Offshore wind: The next big thing in clean energy?
June 27th, 2017
As summer starts across the Northern Hemisphere, millions of families will flock to the beach for vacation. But the world’s coastlines are quickly becoming more than a tourist attraction; they’re increasingly home to one of the world’s most promising clean energy sources—offshore wind.
Offshore wind, in contrast to the widespread cost declines and capacity additions we’ve seen with onshore wind and solar PV, has historically been more of a ‘boutique’ resource—a great idea in theory, but still expensive and concentrated in certain parts of the world. That is now changing, as offshore wind becomes mainstream for three reasons: location, advancing technology, and declining price.
On location: Installing turbines offshore creates transmission costs, but these can be more than offset by the larger annual output—since the wind blows a lot more offshore than on—and by putting wind farms near major centers of electricity demand. Densely populated coastal cities require a great deal of energy, but that density makes transmitting power from remote wind and solar farms through high-voltage transmission a headache. At just 10-50 miles from the coast, offshore wind can directly provide power to congested areas, actually reducing transmission constraints and avoiding many of the siting conflicts that challenge onshore wind.
The wind that blows offshore is much stronger and more consistent than what we get inland, making it a more reliable resource. The time at which this wind blows also correlates much more closely with the times of day we demand the most energy, particularly the late afternoon and early evening. This helps grid operators balance decreasing solar output as the sun sets, and can help grids wean off fossil-fueled resources they maintain to meet peak demand. In competitive markets, offshore wind developers can increase revenues by generating energy when power prices are at a peak.
Offshore wind’s proximity to coastal cities also creates serious economic potential for former industrial centers: In Maryland, offshore wind is expected to generate nearly 10,000 jobs and $1.8 billion in new in spending over 20 years. In Massachusetts it could revitalize up to 18 shuttered ports, and similar impacts are expected in New York and New Jersey.
On technology: Offshore wind turbines have doubled or tripled in size in a matter of years, with several companies manufacturing turbines nearly 10 megawatts (MW) in capacity with much higher power output. The 9.5-MW turbine from MHI Vestas, 187 meters in height, dwarfs the London Eye and can produce enough electricity to power more than 8,000 U.K. homes.
These larger turbines are key to reducing costs: Bigger turbines capture more of the wind’s potential for a variety of reasons, which increases their capacity factor. This means wind projects can generate more electricity with fewer turbines, and since nearly half of offshore wind’s costs going toward balance of systems (substructure, infrastructure, installation, etc.), getting more output from fewer turbines can save developers billions.
On price: At its cheapest, offshore wind energy is still more expensive than onshore wind and solar, but these technologies have had a decades-long head start: The first solar cells were being developed in the 1950s, and onshore wind farms date back to the 1940s, whereas offshore wind is only about a quarter-century old. But thanks to the technological advances described above, offshore wind is approaching an inflection point. Depending on the region and the project, offshore wind will be cost competitive sooner than many think.
In 2016 alone, average offshore wind costs dropped 22 percent. Bids for projects in Europe—home to more than 90 percent of installed offshore wind capacity—are now coming in below $60/MWh, down from the previously record-low cost of $111/MWh less than two years ago. In fact, Denmark’s Dong Energy and Germany’s EnBW recently won bids for offshore wind projects without any direct subsidies, though developers benefitted from pre-approved siting and interconnection. Similar results are expected in the United Kingdom’s upcoming national offshore wind auction. A study in Nature Energy estimates that offshore wind prices will continue to decline 30 percent by 2030 and 41 percent by 2050, and McKinsey is even more optimistic, forecasting a 68 percent price drop by 2020.
Nature Energy, 2016
With offshore wind approaching subsidy-free prices, oil companies are taking note, and making investments. Oil companies’ experience with managing larger, more capital-intensive projects, as well as their expertise in marine technology, positions them particularly well for the offshore wind industry. Shell maintains a 50 percent stake in a 680-MW Dutch offshore wind project, and envisions scaling projects to nearly 15 times their current size in order to reach cost-competitive scale.
Interest in offshore wind is continuing to expand abroad as well as here in America: Germany, Denmark, and Belgium have pledged to add 60 GW of offshore wind in the next decade (a fivefold increase from current installed capacity), and states across the Mid-Atlantic and New England have announced installation goals of more than 4,000 MW.
America’s first offshore wind farm off Rhode Island’s coast, while a relatively small-scale project of just 30 MW, will drastically improve air quality for 2,000 residents on nearby Block Island, who have been able to completely switch from diesel generation to zero-carbon electricity. If offshore wind can continue to scale, opportunities are limitless.
California cap-and-trade 2.0: Finding harmony in the carbon cap debate
May 31st, 2017
California has the most successful carbon cap program in the world – doing its intended job of sweeping up remaining emissions left over from the state’s (also) world-class fuel efficiency standards, appliance and equipment efficiency standards, utility efficiency programs, and building codes, all while generating billions in revenue to reapportion for state infrastructure projects and disadvantaged communities.
Many state actors—from the environmental justice community and local officials, to industry voices and labor groups—have expressed their support for the program’s extension to at least 2030, citing it as a keystone policy for meeting California’s ambitious emissions reduction targets. This strong backing is crucial, since the state is hoping to pass any extension bill with a two-thirds majority, as added assurance in case the program is ultimately deemed a tax, requiring two-thirds legislative support, rather than a fee which requires a simple majority (though recent rulings seem to indicate the court is leaning in favor of upholding the program’s fee status).
