The Energy Information Administration (EIA) concluded its analysis of the House climate Bill:
“¦ new coal bill without CCS beyond those that are already under construction are almost eliminated. There is also a large increase in coal power plant retirements [and a 60% drop in coal use in power plants] by 2030 from current levels in the ACESA main cases, well above the 1% of existing coal capacity projected to retire in the reference case.
EIA comes to this conclusion even though it is lousy at modeling energy efficiency and natural gas and renewable energy (see “Despite its many flaws, EIA analysis of climate bill finds 23 cents a day cost to families, massive retirement of dirty coal plants and 119 GW of new renewables by 2030 “” plus a million barrels a day oil savings“).
Indeed, by 2020, the House climate bill would likely reduce reduce coal use at existing power plants by 20% to 30% or more (see “Why unconventional gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet“). The CBO analysis would lead to roughly the same conclusion (see here). And by 2030, I expect an even bigger coal use drop than EIA projects.
So it is dismaying that two people whom I respect greatly have published an op-ed that, while well-intentioned, is just quite wrong on this subject. I’m referring to “No more loopholes for King Coal,” an op-ed written by Carl Pope, executive director of the Sierra Club and Eric Schaeffer, director of the Environmental Integrity Project, along with Trip Van Noppen, president of Earthjustice. Since their mistaken assertions have become a common refrain among some environmentalists, I will address this issue in detail. Their piece begins:
The American Climate and Energy Security Act takes a big first step toward reining in both our addiction to fossil fuels, and the global warming pollution that is slowly cooking our planet. But the House bill, engineered by environmental champions Henry Waxman and Ed Markey, contains one big loophole that needs to be closed by the Senate.
Although coal-fired power plants account for roughly a third of U.S. carbon-dioxide emissions, the legislation gives them a free pass to continue business as usual “” without making any serious reductions in heat-trapping carbon dioxide for 15 years or more.
The good news is that new coal plants permitted after January 1, 2009, would be required to cut their emissions in half no later than 2025. But the bad news is very bad: the bill exempts the huge fleet of America’s oldest and dirtiest coal plants from any Clean Air Act requirement to control carbon-dioxide emissions. In the face of a warming world and a cooling economy, old dirty coal plants need to clean up or retire to make way for cleaner energy. Instead of encouraging investment in new industries and new plants that are subject to stringent standards, the bill leaves the door open for the expansion of old plants that are subject to no safeguards at all.
By “grandfathering” existing coal-fired capacity, which accounts for half of U.S. electricity generation, the bill repeats the mistakes of the 1977 Clean Air Act “” mistakes that we have been paying for in the form deadly air pollution ever since.
The bold-faced statements are simply not accurate, especially not as written.
No existing coal plants are grandfathered under this bill. All coal plants — all electric power plants — must have allowances in order to emit CO2. It is true that the bill does not mandate shutting down existing coal plants — and I do think it would be worthwhile to have a “Cash for coal clunkers” provision. But fundamentally this bill uses a shrinking emissions cap and a rising carbon price to shut down existing coal plants.
The article asserts:
The tilt toward coal in the House bill means that other sectors – including the bankrupt auto industry, now largely owned by the taxpayers “” will have to do the bulk of what is necessary to meet the bill’s target of an economy-wide 17 percent reduction in all greenhouse gas emissions by 2020.
I read some version of that myth regularly in critiques of the climate bill — but in fact the reverse is true.
CO2 emissions reductions must come from reductions in coal, oil, and natural gas.
It is hard to drive down oil consumption sharply in the near term (through, say, 2030), especially using a cap-and-trade system. That is especially true because Obama has already put in place tough new fuel economy standards (see “Obama to raise new car fuel efficiency standard to 39 mpg by 2016 “” The biggest step the U.S. government has ever taken to cut CO2“), so the climate bill doesn’t really focus on that sector.
Also, under this bill, natural gas consumption is likely to be no worse than flat, if not slightly higher over the next two decades under this bill. This is an important point I will address in a separate post. Fundamentally the efficiency measures aimed at end-use natural gas consumption will free up gas to be used in the electric sector to replace coal. Since so many tens of gigawatts of existing natural gas plants are underutilized, this is the cheapest way to cut CO2 emissions (after efficiency and conservation) in the bill (as I discuss in detail here).
