Aliso Canyon comment letter

Mike Mastrandrea, Emily Grubert, Aaron Strong, and I just submitted a comment letter to CARB regarding its use of 20-year GWPs as discussed in the post below.

Whether CARB continues to use 20-year GWPs in the final methane leak mitigation plan, does so in the final short-lived climate pollutant (SLCP) reduction strategy, or simply has to reconcile different GWP time horizons in its 2030 scoping plan, these technical issues we identify are likely to become more important in the coming months. I look forward to working with CARB and other interested stakeholders to make that policy decisions are informed by the best available science. 

Thanks to Barbara Haya, who provided some helpful pointers to the use of GWPs in California's compliance-grade carbon offset protocols. 

Mitigating Aliso Canyon / Porter Ranch methane emissions

The California Air Resources Board (CARB) released a draft mitigation program for the Aliso Canyon (a.k.a Porter Ranch) gas leak, seeking to address the climate impacts of one of the largest natural gas leaks in U.S. history. According to the report's preliminary estimates, the incident resulted in about 100,000 tons of methane leaking into the atmosphere.

There's a lot to talk about here, but I was drawn to one important detail in the draft program. 

CARB is asking SoCalGas to prioritize mitigation of an equivalent mass of methane emissions, rather than allowing the company to spread its efforts over a basket of warming-equivalent greenhouse gases. To support the focus on methane mitigation, CARB has proposed using a 20-year global warming potential (GWP) to convert methane into its carbon dioxide equivalent (CO2e) for any non-methane mitigation. This is a big deal because the IPCC's current estimate for the 20-year GWP for methane is 84, whereas the 100-year GWP is 28. As a result, if SoCalGas wanted to mitigate carbon dioxide instead of methane, the 20-year GWP would triple the amount required. 

As far as I know, this would be the first time that a significant climate mitigation policy operated on a 20-year GWP horizon. All of the major international and national policy regimes have used 100-year GWPs, reflecting the long-term nature of the climate challenge. But with more and more focus on the rate of warming, as well as on the contribution of so-called short-lived climate pollutants (SLCPs) like methane and black carbon on overall radiative forcing (W/m2), we may see additional interest in shorter time horizons. 

One last thought. It's little ambiguous whether SoCalGas would need to apply 20-year GWPs to convert non-methane, non-CO2 gases into CO2e; parts of CARB's draft report suggest this would be the case, but I don't think it's explicit. In other words, if SoCalGas wanted to reduce HFC emissions as part of its mitigation obligations, it's not clear whether they should convert HFC emissions to CO2e using 20- or 100-year GWPs, only that the amount of methane to be offset by non-methane mitigation will be converted to CO2e using a 20-year GWP. I hope CARB will clarify this minor detail in its final report. 

Oregon's new RPS and coal divestment policy

Recently I've been thinking about the interaction between western state energy policies and wholesale electricity markets. Many successful state energy policies take the form of "procure resource X" or "divest resource Y"; however, in the context of regionalized wholesale markets, the mechanics become much more complicated.

Case in point: Oregon just passed SB 1547, a bill that doubles the state's RPS by 2040 and requires its two investor-owned utilities to stop serving customers with coal-fired power by 2030.

As Marten Law's Richard Allen puts it: 

Section 1 of SB 1547 requires that an “electric company” – Pacific Power and PGE – must eliminate “coal-fired resources” from its “allocation of electricity” on or before January 1, 2030. The term “allocation of electricity” is expressly tied to the utility’s rate base for Oregon retail customers[11]—although PGE serves retail customers only in Oregon, Pacific Power serves retail customers in Oregon, Washington and California. The definition of “coal-fired resources,” moreover, recognizes that utilities often make short-term wholesale power purchases to meet customer load. SB 1547 defines “coal-fired resources” to expressly exclude “a limited duration wholesale power purchase made by an electric company for immediate delivery to retail electricity consumers that are located in this state for which the source of the power is not known.”[12]

Because organized wholesale markets generally don't match sources and deliveries, it seems to me this could exempt some kinds of wholesale electricity trading from Oregon's coal divestment policy—especially if Oregon decides to join an expanded CAISO. To use a common metaphor: in organized markets like CAISO, wholesale suppliers dump buckets of water into the reservoir, and wholesale customers take buckets of water out. No one knows whose water goes into which customer's bucket, only that supply matches demand. 

