Comments Max8806 has made

Good point Eatkind, and I generally agree with you, I think you are just forgetting one major activity that new media replaces: boredom. And while I'm not going to argue that replacing boredom with cool phone games is "bad," I do think it is likely to lead to more energy demand. I didn't use to carry around a gamecube or even a gameboy on the offchance I'd miss a bus and be stranded for 10 minutes, but now whenever I'm waiting for a metro or bus I have my handy dandy cell phone racing game. Its essentially Jevons' paradox, where being able to keep everything efficiently instantly accessible digitally will likely be welfare-enhancing, but not end up actually decreasing resource use. At least that's my prediction.

Most everything you purchase in your lifetime you will purchase from a corporation. It must be hard to be paranoid of all corporations. I'm familiar with VT Yankee's issues but not every issue is a safety related near-miss. 3 mile island's core was deprived of coolant to the point where the core actually melted (hence "meltdown") and no radiation escaped to the environment. It was a b**** of a mess and cost a lot of money, but even so not nearly enough to invoke theoretical public liability from price-andersen, the supposed infinite subsidy. Do you know what's in the cooling tower at VT Yankee? Water.

I'm not for corporate self-regulation and cited NRC actions for your concern above (decommissioning fund), but if you refuse to acknowledge that a diversified fund invested by professionals will have more dollars in it 20 years from now than today, then you have far bigger problems than nuclear energy to worry about. Like finding enough mattresses to harbor enough cash for a comfortable retirement. Coming up with all that cash upfront is gonna be hard work too.

On site storage is also incredibly secure, if you ever feel like looking into it. I would worry about coal ash.

1) Mercury is toxic for infinity years. What will we do with all the old thermometers? Unlike Mercury and its many many sources toxic nuclear waste is not in the water you drink or the tuna you eat, and never will be, so chill out. Hat tip to Ted Rockwell on point about the infinite toxicity of many chemicals we never even think about. The fact that it is solid scares people but its a huge benefit because you can isolate it from the environment easily.

2) Every nuclear power plant has a decommissioning fund that is funded upfront with a portion of the revenue from sales of electricity. It turns out if you put a surprisingly little bit of money away every month for 60 years, you end up with a ton of money. Waste decommissioning costs do not end up materially impacting the cost of a kwh of electricity from fission. Miracle of compound interest.

David, I look forward to your post, but you have overlooked something very important here. There's no mandate that allowance value be used to provide rebates at all, meaning no mandate that the price signal be preserved, and in reality it likely never will. Sec 783 (3) (C) "Limitation" says that "to the extent an [LDC] uses [allowance value] to provide rebates, it shall, to the maximum extent practicable, provide such rebates with regard to the fixed portion of ratepayers' bills." Nowhere is a rebate mandated, only that (in 783(A)) allowance value be used for ratepayer benefit. The "to the extent" part quoted above makes explicit that rebates are not mandatory.

And why use allowance value for price-signal-preserving rebates? From the PUC's perspective it just complicates things. The simplest way to comply with 783 is to just rule that all allowances purchased by the utility are passed along as fuel costs to ratepayers. That way, allocated allowances clearly benefit ratepayers by detracting from the costs for purchased allowances that are eventually passed through. Plus it has the legal precedent that this is how SO2 allowances have been treated by most (all?) PUC's.

So again, why rebate? That would mean a utility would have to

1) get allowances allocated

2) sell all those allowances, put money in bank account X

3) buy that many allowances back, and then more

4) raise prices significantly

5) Empty bank account x in lump sum rebates to ratepayers

Clearly that's a lot of waste on administrative costs and transaction fees for selling allowances and then buying them back. The obvious and efficient thing for each PUC to do will just be to allow allocated allowances to detract from passed through "fuel" (purchased allowance) costs, except when everyone does that we all lose, because of the argument I initially laid out in the first comment. Honestly, this is a pretty clear case where if the politicians listened to the economists, auctioned all permits and returned the revenue itself to consumers, we'd be far better off.

Thanks, that certainly explains it, although can't say its a particularly encouraging explanation.

For 10 years the cap doesn't even decline under Waxman-Markey. In the 10 years from 2013-2022, only 2013 allowance level is lower than 2012's, every other year offers more allowances. So how the bill maintains it reduces emissions 17% or so by 2020 is beyond me, unless they're counting expected gains in international deforestation. But clearly they are not planning on reducing covered sector emissions (about 80% of the total) at all, or even likely US emissions overall, which is a huge problem. I will rarely side with Sierra Club over NRDC, but this bill is bad news.

See page 407 here:

http://energycommerce.house.gov/Press_111/20090515/hr2454.pdf

Kate, Energy and Commerce's online schedule doesn't have a markup scheduled for next week, where did you hear that's the plan? Their site could just not be updated, but just wondering.

Sean, if you think I'm presuming perfect markets without market failures I must be really bad at explaining my points.

But on FCM and new investment, you still haven't addressed what your beef is with an auction for capacity that actually succeeded in procuring all the capacity deemed necessary. As you know this means probably >10% above highest recorded peak ever. I feel like you have to come out and say either 1) they underestimated the capacity they will need, or 2) there is no assurance that the capacity they contracted will actually show up when needed. Or some other rather specific indictment of the process that I've missed. Otherwise you should acknowledge that it worked. The fact that there has been a 30 year trend towards lowering capacity reserves is no evidence that a system designed and instituted in the last few years couldn't have worked. There's enough results and evidence for you to critique it on its own merits if you really think its insufficient.

You write "Last point: completely agree with you on feed-in tariffs.  They are utterly lousy policy.  My point in bringing them up is that, for all their flaws, they have encouraged new generation to come on line.  Such is the benefit of a carrot."

This is why I suggest you reevaluate your evaluation criterion of policy based on spurring new investment, rather than maximizing carbon reduction and minimizing cost. Or, considering that I do believe you care about the second, I would suggest you reconsider how strong a proxy the first is for the second.

A couple things, Sean. First, I definitely am not arguing that all you need is a spot price to build a 30-60yr asset. This is certainly debated in the literature and I do not dispute that some people are still on (what I believe is) the wrong side of that debate. Although I'm not familiar with as much of Bill Hogan's writing as I should be so I won't pass judgment on him. I've mentioned before that I'm optimistic that capacity auctions will help to reward perceived risk of deploying capital in advance, in addition to compensating for the "missing money" problem of scarcity-price-mitigation that is generally presented as their official justification, at least in what I've read. Another factor, as I undertand it, is that while you may not be interested in placing too large a bet on energy futures when you build, investment banks are. However, contracting with i-banks to hedge in advance has gotten predictably harder recently. I would be surprised if this is a long-term trend though, this is what the financial service industry exists for.

But to get to the meat of the point, the carbon price and how that affects deployment incentive. The most important point I believe, is that to take your GM and Toyota example, if GM weren't on life-support from the government (and maybe even still now), its higher costs would in fact help Toyota, by driving GM out of business. Then GM's former extra market share gets eaten up by the competition, including Toyota. So the issue here is that you seem to believe that 1) merchant generators will be able to afford (and maximize profit) by not passing through any significant amount of a carbon price, and 2) utilities will not allow regulated generators to pass them along either, which would be a clear break from the SO2 permit program (for those non-incumbents that have to buy permits). I happen to think that would bankrupt these companies (which would raise prices as supply constricts), so they'll probably just raise prices themselves. But to settle this I think we just need to run the numbers - heat rates and fuel consumption for an example coal-fired generator (or utility's fleet), and compare additional costs from a $20/ton CO2 price to current profit levels. I look forward to getting around to it eventually, though it might take me a while. Feel free to scoop me, and I'd be very interested if you found a coal-plant/utility whose profits would weather that storm.