In last week’s quarterly carbon auction, 100 percent of carbon allowances sold out at 23 cents above the program’s price floor. Our Director of Research Chris Busch was one of few analysts to have predicted this rebound in auction results (three of the last four auctions sold less than 35 percent of allowances) and explains how policy and market fundamentals were responsible for the break in the trend.
Though this recent strong auction strengthened momentum, until the legal authority for the post-2020 cap-and-trade program is secured, our longer run forecasts suggest that some shortfall in demand (some allowances going unsold at the auction floor price) could return. True, the California program is performing better than any other, but it too still suffers from oversupply. We find between 70-80 percent of allowances will be needed for compliance through the end of 2020.
Extensive working and thinking through the contours of California Carbon Cap 2.0 is happening in executive and legislative branches, but exactly what goes into the extension bill still looms. Two proposals have already been introduced: Assembly Bill 378 (C. Garcia, Holdren, E. Garcia) would extend the California Air Resources Board’s current authority of the program, but adds a handful of new stipulations aimed at creating more equitable and just conditions in disadvantaged communities. Senate Bill 775, written by Senator Wieckowski and supported by Senate President pro tem Kevin de León proposes modifications to how cap-and-trade revenues are allocated, including dividends payable to California citizens, and proposes prices floors and ceilings for cap-and-trade allowances.
As much as media seeks tensions between the two bill proposals and other ideas, it’s important to note much more common ground exists between AB 738 and SB 775 than differences. For example, both bills maintain the state’s requirement to reduce carbon emissions to 40 percent below 1990 levels by 2030, both require covered industries to obtain allowances in order to emit, and both also steadily reduce the number of available allowances offered each year. These elements are fundamental to any future carbon cap program for the state. But beyond this, in order to serve its intended purpose of reducing emissions while generating revenue and accounting for disadvantaged communities, California’s next carbon cap program would benefit from the following four elements:
- Set price collars—a price floor and price ceiling—to prevent allowance prices from ranging out of control. The floor would create an automatic adjustment mechanism that holds back allowances if carbon prices get too low (California’s current carbon program already does this, and it’s proven to be a key feature of its successes to date). The ceiling would have the opposite effect, creating an economic safety value that allows extra permits to be sold if carbon emissions prove to be too expensive for covered emitters. The price ceiling proposal has received some backlash, but 1) so far, across the world, emission reductions have proven to be cheaper than expected, so it’s unlikely that a reasonable ceiling will ever be reached, and 2) it would be negligent of state lawmakers to pass a bill that omits a strategy to protect its economic vitality.
- Use auction revenue intelligently—split between a carbon dividend, infrastructure programs, and R&D efforts. California’s future carbon cap program—in whatever form it may take—is estimated to generate billions of dollars each year to 2030. These revenues have the opportunity to make an enormous impact in California’s economy and communities. Providing a carbon dividend to every California household is strongly progressive, creating net benefits for anyone making less than $80,000 a year, and neutral for those making $81,000-$200,000 a year. Infrastructure funds will drive much more near-term, tangible carbon, air quality, and livability benefits in disadvantaged communities than do the dividends. And R&D is a long-haul investment, driving down the cost of future low-carbon technologies and positioning California as a hub for future clean energy business endeavors.
- Establish a clear strategy to help disadvantaged communities. California’s new carbon cap program must go even further to diminish the concentration of emissions in existing hotspots—which have historically been minority-dominated, low-income communities. A stipulation in the current cap-and-trade program requires 25 percent of funds to go toward projects benefiting disadvantaged communities, and 10 percent of projects to be located in disadvantaged communities (in reality, these figures are closer to 51 percent and 39 percent, respectively). In order to ensure that infrastructure projects in disadvantaged communities are well designed and ubiquitous, another Senate bill, SB 263, proposes the establishment of ten technical assistance centers to help these communities better access state funds.
- Introduce some new constraints around offsets use, determined by auction prices. Offset schemes—in which companies buy remote carbon reductions when it is too costly to achieve them with their own facilities—are viewed by some as being at odds with efforts to improve air quality conditions in disadvantaged communities, since it gives the larger industrial sources the ability to locally emit CO2—and possibly attendant conventional pollutants—if they account for their emissions in reduction efforts elsewhere (often outside of California). Others view offsets as essential for extending the price signal to uncapped sectors like agriculture and forestry, and worry that changes will have destructive effects on existing program linkage with Quebec and planned linkage with Ontario. We are working to find a compromise position that would allow fewer offsets when allowance prices are low, and more if allowance prices rise, with backstop protections for local air quality in high pollution areas.
We have no doubt that California will continue to lead the world in climate action. Maintaining its carbon cap program—and improving upon certain elements of it—is a valuable cog in California’s climate policy machine.
Tipping Points for Clean Energy
April 27th, 2017
New technology has tipping points—defined by functionality, consumer preference, and price. Clean energy is passing a huge one.
