Navigant Research Blog

EV Emissions Reconsidered

— July 2, 2014

Quantifying the degree to which plug-in electric vehicles (PEVs) improve ambient air quality conditions over conventional gas or diesel-powered vehicles is an important, but difficult, question to answer.  An interview with Electric Power Research Institute’s (EPRI’s) Marcus Alexander, who will discuss the preliminary findings of a study seeking to clarify how PEVs affect environmental conditions at EPRI’s Plug-In 2014 Conference in San Jose, demonstrates the complexity of this subject.

Much of the calculation has to do with where the PEV is driven, as this dictates the carbon intensity of the electric grid used to power the vehicle.  However, in most locations throughout the United States and the globe, the operating emissions of a PEV versus a conventional vehicle on a per-mile basis lean either substantially or marginally toward conventional vehicles.

However, there are nuances to this equation beyond simple pounds of pollutant emitted per unit of energy consumed.  For instance, when a conventional vehicle consumes a gallon of gasoline or diesel, the pollutant emissions calculation is fairly straightforward.

Net Zero

Additionally, the pound of pollutant emitted varies considerably from the mobile source (vehicle) to the stationary source (power plant).  For example, Alexander states that carbon monoxide and volatile organic compounds are more tightly linked to vehicles than power plants, while sulfur dioxide emissions are associated with fossil fuel combustion at power plants.  Supplanting gas or diesel miles driven with electric miles driven can therefore reduce emissions of particular pollutants while increasing others.

However, when a PEV consumes a kilowatt-hour (kWh) of electricity, it may have a net zero impact on pollutant emissions, depending on a complex interaction of emissions regulations and available generation capacity.  Growth of wind generation over the last decade has created excess capacity, often at night when the wind blows strongest and demand is lowest.  Data from the U.S. Energy Information Administration (EIA) indicates that in 2012, net generation exceeded net load by around 2.3%.  Navigant Research estimates in the report Electric Vehicle Market Forecasts that nearly 300,000 PEVs will be in use in the United States in 2014.  Assuming an average annual PEV mileage of 12,000 and the EIA’s projections on electricity energy demand in the United States, PEVs would represent less than 0.03% of total U.S. electricity demand.

New Sources

Further, while the emissions profile of burning 1 gallon of gasoline will stay relatively consistent over time, the emissions profile of consuming 1 kWh of electricity from the grid will change as new generation assets are added to the grid and old assets retired.  In the last 2 years, nearly 15,000 MW of coal generation has been retired, with a little over 5,000 MW added.  Over the same period, 22,000 MW of renewables generation were added.  If U.S. electricity demand stays on the plateau of the last decade, the replacement of aging high-emissions assets in favor of renewables will be much easier, and the grid’s emissions profile is likely to change quickly.

EPRI’s study seeks to quantify these factors and others (such as energy consumption from lithium ion battery development) to provide the most accurate analysis of how existing PEV technologies will influence environmental conditions.  Alexander clarifies that this study, while quite comprehensive, does not investigate potential opportunities presented by PEVs, such as utilizing them for grid energy storage or ancillary services, that have yet to become market realities.  Findings from the study will be fundamental to defining the efficacy of PEVs in attaining a number of U.S. goals for air quality standards and carbon emissions reductions.

 

Emissions Reduction Efforts Gather Steam

— July 2, 2014

Over the past month, worldwide efforts to reduce global carbon emissions have intensified.  On June 2, the U.S. Environmental Protection Agency (EPA) released a proposal to cut emissions using state-by-state targets (read more on the proposed rule and its implications in previous blogs by my colleagues Brett Feldman and Ryan Citron).  As states begin to explore different compliance options, regional cap-and-trade programs, such as the Northeast’s Regional Greenhouse Gas Initiative (RGGI), have gained traction.  Outside of the United States, The World Bank recently reported that more than 60 carbon pricing systems are either operational or in development worldwide.

Cap-and-Trade Considerations

Despite opposition to the EPA’s proposed rule, some states have already begun to embrace the change by exploring a variety of compliance options.   Washington state and Pennsylvania, among others, see cap-and-trade as a possibility to achieve their state’s target for emissions cuts.  John Podesta, a senior adviser to President Obama, told the Financial Times that a market-based solution to achieve emissions cuts would be “the most cost-effective way that states might come together to get the reductions that will be required.”  Many Democratic governors have already indicated that they will draw on the success of the RGGI and California’s statewide market to achieve compliance with the new targets.

Not to be outdone, the National Development and Reform Commission (NDRC) of China laid out plans to establish a national carbon market starting in 2018.  If it comes to fruition, the national model will take into account outcomes from seven regional pilot programs that launched in 2014 (the last of which was scheduled to launch in June).  The pilot schemes, scheduled for evaluation in 2016, cover around one-third of China’s gross domestic product and one-fifth of its energy use.  If successful, these programs will not only shape the development of a national carbon market, but also help meet the national goal to reduce carbon intensity by 40% to 45% by 2020 from 2005 levels.

Is a U.S. Carbon Market Realistic?

Realistically, such legislation would be extremely unlikely in the immediate future.  National cap-and-trade legislation has failed on several occasions since President Obama took office, with opponents citing economic harm as the primary concern.  However, if China implements a national carbon market that achieves economical emissions cuts, it could provide the impetus to spur federal legislation in the United States.  Additionally, with the United Nations Climate Summit approaching in September, progress from United States and China may help further global efforts to curb emissions.