One last point Sean. If you really think that a carbon cap won't motivate clean investment, than you are saying you think we won't be on pace to meet the cap 4 months before compliance time, which would cause a tremendous spike in permit prices. You have to acknowledge at some point prices get passed through, even if you're not sure where, but that would certainly be past that line. So I don't see how you can simultaneously say "no one will invest if we do this" and "I will not invest if we do this."

O and I forgot...do you recommend to your investors to build? I don't know, you have to deal with substantial legislative uncertainty now because the bill is still cooking. But that doesn't mean that if a strong cap were passed that wouldn't spell out clear implications for electricity prices in the near future.

Thanks for the response Sonia. In the US context most domestic offset projects tend to be thought of as agricultural, because if you cap carbon you can't award credits to a new renewable power system as providing "extra" carbon mitigation. I think measuring emissions directly from the agricultural sector is probably pretty impractical, which is probably one (though certainly not the only) it is never proposed here. And I definitely do not believe all developing countries need to be regulated under a comparable cap/trade to developed countries. I said directly that we should be encouraging clean development by funding it directly, not imposing a high carbon price on developing countries. But to allow offset projects to trade for expensive carbon allowances leaves too much incentive for fraud.

But to get to your main point, because I believe there are important reasons to doubt the integrity of the offset projects you highlight - renewable electricity that offsets local grid, and HFC gas reduction. First, renewable electricity projects don't offset "the grid," they offset mainly the non-baseload sources that are used to balance supply and demand in the real-time market, depending on the variability of demand and output from those renewable sources. So a grid that is 75% coal still will burn virtually the same amount of coal if you install a new wind farm, because as the wind goes up and down its natural gas and hydro --the cleanest parts of the grid-- that move around to keep the system in balance (and so that would produce less when the wind/renewables produces more). So even a "conservative estimate of the carbon-intensity of the grid" is probably overshooting actual CO2 reductions you're getting.

On reducing HFC's, I'm a bit surprised you mention those because those projects were the poster-children for CDM fraud. Since HFC's are High-Global-Warming-Potential gases, reduction projects are worth a ton of money (since CER's are awarded based on carbon-equivalency). More, it turned out, than the underlying product's investment (refrigeration plants) were. So there was a huge perverse incentive to construct more polluting HFC sources, just to be able to turn around and sell the rights to clean them up. This is one of many problems Michael Wara and David Victor of Standord identified in the CDM market in a paper they wrote.

http://www.ucei.berkeley.edu/PDF/seminar20090213.pdf

If we want to encourage sustainable development in developing countries, lets just fund it upfront. But the monitoring is too tricky and prone to fraud, which makes it 1) a waste of money that could be spend on additional clean development, and it 2) underines the integrity/credibility of our count of emissions reduced by any trading system that incorporates them.

I believe those of us in America looking for a way around offsets in our own domestic cap/trade have not-misplaced fears about them.

Sonia, hopefully you will stick around and defend offsets here a bit in this thread.

My first issue is with your argument that they are necessary because they help to contain costs. We could contain costs by allowing each regulated company to buy me a lunch instead of purchasing an emissions allowance. So the issue is which ways of containing costs are in line with the program, and which potentially undermine the goal of emissions reductions. To defend offsets you need to stand by the integrity --verification and additionality-- of the inevitable supposed emissions allowances.

On that issue of monitoring, I have this basic problem. Most sectors that are discussed as offsets are in the "offset" category because their emissions are too hard to measure directly to make them liable under the cap. Take agriculture for example. If we really had a handle on agriculture emissions, we wouldn't propose these offset projects, we would just assign a compliance obligation to each farmer that cleared new cropland, etc.

Its also easier to measure emissions than to measure not-emissions. So if we really wanted to take advantage of all this wonderful low-hanging fruit of ag and small landfill emissions, we could just regulate that they be done a certain way, and then reimburse for the costs of compliance. By reimbursing costs, instead of allowing it to be done for a high markup by trading on par for allowances, we reduce the profit and so the incentive for fraud (this could also be done with a reverse auction soliciting bids, which would drive down price to around marginal cost). I'm by no means against profit in general, just that when you have a system that is already as prone to monitoring error as measuring true "additionality" of emissions reductions, you need to be really careful of introducing extra burdens on that system such as the inevitable attempts at fraud that any profitable endeavor brings.

Finally, I don't disagree about the positive investment that flows into developing countries from CDM. But there are better ways we could offer economic assistance, without requiring us to undermine the integrity of our GHG emissions reductions programs.

Sean, at the risk of getting into this again, I must at least voice my disagreement with this often repeated precept on grist that a cap/trade has no "carrots" for clean energy.

(relevant quote here: "CO2 regulations, by contrast, exist solely to provide penalties to dirty sources, with no incentive for clean ones")

Any price on carbon would guarantee that about 70% of our electricity supply, plus virtually all of our transportation energy supply would face increased costs. This raises the market price for energy, which increases revenue for clean energy sources that can pocket the increased revenue as pure added profit because of no carbon obligation.

Your business will see this. Upstream carbon allowance obligation on fossil fuel sources will raise the price of fossil fuels themselves, which means that any technology that squeezes more KWh's (dollars) out of a given unit of fuel will be worth more.

Charley, I don't think so. There's plenty of room between "contradicts George Will's questionable/puzzling/unfounded interpretation of WMO [it was WMO right?] sea ice data" and a libel suit. So its really a stretch to call "contradicts data cited by...Washington Post columnist George Will" as Eilperin pushing the envelope calling him out. She probably does think he's a fraud, I'm not saying she doesn't. Just that you're seeing things if you take her phrase as anything remotely sharp.

gotta add that I'm really not sure what you're going for here, David. "Contradicts data cited...by George Will" actually is really charitable to him. It makes it sound like he just selectively but faithfully cited some particular source, as opposed to misrepresenting it which I think we both agree he did.

Sam,

the worse the economy, the lower the economic growth projections, the lower the energy demand growth projections, and the lower the carbon price. So saying the economy isn't well enough now is a foolish excuse because when the economy is growing fast people will just complain that prices are too high already (for example, the gas price issue of quite recently).

I'm not calling Patterson evil. Every politician has limited political capital and has to trade off concessions on things important to him or her for gains on things that are more important to them. I'm just claiming that Spitzer's priorities were more in line with my own, in that he clearly cared very seriously about, and was very knowledgeable about the energy issue. This is not wild speculation. He spoke very forcefully and earnestly (as best I could tell, but it was quite convincing) at the Conference of Governors about this a couple years back, and know he spoke and wrote about it impressively elsewhere as well.

This is not even to mention of course the vindication that should have been widely credited to him after AIG went bust.

Max Epstein

Maybe next time you get to talk to Bingaman

you can point that out to him, Sean. I'd be interested to hear what he has to say. Actually, I'm looking forward to watching a recent hearing he held on his RPS standard to see if anyone brought that up. You didn't catch that did you? I've been really busy lately.

Max Epstein

Acknowledging the real distributional costs

would be a good step as well to move the conversation. There's hyperbole on both sides. While the overall macroeconomic cost of any reasonable, even aggressive carbon price should be very small, its mostly concentrated as relatively big costs in certain sectors and geographic areas. There's a big swath of this country that burns a lot more coal for electricity than the coasts, and relies on energy (and so emissions) intensive manufacturing and industry for jobs, local investment and tax revenue. Just brushing off their concerns with 'O you'll build wind mills' doesn't help.

I'm certainly as frustrated as the next (green) guy at the undue pessimism about epic costs, but I don't think we do ourselves any good by exaggerating ourselves. If we really do believe this is a net positive for the country, as I do, we should be willing to acknowledge significant distributional costs so we can start the discussion on how to adequately compensate them and move forward with a bill that's good for (almost) everyone. If, such as through cap & dividend, we continue to ask a particular part of our country to bear almost all of the cost, we will never get a bill passed with the targets we need. Plus its unfair. We get stuck with free allocation and offsets because we refuse to put forward better, more fair and more efficient means of providing transition assistance.