For years, the holy grail of clean electricity has been to make new solar or new wind cost-competitive with new coal or new natural gas. To compare prices of power technologies, economists use “levelized cost of energy,” or LCOE, which creates a net-present value of capital and operational expenditures of different technologies, and then amortizes them over 20 years of electricity production.
Lazard does this well:
What these estimates show, and what is now happening in the energy marketplace, is that new utility-scale solar and wind beat new fossil—and that is great where new power plants are being built. So it is not surprising the majority of new capacity installations in the U.S. for the past two years were wind and solar projects, as developers check the numbers and see these renewables projects beating out conventional energy technologies. But what about mature economies, where electricity demand is flattening as energy efficiency kicks in, and where the power of incumbency protects coal investments made forty years ago, but which still spin off cash?
Well, a new barrier has been crossed. It is now cheaper, in many parts of the country, to build a brand-new wind farm or solar plant than simply to pay the operating costs of coal, and sometimes even natural gas. That is the kind of tipping point worth paying attention to.
If a new wind farm in Colorado is cheaper than running old coal—and it finally is!—then there is money to be had and benefits to be shared. Lower electricity prices can be passed on to consumers. Some savings can be apportioned to coal miners or coal power plant staff for retirement or transition funds. Saved money can be used to pay off owners of old fossil plants. A newly proposed bill in Colorado would help make these opportunities a reality. The point is, we now have a clean energy revolution that can not only beat out old fossil, but can pay for much of the transition costs. That changes everything.
Economics (often) transcends ideology: You need not care about climate change or air pollution to want to save some money, or deliver those savings to your constituents or customers. Now we need to enable markets to promote clean energy.
Structurally, this entails rethinking the grid for high levels of renewables, but this is neither technically difficult, nor should it cost money. It does require changes to markets that were designed around large thermal units: Instead, markets must reward more flexible grid services. Utilities will need a new business model, so they can profit from energy services and reduced costs, rather than raw kilowatt-hour sales for capital cost recovery. We also need to get past the myths of the anti-renewables crowd: There is no reason that reliability need suffer as we add renewables to the grid, and wind and solar do not need vast sums spent to back them up, nor do they require miracles with batteries. There are extensive studies and experience to support these findings.
Still, even with technology and economics squarely on the side of clean energy, we have our work cut out for us. The most important challenges are to rethink the utility operations model, and to develop public policy so that institutions can prosper in this brave new world. It would be foolish, along this path, to ignore fossil’s deep incumbent power in politics, markets, and institutions. Nor can we overlook its enormous historical subsidies in technology development or its “leg up” in existing infrastructure and the free pollution of our air and atmosphere. Regulators need strategies to see that electricity markets fairly compensate renewables and that they intelligently, and rapidly, retire old fossil. They should share the benefits of these changes with displaced workers and their communities.
In other words, it is time to make some deals. There is clean energy, and cash, on the table. Let’s use them to accelerate this transition.
Sputtering in Washington; Killing carbon in the real world
March 30th, 2017
The headlines are teeming with news of Trump’s executive order rolling back Obama Administration action on climate change. This is a disappointing, if expected, development. We thought it might be worth offering a few words of perspective.
First, the announcement, like much out of the White House these days, is not all that it seems. The White House and the EPA are still constrained by law and procedure, and the economic and industrial context of the clean energy transition has its own power. A few short interpretations:
1. The Clean Power Plan, under which the EPA regulates emissions from the electric sector, state-by-state, will have to be revisited. The Obama regulations were established under the Administrative Procedures Act, after the Supreme Court ruled that the EPA had an obligation to regulate carbon dioxide emissions. To undo the Clean Power Plan, the Trump Administration has to follow the same evidence-backed, publicly aired, multi-year process that the original regulations required. Add in the current court issues (the CPP is tied up in a DC District Court ruling and a Supreme Court stay), and this is a slow and complex process. Advocates for clean energy will have the opportunity to challenge changes in court, and they are geared up to do so.
But the more important point is that coal is suffering from cheaper efficiency, renewables, and natural gas; coal power plants are old; and coal often has trouble meeting clean air regulations. So coal is on the way down, with or without Trump’s executive order. It is possible that a few plants will get a temporary stay of execution, but the momentum is still on the side of decarbonizing the grid. Energy Innovation’s Sonia Aggarwal shows how grid modernization by several leader states is already accelerating the transition through technology without federal action, published this week in Forbes.
2. The federal fuel efficiency standards for cars are also threatened by EPA’s new mandate to soften them. This, too, will land in the Administrative Procedures Act—and has the further obstacle that California can, and has, set its own strict standards, and roughly a dozen states are following California, so close to half the country is effectively out of the EPA’s reach. Nonetheless, if this rollback is successful, it will be costly to consumers, national security, and the environment. Energy Innovation analysis, using our Energy Policy Solutions model, finds that a full rollback of federal fuel efficiency standards will cost consumers nearly $370 billion and add nearly three billion tons of CO2 to the atmosphere by 2050.
The proper response is to ensure that California and the dozen states that follow California’s tougher standards stay on track (all signs are positive), and that the costs to Americans for the rollback are widely known.
3. It is our sense that the truck efficiency standards promulgated by the EPA will remain intact. They have been broadly accepted by the engine and truck industry.
