we back calculate to determine how much would have to be invested in these programs to get all 885,721 tons needed each year, it would take $731 million per year. That translates into a weighted average allowance price of $48 per ton, nearly nine times the assumed price.

Even more gob smacking is the NYS Reforming the Energy Vision (REV) goal of a 40% reduction of 1990 emissions by 2030. NYS 1990 emissions were 205.8 million tons so the 2030 goal is 123.5 million tons. In 2015 NYS emissions were 178.9 million tons so for the next 15 years annual emission reductions have to be just under 3.7 million tons per year to get to the target goal. It would take over $3 billion per year to be invested in these programs to get the 3.7 million tons needed each year to meet the 2030 REV goal.

Conclusion

Actually looking at the performance of the RGGI investments and determining the cause of electric sector emission reductions tells a completely different story than that presented by NYSERDA and DEC at the NYS RGGI operating plan stakeholder meeting. RGGI investments are not providing anywhere near the emission decreases necessary to meet the additional 30% RGGI cap reduction that New York championed. As shown elsewhere, fuel switching was the primary reason emissions dropped since 2005 and the problem is that there are limited opportunities for further reductions. Given that simply using their own numbers to determine the effectiveness of their investments tells a different story than the public overview does not portend well for the ambitious goals of Governor Cuomo.

RGGI 2016 Program Review Completion

This is a post on the announcement of the completion of the second program review process of the Regional Greenhouse Gas Initiative (RGGI). The RGGI states completed their first program review process in 2013, and in Dec. 2017 completed a second program review process resulting in the 2017 Model Rule. 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 the operating plan. 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 2016 program review page lists the following documents that summarize the results:

According to the announcement:

Overall, the RGGI program review has been a rigorous and comprehensive evaluation, supported by an extensive regional stakeholder process that engaged the regulated community, environmental nonprofits, consumer and industry advocates, and other interested stakeholders. The improvements arising from this process, now included in the updated 2017 Model Rule, will ensure RGGI’s continued success, cost-effectively reducing CO2 emissions while providing benefits to consumers and the region.

My biggest concern with RGGI is that the States seem to have convinced themselves that they have actually done a rigorous and comprehensive evaluation. Contrary to EPA and State agency rulemakings, RGGI does not formally and comprehensively respond to critical comments and rebut concerns raised by stakeholders.   On the other hand, the regulated community did not provide much in the way of critical comments. While RGGI claims engagement with the regulated community the fact is that comments from the affected sources are in the minority of the comments submitted. I believe that is because, after years of submitting comments and getting no, and I mean absolutely no, response or indication that the comments have even been read much less provide any feedback why the comments and recommendations have been ignored the regulated community has given up.

In addition there is a public relations concern. Advocacy groups, most of the media and many politicians constantly portray reducing CO2 emissions as an essential and noble objective. Any deviation from that goal can bring adverse publicity, accusations of denying the science, and, potential recriminations by the regulatory agencies for other projects. As a result there is a legitimate reason for affected sources to stay silent.

Importantly, however the proposed changes to the program are unprecedented in several ways that, in my opinion, have not been addressed in the program revisions:

  • Supporters of the tighter caps want the cap so low that it will be a constraint but I am not aware of any cap and trade program that has set the caps so low that they constrain operations.
  • This allowance program is different because in this allowance bank non-compliance entities that own allowances purchased them whereas in cap and trade programs the excess allowances enter the market because they were deemed excess by a compliance entity. At some point the regulated sources are going to have to rely on non-compliance entities for allowances necessary for compliance and it is not clear how the market will react (but my suspicion is that it will cost a lot more than we have seen to date.)
  • Arbitrarily adjusting the allowance bank because it is “too” big is unusual for cap and trade programs. Whether they got the adjustment right and how it plays out in this unique system are unknown.
  • The containment reserve provisions are another unique aspect of RGGI. This is particularly worrisome because the academic theory on how the program should work is not supported by the history of the program. This new adjustment certainly is another substantial uncertainty.
  • Finally, the analysis of the impacts of RGGI are determined using the Integrated Planning Model.  The problem with the model is that it has perfect vision so it predicts the power sector will react perfectly. This certainly is not supported by past history.