Start with cap/dividend, but reserve 15% of auction revenue for a fund to be distributed to states by their historical (say, as of yesterday) carbon-intensity of their energy supply. Another 15% would go into a fund to be distributed to states based on their historical levels of employment in energy intensive industries, like paper, bulk chemicals, glass, cement, steel and aluminum (maybe I'm missing a couple but the set is fairly well-defined).

These allocation decisions would be made to states not companies, with very simple formulas based on very simply and intuitive criteria related to need. It would not detract from the simplicity appeal of cap/dividend, and would in fact keep it simpler by deflecting calls for offsets and free allocation to affected companies. Since allocation would be on historical levels of employment and carbon-intensity there would be no perverse incentive to preserve those conditions going forward to keep getting revenue.

Max Epstein

Limiting Emissions Faster

If the cap says only 5 billion tons of Carbon will be emitted in 2020, unless the RES is pretty draconian it won't cause the cap to be exceeded. It will only rearrange the resources deployed to meet the cap - favoring more listed renewables at the expense of nuclear and efficiency. If you wanted to accelerate reductions the sensible thing to do would be just tighten the cap. Or focus on areas that will be outside the cap, such as reforestation/conservation internationally, which I believe Kerry is working on in Senate Foreign Relations. Trying to tweak resource deployment within the cap will just cause greater inefficiency, unless you're targeting some particular other market failure, which RES doesn't seem to do.

Max Epstein

Can anyone explain

the point of having an RES/RPS if there's a cap/trade coming? Seems to me it just offers redundant and unnecessary additional compliance costs on businesses, and saps (nonrenewable) political capital from the eventual cap/trade.

Greens may like it just as an additional incentive not open to nuclear, but its worth noting it would also be near impossible to adequately reward efficiency either under an RPS. Monitoring and verifying that a lack of demand (and how much) is due to some efficiency program will be very messy to quantify, like offsets. Under a cap there's no need for the actor to prove/certify it to anyone, they just reduce emissions and benefit from the competitive advantage.

Max Epstein

Russ,

I'm inclined to agree with you that Obama has a big chance and needs to make the most of it. I just don't see cap/trade as inherently squandering it. Obama wants cap/trade, so I want it to be the best cap/trade possible. I think an 80% reduction by 2050 that isn't undermined by offsets and doesn't backload the heavy lifting for later decades would in fact be revolutionary. Will we get it? Idk, but I tend not to think sniping from carbon taxers that cap/trade means some sort of surrender to politics is helpful. Not trying to stifle debate or anything, I would just humbly caution that keeping the broader goal of emissions reductions in mind might temper some of the friendly fire from greens.

If Obama announced tomorrow that Summers and Chu convinced him a carbon tax is the more efficient medium for getting this done, I personally would drop cap/trade and just try to insist that the carbon tax is as good as possible.

Max Epstein

Thank You

Its ridiculous to compare watered down cap/trade bills written by compromise-oriented actors trying to offer something that could actually pass Congress, with the academic ideal carbon tax written by Professors with no need to gather votes. And yet, we constantly hear cap/trade "is" (not has been, not will be if we're not careful) too complex, with offsets and free allocation.

Like Congress can't figure out how to write exemptions for special interests into a tax and covertly shovel money to extractive industries? (Even if the tax were transparent, which I don't concede, is the capital depreciation rate for each different type of energy investment so transparent? Will it be?)

These gimmicks are not a problem of cap/trade, they are a problem with politicians and special interests.

Max Epstein

Another reason to expand ISO's

which are nonprofits that do not rely on building more lines or central station generation for their ROE, and so will always have more credible reliability (and other) assessments.

Max Epstein

"having two thirds the carbon content"

would be a one third reduction. Not that I'm defending corn ethanol or anything, but I guess that's their claim...

Max Epstein

Hapa,

I'll address the first three points, since while I disagree somewhat with the last one its sorta another discussion from the first three.

1&2) Obviously this is true, but I (and I'm sure many others) would be very skeptical of a new program that not only brings in ~$120 billion annually, but still costs the government billions of dollars annually as well in new deficit spending. Since "revenue-neutral" has become such a rallying point for a carbon bill, would you really be able to tack on an unaccounted for $X billion without losing votes/PR? If its worth doing, and is necessitated by the carbon pricing itself (which is the proximate cause of the economic dislocation), why not carve out some (admittedly hopefully small) portion of the carbon revenue to address it, and keep the program revenue/deficit neutral?

3) Coal and manufacturing jobs may be going slowly either way. That's easy for you and me to say, since presumably neither of us are planning on applying for a coal mining job either way. Somehow I think you'd see it differently if you were 45-55ish with kids to feed and put through college, and faced legislation that could wipe out your employer and pension virtually overnight.

Max Epstein

Regulation

Ted,

Standardization sounds all well and good, except for the fact that it obviously removes the potential for real technological advancement by competition. Are you sure deciding upfront whether all Gen III+ plants should be ESBWR's, AP1000's, APWR's will yield a better result than letting different utilities try different ones and see which ones are most profitable to build and operate?

The NRC has taken I think a wise half-step towards such standardization, by offering to certify designs and then let utility applicants reference approved designs in their COL's (Construction and Operating Licenses). Problem is, NRC is way too understaffed/under-resourced to deal with them in a timely manner. Its been running on CR's (Continuing Resolutions - no new budget/improved funding) for years, and when resources are tight they've been very clear that monitoring the existing reactor fleet is their priority. Docketed design certs get pushed to the backburner, and preapp technical work on the Gen IV's (Hyperion, IRIS, 4S, PBMR), including non LWR's that NRC really should be gathering technical capacity on, get pushed way back.

I think the best return on investment in terms of public funds towards nuclear (or even energy broadly, I would say) would be increased resources for the NRC. Allowing utilities to get their COL's fasttracked by having an approved III+ certified design would improve scheduling outlook and timing far more than an extra subsidy, for less public money. I support nuclear power but I'm afraid the industry lobbyists are a bit too shortsighted and no ones seeing the big picture.

Max Epstein

oops

missed a sentence after "so why isn't it happening everywhere?" Meant to say, well, there are significant capital costs as well, leading into the point that if the government eats the capital cost but the program still offers significant local benefits, the lobbying machine will break out.

Max Epstein

That test is gonna yield a lot of false positives

The Hoover Institution is not an industry shill. In fact, I'm pretty sure ExxonMobil gave a ton of money to Stanford University itself for energy research, is any Stanford Prof a shill as well? Maybe this Murdock fellow is a fraud, but idk and your glib test surely doesn't prove it.

Max Epstein

Banking

Ken, generally allocation refers to the number of allowances that are given away for free. So if none are given away for free, and the cap is sufficiently stringent, what's the problem with a company buying an extra allowance (and reducing an extra ton of CO2) this year, and then using it (and emitting an extra ton) next year or in ten years? I think you'd agree the atmosphere is indifferent (or if anything benefited) by speeding up emissions reductions. Even with a price floor, the price may rise above the price floor, and if a company worries this will be the case in future years whats the harm in letting it hedge?

I also think your distinction between "needed" and "unneeded" allowances is a little vague. Everything is needed at some price and not needed at lower prices. If the cap is sufficiently stringent then banking causes no problem. If its not, eliminating banking is a far less efficient and more troublesome way to achieve the desired extra reductions than just tightening the cap.

Gar, do you have a source on ETS allowing banking from Phase I to Phase II? I was under the strong impression that it didn't. Although the high degree of overcreation of permits (which would have been a problem whether they were allocated or auctioned) would cause problems with or without banking.

Max Epstein

Ken, on banking

I agree there should be a price floor and a price ceiling, though only to release permits unsold at the price floor, not an unlimited number. But I don't get the argument against banking at all. It certainly does not require overallocation, or any allocation whatsoever. It just allows firms to hedge against potential future variability or price spikes, by buying more than they need at current prices if current prices seem like a good deal for them.

