Dream harder

Massive economic and policy reform: Easier than you think 13

It seems to me that we suffer from a failure of imagination.

We dream of a low-carbon world, but can’t quite fathom how to get around the massive lobbying clout (and inertia) of the coal lobby. We dream of a world with no more utility obstacles to energy efficiency, but can’t imagine how to undo laws in fifty states (plus the feds)  to undo utility disincentives. And we dream of a renewable future, but find it implausible that the tiny amount of solar currently on the grid can be scaled up to a level that matters in any reasonable time frame.

And so we scale back our ambitions. Rather than confront the coal lobby, we craft carbon bills with escape hatches and allowances to buy off the biggest carbon sources. We encourage decoupling, but don’t confront the regulatory paradigm of regulated utilities. And we throw a few incentives out for renewables, but still send most of the DOE budget to the nuclear industry.

Big changes are not easy. You can’t force the economy (or the federal government) to change course on a dime. But that doesn’t mean big changes are impossible—it just means we don’t anticipate them.

This limitation isn’t limited to policy endeavors. As a species, our predictions tend to be biased toward linear extrapolation from the last few data points— as a result, we do a really lousy job of predicting non-linear trends. It’s why we find compound interest so fascinating (and global warming so frightening). As Nicholas Taleb put it in The Black Swan, we’re like a turkey on the day before thanksgiving who reviews the last 364 days and concludes that tomorrow will be a great day, full of sun and cracked corn.

So when we see massive barriers to reform, we look at the size of the barrier, evaluate how much work it would take to break through, and conclude we’ll never be able to mobilize that degree of effort—so we leave the barrier intact, and fiddle around the edges. But here’s the deal: that’s not how barriers come down. If you want to knock down the Hoover Dam, you don’t need to remove every brick—you just have to knock out a couple in the middle and let the force of the water behind the dam do the rest.

In a perverse way, that’s cause for great optimism. Our energy and environmental policy is rife with barriers to the deployment of low-carbon, low-cost technologies. There’s a lot of water behind those barriers, waiting to get through if only we’d loosen a couple bricks. It’s probably nowhere near as hard as we think to make rapid, massive changes in our energy infrastructure.

Want proof?

  • When the Federal Energy Regulatory Commission passed Order 888 in 1998, mandating non-discriminatory access to any power plant, there was a nearly instantaneous and massive deployment of natural gas turbine-generators. In the 10 years prior to 1998, we’d added 40 GW of gas-fired power plants. In the 10 years after 1998, we installed 200 GW, or 20 percent of the entire US generation fleet.
  • ISO-New England is about to enter their third year of their forward capacity market program, which provides cash payments to energy consumers who invest in efficiency, demand curtailment, and on-site generation. Today, they have 2,000 MW of participating demand response, or about 7 percent of the entire New England power grid.

Those are truly amazing numbers. In 10 years, we built a fifth of the entire US generation fleet—and it took 100 years to build the first four-fifths. It is no exaggeration to say that in many parts of the country, your lights wouldn’t be on today but for FERC 888. In less than three years, New England has figured out how to bring on the equivalent of two nuclear plants worth of generation (avoiding new generation investments in the meantime), cutting 7 percent of demand out of the system. New England is now just about the only place in the country that isn’t facing capacity constraints, thanks only to a decision to pay people for the demand reduction services they provide.

In both cases, success didn’t come because of years of patient barrier removal, and it didn’t come gradually. It came in one massive deluge once the critical brick was removed—unencumbered grid access in the first case and monetization of a previously-subsidized externality in another. But did anyone think that pace of change was possible before hand? I doubt it.

So can you imagine going into Congress today and saying, “I’ve got a simple regulatory reform that will cost the government nothing and within a decade will completely transform our electric grid to drastically reduce it’s carbon signature and give everyone a rate cut”? Can you imagine anyone taking you seriously? Probably not—because it doesn’t comport with what we dream is possible.

But that’s only because we’re not good dreamers. As someone said recently: yes, we can.

Sean Casten is President & CEO of Recycled Energy Development, LLC, a company devoted to profitably reducing greenhouse emissions.

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  1. GreenMom Posted 9:18 pm
    01 May 2009

    So, Sean, let's lay out those critical bricks.  In your estimation, what are they? I might have nominated decoupling and renewable portfolio standards (with energy efficiency) as well as payments for energy efficiency.  But you probably wouldn't.What are the regulatory barriers we could remove, or other policy changes we could make, that could happen without great political sturm und drang?  You've got a critical perspective on this that others don't have.