Because I have spent a lot of time with those comments that were not addressed, I want the record to show exactly what the regulated community and one retired guy who no longer has any ties to that community were worried enough about to submit relative to the following changes described in the summary of model rule updates. A reminder the issues highlighted below represent my opinion only and not necessarily the position of any RGGI-affected source or even the current position of the organizations that submitted the comments.

 Size and Structure of Cap and Allowance Apportionment (XX-5.1)

The regional emissions cap in 2021 will be equal to 75,147,784 tons and will decline by 2.275 million tons of CO2 per year thereafter, resulting in a total 30% reduction in the regional cap from 2020 to 2030.

  • One major concern of environmental staff in the regulated community is an environmental constraint that cannot be achieved by the actions of the affected sources. Ultimately this is the biggest worry about any CO2 control program because there is no cost-effective add on control option available to reduce CO2 so that limits what an individual affected source can do. The largest emission reduction option available is to switch fuels either directly by changing the fuel used or indirectly by running at higher emitting fuel units less and lower emitting fuel units more. There are some options available for increased efficiency but because fuel costs are a major cost driver most of the big impact efficiency possibilities have already been implemented. The ultimate compliance option for an affected unit in any cap and trade program is to simply stop running when the allowances run out.
  • As a result of this concern the Environmental Energy Alliance of New York (EEANY) submitted a White Paper in June 1, 2016. That analysis showed that of the observed emission reductions RGGI was only responsible for somewhere between 24% predicted by an econometric modelling analysis by Murray and Maniloff and 3%, assuming that energy savings estimated by RGGI are replaced entirely by natural gas. The primary driver of lower CO2 emissions since RGGI’s inception was fuel switching from coal and oil to natural gas and that was the result of lower relative fuel prices independent of RGGI. The problem that should be addressed is that future emission reductions will not be able to rely on fuel switching.
  • EEANY comments on 10/16/2017 pointed out that the Investment Status Report for the period ending 12/31/2015 claims that the annual benefits of 2015 annual investments avoided 298,410 tons of CO2 which is 13.1% of the 2,275,000 proposed annual reductions starting in 2021. The concern is that the investment reductions have not been very large and it is not clear what could be done to dramatically increase those reductions.
  • I also submitted comments on this problem that made the same points. “The proposed program revisions released last month for RGGI call for an annual post-2021 cap reduction of 2,275,000 tons per year. In the Proceeds Investment Report, Table 1: Benefits of 2015 RGGI Investments Program, it lists the annual benefits of 2015 investments and shows an annual CO2 reduction of 298,410 tons. As also shown in the white paper submitted to RGGI by the Environmental Energy Alliance of New York the affected electrical generation units have made most if not all of the cost effective reductions possible from their operations. As a result, future reductions will have to come from sources outside the affected units and RGGI has no track record providing any assurance that its investments will be sufficient to meet the targets proposed. The fact is that RGGI has not provided a roadmap for the 30% reductions that they have proposed so it is not clear how this will work.
  • The majority of the commenters during the program review claimed that even greater emission cap reductions were appropriate because of the observed reductions. The model rule reflects that position. RGGI never responded to the EEANY White Paper analysis of historical reductions and ignored their own analyses that showed that relying on past investments have provided relatively small emission reductions.
  • Therefore the most important uncertainty is where are the emission reductions going to come from?

Budget Adjustments (XX-5.3)

The Model Rule contains language to address the private bank of allowances through one additional, distinct budget adjustment.

The Third Adjustment for Banked Allowances, would adjust the base budget for 100 percent of the pre-2021 vintage allowances held by market participants as of the end of 2020, that are in excess of the total quantity of 2018, 2019, and 2020 emissions. The third adjustment timing and algorithm is spelled out in the Model Rule and would be implemented over the 5-year period, 2021-2025, after the actual size of the 2020 vintage private bank is determined.