If we had a cap now, and there was no banking, there would be no investment in clean energy because of depressed carbon prices. With banking though, more firms would be trying to get their hands on permits while they're cheap, knowing the price will shoot up when the economy recovers. This would raise the carbon price now, mitigating the slowdown in green investment, and smoothing down the cost increase to firms in the future when prices do rebound. How is that a bad thing?

This is evident in the EU, where, as low as the carbon price has gone, it has not crashed to mere pennies like it did in Phase I when there was a similar surplus of credits but no banking allowed.

Max Epstein

Ditto, Sean

That's a really disheartening statement by Pelosi.

Max Epstein

Gar,

Obviously no policy enacted now provides 100% certainty about accomplishing a multi-decade goal, because any law can change. But that does not mean all are equally likely to change. A well designed cap & trade program with adequate funding for basic and advanced energy research, which Obama and Chu seem committed to, will not entail significant macroeconomic harm and hopefully will have a fairly high stigma attached to messing with it.

A carbon tax, because it is a price-based regime that offers no certainty, or even really accuracy about emissions reductions, must be changed over time if an aggregate reduction goal is to be met. There's just no way around it. Economists that prefer a CO2 tax are assuming an equal marginal cost per ton emitted, and so implicitly disputing the necessity of avoiding a certain tipping point by achieving a certain reduction.

I don't know much about RECLAIM admittedly, but I do know the SO2 trading program had significant overcompliance in Phase I as firms banked allowances to smooth the path to the more stringent Phase II. So I don't think your concern about inadequate upfront investment under a cap holds necessarily for such programs.

Max Epstein

James, Why Not a Revenue Neutral Cap/Trade?

"Cost Certainty" is the chief selling point of carbon tax.  But if the tax must be adjusted every five years ago to stay on track for 80% reductions, which it certainly would, where's the "cost certainty?" Even if you set it to automatically increase every year, it's impossible to predict the correct rate of increase. It depends on the rate of technological progression in several industries that don't exist yet, at least not in recognizable form compared to how they would with a serious price on carbon.

So given that any carbon tax you possibly institute must be revisited early and often to achieve its stated goal, it simply substitutes the uncertainty of economic forecasting for a cap/trade with the truly abysmal
uncertainty of political forecasting. The best answer is a strong cap/trade without offsets and free allocation. I know there are more than 4 votes for this in the House (and Senate) as well, the question is just will there be enough for passage.

Max Epstein

Cost Expectations

Curtis, I found a recent EPA publication claiming that costs have been about 1/4 of original --EPA-- projections. I also found an RFF paper by Dallas Burtraw (who does quite good work), though from 2000, who chided some for exaggerating the cost savings from the SO2 trading program, arguing that it had indeed cost a full 50% of the best original cost projections.

I would be interested to see your Office of Technology Assessment paper that got it right. However, if it did I'm pretty sure it would have been by modeling a far greater rate of productivity increase than there was at the time, which it would have clearly attributed to the implementation of the trading program. Also, you said "independent analysis such as the Office of Technology Assessment," so I'm assuming you have more than one assessment on hand that was optimistic enough to have been vindicated. Please feel free to post them.

Max Epstein

Curtis, SO2 trading yielded significant innovation

I've seen you make this point a few times here on grist, and it needs to be addressed. First off, how could aggregate costs of achieving the reductions have been 1/4 of projections without innovation?

http://www.epa.gov/airmarkets/cap-trade/docs/ctresults.pd ...

But anyway, here are a couple of specifics. First, before SO2 trading, coal was classified as "low sulfur" or "high sulfur." The sulfur trading program created a marginal cost for each ton of sulfur emitted, meaning a marginal liability for each incremental increase in the sulfur-content of coal. A new classification emerged that more comprehensively categorized coal based on sulfur content, creating a market where none previously existed for coal plants to seek out lower-sulfur coal specifically to reduce emissions.

http://law.bepress.com/cgi/viewcontent.cgi?article=1838&a ...

Second, scrubber costs fell dramatically following the introduction of sulfur trading, for two reasons (both directly attributable to the SO2 trading program). 1) they faced new competition with lower sulfur coal as an alternate path towards emissions reductions, whereas before their technology had been mandated, leaving little incentive for innovation. 2) Under the previous BACT standard, scrubbers were designed with significant redundancy to prevent any inadvertent emission. The trading program, by pricing each marginal emissions reduction equally, allowed scrubbers to work efficiently, reducing the easy emissions without spending inordinate funds on getting the last few uneconomically. I forget the exact numbers, but basically they found they could scrub 80% of the emissions at 40% of the cost, is the idea. Which is obviously far more efficient on a per-unit basis, and lead to more aggregate reductions as well by allowing the tech to be used more widely.

(ibid)

Finally, the data just does not support your claim. I looked up EIA data on net electricity generation from coal 1949-2007 and ran some simple calculations. Year-over-year % increase averaged:
6.48% from 1950-1989
4.55% from 1979-1989
1.38% from 1990-2007

That's an awful coincidence you should account for if you want to write off the 1990 imposition of SO2 cap and trade.

Max Epstein

Time Lag in US Bill offers Time to Negotiate

Every Cap & Trade Bill that I've seen, including Lieberman Warner (and the Boxer substitute) hasn't proposed actual implementation (requiring CO2-permit submission) until 2012. So passing such a bill in early 2009 gives three years to negotiate with China to follow up. And given that China: 1) knows it is highly vulnerable to AGW, and 2) knows such AGW is imminent and unavoidable if it doesn't act, even if the US does, its hard to argue they would continue to refuse strong action.

The other implication of the 2012 implementation is that waiting a year to pass a bill clearly does not help the domestic economy wait out the current economic mess. All it does is decrease the lead time the economy has to prepare for when permit requirement does start up. I cannot imagine any policy reason to support delaying adoption of a strong carbon price in the US.

Max Epstein

Bob,

There's opposition to any form of power going up, especially long distance transmission lines to bring largescale renewable energy online. The 2005 (or 2007?) Energy bill allowed DOE to designate certain areas National Interest Transmission Corridors, where developers could apply directly to FERC for transmission siting authority if local/state regulations proved too intractable. Should they have just dealt with all the opposition to long distance power lines (which are a big deal for renewables)? Or would you agree that sometimes regulation may be deemed too onerous and perhaps should be tinkered to accommodate the need to sometimes get something done?

Max Epstein

Bob,

Once you borrow the capital you gotta start paying interest on it whether or not you are lucky enough to get to start spending it (i.e. building) or not. This is why regulatory delays are so damaging.

Max Epstein

JMG,

I heard from one professor, "Fusion is the energy source of the future. And it always will be."

Max Epstein

Bob,

I can't get too into this in a blog comment, electricity markets are complicated, heterogeneous, and rapidly evolving in the US. But saying wind "is competitive with coal" doesn't mean anything really now because they supply fundamentally different products. The grid needs reliable capacity that not only may, but can be rigorously proven to be available to only come up short once per ten years (NERC standard) on average. I'm not saying --wind-- must develop storage, but someone must, on a grand scale, or at some level of market penetration additional wind kwh's significantly drop in value to the grid.

Since so far our electricity industry has been based on dispatchable fuel-based (fossil and nuclear, and adjustable hydro) sources, the price of a kwh has come to be seen as the ultimate barometer of value to the grid. But for variable-output sources to achieve high grid penetrations, the grid must be able to store and balance energy to smooth out the stochastic production.

The less reliable/dispatchable "baseload" like nuclear the more you need. And it will also have to compensate not only this "balancing" (or regulating/spinning reserves, as they're called) but also will always have some demand for steady baseload power, unless storage costs became completely trivial. This demand for reliable dispatchable power will tend to be met by instituting "capacity payments/auctions," to pay companies that can promise do deliver a certain amount of electricity (or pay the spot price to fulfill their obligations), so the grid operator can meet NERC reliability standards.