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    1. Sean Casten's avatar

      Sean Casten Posted 5:01 am
      02 May 2009

      GreenMom,Great question, and one that I wasn't necessarily thinking about when I wrote the post.  (My point was more that we shouldn't be overly pessimistic about our prospects - but as much hubris as I have, I'd be lying if I said that I thought  that FERC 888 or ISO's FCM program would have led to the massive changes that they did before the fact.)Nonetheless, I think one can generalize that the two biggest barriers to the deployment of energy efficiency are state utility franchises and the Clean Air Act.  The former because it not only gives utilities no incentive to reduce their electricity cost, but also because they keep competition out of the space that would otherwise be encouraged to pursue lower cost solutions.  The latter because it's input-based (e.g., parts-per-million) standards, BACT/MACT framing and certain provisions of NSR compel industrials to comply only by reducing the fuel-efficiency of their operations - and risk losing their operating permits if they do otherwise.Neither are easy to fix, but the CAA is probably easier, since it only requires a change to one piece of regulation (albeit a complicated one).  Shift the act to an output-basis, such that compliance is measured not in terms of the parts-per-million of pollution in the exhaust, but in terms of the lbs of pollutant per MWh (or MMBtu, as appropriate) of useful energy produced.  Anything an industrial does to reduce their fuel use tends to concentrate their pollution on a ppm basis, even if there is an absolute reduction in lbs of pollutant.  On the other hand, if an industrial can make more useful energy with less fuel, they immediately increase the denominator of a lb/MWh standard, making compliance easier.  It's a simple matter of algebra to ensure that such standards still provide as much or more total pollution (lbs/year) reduction, but this simple switch would suddenly convert efficiency from a permit-risking investment to a pollution control device.  (If one wants to play with the tax code, we could also define efficiency as a capital P-C-D Pollution Control Device.  It is, after all.  But if you get labelled as such in the tax code, you get much shorter depreciation schedules.  As it is, you only get access to those schedules if you use economically - and climatologically - irresponsible pollution control devices that compromise overall facility efficiency.)  Really fixing the CAA would also require an overhaul of NSR (new source review) as well, both to eliminate the grandfathering which causes us to stick with the dirtiest, least fuel efficient technologies (like 1960s vintage coal plants) in lieu of cleaner alternatives and to keep industrials from fearing for operating permit revocation (in the name of NSR) if they invest in efficiency.  I've written about this elsewhere, if you're interested.On the state utility side, introducing full competition and removing utility monopoly franchises is unlikely.  But you can split the baby, by introducing the ability for clean generators to gain access to the same long-term, high-value contracts that utilities get with rate commissions.  California has a good template in their standard offer contracts, which have helped to facilitate a huge amount of clean generation that doesn't have a path to market in other states.  That could be rolled out much more broadly, and we've had some success lately with individual utilities on an approach modelled on this.  Perhaps not a panacea, but it has the immediate effect of adding 5 - 8 cents/kWh to the long-term revenue that can be realized by a clean generator, without imposing any social subsidy - it simply gives non-utility assets an ability to be paid for the full value they create, within the context of the existing regulatory framework.Others may have better ideas in the specific, but I think the general point - it's the Clean Air Act and state-utility regulation, stupid - is right. 

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  2. Zephaniah Posted 9:43 pm
    01 May 2009

    How about stopping subsidies for fossil fuel. Between $15 and $35 billion in subsidies are given by the federal government per year to the fossil fuel industry. It is difficult to calculate because the subsidies are given in a number of ways, including:   ·                     Construction bonds at low interest rates or tax-free ·                     Research-and-development programs at low or no cost ·                     Assuming the legal risks of exploration and development in a company's stead ·                     Below-cost loans with lenient repayment conditions ·                     Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire ·                     Sales tax breaks - taxes on petroleum products are lower than average sales tax rates for other goods ·                     Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth) ·                     The U.S. Strategic Petroleum Reserve ·                     Construction and protection of the nation's highway system ·                     Allowing the industry to pollute - what would oil cost if the industry had to pay to protect its shipments, and clean up its spills? If the environmental impact of burning petroleum were considered a cost? Or if it were held responsible for the particulate matter in people's lungs, in liability similar to that being asserted in the tobacco industry? ·                     Relaxing the amount of royalties to be paid to US Government (Is the cost of maintaining military bases in foreign countries to ensure that US owned companies get oil leases included here??)

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  3. GreenMom Posted 9:55 am
    02 May 2009

    Sean -- thanks, that's helpful. I do know a good bit about NSR, and completely agree that the switch should have been made long ago to output-based standards (the thinking was moving in that direction within EPA before the Bush adminstration appointees took over).Here's what I don't understand in your argument -- under NSR your change is only a major modification if it increases emissions above a particular threshold on a tons per year basis, right -- not a ppm basis.  So how would efficiency upgrades qualify as major modifications? Are you saying that new equipment would have to be added that on a net basis increases overall pollution, measured in tons per year, because so much more power could be generated in the same time frame as before?  Or are you saying that industries fear any change that in theory could trigger a permit-reopening, even if in reality it won't?I'm willing to believe I'm missing something, so let me know if I am.