Right now this might not be much of a problem. But if we think about expanding CAISO to include territory in both Oregon as well as states with more coal-fired units, the issue potentially becomes much more significant. Similarly, if regulators can't track the ultimate source of all deliveries, coal still can enter the Oregon retail market via bilateral wholesale imports.

That said, Oregon's new law accomplishes a great deal. Its RPS should create new demand for renewables. The divestment policy sends a clear signal to electricity markets, where the economics disfavor long-term contracts with existing coal-fired power plants and it's almost impossible to build new coal-fired units. In addition, the time horizon on divestment (2030) gives legislators and regulators plenty of time to adjust policies, if necessary. 

Nevertheless, Oregon's divestment policy illustrate the risks of the current state-oriented approach to energy policy. If western states continue on a path towards regionalized wholesale electricity markets, state policymakers will need to grapple with the details of wholesale market design in order to push environmental outcomes beyond what market forces would otherwise deliver. 

More excuses from the Breakthrough Institute on data quality

In a recent journal article, Jonathan Koomey and I criticized Dr. Harry Saunders' work showing high rebound effects and backfire in the U.S. economy. Shortly after our paper came out, we responded to initial comments made by Dr. Saunders and his Breakthrough Institute colleagues on Jon's website and over social media. Now Dr. Saunders has offered a longer defense of his work at the Breakthrough Institute blog. 

Jon and I took a look at his arguments and found them unconvincing, to say the least. Relying on a cursory analysis that suggests national average prices can be used to study pretty much anything in the field of energy economics, Dr. Saunders fails to show that the methodological errors we identified don't affect his results. Simultaneously he places great reliance on a peer review process that was never fully informed about the nature of his data. Whether that is because he withheld critical information from reviewers or merely did not understand the issues we discussed over a year before he submitted his article for publication, it's hardly a flattering picture. It also speaks volumes about the Breakthrough Institute's decision to promote his work so heavily in their much-discussed 2011 report on the rebound effect. 

Links to the original journal articles are available in our new post. 

Washington state regulators withdraw proposed cap-and-trade plan

Washington state is in the middle of what can only be called very complicated period in climate policy. The experts at Van Ness Feldman have a great summary of the competing policies here. 

Briefly, Governor Jay Inslee recently proposed a cap-and-trade system that would be implemented through regulations under development at the state Department of Ecology. Meanwhile, two 2016 ballot initiatives are gaining momentum, but would use carbon taxes instead of a cap-and-trade market. One initiative (I-732) would use a revenue-neutral approach, returning revenues to taxpayers as is the case in British Columbia; another (Alliance for Jobs and Clean Energy) would use carbon revenues to fund mitigation, adaptation, and transition assistance, similar to how revenue is used in California's carbon market. 

This week's news is that the WA Department of Ecology has withdrawn its proposed cap-and-trade rules, with a promise to iterate on the draft regulations and finalize new rules over the summer. I will be very interested to see the new regulations because Washington's initial proposal attracted controversy through its use of unilateral links to other markets and compliance instruments.

In the now-withdrawn rules, the Department proposed allowing regulated entities in Washington to meet their legal obligations under the state cap by turning in compliance instruments from Washington's market, the Regional Greenhouse Gas Initiative (RGGI), California's carbon market, Québec's carbon market, and a number of California-approved carbon offset protocols (see Section 173-442-190). These links are "unilateral" because they enable only a one-way flow of instruments—from the other systems into Washington's market—and because a unilateral link doesn't require permission from linked parties. 

Reactions to the proposed unilateral links were mixed. Presumably industry stakeholders were very pleased to have access to supplemental low-cost compliance instruments (~$13/tCO2 in the CA/QC February 2016 auction and $7.50/tCO2 in the December 2015 RGGI auction). But were WA stakeholders to take advantage of the unilateral links, that could create scarcity and raise prices in the linked jurisdictions. Notably, RGGI released a terse statement, noting that the WA proposal raises "substantive issues" with respect to the use of RGGI instruments. 

I was planning to write a comment letter to the Department of Ecology with respect to the link to carbon markets in California and California. At this point, it's clear that leakage from resource shuffling is a major contributor to the low prices in the CA/QC market, which remain at the regulatory price floor due to oversupply. And for the first time since the market began, the joint auction of new allowance instruments in February 2016 didn't completely sell out (h/t Andy Coghlan). This means that California entities left low-cost compliance instruments on the table, providing further evidence of market oversupply and potentially signaling a lack of confidence in the post-2020 future of the cap-and-trade market. 