Max Epstein

Last point John,

So in case I wasn't clear enough, there's no need to "decide" how much nuclear/baseload is useful (though let me just note there's a lot of room between 20% and 95%). Demand curves slope down right? So the less dispatchable capacity (though renewables would get a reduced but nonzero compensation for this service based on the statistical likelihood that its available) there is, the more its worth, and the more nuclear gets paid. The more that comes on, the less its worth. Somewhere there's the crossover and it doesn't pencil. But I see no point in arguing over where that crossover would be, and it depends on what else comes on of course and at what cost.

(I don't mean to imply capacity payments would ever be the main source of revenue for them, energy markets trump all ancillary services, but ancillary services will play an ever greater role (i.e. pay more revenue) in the future as more renewables come online).

Max Epstein

Bob,

The grid provides way more than electricity. When I worked at Lake Powell in Arizona, we relatively frequently ran out of milk in the store because it only keeps for so many days and it doesn't make economic sense to overstock so much that we'll never run out. The grid is different, we've made a policy decision that shortages are unacceptable. That means the reliability of nuclear generation is of significant value, you cannot just compare a kwh of nuclear and a kwh from a wind turbine or solar cell. As energy markets are liberalized, its becoming clear that capacity payments are necessary to ensure enough reserves to prevent any (even remote) chance of shortage. While renewables will be able to bid in their kwhs, their value as capacity to ensure reliability is significantly less, and this should be reflected (and will be) in the markets.

I'm not saying nuclear is so important it does all this stuff so lets throw a PTC at it. But it should be properly rewarded for all the services it provides to the grid. As this happens (especially with carbon cost internalized), its hard to find anyone really knowledgeable that would say it still wouldn't be economic.

Max Epstein

Bob,

I did read his response carefully, heck I quoted about half of it, no selective cherrypicking or out of context anything. But here's some more:

"Since the "2007 levelized dollars" [from Lazard's study] are a past year's dollars (and actually, even more different than that since they are life cycle costs), they tend to seem to be estimating a much lower cost than what customers will actually have to pay when the plant opens. The cost projection for first full year of operation presented in my study is clearly stated as nominal dollars"

Bob, the value of money is not the intrinsic value of the paper. Its a medium of exchange. If some commodity were gonna rise in price just with inflation for ten years, would you say it's gonna be 1.03^10 times as expensive ten years from now? Would you say its 2007 price is "much lower than what customers will actually have to pay" (to adapt Severance's quote)? Honestly, calling this an absolutely ridiculous error is the charitable interpretation. If he has any shred of the expertise he's purported to have, the only viable explanation is that he's being disingenuous.

Btw I'm the third comment, titled "Study Author Severance Responds" on Part 1 of this story on grist. I didn't post on CP, Mr. Severance did for me. Just wanted to make sure that explanation of his got over here.
http://gristmill.grist.org/story/2009/1/5/163027/5088

Max Epstein

Sean,

I never said a $25 carbon price would make nuclear economic. But then again I don't believe a $25 carbon price would significantly reduce US emissions. Sorry for accusing you of putting forth a strawman argument, I know you know that so I was admittedly a bit confused. But yea I do believe that, even with smarter regulation, the price on carbon necessary to reduce emissions 80% below 1990 levels by 2050 will encourage new nuclear construction. I'd be happy to wager a lunch, to be redeemed in 2051 by the winner if you'd like.

Max Epstein

Sindark,

The economics of providing grid regulation (what the battery would do) is not quite that simple. You don't just pay peaking plants to fire up. You pay peaking plants to fire up generally when you need power for 1-3 hours or so. What the battery would do is take power off the grid when it is oversupplied, and put it back when its undersupplied. This is a necessary service because both supply and demand fluctuate and must be matched exactly. So their competition is not just "paying peaking plants to start up," but "paying natural gas or coal plants to run at half capacity (spinning reserves) so that they can be ramped up or down on a 1-5 second basis with no real startup lag." In which case this regulation is far more expensive than just "power" (normal KWhs) because you are compensating for the opportunity cost of all the power they don't get to sell by only running at half-power all day.

Still, obviously the economics didn't work yet, but I'm just saying they weren't necessarily as stupendously far off as your numbers indicate. With a cap on carbon that internalizes the added cost of running fossil fuel plants less efficiently at half power, likely this (or something similar) will become more competitive.

Max Epstein

Sean,

All organized wholesale markets for electricity have uniform price auctions where all suppliers receive the price paid for the marginal fuel source. Every market and region of the country's marginal fuel is fossil-based (except sometimes NW-hydro I think), and in some markets quite frequently its coal.

So the carbon price, while not significantly affecting cost of building solar or wind or nuclear, does significantly increase its revenues by raising marginal fuel costs, and so marginal supplier prices. This accelerates/improves capital recovery.

Max Epstein

Sean,

When the system manager "changes the dispatch," its a cost to the grid, but not necessarily cross-subsidization of wind by competing fuels. Whether it is cross-subsidization depends on how well the market is designed.

In those will well-designed ancillary services (e.g. regulation) markets, there is no cross subsidization, because having to procure more spinning reserves or rely more on fast energy markets produces a benefit for wind's competitors that is internalized. Only in an immature market that continues to price ancillary services at marginal cost-based rates will there be cross subsidization, because the MC does not reflect the greater value of the service when demand goes up (and so service becomes relatively scarcer).

I never suggested that because wind at low penetrations contributes little variability that its capacity should have equal treatment with more reliable sources. Only that there is some equivalency, even if its on a sliding scale. There's no reason why you can't offer different capacity payments to each successive 100MW that comes online. Again, I'm talking specifically about mature markets, this time in regards to having capacity payments (ISO-NE, NYISO, PJM, maybe one or two more).

The markets are not always obvious because you have to merge economic efficiency with the policy preference that we have no more than one involuntary load shedding event every 10 years. Maintaining that reliability is not just a matter of getting the economics right, its a separate constraint on the market. But these issues, while not always obvious, are not intractable. I'm sure you've detected my theme here, but well designed markets will handle this issue much better than a utility executive trying to judge what goes where, especially with his decisions confounded by potential discrepancies in what kinds of energy services can be recovered under the MC-based regulatory framework.

Max Epstein

Sean,

I understood David's point perfectly well, and I know what capacity factor means. His point, as well as yours, is addressed by the following paragraph from my original post:

"In fact, from just 2006 to 2007 (lest it seem all this progress is historical) nuclear production increased from 787,219 Million KWh to 806,487 Million KWh, an increase of 19,268 Million KWh. Divide that by the number of hours in a year (8760) and you get a de facto capacity increase of 2.2 (2.1995) Million KW, or 2.2 Thousand MW, or 2.2 GW. Or two new big power plants, in just one year."

Somehow I feel like if 2.2GW of 100% capacity factor (since that's 2.2GWx8760hours) of wind or solar thermal, it would have made bigger waves on grist. The 1990 capacity factor (listed at 66.0% according to my EIA numbers - http://www.eia.doe.gov/emeu/aer/pdf/pages/sec9_5.pdf ) is not a "bogey," because it was 62.2% the year before. And  57.4% two years before that. You're only calling it a bogey because of the incredible growth in nuclear power production since then. Which it should get credit for, because my laptop is running on electrons not power plants. It would be a bogey if it were unrepresentative, but its not. The fact is the numbers show a very significant and steady over time (despite a generally decreasing rate of growth) growth over the years, which is continuing.

Fleet capacity factor in 2007 was 91.5, so there's still plenty of room left for improvement, even up to just 59 or 96%. You might say 91.5% is about as high as it can get, but you might have said that in 2006 about 89.6% (I'm sure David and Lovins would have) and of course been spectacularly wrong, as 2.2GW went up in just the next year.

And to be clear, its not just capacity factor increases. There have also been uprates to capacity. These added .39GW on average every year from 1998-2007. That's 390MW every year of 90%+ new capacity. Which is of course equivalent to over a Gigawatt (by power production) of new solar or wind farms, with storage, every year.