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    1. Sean Casten's avatar

      Sean Casten Posted 10:21 am
      02 May 2009

      The problems are two fold:1. First, the grandfathering which makes NSR necessary.  This isn't NSR per se, but the underlying cause of the reason for NSR.  So long as old dirty coal can compete without coming up to compliance but new cleaner options have to install additional pollution control, the dirtiest stuff retains an economic advantage, creating a barrier to the deployment of cleaner stuff.  I realize this is not NSR per se; but if we got rid of grandfathering, the underlying argument for NSR goes away.  (Not that that's easy, and not that I have a easy way of doing that, given the need for certainty when you build a new asset.)
      2. The bigger issue is one of perception.  We've had more projects than I care to recall in which an industrial was grandfathered out of compliance with new regs, and we proposed to put on a waste heat recovery unit to make power with no marginal fuel upstream of the pollution control equipment (or where such equipment would be if they weren't grandfathered)... and the project didn't get built out of fear that such an installation would trigger NSR.  There are those who argue that the industrials are wrong in those cases, and that the permitting agencies would never work that way.  To which I say pshaw.  Perception is reality, and that fear kills projects.  It also kills investments in fuel efficiency that would change nameplate ratings on permitted sources (e.g., same fuel input, but more heat/power output), for the same reason: the industrial fearing that the minute they report that the nameplate is increasing, they will trigger NSR.  And so many efficiency investments that pencil beautifully on a standalone basis - but don't pencil if they have to be coupled with an SCR / baghouse  / ESP / etc. don't get made... and we just keep using the old, inefficient processes and equipment.

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  4. GreenMom Posted 12:52 pm
    02 May 2009

    Yeesh -- that's too bad.  They ARE wrong, and permitting agencies don't work that way, because the NSR rules don't work that way.  But yeah, I get that perception is reality.  Those wacky tree-huggers writing the permits are out to get you - everybody says it, so it must be true.

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  5. Clifford Wells's avatar

    Clifford Wells Posted 7:50 pm
    03 May 2009

    Well you know the deal, the Clean Air Act doesn't regulate old plants before the regulation came into effect because legally they could not, or at least that's what the US Congress said. 
    But as GreenMom might well know, towards the end of the Clinton Administration the EPA had decided to forward a dozen or so cases that claimed that many large "grandfather" power plants had indeed jacked their emissions, thus triggering NSR review.  I was disgusted to learn that some permits I worked on were "jacked" and the Fed never told us!  In truth, very few old coal power generation stations are truly "grandfathered."  Of course, we know what happened when Bush was elected.Next, let's consider the EPA regulating CO2 as a "pollutant" under the Clean Air Act.  That doesn't mean that EPA had to take a traditional response such as was done for HC, CO, NOx, SOx, and PM.  We all know that CO2 is a function of fuel carbon content and its burn rate. It's special.Finally, I don't quite get your point (help me here) because many power plant permits were expressed in terms of pounds per million BTU, or lb/MMBTU. Are you saying you'd rather see standards expressed in terms of output energy such as kilograms per megawatt, kg/MW?  That's some fairly simple math and I guess it would catch some snake oil but I don't see it as our saviour here.  -sam

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  6. GreenMom Posted 8:20 pm
    03 May 2009

    Sam -- what Sean is saying (and he can correct me if I'm wrong) is that currently, for industrial facilities, compliance under NSR is measured on an percent control basis - i.e. you have to reduce pollutant levels in the exhaust by x%.  If more coal is burned in the boiler each day that's ok (up to a permit limit based on your capacity) -- as long as your control device gets x% control of the exhaust coming out. The current input-based NSR standards don't encourage you to make run more efficiently- i.e. to produce more with the same amount of fuel input.  Output-based standards, on the other hand, would encourage energy efficiency and provide reassurance that efficiency upgrades are not going to trigger a re-opening of your permit. I was arguing that efficiency upgrades are not likely to increase emissions on a tons per year basis and therefore wouldn't trigger re-opening of your permit - but Sean was arguing that perception is reality, and the fear exists out there in industry-land that any time you make a change you risk having to renegotiate your permit. I believe him on that point, as there is an awful lot of fear-mongering out there. 

