Navigant Research Blog

World’s Largest Cap and Trade Program in Development

— October 7, 2015

Chinese President Xi Jinping has announced an ambitious vision to implement a market-based cap and trade system to limit China’s emissions from its largest sectors. The announcement was made jointly with U.S. President Barack Obama as both countries prepare for the Global Climate Agreement in December. The cap and trade system will initially encourage emissions reductions in the following industries: power generation, iron and steel, chemicals, and building materials (such as cement, papermaking, and non-ferrous metals).

While specifics to China’s program have not been released, a typical cap and trade system operates as follows:

  • An annual nationwide limit is set for maximum allowable emissions. This is typically capped with the intent to reduce overall emissions from 5% to 15% compared to the previous year.
  • Individual emitters will be allowed an annual allowance of emissions totaling the nation’s cap.
  • Emitters are penalized if they exceed their allowances.
  • If an emitter has excess allowances at the end of the year, it can sell extra allowances to over polluters that want to avoid penalties.

Generally, the system allows companies to plan ahead for annual reduction targets. Companies are incentivized to sell excess allowances and are punished for excessive emissions. China also intends to generate 20% of its electricity from renewable sources by 2030. The carbon tax will help promote investment in renewable technologies and incentivize industries to help achieve this target.

Emissions Reduction Potential

China is currently the world’s largest emitter of CO2. In 2013, China emitted 10.3 billion tons of CO2, which accounted for 29% of global CO2 emissions. If China can reduce its annual CO2 emissions by 15%, the reduction would total more than the annual CO2 emissions from all of South and Central America.

Current Status of Global Emissions Trading Programs

The cap and trade system has been applied in many locations around the world with mixed results. The European Union implemented the first phase of its Emissions Trading Scheme (EU ETS) among 27 countries in 2005. The ultimate target of this program is a 20% reduction in emissions from 1990 levels by 2020 and 50% reduction by 2050. However, initial phases of the program did not achieve significant reductions and lacked control in distributing carbon allowances. Modifications for phase 2 and 3 aim to further reduce emissions and to manage auctioning of carbon allowances.

In the United States, emissions trading was utilized in the late 1980s to reduce impacts of acid rain. Emissions trading became law as part of the Clean Air Act of 1990. The Acid Rain Program has been effective in reducing the total amount of sulfur dioxide emissions to a 50% of 1980 levels by 2010. The current Regional Greenhouse Gas Initiative cap and trade program is effective in 10 states and allows some states to auction all of their emissions allowances. In the first 2 years with the auction program, six states raised $38.5 million and $106.5 million dollars. The states and electricity utilities intend to invest funds for energy efficiency and renewable energy technologies to further reduce fossil fuel-based emissions.

How China decides to structure its cap and distribute emissions allowances will be critical to achieve significant cuts in emissions and to promote investments in efficiency and renewable technologies. Regardless, China’s emissions trading system should be an important step toward reducing global carbon emissions and increasing investment in renewable technologies.


Paving the Road for Progress on Climate Change?

— September 25, 2015

The Obama era has been blackened by Congressional dissent and contention on issues across the board—ranging from raising the minimum wage to climate change. As a result of the stalemates in progress for energy policy development through legislation, the president has released a steady stream of Presidential Actions that outline—and in some cases mandate—federal leadership on climate change while circumventing the protest lines of the legislators. What lies ahead for U.S. energy policy is up for debate, what with the upcoming 2016 election, and the Obama administration has been busy in its attempts to set that stage:

  • International collaboration—United States-China Climate Leaders’ Declaration (9/14/15): 18 United States and 11 Chinese cities, states, and provinces have agreed to demonstrate leadership in the climate change battle with specific targets, commitments to report greenhouse gas (GHG) emissions, climate action plans, and coordination in efforts to make progress on combating climate change.
  • Federal mandate—Executive Order on a Decade of Federal Sustainability (3/19/15): Includes targets of 40% GHG emissions reductions by 2025 relative to a 2008 baseline.
  • Rulemaking: Most notable of all was the August 3 announcement of the Clean Power Plan by the president and the Environmental Protection Agency. This landmark ruling leveraged the authority of the Clean Air Act to establish GHG emissions reductions mandates for power plants across the country.

So, Where Do the Candidates for 2016 Stand?

While it may be hard to believe the presidential election is still over a year away with all of the media hype and constant advertising, an early review of the contenders illustrates a very uncertain future for U.S. climate change policy. A quick scan from the official campaign pages of a few of the candidates shows a rough road ahead:

  • Hilary Clinton’s campaign slogan on climate change is “Making America the clean energy superpower of the 21st century.” All focus is on renewables, and there is no stated stance on regulation.
  • Bernie Sanders aims for international leadership and proposes to tax carbon and methane. His campaign further opposes the Keystone XL pipeline.
  • Donald Trump has not directly addressed climate change policy in his campaign events or via his website. According to The Washington Post, he did speak on the topic on the Palin radio show in late July, stating: “You look back and they were calling it global cooling and global warming and global everything, but if you look back and the biggest tornadoes were in the 1890s, the biggest hurricanes were in the 1860s and 1870s.”
  • Jeb Bush’s campaign page also omits climate change as an issue. His perspective on the issue is foggy at best. A series of stories in the spring highlighted his uncertainty on any official stance. According to The Nation, he was quoted early on in his governorship as stating, “At this point, global warming is not the top priority.” Recently he has been even more vague: “I don’t think it’s the highest priority,” he said in May, adding, “I don’t think we should ignore it, either.”