Thus the emissions reductions in the bill are primarily going to come from coal use. That is why EIA comes to the conclusion it does. That is why the CBO analysis — and my own — leads inexorably to a sharp reduction in coal use at existing plants over the next decade.
Giving out some allowances for free to regulated utilities is not grandfathering nor does it let coal plants off the hook (see Robert Stavins: “The appropriate characterization of the Waxman-Markey allocation is that more than 80% of the value of allowances go to consumers and public purposes, and less than 20% to private industry”). Harvard University’s Robert Stavins is certainly not anyone’s idea of a progressive economist (see here and here), but he is obviously one of the country’s leading economic experts on cap-and-trade. As he explains:
Generally speaking, the choice between auctioning and freely allocating allowances does not influence firms’ production and emission reduction decisions. Firms face the same emissions cost regardless of the allocation method. When using an allowance, whether it was received for free or purchased, a firm loses the opportunity to sell that allowance, and thereby recognizes this “opportunity cost” in deciding whether to use the allowance. Consequently, the allocation choice will not influence a cap’s overall costs.
The Pope et al. article contains one very confusing statement:
… the bill exempts the huge fleet of America’s oldest and dirtiest coal plants from any Clean Air Act [CAA] requirement to control carbon-dioxide emissions.
Well, there currently aren’t any CAA requirements to control CO2 emissions at coal plants — nor are there likely to be for a long, long time (if ever) even if the climate bill fails. Yes, if the bill passes in its current form, it does stop the EPA from using the endangerment finding to regulate CO2 emissions under the CAA, but the endangerment finding is far better suited to addressing new sources that it is existing sources, as I discuss here: “The dangerous myth that the EPA’s endangerment finding can somehow stop dangerous warming if the climate bill dies.” As John Podesta, former Clinton Administration Chief of Staff and now CEO of CAP, recently said “It would be difficult for the EPA to enact a CO2 cap and trade without congressional cooperation.”
I agree with NRDC that it would be valuable for EPA to keep this authority under climate legislation, but is not one of the top five things I would change about the climate bill if I could. Certainly, if the EPA does keep the authority, it won’t try to use that authority to shut existing coal plants down faster than the bill itself would.
Ironically, the Pope et al. piece doesn’t mention offsets at all, and offsets are certainly the biggest potential way coal companies could avoid shutting down existing coal plants. But in fact, EIA assumes a great many offsets will be used and it still finds a very sharp reduction in existing coal plants over the next two decades. The CBO analysis also assumes a lot of offsets will be used, and yet its analysis suggests coal consumption will drop 20% to 30% by 2020. I’m not a big fan of offsets, as I’ve said many times, but in the climate bill, they do fulfill one useful political purpose — they are a backstop against exorbitant costs in case clean energy advocates (like me) turn out to be wrong in our analysis of the bill. If 1) domestic clean energy emissions reduction strategies prove expensive and scarce, while 2) offsets prove to be cheap and abundant, then the utility industry (and rate-payers) aren’t screwed over the next decade. I’m not terribly worried about either one of those propositions being proven true (let alone both), since it would fly in the face of all reasonable analysis and all historical precendence (as I discuss at length here and here). That said, I’d still like to sunset the offsets.
In the real world the much-maligned House climate and clean energy bill would do what clean energy and climate advocates have been demanding for decades: It would set up the framework to allow low-carbon technologies to compete against fairly — and thus steadily replace — existing coal at the lowest possible cost.
Efficiency, renewables, and natural gas would meet the overwhelming fraction of the emissions targets, ultimately generating some $100 billion a year investment in clean energy (see “The only way to win the clean energy race is to pass the clean energy bill“). Yes, if carbon capture and storage proves practical and affordable at a large scale by the 2020s, then coal producers will be able to avoid some of the sharp reductions EIA projects. But again, that wouldn’t be such a bad thing since such then China and India could use the technology — and we could combine it with biomass cofiring to create negative carbon electricity. In reality, though, CCS is unlikely to be a major player through 2030 (see here and here) especially since the coal industry continues to be unserious about the technology.