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    1. Sean Casten's avatar

      Sean Casten Posted 6:11 am
      04 May 2009

      That's exactly right, Greenmom.One point on the perception v reality thing - they may be more closely aligned than you think.  Bear in mind that many industrials don't have great relations with their air regulators, and - given the age of many of those facilities - have a fair amount of history working together, not all on a totally friendly basis.  So while an air regulator may well have the discretion to encourage efficiency, the industrials are not entirely unjustified in assuming that if they have to rely on regulator discretion, the outcome may not break in their favor. For example, suppose an industrial has just bearly squeaked through on a contentious modification to their water discharge permit, and operates under grandfathered air permits.  It's not at all unreasonble for that facility to assume that if they were to make a change that would require air dept notification, they might not find themselves with a receptive, lets-work-together-synergistically audience.That's less an issue of fear-mongering as much as a reasonable calculus by an industrial, making a decision as to whether to start down a path where several critical paths in the decision tree are out of their hands - no different from an individual deciding whether to quit their job and go back to school, whether to buy a new home before they've sold their current one, or any number of other decisions where some key steps are out of our hands.  There is uncertainty around what happens on an NSR filing, and significant downside risk if the uncertainty doesn't break in their favor.  (Remember: if an industrial loses their air permit, they have to shut down - this isn't a matter of paying a fine, but rather losing the ability to operate).  Given huge downside potential and <100% probability of success, the conservative approach isn't surprising, and doesn't necessarily require irrational processes by either side.

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  7. Clifford Wells's avatar

    Clifford Wells Posted 8:53 pm
    03 May 2009

    Thanks GreenMom, it's getting clearer now.  But I'm still confused.  Most pollution controls require more inefficiencies such as to run scrubbers, electro-static precipitators, and selective catalysts.  These require a bunch of juice.  I am sure Sean is talking about recycling heat, a great concept but something very difficult to mandate.  Interestingly, most power plants dispose of waste heat by using water - there was a recent Supreme Court case on this matter and they did rule that economics could or had to be considered.  Interesting situation, and no telling how much marine life is killed by these machines.  I have no idea where all this will lead us. -sam

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    1. Sean Casten's avatar

      Sean Casten Posted 5:58 am
      04 May 2009

      Sam (Clifford)?It's not simply waste heat, although that's the lens through which I see it.  Take two otherwise identical, fossil-fuel fired power plants, one operating at 45% efficiency and the other at 30% efficiency.  NSR / CAA makes no distinction between those two from a criteria pollutant perspective, forcing both to come to the same ppm levels without recognizing that the more efficient plant - by virtue of less total exhaust - is releasing less overall pollution to begin with.  In that sense, efficiency is most definitely a pollution control device, but not one that is recognized under the law, forcing us instead to use devices like the ones you note that actually penalize system efficiency.Now suppose that our 30% plant already has an operating permit but wants to make an upgrade to go to 45% efficient.  Maybe they're looking at economizers, a cogen sale, better combustion controls - who knows.  At the end of that investment, the plant will release less CO2, and (probably - depending on how they get there) less criteria pollution.  But that plant now finds themselves potentially triggering NSR, to the extent that they are up-rating the power plant, and also may well run afoul of ppm limits if the result of the change is that less pollution is released, but in a more concentrated form since their is less total combustion air. It's often said amongst environmental regulators that "dilution is not the solution to pollution" - a tacit recognition that ppm standards mathematically encourage dilution, which regulators are on the watch for.  I think regulators generally do watch out for that gaming; but they tend to turn a blind eye to it's converse, as in the case above, keeping anyone from getting a permit who is concentrating their pollutants, even when that leads to a net reduction in total pollution. 

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  8. Clifford Wells's avatar

    Clifford Wells Posted 9:40 am
    04 May 2009

    So how about my suggestion to regulate emissions as pollutant mass per output kilowatt-hour?  Wouldn't that take care of the efficiancy issue? Perhaps I'm more familiar with heavy-duty diesel engines, which are regulated in terms of grams per kW-hour.  Here, torque and speed are converted to horesepower and thence to kilowatts.  There is precedent for that.  A refinement might be to measure a diesel generator at the generator output, not the flywheel torgue.See where I'm going with this?(Oh, legal name is Clifford, everyone calls me Sam, My old login was SWells.  Sorry about the my confusion here!).

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    1. Sean Casten's avatar

      Sean Casten Posted 10:02 am
      04 May 2009

      That's absolutely right, Sam.  Note that you also have to tie to thermal recovery (e.g., lbs/Btu of useful heat) to capture CHP systems - and perhaps more importantly, to ensure that the output-based metrics cover a broad enough swathe of our CO2 sources.  But that's simply a matter of math.  See here for my musings on that.http://www.grist.org/article/carbon-policy-details-part-5It is awfully frustrating to me that it is so easy to get this right - and getting it right is so far away from our current CO2 regulatory conversation.

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