Am I saying this will go on forever? Of course not. But its not all played out, and will in all likelihood continue to provide significant power, until or almost until the new nuclear buildout.

Max Epstein

David, Point Still Stands

You write, "So to get behavior change you need them [coal mines] to pass along the price signal to the next link in the chain. But what if, for any of a dozen reasons, they just eat the increase in opex? Make marginally less money for their shareholders? Cut costs elsewhere? There goes your signal"

If they "eat" the price increase, they are decreasing profits, which decreases future investment (i.e. discourages others to grab a shovel and start digging for coal). I've made this point on a few different threads and never had it addressed. David, do you dispute that profits spur further investment? I thought that was pretty noncontroversial econ101. If they send less to their shareholders in dividends it works the same way, because buying stock is investing in that company.

So what if they "eat it" by cutting OPEX without cutting revenue/profits? Well, that's called productivity. Carbon abatement will never, and should never, be the sole aim of the economy. If the right to emit carbon is a limited resource, as it should be, so is the available labor supply and capital stock at any time. Increasing (or maintaining) output while cutting any one of those factors creates/increases national wealth.

If you (like me) believe that how the economy values the tradeoff between labor, capital, and carbon productivity must include an absolute assurance that carbon emissions stay below a certain point, than you should prefer cap/trade over a carbon tax. But on the margin for any particular firm, their job is still to maximize output subject to macroeconomic constraints (which translates into microeconomic prices) on capital, labor, and carbon. That is what is efficient for the economy as a whole.

If the firm chooses to do that by more efficiently utilizing labor or capital instead of carbon, that is up to them. If that route is taken by "too many" firms, the resulting shift in the relative availability of the macroeconomic constraints (labor, capital, carbon) will translate into shifts in their relative prices/costs, and adjust firm behavior accordingly.

Max Epstein

Also

100% capital financing is anything a utility builds. not specific to nuclear. If you would rather they not invest money to cover a 60 year long run cost you're entitled to your opinion but I guarantee you in the long run, current economic crisis not withstanding, it will be far more efficient than trying to pay the full future cost upfront. If you want to condemn their fund every time there's a downswing in the market you should be prepared to congratulate them every time there's an upswing. Probably more responsible to just acknowledge the long run tendency of diversified investment portfolios in America to appreciate in value over time. And why wouldn't money invested in decommissioning be tax free? Do you not consider decommissioning a legitimate business cost? Those, for good or bad, are pretax income in America for any business.

And I won't even guess what you mean by almost completely avoid paying into the waste fund. They have been paying .1 cents per kwh sold and have been for over 2 decades. Since Yucca's been stonewalled they are currently loaning the government money at zero interest to mitigate the debt. That's a subsidy nuclear provides to the American government.

Max Epstein

David Roberts and David Ahlport -

David Roberts,

You say that improving operating output of the existing fleet is a "fairly limited" strategy. I'm guessing you would have said that in 1990 also, and the equivalent of over 24 GW (of 100% capacity factor capacity) was added by the nuclear fleet by 2006. And then another 2.2GW from 2006 to 2007. (For those who missed my first post, I calculate this capacity by dividing KWh's of annual energy output from nuclear by hours in a year (8760) to get KW capacity.) Somehow "limited" is not the word that comes to mind to describe this growth. More like "incredible, steady and reliable."

David Ahlport,

Subsidies per kwh are an important indicator not because bigger industries deserve more, but because spending $X on several GWh of energy is a much better investment than spending the same $X and getting a few MWh. I am continually amazed at your constant opposition to considering per/kwh subsidies in assessing underlying economic competitiveness.

The issues of waste and decommissioning you bring up have been addressed here before. New nuclear plants are required to pay into a fund to cover decommissioning costs at shutdown. The discounted cost 60 years down the line is trivial and so covering decommissioning costs does not materially affect the cost of nuclear energy. All nuclear reactors pay a tenth of a cent per kwh sold into a nuclear waste fund to fund Yucca. The fund has already raised over $27billion.
http://www.ocrwm.doe.gov/about/budget/index.shtml

Finally, its worth mentioning that "subsidies" for nuclear are almost exclusively federal R&D. No nuclear power plants currently receive anything like the PTC all renewables  get, and only the first 8GW of new nuclear capacity will. That federal research has yielded huge dividends, namely the huge improvement in reactor performance mentioned above. Additionally, it has contributed to many Generation IV designs that will undoubtedly be a crucial part of our energy future (as well as the Generation III+'s that are under construction in US and abroad now). Hyperion's big splash with its new passively safe modular reactor (with a moderator of uranium hydride that dissociates at high temperatures, so the reaction inherently cannot be sustained if it overheats) uses a design invented at Los Alamos National Lab.

Wind and solar get far more federal support relative to the amount of power they produce than nuclear. Nuclear's subsidies are always exaggerated here by assuming some astronomical value for P-A even though it has never lead to the taxpayers paying a cent and never will, because it mandates an unsubsidized private insurance liability of over $10 billion for dealing with nuclear accidents. TMI didn't even come close. And, these discussions never even include non-federal support, which includes very significant state and even local subsidies for wind/solar et al. but not nuclear.

Max Epstein

Sean,

It seems we're talking about different systems. Like I said in my response to Jon, I don't dispute that wind can exacerbate system variability, only that in mature organized markets this is not an externality. Wind's competitors actually internalize it by added profit from selling more reserves. If you are speaking with a utility executive whose gas-fired plants will not be allowed to recoup added revenue for providing extra regulation/reserves because its still selling at regulated marginal cost based rates, that's a different story. But while that remains the present circumstance in some areas, that's not the future of the sector, which has been steadily moving in the other direction for a good 15 years now.

Max Epstein

Intermittency

Sean and John,

The intermittency problem is not nonexistent, but is generally overplayed because some of the time wind power overdelivers the grid is undersupplied, and some of the time wind underdelivers the grid is oversupplied anyway. System load (aggregate demand) is variable as well, and since load and wind variability are independent, you can't just sum the two to get the total. This means the marginal variability to the system contributed by a variable wind source is significantly less than the variability of the wind source itself. This is why FERC ordered organized markets to ease "imbalance pricing" (charges for delivering less than bid/forecasted) penalties for wind sources in Order 890 (2007), acknowledging the old system was unduly discriminatory.

NY has applied for, and had granted (from FERC) permission to extend even more generous than FERC-mandated rules to new wind plants (technically for all 'variable resources' but no one's building big solar in NY) from 1,000 MW to 3,300 MW, about 10% of peak summer load. But they are instituting requirements that large wind plants install wind monitoring and forecasting equipment, so the ISO gets updated wind forecasts on the hour-ahead and 15-minute ahead time scale (to go with of course day-ahead forecasts/bids).

Wind tends to be more variable than intermittent - it is not dispatchable but it is fairly predictable, especially just an hour or even 15 minutes in advance.

Finally, to address Sean's point about determining net gain from carbon-free electricity that requires more inefficient use of carbon-based reserve capacity. The organized markets deal in far more than "electricity." A number of ancillary services for reliability/reserves are now marketed, as opposed to simply controlled administratively by the ISO. So once we have a cap/trade - all costs will be internalized - both the extra carbon associated with running reserve capacity less efficiently, as well as the need/value of that reserve capacity (since it is determined by the market). Again this is not in all markets yet, and some regions don't even have organized wholesale markets yet, but its over half the country (and national load) and growing. So I don't see this as an intractable issue going forward at all.

Max Epstein

Sean,

I agree with you, thanks for elaborating on what I mostly just paraphrased as an "unambitious goal" - not just the target but the shallow coverage. My point was just that it seemed like there was a tone here that it would be nice if RGGI had a higher carbon price to sock it to the polluters. But if RGGI, as currently designed, had ended up with a carbon price much above $3 it would reflect really badly on our argument that a much more comprehensive and ambitious program could be enacted at reasonably low/tolerable cost.

