Carbon Costs at UC Davis: Comparing A Renewable Energy and Purchased Offset … · · 2015-08-31and Purchased Offset Approach to Carbon Neutrality Colin Mickle Bala Radharamanan

NSF-PIRE US Denmark Program 2015

Carbon Costs at UC Davis: Comparing A Renewable Energy and Purchased Offset Approach to Carbon Neutrality

Colin Mickle

Bala Radharamanan Kathryn Vo

Model Analytics: Steve Wirya

Abstract Under the University of California Carbon Neutrality Initiative (CNI), the University of California, Davis has roughly 9 years to reach carbon (CO2e) neutrality in Scope 1 and 2 emissions. In this report, we model two potential scenarios for carbon neutrality: 1) UC Davis achieves carbon neutrality through renewable infrastructural changes (defined as CNI-S) and investments 2) UC Davis follows a Business as Usual (defined as BAU-S) path and purchases carbon offsets to achieve carbon neutrality. The model, using an analysis period of 10, 15, and 20 years, shows the net present value (NPV) and cumulative GHG emissions associated with both scenarios. We found the CNI-S to be superior for the 10 year scenario on a GHG basis and superior on a financial and GHG emissions basis for the 15 and 20 year analysis period compared to the BAU option. Additionally, the incremental cost of carbon for the 15 and 20 year scenario is negative, representing savings. We conclude that although the CNI scenario will require major capital investments in the first 10 years, the campus will save over 469,000 additional metric tons of carbon from 2015 to 2025, the investments will save $27 million over 20 years, and the campus will achieve energy security for many years into the future.

NSF-PIRE US Denmark Program 2015 1

Background The path to decarbonizing the globe requires the right price signals to trigger low-carbon or zero-carbon investments and behaviors. Putting a price on carbon addresses a market failure to include the social and environmental damages caused by greenhouse gas emissions. Various carbon accounting systems, such as carbon taxes, cap and trade, and reduction incentive programs, place a price per MTCO2e to reduce emissions. The Carbon Neutrality Initiative commits the Universities of California to be carbon neutral by 2025 in Scope 1 and 2 emissions. In order to reach this ambitious goal, UC Davis can perform energy efficiency projects, increase renewable energy generation, implement additional renewable energy infrastructure on campus, expand power purchase agreements, and purchase carbon offsets. UC Davis has already implemented energy efficiency projects and is increasing the percentage of renewable energy in their electricity portfolio. From 2009 to 2013, UC Davis completed over 120 projects in 75 buildings. The Facilities Management Energy Conservation Office has strategically developed energy projects that have earned net savings for the campus. Studies offer drastically different opinions on the price of carbon. It is unclear what the social cost of carbon should be and what the cost of carbon may look like in the future. However, Yale University is set to impose a carbon tax of $40 per MTCO2e based on the federal government’s estimate of the social cost of carbon, which includes the complete economic and social costs of emitting GHGs. Accounting for the impacts of inter-annual temperature variability on national economic output and growth rates, Frances Moore and Delavane Diaz of Stanford University, concluded that the optimal price of carbon is $220 per MTCO2e. Yet, some scholars believe the cost of carbon should be significantly higher. Ackerman & Stanton (2012) combined high climate sensitivity, high damages, and a low discount rate and found the social cost of carbon should have been roughly $900 per MTCO2e in 2010 and $1,500 per MTCO2e in 2050. The current market price of carbon also follows a wide range. Landfill flaring offsets are the lowest price, generally costing $1.50 per MTCO2e. According to the California Carbon Dashboard, the price for California Carbon Allowances is $12.75 per MTCO2e as of August, 2015. The goal of this research is threefold. We intend to estimate the cost of carbon neutrality for UC Davis, inform the UC on a “campus-specific carbon price,” and provide a mechanism to align capital energy projects with the Carbon Neutrality Initiative.