State policy, technology, and economics are all moving in the right direction; Washington is sorrowfully going the wrong way. It is our sense that this federal resistance will be stymied in the courts, or in the markets, or in the states in many instances. Together we can help make sure that happens.
Finally, for a treat: Yesterday, Tom Friedman describes in his poignant ways just why and how the Trump approach undermines America.
The real costs of environmental reversals
February 27th, 2017
The daily news brings daily horror stories of the Trump Administration’s attempts to overturn environmental protections. The marquee feature of this assault is their promised rollback of the Clean Power Plan (CPP), which set limits on carbon dioxide emissions from the electric power sector.
We used our Energy Policy Simulator, a computer model which tests the effects of different climate and energy policies, to take a quantitative look at the emissions, economic, and public health impacts of a CPP repeal. The results are quite dramatic—with, for example, an additional 120,000 premature deaths and $600 billion in economic costs by 2050 due to this foolishness.
Our goal with this work is twofold: to add a careful fact base to an emotional argument, and to hold accountable those who would repeal the CPP or obstruct its enforcement.
Jeff Rissman, our lead modeler, wrote up an analysis for Forbes on the impacts of a CPP repeal. His article has already attracted more than 20,000 views, and has led to quite a few inquiries from the press. We will continue to push this message out in the coming weeks as discussion builds surrounding the fate of the CPP—and we hope you will too.
Jeff’s article on the impacts of a CPP repeal was part of our new guest column with Forbes, which kicked off last month and will feature weekly articles on smart policies and practices for our transition to a low-carbon economy. Our other Forbes guest articles to data have covered a range of topics, including U.S. energy strategy, the value of solar, California’s cap-and-trade program, and energy storage opportunities.
Antidote to January 20th
January 20, 2017
For those of you in need of a bit of world-situation-Xanax today:
The economics of clean energy technologies are not repealable. Efficiency, solar, and wind are now cheaper than fossil fuel options in many places across the country. A Greentech Media article by our power sector transformation expert Mike O’Boyle describes these cost trends – for which there is no reverse gear.
And despite today’s step backwards in Washington, there’s the political will at the state level and in the international community to move us toward a low-carbon future. Places like California and China are moving full speed ahead to take action to fight climate change, with or without the backing of the U.S. federal government. Time is of the essence and others are leaving DC in the dust. Now let’s get to work!
Wind and solar are our cheapest electricity sources — now what do we do?
December 22, 2016
For the last eight years, clean energy has had a political tailwind, but in many cases, has still had trouble competing with fossil fuels for electricity generation. Today, clean energy may face strong headwinds in Washington, but it now has the powerful force of economics pushing it along.
A nice thought for the holiday is contained in a recent Lazard report, comparing costs of different types of electricity generation. They find, and detailed analysis in Colorado and elsewhere backs this up, that it is often now cheaper to build an entire wind or solar project from scratch than to just pay the operating costs of an existing coal plant. That is a game changer. A recent memo by Energy Innovation’s Mike O’Boyle summarizes this development.
We have plenty of work ahead to land on a reasonable climate future, but economics, technology, and science are all on our side.
For years, debates about how to reduce carbon emissions from electricity generation were framed as trade-offs: What is the cost premium we must pay for generating zero-carbon electricity compared to fossil fuels, and how can we minimize those costs?
Fortunately, the holidays came early this year for renewable energy in investment company Lazard’s annual report on the levelized cost of energy (LCOE) for different electricity-generating technologies — renewables are now the cheapest available sources of electricity. This flips the question of clean versus cost on its head, and in 2017, we’ll be asking how much can we save by accelerating the renewable energy transition?
The story from Lazard’s 10th annual report is clear. Rapid technology cost reductions mean wind and solar are now the cheapest form of generation in many places around the country, without counting federal subsidies like tax credits.
What is levelized cost of energy?
Lazard uses the LCOE analysis to identify how much each unit of electricity (measured in megawatt-hours, or MWh) costs to generate over the lifetime of any power plant. LCOE represents every cost component — capital expenditure to build, operations & maintenance, and fuel costs to run — spread out over the total megawatt-hours generated during the power plant’s lifetime.
Because different plants have different operating characteristics and cost components, LCOE allows us to fairly compare different technologies. Think of it as finally being able to evenly compare apples to oranges.
How wind and solar are winning the day
According to Lazard, wind costs have fallen 66 percent since 2009, from $140/MWh to $47/MWh.
Large-scale solar’s cost declines have been even more dramatic, falling 85 percent since 2009 from more than $350/MWh to $55/MWh.
Compare this with the cheapest form of conventional fuel-fired generation today — natural gas-fired combined cycle power plants whose LCOE averages $63/MWh.
The case is even clearer when federal subsidies are considered: Tax credits drive renewable energy’s costs down to $31/MWh for wind and $43/MWh for solar. These low prices are not only cheaper than building new natural gas plants, but they are cheaper than many fossil fuel power plants on their marginal cost (i.e. costs for operating, maintaining, fueling, etc.) alone.
In other words, it’s now cheaper in many places to build new wind or solar energy than it is to simply continue running an existing coal and nuclear plant:
What does it all mean?
Even with these new numbers, more natural gas plants are being built every week, expensive coal is not retiring as fast as economics would dictate, and the rapid transition to renewable energy isn’t happening fast enough to prevent the worst effects of climate change.
