Navigant Research Blog

Take Control of Your Future, Part III: Rising Number of Carbon Emissions Reduction Policies and Regulations

— May 16, 2016

Energy CloudMaggie Shober and Rob Neumann also contributed to this post.

My recent blog discussed seven megatrends that are fundamentally changing how we produce and use power. In the second part of the series, I focused on the power of customer choice and changing demands. Here, we will discuss the rising number of carbon emissions reduction policies and how this trend is fundamentally changing the power industry.

What’s Happening with Carbon Emissions Policies Globally?

The long-term impact of the Paris Climate Agreement will be significant. This agreement will focus on limiting global warming to well below 2°C (3.6°F) by the year 2100. Each nation sets its own target for reducing emissions and updates that mark each year. A record number of countries (175) signed the agreement on the first available day. Governments must now ratify and approve the agreement, which could take months or years. The agreement goes into effect once 55 countries representing at least 55% of global emissions formally join. It’s clear that the tone and tenor of the Paris Climate Agreement is providing a guiding light for nations to reduce emissions.

The biggest news was the full commitment of China. The country, together with United States, was one of the first to sign the final Paris Climate Agreement. The United States and China account for nearly 40% of global carbon emissions. It does appear that China is serious about reducing emissions, since the country has made significant investments in renewables, electric vehicles, green cities, and more. Already the world leader in wind power, China is set to overtake Germany this year in solar power (see chart below).

Renewable Energy Growth in Major Economies

Jan Blog 3

(Source: World Resources Institute)

We see that other countries are not waiting. This week, Germany announced a €17 billion ($19.2 billion) campaign—that’s right, billions—to boost energy efficiency. The ultimate goal is to cut the country’s energy consumption in half by 2050. This is part of meeting domestic and Paris Climate Agreement emissions reduction targets. The campaign could prove bearish for European Union (EU) carbon prices if it reduces demand for power and heating in Germany, the top economy (and emitter) of all the EU’s 28 member states.

Many other initiatives at the regional, country, state, and local levels are currently being designed and implemented in support of carbon emissions reductions, accelerated by the agreement. Importantly, the EU is seeking swift approval and implementation of the Paris Climate Agreement at the United Nation’s Bonn Climate Change Conference in Bonn, Germany this week.

U.S. Carbon Regulation

And then we have the Clean Power Plan (CPP). The CPP has been stayed by the U.S. Supreme Court until a final resolution of the case passes through the federal courts. Litigation may not be resolved until 2018, although it’s possible a resolution could be reached sooner. There has been a great deal of discussion on compliance with the CPP. Our analysis continues to show that cost-effective compliance includes a variety of options that are tailored to regional characteristics. A recent deep dive by Navigant into a southeastern state with modest renewable resources showed that trading with other states and developing energy efficiency programs and portfolios are key strategies for reducing overall compliance costs. Compliance strategies depend on existing resources; older coal resources on the margin for retirement are able to get a large bang for their buck on the emissions balancing sheet through replacement with gas, renewables, and energy efficiency.

Navigant also investigated the effects of deploying additional energy efficiency resources in order to decrease CO2 emissions in two regions: California and PJM. We found that additional energy efficiency reduces CO2 emissions, overall cost of compliance, and system congestion. The cost to serve load is reduced by 3%-5% in California and PJM. System congestion relief is also likely to occur, which further reduces the cost to serve load. This last point is important, since large, urban utilities are focused on reducing congestion points—and energy efficiency can be used as a solution.

Other Ongoing Developments

Even though the CPP is on hold, many individual states, cities, and utilities continue to move toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. The CPP parameters are being used as a guide for emissions reductions:

  • Last month, Maryland lawmakers approved the Clean Energy Jobs Act of 2016 (SB 921) by large majorities in both houses, increasing the state’s Renewable Portfolio Standard (RPS) to 25% by 2020.
  • As part of the New York Reforming the Energy Vision (REV) proceedings, the New York Public Service Commission introduced an order that requires placing a value on carbon emissions, focusing on distributed generation portfolios, and compensating customers for their distributed electricity generation.
  • Over the past year, six states led by Tennessee (plus Georgia, Michigan, Minnesota, Oregon, and Pennsylvania), the U.S. Department of Energy (DOE), and a few other national organizations have been developing a National Energy Efficiency Registry (NEER) to allow states to track and trade energy efficiency emissions credits for CPP and emissions compliance purposes.
  • Last week, San Diego announced its pledge to get 100% of its energy from clean and renewable power with a Climate Action Plan that sets the boldest citywide clean energy law in the United States. With this announcement, San Diego is the largest U.S. city to join the growing trend of cities choosing clean energy. Already, at least 12 other U.S. cities, including San Francisco, San Jose, Burlington (Vermont), and Aspen, have committed to 100% clean energy. Globally, numerous cities have committed to 100% clean energy, including Copenhagen, Denmark; Munich, Germany; and the Isle of Wight, England.
  • Meanwhile, many utilities are decommissioning or converting their existing coal plants and investing in utility-scale renewables, as well as distributed energy resources. As example, AEP is in the process of decommissioning 11 coal plants, representing approximately 6,500 MW of coal-fired generating capacity as part of its plan to comply with the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards. The company is simultaneously making significant investments in renewables, with a total capacity of close to 4,000 MW by mid-2016.