  • Banked allowances are surplus at the time the bank is determined. Compliance entities bank allowances to provide margin for future operating variations and potential monitoring problems. Proponents for tighter emission limits seem to want the available allowances to exactly match emissions but that is unprecedented in all previous trading programs.
  • The EEANY White Paper noted that: “In cap and auction programs that distribute the allowances directly to compliance entities the allowance market consists primarily of surplus allowances from compliance entities that do not need them for compliance. In the RGGI auction scheme allowances are available to anyone willing to purchase them. In the worst case non-compliance entities could purchase all the allowances in the auctions then charge affected sources above market prices. That has not happened and is unlikely to happen in the future. Importantly we have no data to indicate what level of non-compliance entity holdings would adversely affect the market.”

Cost Containment Reserve (XX-5.3(d) and XX-9)

The Model Rule contains language for the continued use of a cost containment reserve (CCR) that will provide flexibility and cost containment for the program. The CCR would consist of a fixed quantity of allowances, in addition to the cap, that would be held in reserve, and only made available for sale if allowance prices exceed predefined price levels.

The Model Rule contains language for an annual CCR allowance quantity of 10% of the regional cap beginning in 2021 and each succeeding year thereafter.

Allowances from the CCR would be fully fungible.

The CCR allowances would be made available immediately in any auction in which demand for allowances at prices above the CCR trigger price exceeds the supply of allowances offered for sale in that auction prior to the addition of any CCR allowances.

If the CCR is triggered, the CCR allowances would only be sold at or above the CCR trigger price.

The CCR Trigger Price will be $13.00 in 2021 and rise at 7% per year, so that the CCR will only trigger if emission reduction costs are higher than projected.

 Emissions Containment Reserve (XX-5.3(e) and XX-9)

The Model Rule contains language for the creation and use of an emissions containment reserve (ECR) that will respond to supply and demand in the market if emission reduction costs are lower than projected. States will withhold allowances from circulation to secure additional emissions reductions if prices fall below established trigger prices. At this time, Maine and New Hampshire do not intend to implement an ECR. Allowances withheld in this way will not be reoffered for sale.

The Model Rule contains language for an annual ECR allowance withholding limit of 10% of the budgets of states implementing the ECR.

The ECR trigger price will be $6.00 in 2021, and rise at 7% per year, so that the ECR will only trigger if emission reduction costs are lower than projected.

Containment Reserve Comments

  • The RGGI states have relied on academics to evaluate their program. Dr.William Shobe at the University of Virginia can run allowance behavior simulations with students acting as affected entities and presented results of a Resources for the Future and University of Virginia ECR analysis in a RFF webinar on June 14, 2017. EEANY raised an important point about a misconception in the academic perception of allowance management. In particular, there is a potential disconnect between the economic theory of allowance management and the reality of compliance entity allowance management. Economic theory presumes that allowance management decisions depend on long-run future outlooks of allowance supply and demand whereas in reality most compliance entity allowance management is determined almost entirely by short-term requirements, particularly for the current compliance period.

 