The bill can certainly be improved — and like CAP, I know Pope and Schaeffer are working very hard to make those improvements and deliver the strongest possible bill. But it simply isn’t true that the bill grandfathers existing coal plants or gives coal a free pass. Quite the reverse.
Previous in TP Climate Progress
Joe
Just a quick thank you for your continued efforts in keeping us informed on the climate front, even thou you are on vacation.
Best wishes, Leif
[JR: Thanks. Vacation is now over!]
Joe, quick fix. You write:
“Since so many tens of gigawatts of existing coal plants are underutilized”
I imagine you meant natural gas.
[JR: I did, thanks.]
So we’re looking at a 20% decrease in Coal use by 2020? I thought the planet was at stake or something. Seems pretty tame if we’re dealing with a dire emergency. If the key in Chinese coal reduction is America setting the lead, then what we have is no action at all. This supports my contention that no one seriously believes we are in a planetary emergency.
[JR: Obviously, very few major political leaders anywhere in the world understand that we are in a planetary emergency. Also, I would expect a 30% or higher decrease in coal use by 2020 if this bill passes -- you have extracted the lower end of a range that I include to cover more pessimistic sources.]
If “the entire 2020 target in the Waxman-Markey climate bill could be met with energy efficiency at a net savings to U.S. consumers and businesses of $700 billion” then why is there any need to reduce coal use (other than from reduced energy demand)? What sense is there in a policy that incentivizes negative-cost efficiency in lieu of energy decarbonization?
[JR: The efficiency would back out COAL! The whole point of a shrinking cap and a carbon price (beyond enabling international negotiations) is to back out fossil fuels with the cheapest alternatives. Those are, in order, efficiency/conservation, natural gas at existing underutilized CCGT plants, and renewables.]
JR – My point exactly. The process works something like this:
(1) Implement cheapest (negative-cost) alternative: efficiency/conservation. Is the W-M target achieved? If yes, done. If no, go to #2.
(2) Implement next cheapest alternative: natural gas at existing underutilized CCGT plants. Is the W-M target achieved? If yes, done. If no, go to #3.
(3) Implement third-cheapest alternative: renewables. …
According to your July 29 post, we need do no more than #1 to satisfy W-M. No renewables required. That makes perfect sense if efficiency/conservation alone can avert dangerous climate change. Can it? If not, why stop at #1?
[JR: The RES preserves renewables as efficiency kicks in. Need massive renewables for medium and long-term.]
Joe, I agree with your larger point. Waxman Markey is a very good step forward and we should pass it. But I can’t see how you come to the conclusion that there are not significant give-a-way’s to coal. While providing free allowances to regulated utilities does provide consumer benefits; giving allowances to merchant coal plants does not. In my reading, merchant coal plants operating in organized markets, will end up with twice the allowances for the same emissions.
First from the allowance directly awarded to these units and again through the allowances giving to the LDC’s for the historic emissions of this purchased power. Double counting these emissions, would give merchant plants the carbon cost profile of CC natural gas plant. It seems to me, organized electricity markets are perfectly tailored to cap and trade regimes but this provision nullifies that advantage. The end result is these units operate longer then they would.
This provision was part of the EEI compromise so it could be difficult to undo. It was a political compromise that won over some parts of the coal industry – at least utilties with merchant coal generators. If natural gas really is a game changer, this (along with some of the offset provisions) is fair game and should go.
Ken Johnson: I think you miss JR’s point: [JR: The efficiency would back out COAL!]
Imagine that efficiency decreases energy demand 10% by 2020, so we can close 10% of existing power plants. Given the pricing under W-M, coal-burning plants would be closed.
“According to your July 29 post, we need do no more than #1 to satisfy W-M. No renewables required. That makes perfect sense if efficiency/conservation alone can avert dangerous climate change. Can it? If not, why stop at #1?”
JR has also written that the 2020 target under WM is too weak. But even with a stronger target, we could not do enough to avert dangerous climate change by 2020. That will take until 2050.
Charles Siegal:
Re “… But even with a stronger target, we could not do enough to avert dangerous climate …”: My point exactly. If the cap does not ensure avoidance of catastrophic climate change, then why stop at the cap?
