Low Carbon Policies in the US: Effectiveness, Costs and GHG Implications

Madhu khanna Department of Agricultural and Consumer Economics

University of illinois

Trends in Renewable Energy Use !  Globally: 45% of net additions to world capacity in the power sector

!  US: Rapid growth- 57% since 2000

!  Solar energy increased 8 times; wind energy 30 times

Renewable Energy Consumption (Quadrillion Btu) Major Sources in the US, 1949–2015

Fossil Fuels Still Dominate the Energy Market

Renewable energy sources: 10% of total U.S. energy consumption Heavy reliance on biomass among renewables Heavy dependence on fossil energy

Renewable Energy Policies in the US

Renewable Fuel Standard

Sector-specific: Transportation and Electricity sectors Regional/State Specific Technology-based standards for renewable energy Supply-side focus

State Renewable Portfolio Standards

www.dsireusa.org / March 2015WA: 15% x 2020*

OR: 25%x 2025* (large utilities)

CA: 33% x 2020

MT: 15% x 2015

NV: 25% x2025* UT: 20% x

2025*†

AZ: 15% x 2025*

ND: 10% x 2015

NM: 20%x 2020 (IOUs)

HI: 40% x 2030

CO: 30% by 2020 (IOUs) *†

OK: 15% x 2015

MN:26.5% x 2025 (IOUs)

31.5% x 2020 (Xcel)MI: 10% x

2015*†WI: 10% 2015

MO:15% x 2021

IA: 105 MW IN:10% x 2025†

IL: 25% x 2026

OH: 12.5% x 2026

NC: 12.5% x 2021 (IOUs)

VA: 15% x 2025†KS: 20% x 2020

ME: 40% x 2017

29 States + Washington DC + 2 territories have a Renewable Portfolio Standard (8 states and 2 territories have renewable portfolio goals)

Renewable portfolio standard

Renewable portfolio goal Includes non-renewable alternative resources* Extra credit for solar or customer-sited renewables†

U.S. Territories

DC

TX: 5,880 MW x 2015*

SD: 10% x 2015

SC: 2% 2021

NMI: 20% x 2016

PR: 20% x 2035

Guam: 25% x 2035

USVI: 30% x 2025

NH: 24.8 x 2025VT: 20% x 2017MA: 15% x 2020(new resources) 6.03% x 2016 (existing resources)

RI: 14.5% x 2019CT: 27% x 2020

NY: 29% x 2015

PA: 18% x 2021†

NJ: 20.38% RE x 2020 + 4.1% solar by 2027

DE: 25% x 2026*MD: 20% x 2022DC: 20% x 2020

Clean Power Plan !  State-specific targets to reduce CO2 emissions rate by 2030 ranging from 11% to 54%

!  Targets could be on the rate of emissions

!  Or on the quantity of emissions; possibility of trading emissions across states

!  Targeted to reduce CO2 emissions by 32% relative to 2005

Percent Reduction Goals for CO2 per MWH by 2030

How far could these policies go in promoting renewable energy?

0

5

10

15

20

25

30

RPS CPP Rate-Based

CPP Mass-Based

National CPP Mass-Based

RPS & CPP-Rate Based

RPS & CPP Mass-Based

RFS

Electricity Sector Transportation Sector

Percentage Share of Renewable in Total Energy Consumed

Can Energy Policy Be Good Climate Policy?

0%

5%

10%

15%

20%

25%

30%

RPS CPP Rate-Based

CPP Mass-Based

National CPP Mass-

Based

RPS & CPP-Rate Based

RPS & CPP Mass-Based

RFS

Electricity Sector Transportation Sector

Percentage Reduction in GHG Emissions in 2030 Relative to No Policy

GHG Savings with Alternative Cellulosic Biofuels Relative to Gasoline

(Dwivedi et al., 2015)

Miscanthus produces

140% - 170% Savings of GHG for

each Unit of Production

Corn Stover results in a 50%- 90% Savings of GHG for

each Unit of Production

Switchgrass results in

100% - 130% GHG, but the Unit Cost of

Production is More

Variable.

What Does a Future With 16 Billion Gallons of Cellulosic Biofuel in 2022 Look Like?