  • In Dr. Shobe’s June 14th presentation he draws the analogy between allowances and commodities. In the commodity world the decision between selling and storing the commodity today is determined by the long run anticipated future price of that commodity. If it is expected that there will be less of the commodity available in the future then the price will likely go up over time and entities will stockpile now to sell at a later time when the price is higher. In putting forth this economic theory, Dr. Shobe postulates that if compliance entities know that the allowance supply is going to be reduced in the future then current behavior will reflect that and they will purchase additional allowances now to bank for future use. Clearly, this describes the motivation and analysis of non-compliance entities but it is not driving allowance-buying decisions by compliance entities.
  • This “allowances are like commodities” theory is highlighted on Slide 19 in the presentation which states that it is the long-run supply that counts. “In markets for storable commodities (like allowances, for example), the current price and the plan for accumulation of a stock of the commodity depend on
    • The expected long-run total supply compared to
    • The expected long-run total demand.”
  • The reality of compliance entity management is that there is rarely long-term planning on the time scale envisioned by Dr. Shobe. RGGI allowances are typically purchased by the compliance entities for the current compliance period. Compliance entities do not want to tie up capital in allowances because they have other more pressing needs for that money. As compliance entities have become familiar with the auction system and their operational needs their share of the allowance bank has shrunk. Simply stated, the analogy between storable commodities and allowances is not appropriate.
  • Compliance entities have long commented that the perfect foresight of IPM which predicts that affected sources will buy allowances in early years because there will be a shortage in the future is not representative of actual behavior. It appears that this is also an issue with academic theories of allowance management. At timestamp 44:10 of the June 14th webinar recording, Dr. Shobe states that “students understand the ECR and they make coherent inter-temporal decisions” in the allowance management lab. Intertemporal is an economic term describing the “concept of how the current decisions made by an individual can affect the options that become available to them at a future time.” The student behavior is consistent with Dr. Shobe’s expectation that current allowance purchases will be dictated by long-run perceptions of supply and demand.

Offsets (XX-10.2 and XX-10.5)

The Model Rule contains language that eliminates two offset categories, the “SF6 Offset Category (XX-10.5(b))” and the “End-Use Energy Efficiency Offsets Category (XX-10.5(d)),” and updates and retains three categories that some States may continue to implement. Any awarded offset allowances would remain fully fungible across the states.

Other critical comments not addressed

  • Constrained allowance market
    • EEANY comments July 17, 2017 : Presuming that the analysis in the last program review was correct, the number of surplus allowances available should approach zero by 2020. How the auctions and the secondary market will respond to the first-ever scarcity situation is an unknown.
    • The Alliance recommended that the RGGI States would be wise not to significantly alter the parameters of the RGGI market until this condition is fully explored in real-time.
  • Compliance entity share of the allowance bank
    • EEANY comments June 6, 2017: The compliance entity share of the market is an even more pressing concern. Table 1a shows that the compliance entity share of allowances could be less than 20% as soon as 2018 and Table 1b shows that even if the Cost Containment Reserve is triggered each year from 2017 to 2020 the compliance entity share of the allowances will be less that the recommended 20% by 2020.
    • This trend shows that compliance entities will have to go to the non-compliance entities to obtain enough allowances to operate. It is not clear how this will affect market prices.
  • Allowance management theory
    • EEANY comments August 3, 2017: Economic theory presumes that allowance management decisions depend on long-run future outlooks of allowance supply and demand whereas in reality most compliance entity allowance management is determined almost entirely by short-term requirements, particularly for the current compliance period.
    • The Alliance recommended that RGGI sponsor an allowance management lab test with Dr. Shobe that uses compliance entity allowance managers. We believe that it would be a learning experience for everyone and that the result would be a better representation of what could happen with an ECR and CCR.
  • Integrated Planning Model
    • EEANY comments June 29, 2016: IPM presents the best case scenarios to determine the viability of further reductions because it has perfect vision. Because it “knows” that the emissions have to be at a certain level by 2030 the model predicts that more renewables will be built sooner so that an allowance bank is built up for the later years when the cap is smaller. It also assumes that affected sources will purchase allowances and bank them for the smaller cap years down the road.
    • These flaws are related to the allowance management theory argument described above. As a result the Alliance suggested that it would be prudent to wait and change major parameters individually until the effects of each change are known.

Conclusion

The program changes in the 2016 RGGI review affect multiple moving parts at the same time. The result will be several unprecedented aspects of the program. Despite assurances from the agencies I remain unconvinced that the “rigorous and comprehensive evaluation” touted by RGGI will in fact preclude the possibility of significant problems. Rather than taking a measured systematic implementation approach RGGI has chosen to change everything simultaneously. I am not optimistic that these changes will all work out as planned and think there is a chance that the success of RGGI to date will be endangered.