Joe:
The 20% RES (or some kind of supplementary incentive for renewables) makes sense. But it explicitly abrogates the policy goal to “back out fossil fuels with the cheapest alternatives”. Why should we do renewables if energy efficiency/conservation can achieve the target more cheaply? I’m not arguing against the RES; I’m questioning whether you can articulate a coherent policy rationale for cap-and-trade.
[JR: I disagree. RES has a separate public purpose. The cap does "back out fossil fuels with the cheapest alternatives" -- at any given time. The RES drives cost-minimization in the future by driving down cost.]
Joe: Back to the fundamental question, if the W-M target is “so damn easy and cheap to meet,” then why stop at the cap? Can you — or anyone — articulate a coherent policy rationale for cap-and-trade?
[JR: The 2020 target is "so damn easy and cheap to meet." The other targets take much more effort. You need a shrinking cap to get a global treaty and solve the problem, as I've said many times. The trading part is for economic efficiency and political viability, since the only other alternative would be sector by sector command-and-control regulations to meet the shrinking cap.]
Ken: The Cap is set at what we need to avert disaster. Because some entities may be able to cut carbon emissions at lower cost than others trading is justified. Theoretically trading will lead to a lower compliance cost to society than an accross the board cap. Since cap and trade drives to lowest short term costs, especially if allowances are allocated – in this case gas, it is necessary to have complimentary policies to stimulate EE (which cap and trade regimes could ignore) and to the development of longer term solutions that are truely carbon free but more expensive than gas like RE.
Matt – Can you cite any scientific evidence for your assertion that “The Cap is set at what we need to avert disaster”? Or are you just parroting cap-and-trade dogmatists’ nonsensical claptrap about “environmental certainty”?
Ken – Nope. I am just citing claptrap. Seriously, I am working from a position that we need to be carbon free in the electricity sector within 30 years and see 80% reductions by 2050. And the rest of the world needs to do their part. The interim goals are based on what I think is politically and technologically feasible and certainly challengeable. I think a cap and trade regime can get us there but it will be an evolving process.
That said, I am by no means a fan of C&T. I like a carbon tax with the bulk of the proceeds going back to tax payers as a dividend supplemented by complimentary policies such as a Renewable Energy Standard, EE standards, decoupling, CAFE (see Hal Harvey’s a Handfull of policies and handfull of countries approach) – similar to what Al Gore (and more recently, Greg Mankiw) advocated for. I have worries C&T will be too complicated, is subject to gaming and entail heavy transactional costs BUT I also think we can’t let the perfect be the enemy of the good and over time we will make it work right. We have to move now.
Ken & Matt:
Levels of CO2 depend on the reconstructed history of the Earth’s climate and the levels of CO2 that occurred when various temperatures and amounts of ice were present on Earth. The best estimates of CO2 concentrations that coexisted with temperatures that prevented an ice-free Earth are in the 350 ppm to maybe 400 ppm range (the 450 ppm level was an earlier and now discounted value by many climatologists working in the field). The next stage of calculations have to do with how high the CO2 will go before its concentration starts back down and how long that will take and how much damage to existing ice sheets will be done before the CO2 concentration can be brought down to a level that stops the temperatures from continuing to rise. There will be ah hysteresis effect due to exposed earth (permafrost and ice-free Arctic Ocean, etc.) that probably means the CO2 may have to be brought down, faster, lower, or longer or some mix in order to avoid catastrophic effects.
This calculations cannot today be done to the certainty that Ken seems to want. Why does he protest so much?
Unfortunately the need for estimating and reacting strongly to this scenario will become apparent to all (except those like the Moon-Landing deniers, some 18 million souls, by poll) in the near future.
Joe: The tradeoff for “so damn easy and cheap” in the near-term is not just much steeper future reductions to meet the 2050 emission target. Global warming impacts are determined by atmospheric GHG concentrations — not emission levels — so the penalty for procrastination is that 2050 emission goal would itself have to be reduced (perhaps to a negative level) to keep concentrations below catastrophic levels.