Max Epstein

Ken, have a link to the full article?

The environmental/emissions Kuznets curve certainly makes sense comparing between countries, but I'd be surprised to see much evidence of it within America. But of course that's what that article (at least the abstract, which was all I could get) claimed. I'd be interested to see their data, how they counted and what they counted.

However, I would presume my point about the poor being relatively overcompensated given the price increases they will see would still hold. Greater emissions from the poor from using less efficient fuels generally starts with wood - and I haven't seen a cap/trade bill yet that proposes to have a permit requirement on firewood.

Max Epstein

Opportunity Costs

Good points Bill, I'd just add one more. I'm still trying to wrap my head how you would possibly justify calculating the opportunity cost of time/delays, but ignore the opportunity cost of cost. Once you acknowledge we have limited resources and need to consider opportunity costs, how you could possibly ignore $/delivered KWh is beyond me...

Max Epstein

BioD,

I think there might be some confusion on which emissions reductions are the cheapest, and more importantly, what that even means. The problem is environmentalists tend to want to see the 'biggest polluters/villains' pay first. The whole point of a cap/trade is to sorta leave emotions at the door and pick the cheapest reductions.

The key in evaluating the cost of reducing an emission is the availability of alternative methods of producing a product. So the arguments given, first from Sean, and now yours-- like 'well what if demand for natural gas outstrips supply,' or 'wind and solar will need backup power (e.g. not resolve storage issue)'-- is essentially asking 'well, what if reducing an emission from a coal plant is not in fact so economic, due to the lack of alternatives, and so reducing an emission elsewhere would be cheaper?' In which case the obvious answer is of course the cap wouldn't reduce coal emissions first, because it would be inefficient to do so. However, its worth noting this isn't how it will work out in reality, all the econometric analyses indicate reducing coal emissions are some of the first-picked low-lying fruit.

-Max Epstein

BioD,

you'd be right if competition in the electricity sector was limited to coal, but (luckily!) its not. Coal will be disadvantaged more than natural gas, both in terms of price pass through and decreased profits. Both will be disadvantaged more than all clean energy. Coal will lose market share to natural gas, and both will lose out to clean energy over time.

You're right that there will be price increases, and those price increases will further the viability of clean production. I'll just state here without explaining in depth (I did earlier) that the price increases don't have to be 100% of the cost increases, but they will be positive.

-Max Epstein

Sean,

You write:

"(Note in that example that "coal company" referred to a mining business.  So when we say that the downstream activities are unchanged, we are saying that coal-fired power plants still run at full capacity with no penalty for their CO2 release.  That is a very real possibility of an upstream model, and hardly desirable.)"

My point still holds.  If coal mining productivity improves without violating laws, or it is so wildly profitable now that they can eat a substantial increased cost and still supply very low-cost fuel, you have to allow that to reflect the fact that coal-electricity would thus be so low cost that it might conceivably continue until clean competition's cost comes down. Its the same point as before.

I'm not saying this is what will happen, a nontrivial price on carbon will indeed raise the price of coal. But I'm just pointing out that your scenario relies on some increase in productivity, or a level of productivity currently high enough to produce such high profits (that such a cost can be eaten and remain profitable), without acknowledging that the immediate consequence of that assumption is that that product would be very cost-efficient.

Incidentally, a price on carbon raises the cost of coal whether its statutory incidence is on miner or burner. If its on the miner, certainly they will struggle to cut other costs, and/or be forced to take less profits to some extent. But likewise if the incidence is on the burner directly, the fact that the purchaser now faces a higher cost will force the supplier to still try and cut costs and eat profits to move back towards a price that the consumer (burner/plant) can still afford.

Its essentially the issue of sales tax incidence. Its an accepted fact that the economic incidence of a sales tax (who actually pays) does not depend on whether its levied on producer (excise tax) or consumer (sales tax). Almost invariably each will pay some, and who pays how much depends on the elasticities of supply and demand. If demand is more inelastic, consumers pay more of the economic incidence even if its legally charged to the producer, and if supply is more inelastic, the producer eats more profit even if the cost is on consumer. (Here the producer/consumer is the mining company and coal plant itself).

-Max Epstein

Sean,

I still don't see how you've proved upstream is inefficient. Tell me where the following goes wrong: upstream price on carbon (increased cost upstream) either 1) gets passed through, decreasing consumer demand, or 2) gets eaten as decreased profits, shifting supply down and reducing investment in that carbon-intensive production.

Either way the market efficiently incorporates the cost of carbon

-Max Epstein

Prices still go up

David, I'm a big supporter of cap/trade, but energy prices will go up. Even in an area served by a nuc plant or hydroelectric dam, the true economic cost of distributing that clean power locally reflects revenue foregone by not selling it on the wholesale market. The marginal (price-clearing) fuel in every wholesale electricity market in the country is carbon-based (nat gas or coal), so wholesale prices will go up.

Now to be perfectly accurate, this will not actually play out everywhere, because some utilities under cost-of-service regulation will have rates virtually unaffected if they rely mostly on carbon-free electricity. But this is distortionary and inefficient, so its not worth relying on this regulatory quirk to preserve the point that some people will not see prices go up.  Because that inefficiency means that for everyone who don't see prices go up, others who would see prices go up anyway will see prices go up even more. Thinking this way pits the NW against pretty much everyone else.

A better defense of cap/trade is simply that there's far more than enough carbon revenue to rebate back enough to offset the increase in energy costs for the median household. This would be progressive, and still leave TONS of money left over for energy R&D, infrastructure, and job training programs.  The issue is not net costs in excess of net benefits, but deciding on a few crucial programs to spend the revenue on, instead of frittering it away on a bunch of political pet projects. But denying that there will be price increases also doesn't get us anywhere. A cap/trade with absolutely no rebate would be regressive.

-Max Epstein

JMG,

I guess we disagree here. I see a ton of CO2 as having the same damage whether its from a coal plant or a factory or an SUV. If you set a more stringent cap for coal emissions than for everything else, you are inefficiently allocating capital by setting a different price for emissions reductions in different sectors that actually cause the same damage.

However, I do agree that the coal issue is significant. But the way to deal with it then is to invest more (there will be plenty of carbon revenue) in R&D for alternatives (hopefully with some peer-reviewed consideration of proposals to keep these decisions in hands of scientists to judge on merit, not politicians to judge on politics). People need electricity, and trying to shut down coal plants as fast as you can will jolt up the price because of the inelastic demand for the product. Its important that carbon be priced, but just as important that it be priced efficiently.

(Although if you made the point that coal is further underpriced because of other externalities like mountain top removal and healthcare costs for miners and so must be further addressed, I'd be more receptive. But I still think a separate cap is an inefficient and clumsy way of getting at that).

-Max Epstein

JMG,

I completely agree with your point on the problem with offsets, because I think rigorously determining and ensuring "additionality" is virtually impossible to do for most of the kinds of offsets usually discussed. But I don't see how that leads as far as you conclude.  Why not just have a cap/trade that covers electric power, manufacturing/industry and transportation, but without offsets. There would still be trading, including between coal and other forms of both electric power and other sectors. What's the problem here? From an economic standpoint there's a strong efficiency argument in favor of as wide a trading system as possible, as long as its not so wide that it introduces dubious "reductions" (e.g. agricultural offsets).

Bill, how do you possibly calculate the cost associated with Manhattan, London, and most of Bangladesh (among many others) ceasing to exist above-water? So how do you assign the right marginal cost to charge to each ton emitted? Also, I disagree that the marginal cost curve for economy-wide emissions reductions would be so steep. If the cap is set too stringent, the more the price goes up, the more investment goes into clean technology (because of the profit motive), and there are plenty of technologies waiting in the wings already.

Here's one you won't see profiled on grist:
http://www.guardian.co.uk/environment/2008/nov/09/miniatu ...