The year ahead holds many questions on climate and energy policy, but federal leadership will likely continue through the non-legislative channels of the president as the candidates set their eyes on the office.


Green House Gas Emissions and HVAC

— June 9, 2015

The scientific consensus around climate change is that greenhouse gases (GHGs) emitted by human activities are creating a very serious problem. As a result, most major global regions have adopted targets for reduction of GHG emissions, notably carbon dioxide (CO2). The largest source of CO2 emissions comes from the burning of fossil fuels for generating electricity, powering vehicles, and providing heat. Heating, ventilation, and air conditioning (HVAC) equipment plays a large role in CO2 emissions, as it accounts for roughly 40% of total building energy consumption.

Thus, increasing the efficiency of HVAC equipment is a clear way to address GHG emissions. But, it’s not the only way HVAC equipment can help. Indeed, in a recent report, the World Resources Institute points out that non-energy and non-CO2 emissions account for 22% of all U.S. GHG emissions and are expected to rise. The report goes on to recommend the reduction of hydroflourocarbons (HFCs), which are used as refrigerants in HVAC equipment. However, when it comes to HVAC, what HFCs should be replaced by is not entirely clear.

Engineering Requirements

Within an HVAC system, refrigerant needs to be evaporated, condensed, and be compressed in such a way that the system can provide cool air. As a result, the band of temperature and pressure in which refrigerant changes phase between liquid and gas is narrow. Within a building, even the best HVAC systems may leak at some point in their lifetime. So, refrigerant needs to be non-toxic and non-flammable to keep building occupants safe. These requirements were met by chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs). However, the proliferation of these refrigerants introduced a new problem: ozone depletion. While HFCs have solved the problem of ozone depletion, they are a GHG that traps heat in the atmosphere, contributing to climate change. The next generation of refrigerant needs to solve all of these problems.

So far, finding one refrigerant that is functional, safe, and doesn’t have severe impacts on the environment has been difficult. Potential candidates that have a lower the global warming potential than HFCs include R-32, which is mildly flammable, and CO2, which doesn’t fully change phase. Both have been commercialized. R-32 has been available in Japan since 2012. CO2 is being used as a standalone refrigerant in Europe and has recently been deployed in the United States. While challenges still remain, the development of these refrigerants presents the promise of reduced GHG emissions.


California Drought Implications for Electric T&D Becoming Clearer

— June 2, 2015

The implications of climate change and the 4-year California drought are just beginning to become clear. The snowpack in the Sierras, where reservoirs and dams ultimately feed the canal system that delivers water to the Bay Area, the Central Valley, and Southern California, is at an all-time low. While strict water rationing is mandatory for some residential and commercial consumers in many parts of the state, there are other forces at play. Some are laudable, and some are not.

On one hand, many city and municipal water districts are offering new rebate programs and incentives to remove lawns that require watering and replace them with xeriscape landscapes that require little if any water. On the other hand, the agricultural economy in California’s Central Valley needs water for almonds, pistachios, and a host of other products, and the large farms are reportedly pumping down the aquifers to support their business.

Thinking Long Term

Prolonged drought could also have major effects on the electric transmission and distribution (T&D) system, as well as on the water delivery system across California.

  • The major water agencies, including the Association of California Water Agencies (ACWA) managing the canal system between Northern and Southern California, have for many years been not only a major end-use consumer, but also a demand response resource for the California Independent System Operator (CAISO).  If the volume of water moving south through the Central Valley and over the mountains into the Los Angeles basin decreases substantially, the loss of demand response resources during peak demand conditions could be substantial.
  • With limited snowpack, major California reservoirs are now at record low levels and have limited, if any, hydropower capacity. Innovative pumped water storage projects like Pacific Gas and Electric’s (PG&E’s) Helms System, which uses off-peak Diablo Canyon nuclear power to pump water up for day-time generation use, will be at risk.
  • Recent reports in media have suggested that many locations in California’s Central Valley are sinking as a result of ongoing water pumping from the underground aquifers by all types of commercial and agricultural businesses. Not only are residential, commercial, and agricultural wells going dry, but the land itself is subsiding. This has tremendous implications for California’s Peripheral Canal system and other longstanding canals that transport water north to south through the central valley. As subsidence occurs, it is entirely possible that cement canals will fracture, and major leaks will occur, further exacerbating the water loss problem.

As in many states, the electric transmission infrastructure in California is aging. It’s clear that California’s drought will have a significant effect on the electric power market as well, degrading demand response resources, electric demand for water pumping, and hydropower resources.


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