The details of California's carbon market should matter to Washington residents and policymakers because the initial decision to let Washington parties buy California instruments means that California's problems with leakage would directly affect Washington's policies. Simply put, Washington could end up sending good money after bad credits. That would certainly make compliance cheaper, but would do so at the cost of actually reducing greenhouse gas emissions. Although at a smaller scale, the issue would look a lot like the EU Emission Trading System's interaction with the Clean Development Mechanism offsets program, which flooded the EU market with cheap, low-quality offset credits that weakened the environmental integrity of the EU system. Given the problems in California's market, not to mention the experience with policy dilution in other trading systems, my view is that Washington state policymakers should study the issue carefully and transparently before entering into unilateral link with other jurisdictions.  

Meanwhile, I'll be keeping a close eye on the Department of Ecology's future proposals in this area and will be looking for local experts to help us all make sense of the competing policy proposals and their relationship to state politics. It's great to see so much interest in developing new policies from Washington civil society and policymakers—but it's important to get the details right. 

BERC Energy Summit 2016

This is just a quick post to say thanks to the incredible student organizers at the Berkeley Energy and Resources Collaborative for having me moderate a panel on climate policy at their 10th Annual Energy Summit. As far as I'm concerned, there isn't any student energy group as well organized, enthusiastic, and sophisticated as BERC. It was really powerful to see so many BERC alumni attend the event to celebrate BERC's first (and very successful) decade. 

In particular, I want to thank Dan Aas, who organized the climate policy panel. Outgoing BERC co-presidents Katie Pickrell and John Romankiewicz also deserve a huge amount of recognition for putting together another excellent summit. And of course I am very grateful to my amazing panelists, Michael Wara, Kate Larsen, and Valeri Vasquez. They managed to cover an enormous amount of material on the structure of the Paris Agreement, as well as the challenges and opportunities as the United States looks to implement its aggressive 2025 target. I heard a lot of positive feedback from the crowd and appreciate them taking the time out of their busy schedules to share their expertise. 

FERC's big win on demand response

I am late in getting to it, but this week's big news is the Supreme Court's decision on demand response in FERC v. Electric Power Supply Association. 

Writing for a 6-2 majority, Justice Kagan found that (1) FERC has authority under the Federal Power Act to regulate demand response in wholesale electricity markets, and (2) FERC Order 745's demand response compensation mechanism was not arbitrary and capricious. Justice Kagan was joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, and Sotomayor. 

Justice Scalia dissented, offering an interpretation of the Federal Power Act that would have precluded FERC from regulating demand response. Accordingly, the dissent did not substantively review the second question in the case, referring only to "strong arguments" from respondents' amici (Slip Op. dissent at *10). Justice Scalia was joined by Justice Thomas. 

(Justice Alito recused himself from the case.)

I am delighted with the Court's decision, having represented Stanford Professor Charlie Kolstad as amicus curiae on behalf of the petitioners (along with Wendy Jacobs and Ari Peskoe at Harvard's Environmental Law Clinic). Our brief addressed the second question in the case and, I am proud to say, closely tracks the majority's analysis of Order 745.

In Justice Kagan's words:

The Commission, not this or any other court, regulates electricity rates. The disputed question here involves both technical understanding and policy judgment. The Commission addressed that issue seriously and carefully, providing reasons in support of its position and responding to the principal alternative advanced. In upholding that action, we do not discount the cogency of EPSA’s arguments in favor of LMP-G. Nor do we say that in opting for LMP instead, FERC made the better call. It is not our job to render that judgment, on which reasonable minds can differ. Our important but limited role is to ensure that the Commission engaged in reasoned decision making—that it weighed competing views, selected a compensation formula with adequate support in the record, and intelligibly explained the reasons for making that choice. FERC satisfied that standard.  
(Slip Op. at *33.)

I'm very grateful for Charlie Kolstad's time and effort on the case, as well as the amazing work from Wendy, Ari, and their colleagues at Harvard Law School. Great job, everyone!

The legal origin of the Social Cost of Carbon

Over at High Country News, Elizabeth Shogren just posted a helpful explainer on the federal government's Social Cost of Carbon (SCC). It's definitely worth a read. 