At least three stodgy institutional barriers limit renewable energy deployment today: 1) difficulty accessing high-quality wind and solar resources, 2) misguided alarmism about the reliability of renewables, and 3) misconceptions of the cost of running the grid with more renewables.
While just wind and solar alone could potentially power the entire U.S. many times over, the windiest and sunniest (and thus cheapest) places to generate wind and solar power are often in remote locations, far from large cities with lots of power demand. Costly, drawn-out processes for siting transmission and power plants make these projects unnecessarily expensive and stifle investment. Policymakers can turn to America’s Power Plan for recommendations on streamlining the siting process and limit local impacts to create policy that reduces siting costs for renewables in the U.S.
Managing America’s grid with variable renewables also requires rethinking how we operate and plan our electricity systems, and many utilities have been slow to adapt. Grid operators sometimes claim we need to back up solar and wind an equal ratio of fossil fuel power plants like coal or gas for “when the sun doesn’t shine and the wind doesn’t blow”, but that’s just not true. Adding wind and solar can reduce the risk of a large outage — what are the odds the wind unexpectedly stops blowing everywhere or the sun is suddenly blotted out by clouds everywhere? In fact, government analysis shows we could quadruple the amount of wind and solar on the grid today without running into reliability issues.
Besides reliability, defenders of the old paradigm of large, fuel-fired power plants argue wind and solar come with integration costs, i.e. backup generation and transmission lines to connect remote locations to the grid. But attributing these costs to any one technology makes little sense across a big grid, where a diverse mix of power generation naturally smooths variability like an index fund versus a single volatile stock, for example. Gas, coal, and nuclear power also require new transmission, fuel supply and storage, and large backup reserves. Like renewable sources, they also have “integration costs,” even without accounting for the health and climate costs of carbon dioxide and other pollution.
A new paradigm
Transitioning our electricity sector away from fossil fuels is no longer just an environmental imperative, it’s an economic one. Free markets now favor solar and wind — look no further than gas-rich Texas for evidence. Texas has more than three times more wind capacity than any other state, and solar is expected to grow 400 percent by 2022.
Outdated policies leave us unprepared to take full advantage of the rapid cost declines we’re seeing in the wind and solar industry. The time is now to radically adjust for a paradigm where wind and solar form the backbone of our electricity grid.
Fossil Fuels: Boon or Bane?
December 2, 2016
The recent presidential campaign featured innumerable claims about reviving the coal industry and stimulating further drilling in gas and oil fields. After Trump was elected, coal stock shares—which have been slumping for months (if not years)—took a sharp leap, with Peabody rising nearly 50 percent in one day. But while it is true that environmental (and labor, and health, and land-use) regulations affect production rates for different types of energy, the core truth is that most remaining fossil fuels will be “stranded”—they will remain underground. This is because the science and economics have made a low-carbon future less expensive than a high-carbon one, something I emphasized in Tom Friedman’s New York Times article last month and in a feature story in this week’s Economist magazine.
Our latest piece (below) explains why science and economics—not politics—will strand fossil fuels.
Science and Economics, Not Politics, Will Strand Fossil Fuels
By Hal Harvey, published in Renewable Energy World
America’s post-election recalibration is perhaps nowhere as poignant, and consequential, as on climate change—if we stall until 2020 without serious action, the inexorable mathematics of carbon accumulation make a safe climate future nearly impossible.
Fortunately, while Washington matters, many other forces are reducing carbon emissions, and they will not pause. Here’s how the new reality shapes up: Most of the world’s coal, oil, and natural gas will remain buried underground forever, no matter who occupies the White House. There’s a term for the economic turmoil hitting fossil fuels: stranded assets.
Energy efficiency and clean energy costs are now dropping below fossil fuels, making the free market an increasing tailwind in our fight to save the climate. Businesses have developed efficient product plans, while many are building or buying renewable energy, and neither their CEOs nor employees are eager to change all this.
The coal industry is discovering this already, as all but one American coal company is bankrupt, and coal-dependent European utilities have seen market capitalization fall 75 percent or more. Coal is getting whipped in the marketplace by stunning cost drops of efficiency, solar, and wind in the last five to ten years.
Oil is harder to displace than coal, but the same market forces apply. Oil almost exclusively powers vehicles, planes, and ships. It is versatile, energy dense, and easy to move and burn, but releases carbon dioxide and other toxic pollutants, fueling efforts to displace it with efficient vehicles and clean electricity. Every major carmaker has announced a serious electric vehicle program: Mercedes promises ten electric models, VW will invest $4.5 billion in new EVs, and Toyota plans mass EV production by 2020. Tesla may have marked the way, but every big automaker is following. This will not be an easy path, but don’t bet against this trend. It will first strand expensive oil, like tar sands and deep-sea reserves, then more accessible sources.
Fracking has unlocked bountiful and economically viable natural gas, crucial for American chemical and industrial processes, and ideal for heating our homes and cooking—except for its contribution to climate change. Gas only emits half the CO2 per unit of energy as coal, but if it leaks even three percent anywhere from exploration to production to compression to distribution to end use, the climate benefit is negated and it’s just as bad as coal. But gas, too, is facing a soft market, with low prices and many idle drilling rigs.