Methodology To model the energy requirements and CO2e emissions from the UC Davis campus, a UC Davis Campus Model (UCD-CM) created by Steve Wirya was used to project cumulative CO2e emissions and net present value at three end years: 2025, 2030, and 2035. The scope of our project is more narrow than the scope of the CNI. For example, the model does not include: fleet services, Unitrans (the UC Davis bus service), research gases, the UC Davis Medical Center in Sacramento, California, or other UC Davis satellite research stations. A list of assumptions for the model can be found in Appendix A. The UCD-CM uses a multiple energy resources model to project two scenarios: 1) UC Davis achieves carbon neutrality through renewable infrastructural changes (defined as CNI-S) and investments 2) UC Davis follows a Business as Usual (defined as BAU-S) scenario and purchases carbon offsets to achieve carbon neutrality. The BAU-S accounts for three sources of renewable energy systems: the on-campus biodigester with an initial capacity of 600 kW increasing to 925 kW by 2017, the on-campus solar array producing 14,000 kW annually, and 18,000 kW of purchased grid-based solar starting in 2017, with the remaining campus electricity and natural gas demand met by the grid. The campus energy demand is assumed to follow the curve shown in Figure 1. The UCD-CM assumes a reduction in annual campus energy demand from 2015 to 2020 as a result of energy efficiency projects already planned. After 2020, UCD-CM projects an increase in energy demand due to campus growth and no additional efficiency measures are implemented. The CNI-S considers a biodigester, on-campus solar, grid-based solar, an integrated gasification combined cycle heat and power plant (IGCCHP), a biomass boiler (BM boiler), and a solar thermal system. The different systems are phased in to optimize the levelized cost of electricity by the year 2025. Thereafter, the optimized solution remains constant until 2035. Figure 2 shows the various technologies and the year of implementation for the CNI scenario. In the early stages of the renewable energy implementation, onsite PV and the biodigester are the only sources of renewable energy, providing approximately 15 MW. The total capacity of the system will be approximately 130 MW by the year 2025. As seen in Figure 2, the optimization finds that no battery is required, while all other systems considered are included.


Figure 1. Campus Energy and Heat Load by Year

Figure 2. CNI Scenario Implementation and Capacity


We compute two different metrics of interest: The cost to be carbon neutral depending on carbon offset prices and the incremental cost between the two options. The BAU-S total cost to be carbon neutral is found by: Total CostBAU = NPVBAU+Offsetprice*Total CO2e emissions since 2025 (1) Total CostCNI=NPVCNI (2) where: NPVBAU: Net Present Value for BAU Offsetprice: Cost of carbon offset Total CO2e emissions since 2025: Total CO2e that has been emitted since the beginning of 2025 NPVCNI: Net Present Value for CNI-S Note that for the CNI case there is no CO2e due to the fact by 2025 the system is completely renewable. The incremental cost is found using the following formula: Incremental Cost=(Total CostCNI-Total CostBAU)/(Total CO2e BAU from 2015-Total CO2e CNI from2015) (3) where: Total CostCNI: The total cost to implement for CNI Total CostBAU: The total cost to implement BAU Total CO2e BAU from 2015: The total sum for all CO2e for BAU from 2015 Total CO2e CNI from 2015: The total sum for all CO2e for CNI from 2015 The net present value costs for the BAU-S and CNI-S is shown in Table 1 and Table 2. Although the capital and operation and maintenance (O&M) costs of the CNI-S are greater than the BAU-S, the BAU-S cost of fuel is significantly greater than the CNI-S. Comparing the scenarios shows that the NPV total costs of the CNI-S is less than that of the BAU-S for years 2030 and 2035.

Table 1. BAU-S Net Present Value Costs for the Three Scenarios

BAU NPV [$ million] 2025 2030 2035

Capital Costs $ 31.78 $ 31.78 $ 31.78

O&M Costs $ 10.09 $ 12.80 $ 14.77

Fuel Costs $ 143.93 $ 195.04 $ 239.68

Salvage Costs $ (11.19) $ (8.91) $ (7.60)

PPA Costs $ 52.21 $ 71.39 $ 86.18

Total $ 226.81 $ 302.10 $ 364.82


Table 2. CNI-S Net Present Value Costs for the Three Scenarios

CNI NPV [$ millions] 2025 2030 2035

Capital Costs $ 112.20 $ 112.20 $ 112.20

O&M Costs $ 101.28 $ 122.92 $ 141.20

Fuel Costs $ 14.04 $ 17.77 $ 20.53

Salvage Costs $ (43.94) $ (34.80) $ (28.21)

PPA Costs $ 55.69 $ 76.15 $ 91.93

Total $ 239.27 $ 294.25 $ 337.65

Findings Using the UCD-CM, we find that the CNI-S is significantly better from a financial and GHG emissions basis, even when carbon offset prices are extremely low. The cost of carbon neutrality compared to the cost of purchasing carbon offsets is depicted in Figure 3. Included in the graph are current prices of carbon for landfill flaring offsets, the California Carbon tax, and projected values of the social cost of carbon offsets as presented in studies by Yale and Stanford University. The social cost of carbon (i.e. the cost of doing nothing about climate change) is an important price to consider for UC Davis in terms of the university’s commitment to sustainability through environmental and social equity. The price to go carbon neutral for the 15 and 20 year analyses are less than the cheapest and lowest quality carbon offsets. Figure 4 shows a positive incremental cost of carbon for UC Davis for the year 2025 until offsets reach a cost of $170. Yet, the incremental cost of carbon is negative for the 2030 and 2035 analysis period even if carbon offsets are provided to the University for free.