!  6% lower GHG emissions with RFS !  9 million out of 12 million acres of

energy grasses are on marginal land.

!  12% lower GHG emissions with RFS + cellulosic tax credit

!  Even with 1.2% to 1.8% increase in Vehicle Miles Traveled

!  Without a significant increase in food crop prices

!  High carbon price to achieve the same level of biofuels – over $100 per ton of CO2

1.7 1.8 1.9

2 2.1 2.2 2.3

2007 2012 2017 2022

Greenhouse Gas Savings with the RFS (B

MT)

No policy RFS RFS+CBPTC

0

20

40

60

80

100

120

2016 2018 2020 2022 2024 2026 2028 2030

$ per

MT

Regional rate-based regulationsRegional mass-based regulationsNational mass-based regulation

Implied Carbon Prices under Different CPP Standards

Oliver, 2015

Societal Costs of Renewable Energy Policies

!  Effects on consumers of fuel, electricity

!  Effects on consumers of agricultural commodities

!  Effects on fossil fuel producers

!  Effects on agricultural producers

!  US is a major importer of oil and exporter of agricultural products

!  Corn ethanol increased price of agricultural exports

!  Biofuels can reduce import of oil and reduce oil prices

!  Overall improvement in US terms of trade

!  Costs of biofuel policies on the rest of the world

Costs and Benefits of Policies ($ per ton of GHG Emissions Abated)

-30

-20

-10

0

10

20

30

40

50

60

RPS CPP rate CPP mass National CPP mass

RPS & CPP rate

RPS & CPP mass

RFS RFS & RPS

Monetary value of damages from GHG Emissions

Co-Benefits of the Clean Power Plan by 2020

!  Emissions of SO2 from power plants will be 90 percent lower compared to 2005 levels, and emissions of NOx will be 72 percent lower.  

!  The Clean Power Plan has public health and climate benefits worth an estimated $34 billion to $54 billion per year in 2030, far outweighing the costs of $8.4 billion.  

Perennial energy crops

Werling et al. 2014

Delivering more than energy: Reduce nitrate run-off Improve soil quality Improving biodiversity

Vanloocke et al. 2016

Reducing Hypoxia in the Gulf of Mexico by Converting a Share of Cropland to Perennial Energy Crops

Renewable Fuel Standard: Mandate vs Actual

Challenges to achieving the promise of biofuels

!  Demand side constraints: Vehicles to consume high blends of biofuels with gasoline

!  Infrastructure to deliver high blend biofuels

!  Cost-effective technology to produce advanced biofuels

!  Low oil prices

Political economy challenges

!  Winners and losers from renewable energy policies

!  Negative effects of biofuel policies on

! agricultural consumers

! Oil industry

!  Negative effects of Clean Power Plan on ! Coal industry

! Electricity consumers

!  Demand constraints: First vs Second Generation Biofuels !  Legal constraints: Law suit in the Supreme Court against the Clean Power

Plan !  Authority of the EPA to regulate CO2

!  Federal authority to impose regulations that impinge on state rights

Absence of coordinated policies !  Renewable energy policies guided largely by energy security concerns

!  Relied on quantity or blend mandates

!  Does not necessarily encourage the

!  lowest carbon alternatives (Corn stover vs perennial energy crops)

! Least cost alternatives to GHG abatement

! Alternatives that provide other ecosystem services

!  Harmonize efforts at abatement across the electricity and transportation sectors

!  Coordinated policies would combine a renewable energy mandate with

! Cap and trade policy or with GHG intensity targets (Low Carbon Fuel Standard)

! Nutrient trading programs to reduce nitrate pollution

Take-aways

!  Technological break-throughs critical for advanced biofuels !  But technological pathways are guided by policies !  Current renewable energy policies likely to have modest impacts on GHG emissions by 2030 even

with optimistic assumptions about technology and policy implementation !  Exceptions: Performance standards

!  Clean Power Plan for the electricity sector !  Low Carbon Fuel Standard for the transportation fuel sector

!  Climate policy by itself would induce a switch to renewable energy only if carbon prices are fairly high

!  Political economic considerations will determine policy choices and implementation