Regarding “economic efficiency and political viability”, we should have learned something from the U.S. acid rain program. The program was enacted with the expectation that SO2 allowances would be trading in the $650-850 range (2000 $$), whereas the actual market was in the $100-200 for most of the program. A policy that favors cost reduction over further emission reduction, even when costs are well below the threshold of political viability and when additional emissions reductions would yield an estimated 2500% societal return-on-investment, does not fit the economic definition of “efficiency”.
What good is a “shrinking cap” if it has the effect of capping emission reductions at an inadequate level?
Matt – Re “a carbon tax with the bulk of the proceeds going back to tax payers …”: Would giving consumers carbon tax revenue be more protective of their interests than investing the funds in low-carbon technologies? For example, carbon fees imposed on electricity generation could be used to subsidize clean-energy generation, which would promote price competition and help ensure an adequate supply of price-competitive, clean energy sources.
[JR: I am not certain what your point is. I'd like a stronger 2020 cap, as I've said a dozen times.]
Joe: My point is that (1) cap-and-trade is not “efficient” in an economic sense because it does not function to motivate emission reductions beyond the cap even when such further reductions would be “damn easy and cheap”; and (2) it is not just political viability that limits policy effectiveness — the choice of an inefficient regulatory mechanism (cap-and-trade) can be just as much of an obstacle.
The issue is not the strength of the cap. My question is why GHG regulations should limit emission reductions to a predetermined cap, whatever level the cap is set at.
Ken: The work of Robert Stavins shows that cap-and-trade is both (particularly) economically and politically efficient. I cam imagine the difficulty of passing a “straight” carbon tax — the “straighter” it was the less likely it would be that it could be passed, as each constituency saw itself put at a disadvantage, real or imagined. Such a bill would run four to ten times longer than W-M, with impenetrable rules for different ways to tax the carbon by source, use, etc. Then would come the difficulty of setting the tax level to get enough humans to change their actions. It took gasoline prices well over $4 a gallon to change driving habits (until they went back down). The bureaucracy to monitor results and calculate/revise tax rates would be awkward to say the least. Is that what you want?
But a “fixed” cap gives businesses known targets that they have to meet, not some fuzzy “goal” as when the previous administration “promised” self-regulation, which just meant continuing business as usual.
Certainly cap-and-trade could be viewed as inefficient scientifically, since under W-M the actual cap may have to be lowered over time and has clearly not been set tight enough for near term goals. Tighter near-term goals would provide greater flexibility to react to new scientific developments, such as new data showing that tipping points are closer than previously thought.
Donald:
The concept of “economic efficiency” means that emission reductions should be pursued if marginal societal benefits exceed marginal costs. This differs from economists’ concept of “cost-effectiveness,” by which they mean a predetermined goal is achieved at least cost. For example, the U.S. acid rain program, in effect, set a cap of about 20,000 premature deaths resulting from SO2 emissions, and it achieved the mortality cap at a cost of about 20 to 30 percent of initial forecasts. The program was cost-effective but it was not efficient, in the above sense, because the monetized societal benefits of additional emission reductions would have been 25 times greater than costs. The program was not designed to be efficient or to even motivate emission reductions up to a willingness-to-pay limit. If it had, many thousands of additional lives could have been prolonged (not to mention ecological benefits), and there may have been no need for the EPA’s Clean Air Interstate Rule.
I am just as critical of a “straight” carbon tax as I am of cap-and-trade. To give you a sense of the alternative possibilities, consider Sweden’s acid rain program, which was enacted in 1990 with the intent of reducing stationary-source NOx emissions by 35% within five years. The NOx program imposed no caps, standards or timetables, and it was revenue-neutral within the regulated industry; but by 1995 it had motivated a 50% reduction in regulated entities’ aggregate NOx emissions. (That was with demand growth; specific emissions were down 60%.) The regulation’s effect on electricity prices was estimated at $0.0004 per kWh — about five times lower than what it would have been with a “straight” emission tax. Had cap-and-trade been employed the program would have achieved a “guaranteed” reduction of 35% — far less than what was achieved.
People tend to get so wrapped up in the intricacies of regulatory mechanisms that they lose sight of the fundamental purposes of regulatory policy. Putting aside discussion of specific policy instruments, can you explain why regulations should limit emission reductions to a predetermined cap, particularly when further reductions would be “so damn easy and cheap”?