 

Business Community Wakes to Climate Change Risks

— June 27, 2014

Attempting to reframe the climate change debate in terms of profit and loss, instead of politics, a bipartisan group of business and political leaders has released a report that says the United States faces billions of dollars in economic losses due to global warming.  Titled Risky Business: The Economic Risks of Climate Change in the United States, the study was produced by the Rhodium Group, an economic research firm, in association with a committee headed by former Treasury Secretary Hank Paulson, former New York City Mayor Michael Bloomberg, and Tom Steyer, the billionaire former hedge fund manager who has devoted his fortune to the effort to limit climate change.

Essentially, Risky Business makes the point, through an exhaustive database of the probable economic downsides of rising seas, drought, higher temperatures, and crop failures, that regardless of politics, it is irresponsible to ignore the risks of climate change – especially if you’re a businessperson, investor, or money manager.  With its high-powered lineup of Republican and Democratic financial heavyweights, Risky Business is the latest signal that the business community is awakening to the grave consequences of ignoring anthropogenic climate change, even as political leaders fail to act.

Ignored Rule

“Viewing climate change in terms of risk assessment and risk management makes clear to me that taking a cautiously conservative stance — that is, waiting for more information before acting — is actually taking a very radical risk,” wrote Paulson in a New York Times essay earlier this week.

In 2010, the U.S. Securities and Exchange Commission (SEC) established a rule requiring publicly traded companies to divulge their exposure to climate change risks in their reporting.  That rule has mostly been observed in the breach.  A February study by the Ceres Group, a Boston non-profit that looks at the financial implications of climate change, reported that, “A large number of companies fail to say anything about climate change in their 10-K filings. Forty-one percent of S&P 500 companies failed to address climate change in their 2013 filing.”

That is changing, as business leaders, driven by regulators and shareholders, have started to factor in likely climate-related effects on their businesses.  Large investors, meanwhile, have started to punish companies that produce or continue to rely on fossil fuels.  The announcement by Stanford University in May that it would eliminate fossil fuel investments from its $18.7 billion endowment portfolio is the most significant victory to date of the divestment movement.

Popping Sound

In an update to its 2011 report, Unburnable Carbon, the Carbon Tracker Initiative calculated that only 20% to 40% of the total listed reserves of the world’s fossil fuel companies can be burned if the world is to avoid catastrophic climate change.  Current fossil fuel company valuations represent a carbon bubble.  Eventually, the initiative stated, some form of price will be put on the carbon represented by those reserves, dramatically reducing their value.

“The scale of this carbon budget deficit poses a major risk for investors,” wrote the report’s authors, Jeremy Leggett and Mark Campanale.  “They need to understand that 60-80 percent of coal, oil and gas reserves of listed firms are unburnable … Capital spent on finding and developing more reserves is largely wasted. To minimize the risks for investors and savers, capital needs to be redirected away from high-carbon options.”

Politicians have utterly failed to come to grips with the environmental crisis of climate change.  Now, by framing it as an economic crisis, the business community is having a go.

 

Ohio’s Freeze on Renewable Mandates Encourages Clean Energy Foes

— June 20, 2014

In an ominous first for renewable energy policy, Ohio Governor John Kasich signed a bill that freezes Ohio’s Alternative Energy Portfolio Standard (AEPS) and energy efficiency measures for 2 years.  The AEPS has been in place since 2008 and called for all investor-owned utilities to source 25% of their electricity from alternative sources, including 12.5% from renewables, by 2025.  These policies, which are more generally called renewable portfolio standards (RPSs), have been enacted in 29 states and Washington, D.C. and play a key role in driving demand for renewable energy.

Any policy that detracts from the status quo-entrenched fossil fuel interests is an attractive target.  RPS laws have been under sustained attack over the past few years, with no fewer than 15 attempts to scrap them at the state level.  The popularity and dropping cost of renewables have helped fend off these attacks, but this result in Ohio reflects the first time that opponents of renewables have succeeded in rolling back an RPS.  Enactment of the 2-year freeze is likely to be followed by a readjustment of the requirement downward, or the scrapping of it altogether.

There were some localized issues that propelled the attack.  A new generation of wind turbines optimized for lower wind speeds has allowed the expansion of wind energy from its traditional home in the more sparsely populated heartland to the more densely populated eastern Midwest markets like Ohio.  This led to increasing NIMBY (not in my backyard) and BANANA (build absolutely nothing anywhere near anyone) opposition.

Domino Effect?

Entrenched fossil fuel interests worried about competition fanned these flames.  And to be sure, the accompanying energy efficiency measures appeared to be a legitimate problem for large industrial users who were not given credit for improvements in process efficiency.  The energy efficiency issues, in fact, may have provided the most momentum behind the RPS attack.

But beyond the state-specific critiques, opposition to renewables comes from fossil fuel interests and conservatives who oppose any government support for alternative energy.  The Energy & Policy Institute has illuminated an increasingly orchestrated nationwide effort that includes the American Legislative Exchange Council (ALEC), with financial backing from the Koch brothers.  ALEC was reportedly active in helping gain support among state lawmakers in Ohio for pushing back against the renewable energy mandates.

Emboldened by victory in Ohio, attacks on state RPSs are likely to increase.   It will be hard to slow the clean energy momentum, though.  Renewables deployments have grown so fast in the United States (and globally) that analysis by Navigant Consulting director Bruce Hamilton shows that around 15 states with RPS mandates, or RPS goals, have already achieved 100% compliance in recent years and another 8 are at 75% to 99%.

Government support remains essential for the future of renewable energy in the United States – but the thousands of wind turbines and solar panels installed in recent years provide a strong foundation of fuel-free energy resources, and today’s increasingly popular and cost-competitive renewables will drive continued deployment whether politicians demand it or not.

 

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