What Does This All Mean?

The sustainability objectives of government, policymakers, utilities, and their customers are more closely aligned than ever before. In my last blog, I discussed how customer choice and changing customer demands are shifting toward supporting sustainability. States and regulators will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities will continue to evolve to support cleaner, more distributed, and more intelligent energy generation, distribution, and consumption.

Recommended action items for states and utilities include:

  • Understand the possibilities, costs, and full impacts of low-carbon generation and distributed energy resources (energy efficiency, demand response, and others).
  • Implement a workable framework and develop an integrated plan to move toward lower emissions goals, since it’s likely that decreased emission requirements will be in place in the near future.
  • Leverage existing state and neighboring utility designs and efforts to develop joint plans, policies, and goals.
  • Implement (pilot) initiatives that include renewable energy and other low-carbon generation into a reduced emissions framework while also incorporating energy efficiency and distributed generation as resources into the decreased emissions planning process.

This post is the third in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. My next blog will cover shifting power-generating sources. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.

 

Commitments to Change in the Aftermath of the Paris Conference

— December 18, 2015

In my previous blog about the 2015 United Nations Climate Change Conference (COP21), I said there was cautious optimism that a multilateral deal could be reached. Well, there was in fact good news coming from Paris on December 11. At the conference, 187 countries committed in a legally binding agreement to reduce their greenhouse gas (GHG) emissions.

The commitments in Paris will not immediately deliver the 2°C or 1.5°C  temperature limits suggested by the United Nations’ panel of experts as the maximum allowed to avoid the worst effects of climate change. Instead, the agreement commits to a process of increasing emissions cuts every 5 years to eventually curtail emissions to a level that limits temperature increases within the 2°C-1.5°C range. More importantly, it commits countries to a “balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of the century.” In short, this means that the world will need to be net zero emissions early after 2050.

The Paris agreement did push forward the financial agreements to developing nations that were introduced in Copenhagen. There is room to improve in this area, but it’s becoming less relevant as renewable generation becomes competitive with new conventional capacity.

In parallel to the conference, there were a large number of commitments from investors and businesses to move investments to clean energy and even to divest from fossil fuels. For the first time, major businesses and investor groups lobbied for strong long-term goals and stringent rules to increase ambition (and reduce investment risk).

One interesting commitment came from the automotive industry. Led by Renault, a group of 13 CEOs from the industry committed themselves to decarbonizing transportation over the next 2 to 3 decades. They anticipate 2 billion vehicles on the road by 2050, but are clear in saying that, “We cannot continue to rely on fossil fuels to power those vehicles.” If they deliver on this promise, they will break what was perhaps the most successful partnership between two industries in the 20th century. It would hit the transport fuel market, the most important market of the oil industry and one that has been less affected by renewable penetration to date.

Point, Set, Match?

COP21 was successful thanks to the technological advances in renewables in the last decade and a combination of societal changes (i.e., improved economic performance in the United States, the Chinese population facing dreadful air quality issues, and extreme weather patterns in parts of the world) that make political inaction less tolerable.

However, minimizing GHG emissions in the global economy is not going to be easy, especially as some countries might need to shift funding toward adaptation and increased resilience. Until recently, renewables grew on the shadow of conventional sources, barely affecting their business models or hitting their core markets. This has changed in the last few years, and the Paris agreement sets a ticking clock in the face of oil companies and utilities with large generation capacity reliant on fossil fuels that says that these technologies are on their way out (or at least that they will play a minor role in the second part of the century). The problem that arises is how to keep the standards used in the old system while laying the base for the success of the new system. Smart thinking and lots of innovation will be needed to go through this transition without rocking the boat (too much).