Figure 3. Carbon Neutral Cost vs. Carbon Offset Price

Figure 4. Incremental Cost vs. Carbon Offset Price


Discussion In this report, we modeled two narrow scope scenarios for UC Davis to reach carbon neutrality. In addition to demonstrating that the CNI scenario is more prudent financially and environmentally than the BAU case, this study provides decision makers with ballpark figures on the cost of achieving carbon neutrality. However, additional factors should be taken into consideration when thinking about the CNI goal. For instance, in 2025, the CNI-S relies on a biomass boiler to meet 60% of the campus energy demand. While the UCD-CM assumes biomass to be renewable and carbon neutral, biomass feedstock may have carbon emissions associated with its combustion. Also, as the demand for biomass increases, consumption of biomass might surpass the restock rate of those feedstock materials, thereby rendering it a nonrenewable resource. It is also critical to note that the CNI-S and the BAU-S are not equal outcomes. There are many advantages to the CNI-S that are not included in the model, such as localizing GHG reductions, contributions to the local economy, on-campus research potential, energy security, improved public relations, and meeting California Air Resources Board and American College and University Presidents’ Climate Commitment emissions targets. For continuing research, the UCD-CM should be expanded to include all Scope 1 and 2 emissions. The UCD-CM can project multiple scenarios of carbon neutrality, such as optimizing the model without a biomass boiler or with significantly expanded PV solar. Additionally, there may be emission sectors, such as fleet services, where purchasing offsets instead of making infrastructural changes is preferred; therefore, by decoupling aspects of the model, another study might identify the sectors where offsets are advised. Finally, while the UCD-CM indicates that carbon neutrality is possible on an infrastructural level, financing the initiative is a major obstacle. Additional research might focus on economic pathways to fund the renewable energy systems required for carbon neutrality. The University of California Office of the President will likely need to reconsider the financial limits they place on each campus, such as raising the debt ceiling and changing the savings to income ratio for energy projects. This report demonstrates that although the price of carbon is unknown and unpredictable, the Carbon Neutrality Goal indirectly placed a price on carbon that must be paid, either now or later in time. However, if UC Davis acts quickly and implements the CNI scenario through infrastructural changes rather than offsets, the campus can save money, reduce emissions, and receive additional benefits, not included in the UCD-CM model.


Works Cited Ackerman, Frank and Stanton, Elizabeth, “Climate Risks and Carbon Prices: Revising the Social

Cost of Carbon (2012)”. Economics: The Open-Access, Open-Assessment E-Journal, Vol. 6, Nov 2012. Web. 20 Aug. 2015. <http://ssrn.com/abstract=2056941>

California Carbon Dashboard. Climate Policy Initiative, Aug. 2015. Web. 20 Aug. 2015.

<calcarbondash.org>. Chevallier, Julien. "Carbon Price Drivers: An Updated Literature Review." IPAG Business

School (2011). University Paris Dauphine. Web. 7 Aug. 2015. <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1811963>.

Fay, Marianne, and Stephane Hallegatte. "Thinking beyond a Global Carbon Price." The

Economist. The Economist Newspaper, 24 June 2015. Web. 7 Aug. 2015. <http://www.economist.com/blogs/freeexchange/2015/06/decarbonising-development>.

Interagency Working Group On Social Cost Of Carbon. Technical Support Document: Social

Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (February 2010) Feb. 2010. Web. 20 Aug. 2015.

Luckdow, Patrick, Elizabeth A. Stanton, Spencer Fields, Bruce Biedwald, Sarah Jackson,

Jeremy Fisher, and Rachel Wilson. "2015 Carbon Dioxide Price Forecast." (2015): 1-37. Synapse Energy. Synapse Energy Economics Inc. Web.

The Yale Carbon Charge Task Force. "Report to the President and Provost of Yale University:

Findings and Recommendations on a Carbon-Charge Program at Yale." Executive Summary. Yale News, 10 Apr. 2015. Web. 7 Aug. 2015. <http://provost.yale.edu/sites/default/files/files/Carbon-charge-report-041015.pdf>.

"3 Steps to Decarbonizing Development for a Zero-Carbon Future." The World Bank: News. The

World Bank Group, 11 May 2015. Web. 20 Aug. 2015. <http://www.worldbank.org/en/news/feature/2015/05/11/decarbonizing-development-zero-carbon-future>


Appendix A The capital cost information assumed in the UCD-CM is presented here:

Figure A1. Capital Cost of 1-Axis Monocrystalline PV Array

Figure A2. Capital Cost of Pb-acid Carbon Battery


Figure A3. Biomass IGCCHP Capital Cost

Figure A4. Solid Fuel Boiler Capital Cost


Figure A5. Solar Thermal System (Collector and Pumps) Capital Cost

Figure A6. Solar Thermal Insulated Storage (4” fiberglass) Capital Cost


Appendix B

Figure B1. CNI-S Net Present Value Costs

Figure B2. BAU-S Net Present Value Costs

Documents

Carbon Costs at UC Davis: Comparing A Renewable Energy and Purchased Offset … · · 2015-08-31and Purchased Offset Approach to Carbon Neutrality Colin Mickle Bala Radharamanan