Technology trends – originated by policy, but many now with individual motive force – drive the transformation from carbon-rich to carbon-free energy. Solar prices have dropped more than 80 percent since 2008, and wind by more than half. New LED lighting uses 85 percent less energy than conventional lighting technologies. These improvements do not have a reverse gear – while fossil fuel commodity prices fluctuate, causing great economic dislocations, technology costs are generally irreversible.
It is now cheaper to build and operate new wind farms in Colorado than paying for the operations, maintenance, and fuel of existing coal plants in Wyoming. Fossil fuels are getting bested by clean energy, sector by sector, and are increasingly stranded assets.
This transformation poses a dilemma for free-market advocates who also want to continue burning coal: Choose between propping up an obsolete, dirty fuel with state socialism, or taking advantage of technology development. The dilemma is already showing up, as some conservative states are establishing special tariffs just so coal plants may run longer. It’s all a bit Soviet.
Beyond technology trends, political rays of hope beckon inasmuch as most American energy policy is set state-by-state. Governors, legislatures, and utility regulators generally determine electricity production terms. They set building efficiency codes and tighten appliance standards. They choose to either follow federal or California standards for vehicle efficiency. And many of them are forging ahead on the clean energy path.
Forty percent of America’s population lives with sound energy policy—and their policy success, showing up in the new economics of clean energy, is contagious. Many states politically resisting the Clean Power Plan, designed to reduce carbon emissions from power plants, are slipping into “accidental compliance.”
None of this is an argument for Pollyannaism about the impacts of a decimated EPA or a somnolent Energy Department. Either would be painful and costly. But clean energy economics and good state policy both argue that failing to get on board with clean energy requires snubbing science and market forces. That’s never a good bet.
The Golden State shines on with the passing of key climate laws
September 22, 2016
Two weeks ago today, California Governor Jerry Brown signed a pair of bills that create a legal mandate to drive down the state’s greenhouse gas emissions. The bills are remarkable for what they will do, but notable also for what they signify in terms of both policy and politics.
The good news is very good. The two bills, SB32 and AB197, require the state to reduce greenhouse gas emissions 40 percent below 1990 levels by 2030. They also require that an increasing fraction of the environmental benefits accrue to disadvantaged communities. And they give the California Air Resources Board (CARB) the power to ensure this happens, and offer considerable flexibility toward that end.
Image source: Liz O. Baylen / Los Angeles Times
The politics behind the bills highlight great work by the state’s senate President Pro Tem Kevin de Leon, the Speaker of the House Antony Rendon, and Assemblyman from California’s 56th District Eduardo Garcia. For years, there has been tension between environmental justice (EJ) groups and the more traditional environmental organizations. There were many sources of this tension—ranging from substantive issues about the impacts of different policies, to the governance and representation of key agencies, to the basic question of authorship. The legislative leaders worked with both environmental and EJ groups to structure a bill that transcends these issues, and set the table for future progress. Their success will create a new template for environmental policy across the country.
The essence of their solution is to insist that a larger fraction of the environmental amenity provided by the bill lands in the most affected communities—both in terms of program design and program oversight. Unpack this a bit, and the solution basically says that both EJ and environmental groups want better environmental outcomes and better distribution of those benefits. This is the basis for future policy success: more amenity, better shared. Of course many groups have worked for many years to build that duality, but this bill marks a transition, as the political leadership driving this outcome was primarily Latino.
The Twists and Turns
This milestone in California climate policy carries with it issues worth a note as well. The state’s original climate legislation, AB32, empowered CARB to both undertake sectoral reductions and to build a cap-and-trade mechanism that would mop up extra required reductions at a low cost. And the original cap-and-trade program was established before the voters in California passed Proposition 26, which expanded the definition of what constitutes a tax in California to cover the revenue the state has collected at carbon allowance auctions. Some legal scholars now argue that auctions in 2021 and later would invoke Prop 26, and thus require two-thirds majorities in both houses in order to pass. That is a tough road. So, if the legislative route fails, the Governor has promised to authorize continued auctions by a ballot initiative if necessary.
While unlikely, there is the possibility the cap-and-trade program goes away soon, even as the state redoubles its efforts to reduce carbon emissions. That would kick off a great media and scholarly kerfuffle will follow. Of course I should note there are legal scholars who differ on this core question, but there is at least the chance that a challenge to the program could be mounted and succeed.
Now it gets interesting: If the cap-and-trade program is ruled illegal post-2020, the state’s carbon goals must then be met in other ways, which drives two surprising developments. The first is that the original opponents of carbon reductions, primarily from industry, may become the chief proponents of a new bill reauthorizing the cap-and-trade program because it may make for a cheaper path to compliance. In other words, the new bills create a quite different political dynamic.
The second revelation is that, while cap-and-trade is the flagship program, and is much praised by economists, it has had relatively minor duties in cutting CO2 emissions so far. California uses a blend of strategies—building codes, appliance and equipment standards, utility regulations, fuel standards, and more—all of which produce very large carbon reductions, leaving the cap-and-trade system to mop up the balance. This turns out to be smart policy, since different sectors require different approaches. In a shorthand example: A $10 per ton tax on carbon does nothing for building efficiency, but a good building code nails the problem. Caps and prices work terrifically for some sectors, modestly for others, and not at all for still others.