Not only is this piece a useful introduction to one of the Obama Administration's climate policy tools, but it also correctly captures the institutional history of the SCC. Most of the expert discussion around the SCC focuses on the economics community, which developed the three integrated assessment models (IAMs) the federal government used to set the SCC. Climate economists offer a critically important perspective, of course, given the nature of climate damages and inter-temporal tradeoffs the IAMs seek to measure. But a singular focus on economics misses the the legal origin and practical function of the SCC in federal policymaking. 

As Elizabeth Shogren notes, the SCC owes its existence to a lawsuit challenging the Bush Administration's CAFE standards for vehicle fuel efficiency (Center for Biological Diversity v. NHTSA, 538 F.3d 1172 (9th Cir. 2008)). In that case, a number of environmental groups and state Attorneys General sued the federal government, arguing that its CAFE standards didn't go as far as the law required. Among other points, they argued that by ignoring the impacts of climate pollution in the regulatory design, the agency (NHTSA) acted in an arbitrary and capricious manner. The Ninth Circuit agreed, noting that while the court was not positioned to select the appropriate cost number, ignoring the issue—which placed an implicit price of zero dollars on emissions—was arbitrary and capricious, and therefore the policy needed to be revised. 

With this prominent court decision in place, federal agencies knew they would have to account for the cost of climate pollution in future rulemaking. But calculating a reasonable number is a huge lift for any one group, let alone every single agency having to complete that exercise for each regulatory action they take. Rather than place this heavy burden on individual agencies (and risk the development of inconsistent price calculations), the Obama Administration initiated an interagency process to develop a standard estimate for the SCC. In turn, the interagency SCC process distilled the complexity of climate economics into a simple lookup table for agencies to use. 

Many experts are now turning their attention to whether and how the SCC should be improved and used over time. I'll write more later on whether the SCC is having an impact on policy—right now, there aren't any significant examples where the inclusion of the SCC has affected the stringency of policies. But several new papers in climate economics suggest that the IAMs behind the SCC potentially underestimate climate impacts. Were the SCC to be revised upwards, it would be more likely to affect future regulations and any other federal government actions governed by the SCC. 

As luck would have it, the National Academy of Sciences just released its Phase I report on the the SCC and its IAM constituents. The scope of the initial report was intentionally narrow, focusing on just a few technical questions about the structure of IAMs and the presentation of results in the SCC; a more substantial second phase is due out in another year or so. Meanwhile, I'm glad to see that the initial National Academy of Sciences report correctly captures the legal history of the SCC (as did an earlier review from the U.S. Government Accountability Office). 

It's important for economists to remember that the SCC was born in the legal system because the legal system will continue to play an important role in shaping the future of the SCC. I'm encouraged that popular writing and expert reviews are taking note of these connections, and hope that this is a sign that the relevant expert communities are increasingly aware of the connections between academic research and practical policy. 

Everyone makes mistakes on the rebound

Jon Koomey and I have a new paper out on energy efficiency and the rebound effect. In a joint post at his website, we explain what the paper means and its implications for the debate over the effectiveness of energy efficiency as a climate mitigation strategy. 

Our paper critiques the primary line of evidence behind a 2011 Breakthrough Institute report on the rebound effect, which relied heavily on a paper from BTI Senior Fellow Dr. Harry Saunders. But Dr. Saunders' analysis turns out to have been sorely mistaken, as we show in our new paper: 

Our work confirms that Dr. Saunders’ data actually concern national average prices, not the sector- and location-specific marginal prices that energy economists agree are necessary to evaluate the rebound effect. The distinction is most important because actual energy prices vary widely by sector and location; in addition, economic theory asserts that changes in the marginal (not the average) price of energy services cause the rebound effect. As a result, Dr. Saunders’ findings of high rebound and backfire are wholly without support.

Lest this seem like a petty academic grievance, it’s as though Dr. Saunders set out to study the performance of individual NFL quarterbacks when their teams are behind in the third quarter of play, but did so using league-wide quarterback averages across entire games—not third-quarter statistics for each player. If that doesn’t sound credible to sports fans, trust us, it’s an even bigger problem when you’re talking about the last fifty years of U.S. economic history. 

Check out the whole essay here. 

UPDATE: Jon and I have received a few replies from Breakthrough-affiliated researchers and have posted our responses here.