 

More Wastewater, Less Waste

— December 14, 2015

In these dry times, many cities are forced to turn to new sources of supply water to keep the pipes flowing. Reclaimed or recycled wastewater is becoming an increasingly popular option. Orange County in drought-stricken California has utilized a toilet-to-tap system since 2008, and in Texas, cities such as Wichita Falls are using recycled water for drinking. With a common aversion to drinking what once occupied a sewer, public opinion of reclaimed water in the taps is not high. Many towns have now taken to using so-called purple pipes, which mark reclaimed water and transport it only to non-potable uses, such as irrigation or flushing toilets. However, increasing acceptance of these systems has spurred the use of reclaimed water in a myriad of previously untapped applications.

The onset of winter is once again drawing the collective outdoor eye toward the mountains. Ski resorts, in an effort to open earlier in the season or just maintain better skiing conditions, frequently make their own snow. The popular Vail Resorts in Colorado, a state known as a winter sports haven, all make snow. However, some ski resorts are now doing so in an eco-friendly fashion.

Who Has the Green Snow?

Arizona Snowbowl is the first ski resort in the United States to use water reclamation technology for making snow. Located just outside of Flagstaff, the company started using this technology in 2013, but had some pushback from nearby residents and environmental groups with concerns of pharmaceuticals in the water. There are outspoken forums such as Protect the Peaks that can’t seem to stomach water reclamation at a ski resort. The ‘ick’ factor is a major barrier to widespread adoption, according to resort management. The water itself is treated to a very high standard; pathogen removal is key in reclamation systems.

The city of Flagstaff itself is utilizing recycled water for lawns, gardens, and golf courses. The reclaimed water replaces nearly 1.8 million gallons a day of freshwater. This system combines greywater (from sinks, tubs, and laundry machines) with blackwater (from toilets), and this combined stream goes to the Rio De Flag Wastewater Reclamation Plant. The city has utilized this system for 25 years.

Despite the pushback on using reclaimed water in ski resorts, Snowbowl is still the most popular resort in Arizona. Given the increasing adoption of water reclamation for municipal use, it could become a major trend at ski resorts that already make snow.

 

Smog Settles on Beijing as World Leaders Gather for Paris Summit

— December 8, 2015

As we enter the second week of the 2015 United Nations (UN) Climate Change Conference in Paris, nearly 150 world leaders representing 195 countries have called for action on the issue of climate change. French president Francois Hollande told the delegates of the conference that “the stakes of an international meeting [have never] been higher” and the fate of the world depends on the Paris climate deal; Prince Charles of Britain told fellow delegates that climate change is the world’s greatest threat and leaders must act now; and the UN climate chief, Christiana Figueres, said “never before has a responsibility so great been in the hands of so few.” While this responsibility technically lies in the hands of 150 world leaders, many experts and think tanks have argued that China and the United States play a leading role and will be the keys to success for the summit and in mitigating climate change.

The two countries bring to the Paris summit a joint presidential statement, which was made in Beijing in November 2014. The statement emphasizes the presidents’ commitment to targets reducing their respective nations’ carbon emissions. Essentially, the United States brings to the table the Clean Power Plan, which is currently taking heat on the domestic front, and China brings the world’s soon-to-be largest cap and trade program, a pledge to have carbon emissions peak around 2030, and a $3.1 billion contribution to help developing countries fight climate change. Chinese President Xi Jinping stated at the summit that the Paris agreement should chart a course for green development, put effective control on greenhouse gases, and excite global efforts to cut emissions. He also stated that addressing climate change should not impair countries’ ability to develop.

However, these statements come at a time when President Xi’s domestic environment is in dire circumstances. On December 8, Beijing issued the city’s first ever red alert pertaining to smog levels. The red alert is the highest possible alert and results in the city effectively shutting down, meaning closed schools, halted outdoor construction, and cars with odd and even numbered license plates banned from driving on alternate days. The order will last from 7:00 a.m. local time Tuesday to 12:00 p.m. local time Thursday, when a cold front is expected to push the smog away from the city. The poisonous smog over Beijing covers an area of North China the size of Spain; it’s caused by burning coal for industry and heating and dust from construction and exacerbated by low wind and high humidity. Air pollution monitors in the capital showed that areas of Beijing had more than 256 micrograms per cubic meter of poisonous particles, a number much higher than the World Health Organization’s unsafe level of 25 or more.

Smog in Beijing, December 1st and December 2nd

Paige Smog Blog(Source: British Broadcasting Corporation)

Perhaps President Xi’s attendance at the Paris Climate Change summit comes at a time when the country needs it most. Though a strong global agreement on climate change from the Paris summit, as well as President Xi’s efforts to mitigate greenhouse gases and develop more sustainability, will not immediately solve China’s air pollution issues, these efforts are a step in the right direction. China’s goals and participation in the Paris summit could play a major role in not only solving the country’s air pollution issues in the long term, but also in helping to mitigate global climate change.

 

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