Our Director of Research Chris Busch’s recent articles in Carbon Pulse and UC Berkeley’s Policy Matters Journal delve further into the prospects for cap-and-trade given the new policy landscape created by California’s new climate bills. He considers additional issues such as the conditions of AB 197 and the handling of carbon offsets. I urge you to have a read.
Solidifying California’s Global Climate Leadership
California is proving the case that low-carbon prosperity is, indeed, possible. Smart policy has enabled us to decouple energy consumption from economic growth. The state has one of the country’s healthiest economies even as carbon emissions are dropping, as this graphic illustrates.
The low price of carbon permits, and the large number left unsold, gives tangible evidence that it is cheaper than anticipated to reduce CO2 emissions. In short, California’s cap-and-trade program is doing just what it is supposed to do.
All in all, this is a great time for California. The state will continue to decarbonize. The politics for new environmental protection became clearer and stronger. The erstwhile opponents of cap-and-trade now have reason to become supporters. And the value of a variety of approaches to carbon reduction has become clear.
New truck standards drive U.S. toward low-carbon transportation future
August 24, 2016
On August 16th, the Environment Protection Administration (EPA) released new rules that will set fuel efficiency standards for medium- and heavy-duty trucks for America’s highways. Trucks now consume nearly a fifth of transportation fuel, and have great potential for becoming more efficient.
After an intensive assessment of technology feasibility, costs, benefits, and impacts on reliability, the EPA developed a smart, flexible system to increase truck efficiency. They worked with all the major truck manufacturers, engine companies, and accessory companies to find a pathway for future trucks.
The result is interesting both substantively and politically: On the substance side, the rule will prevent 1.1 billion tons of CO2 from entering the atmosphere. That’s a serious number by any standard – transportation is now the biggest source of emissions in the U.S.
Under these rules, trucks in America will go about 37 percent further on a gallon of diesel, translating into 550,000 fewer barrels of oil consumed per day. This reduced fuel waste will save Americans $170 billion – nearly $1,400 for every U.S. household, and an additional $400 per household by 2035 through reduced costs on goods and services. These rules will also help ensure America’s truck manufacturers make the most of potential U.S. competitive economic advantage.
The political side is interesting too: The classic reaction to new rules for energy efficiency or clean energy is howls of protest from incumbent industries, since they will need to rethink, redesign, retool, and remanufacture to meet stricter standards, and all of that costs money. So the normal political conversation about climate change typically pits industry against the environment.
The EPA rule was meticulously crafted to allow different pathways to higher efficiency – using better engines, transmissions, drive lines, tires, aerodynamics, auxiliary loads, and even trailers. This flexibility means each manufacturer can find the right mix of improvements to hit the number. The EPA was also assiduous both in ensuring the technologies were available and cost-effective.
The upshot of this approach is that many prominent groups to be most affected by heavy-duty vehicle standards — truck manufacturers, truck parts suppliers, and trucking fleets—have in fact endorsed the new rule: It has received a warm reception from the American Trucking Association, Cummins, Daimler, Waste Management, PepsiCo Inc., and more.
In my mind, the EPA rulemaking perfectly captures the possibility of policy accelerating the technological dynamic, to the benefit of all – the environment, the economy, labor, and manufacturing. The old narrative of sacrifice is fast becoming obsolete, as clean technologies improve and become more economical. The EPA is to be commended for their thorough job, and the truck manufacturers for thinking about future technology options, rather than simply resisting any and all changes. It’s a good day indeed.
An early peak for China’s emissions?
July 21, 2016
July 7th marked the official launch of our Climate and Energy Policy Solutions for China project, a major research endeavor—nearly three years in the making—revealing the most cost-effective policy pathways China could take to peak carbon dioxide emissions by its 2030 deadline—or earlier.
At the launch in Beijing, we released an Executive Summary of our final report, providing insight into which climate and energy policies can most cost-effectively drive down China’s emissions. Our Director of Strategy Sonia Aggarwal also gave an opening presentation, providing an overview of the Energy Policy Simulator and highlighting key model findings for China.
As you may remember, we first launched our Energy Policy Solutions project for the United States last October, publicly releasing our online web application, the Energy Policy Simulator, where users can create their own policy packages and compare their costs and emissions impacts. Our China version of the web application is now online as well, and has been “pre-cooked” with a Low Carbon Scenario (created by our Chinese government partners), an Accelerated Low Carbon Scenario (Energy Innovation’s recommended scenario), and a scenario including policies set to their strongest internationally observed levels. The work argues that an early peak of carbon emissions is feasible and cost-effective.
Our government partners in China—the National Center for Climate Strategy (NCSC) and the Energy Research Institute (ERI)—have expressed their strong appreciation and approval of our work, and we anticipate collaborating with them on future endeavors.
The public launch of this project has received coverage from a variety of media outlets, with articles published in Forbes, Climate Home, The Economist, and more. Jean Chemnick from E&E News wrote a particularly compelling article summarizing our work and the launch event. We hope you enjoy.
New resources: Getting to a more flexible grid system
May 13, 2016
Renewable energy has hit several enormous milestones lately. Wind power in Texas and the Midwest is now cheaper than traditional fuel sources; for the second year in a row, the U.S. installed more renewable energy than fossil fuels; and today more than one million solar projects have been completed across our nation’s deserts and rooftops. All this shows renewables are making their way into the mainstream and onto the electricity grid. But unlike coal or natural gas, renewable energy sources like wind and solar fluctuate in both predictable and unpredictable ways—the sun sets at night, the wind dies down during certain hours of the day, etc. As more renewables come online, how can utilities and regulators structure the grid so it can accommodate their variable nature?
Last week, I had the chance to discuss this question during a meeting with the heads of the California Public Utilities Commission, the Energy Commission, the Independent System Operator, and the Department of Natural Resources. In my presentation, I described five ways to increase the grid’s flexibility as renewables take up an increasingly larger share of the electricity mix. A recent piece I wrote delves into these five options, especially as they pertain to the transmission system in California.
The topic of grid flexibility also received strong coverage from Utility Dive, which heavily referenced work and recommendations from America’s Power Plan, Energy Innovation’s key project on transforming the power sector while achieving key outcomes of affordability, reliability, and environmental performance.
How to win on climate change
April 20, 2016
The upcoming UN gathering of heads of state to sign the Paris climate treaty will raise the question of whether this action is sufficient to stem climate change. An op-ed I authored, which was posted yesterday on The Hill, is designed to shed some lights on that very questions, arguing four points: finding a climate solution requires taking a math-driven approach, the action of the 20 top-emitting countries will matter most, change is required in four sectors in each of these countries, and ten policies are proven to win the change we need.
For a more thorough treatment of this topic, please see our full paper, “Climate: How to Win.”
I hope you may find it useful.
China’s leaders announce new urban strategy
March 2, 2016
Last week China’s State Council released new urban development guidelines outlining top principles for future urban planning and design in China’s cities. These guidelines came after the Central Urban Work Conference, a meeting held by China’s central government to discuss various contemporary urban issues. Both President Xi Jinping and Premier Li Keqiang attended the Conference, the last of which was held 37 years ago, so it carries great authority.
We are very happy with the document’s contents, which urge China to “achieve orderly, moderate, [efficient] development… and strive to build a harmonious, livable, vibrant, distinctive, modern city [to make] people’s lives better.” (Rough translation from the official Chinese document). The document strongly emphasizes building efficiency, mass transit, affordable housing, transit-oriented development, and even taking down barriers in gated communities, opening them up to the public.
As you may recall, our team at Energy Innovation—in concert with Energy Foundation China—developed green and smart urban development guidelines for China Development Bank Capital (CDBC). Our guidelines include detailed, quantitative measurements for each of the dozen key elements of a sound urban strategy. Our goal was to get beyond “green paint” and help ensure that the massive urbanization in China is accounted for in cities that are truly people-oriented, low-carbon and low-pollution, and livable. The guidelines included in China’s newly issued official memorandum closely mirror those we drafted for CDBC, and we strongly support the government’s action to accelerate its urbanization efforts.
We have written a blog post on our website that offers more detail about China’s newly issued guidelines and explains the magnitude of their release.
The Morning After Paris
January 28, 2016
The world closed out 2015 with an extraordinary agreement, among virtually every nation on the planet, to markedly reduce CO2 emissions. It was a fine moment—but whether it was meaningful depends on the actions taken, nation by nation, today and tomorrow.
If the biggest emitting 20 nations in the world adopt the dozen most effective policies, the world lands on a reasonable climate future. If they fail—through insufficient political will, or through bad policy design—we do not.
This reality, enshrined in the math of carbon accumulation, motivated the sentiments of Energy Secretary Ernie Moniz and a group of cleantech business leaders at a Commonwealth Club event in San Francisco on Tuesday.
Secretary Moniz argued forcefully that a clean energy future is within reach, and that this can happen more quickly, and at a lower cost, with a vigorous commitment to innovation. At Paris, President Obama and the leaders of 19 other countries committed to efforts to double their energy research and development over the next five years. The United States has been the clear leader in energy innovation, combining the power of our national labs, our world-class research universities, and the heady entrepreneurial culture of, for example, Silicon Valley. But the total federal funds spent on energy R&D (about $2.3 billion in 2014) are less than two percent of total federal R&D spending. Private investment in energy R&D is even more dismal—energy sector companies invest just 0.3 percent of their revenues in R&D, compared with 13.2 percent for pharmaceutical companies and 10 percent for software companies.
Secretary Moniz is working with both parties in Congress to double federal energy R&D by 2020, starting with next year’s budget. Bipartisan support for innovaiton will be necessary to continue our momentum after Paris.
The business leaders comprising the event’s panel (Lyndon Rive, CEO of SolarCity; Danny Kennedy, CALCEF; and myself) argued that sound policy is required for the transformation. The dramatic difference between the way state public utility commissions treat solar energy is an example: Nevada recently essentially cancelled rooftop solar contracts and, in one blow, killed the solar industry in that sunny, power-hungry state. It was a remarkable step backwards. Conversely, good policy can drive up volumes and drive down prices quite dramatically, as California has proved.
This one-two strategy of increased R&D and smart policy is the essence of a fast, affordable method to abate climate change.