For techies/wonks here's the patent:
http://www.freepatentsonline.com/y2004/0062340.html

-Max Epstein

A couple things

First, people's demand elasticities themselves change as the price changes.  Everyone always says 'look how little driving changed when gasoline prices raised $2.50 (from say 1.20 to 3.70),' to prove a carbon-price induced further change of $0.25 cents or so would have little effect.  But the more relevant question is how did the last $0.50 increase or so affect driving relative to the whole previous $2.00? My impression is that most of the actual behavior changes came towards the end of the price spike, meaning that additional price changes come to a more elastic demand (and so would be more effective) than the "look at the whole $2.50 change" argument implies.

...This is not to say that I'm volunteering to be Joe Romm's strawman, I just get bugged when I see that "look at what $2.50 change in prices has done..." argument because it misses an important point. Gas is not $2 or $3 anymore, so additional price increases are a different story.

The second issue is less academic and I think more important, and I'm glad to see Adam Stein finally raise it.  Its not the end product that carbon pricing needs to affect so much as the means of production. So I would add that just as consumers like driving, not sparkplugs, car companies don't like making sparkplugs or even cars, they like making money.  If getting SUV's off their lots requires them to use gimmicks such as "we'll pay your gas for a year," (which I've seen) this is cutting into their bottom line and encouraging them to build more fuel efficient vehicles.

A better example is electricity. Consumers have a similarly inelastic demand for electricity, but a carbon price does not work only if consumers ramp down electricity consumption. Most of the reductions come from shifting the means of producing those kwhs towards cleaner methods.

A final point - its sometimes said that a carbon price wouldn't work because many producers can't pass along the price increases  they incur. But to drive the theme home here, its not price increases that are important, its --cost-- increases.  To the extent that cost increases cannot be passed through to encourage demand-side conservation, they are absorbed by producers and trim profits. This in turn drives capital away to cleaner methods of producing those goods which don't incur those cost increases.

-Max Epstein

ataventure,

The IG is not 'the press.'  You write 'I don't see anywhere in the context of the original memo that employees are barred from communicating confidentially with the IG.'

Is this so unclear: 'Please do not respond to questions or make any statements.'

What's the point of having an IG (or GAO) if they're barred from getting candid answers from staff?  Any schmuck can call the press office and ask what the official policy is on whether politics interfere with technical work.  Obviously the press office will say no.  The point of an IG or GAO is to find out what is actually going on.  Not talking points.On EPA staffers told not to talk to media, inspector general, or anyone else posted 1 year, 4 months ago 4 Responses

Gar,

The very next sentence (after the part you quoted) answers your question about why EPA would not have authority to remove allowances, even though it has authority to issue some relevant regulations:

"Environmental groups, intervening in support of EPA, argue section 301(a) of the CAA also provides EPA authority. That provision authorizes EPA "to prescribe such regulations as are necessary to carry out [its] functions under" the CAA. 42 U.S.C. § 7601(a). EPA does not rely on section 301(a), and for good reason: EPA cannot claim retiring excess Title IV allowances is "necessary" for EPA to ensure SIPs comply with section 110(a)(2)(D)(i)(I)."

That being a reference to the point I made earlier - that 110 authority is specifically for ensuring that emissions within a particular state do not interfere with attainment of NAAQS in another state.  EPA never made a showing of why ratcheting down the regional cap would induce reductions specifically in the areas that contribute to nonattainment in other states - because they can't.  CAIR was an admirable program, unfortunately it just exceeds the authority EPA has to implement the CAA.    On Clean Air Interstate rule struck down because it devalues sulfur trading permits posted 1 year, 4 months ago 15 Responses

Gar,

I just read through the decision, I still don't see anything the least bit related to a takings issue.  Does a "backdoor takings" argument constrain Congressional action?  Who are the "legal scholars" that put forward this theory, and have they read the decision?  I'm not trying to be patronizing, I just don't see it.  Here's what I did see in the decision-

EPA actually promulgated CAIR not as a rule under Title IV of the CAA (which sets up the trading program), but under section 110(a)(2)(D)(i)(I).  This section relates to State Implementation Plans (SIPs) for achieving National Ambient Air Quality Standards (NAAQS).  Under 110 authority listed above, EPA must require SIPs to not only ensure their own compliance ("attainment") with NAAQS standards, but curtail pollution within one state that interferes with downwind states' attainment of NAAQS standards.  

The pollutants at issue were particulates and smog.  SO2 and NOx are precursors to these, so EPA has authority under 110 to mandate reductions in SO2 and NOx from states that "significantly contribute" to nonattainment for particulates and smog in downwind states.  Instead, EPA decided to just ratchet down the existing SO2 and NOx programs.  While this may be a good thing to do (I certainly think it is) it doesn't in any way ensure that the actual reductions that take place will be in areas that are "significant contributors" to nonattainment in other states, so it exceeds the authority under 110(a)(2)(D)(i)(I) it was issued under.  

It was a fairly long decision (60 pages) that identified a bunch of different things wrong, but most of it all came back to that.  The issue of whether EPA has the authority to curtail allocations for allowances under the Title IV program specifically didn't even come up until page 42 or 43.  There, EPA actually admitted it didn't expressly have the authority to do this, but argued since it needed to make additional reductions in SO2 and NOx under section 110, it had to modify the existing cap/trade program for them or the allowances (and so the program) would become worthless.  EPA claimed achieving section 110 goals thus by tweaking Title IV was a reasonable way to "harmonize" the two.  However, since the court rejected the notion that EPA's actions under 110 were within its statutory authority anyway, obviously this argument fell flat.  

The bottom line is that these pollutants that travel between states and affect actual air quality need something beyond just cap/trade.  I definitely don't share your skepticism of cap/trade generally, like for CO2, but here you have an issue where emissions reductions in upwind states are worth more than reductions in downwind states, because the downwind states aren't really harming other states' air quality.  I think cap/trade is a good framework, but there should be minimum standards for upwind states, because a pure cap assigns equal worth to any reduction anywhere, which is inappropriate here.  Section 110 gives the authority for EPA to do that, but instead it chose to just ratchet down the cap.  Again, this is certainly better than nothing, but it exceeds EPA's authority under that statute, so it was vacated.
   On Clean Air Interstate rule struck down because it devalues sulfur trading permits posted 1 year, 4 months ago 15 Responses

David,

You say a futures market in my plan would depend on

"Only speculators who are betting on prices going down can sell long term supplies of credits. Something about this makes me uneasy, but it may be workable."

Not quite.  You don't need speculators that are willing to bet the price will go down, only that some investors think the price will rise slower than other investors.  I could still sell you a futures contract even if I think the price will double in 10 years if you expect it to triple.

On your skepticism of my $200 for 80% being sufficient - good of you to be skeptical, I'll qualify that a bit now but the main point does still hold.  The $30-300ish I quoted in increased energy costs (annually per household at a credit price of $30-80) doesn't include transport- oil for cars and jetfuel for planes.  Still, we all remember the numbers and the oil prices weren't gonna jump astronomically for a cap/trade.  I don't like the modeling assumptions that said 2 cents a year, but even if they're significantly off its still a modest impact.  Also, I gave you the effect on the "average" household - which means monetarily it will be higher for higher income households that spend more on energy (not as a % of income but gross).  So the top 60-80% quartile, would the $200 cover immediate costs?  Probably not if you consider all commodities (there are prices beyond energy that will be affected), but nor would it fall woefully short.  And the main point is you can overcompensate those on the bottom - make it progressive.  

You also say "I agree that government should be doing advanced R&D and perhaps even large scale proof of concept deployment. But I could also support this being paid for by other sources."

This is the easy way out.  Either you pay for it with the carbon price, which leads to greater economic efficiency (if you acknowledge that carbon must be reduced, charging for emissions is efficient strictly in an economic sense), or you pay for it with taxes on labor and capital, which are distortionary and hurt economic efficiency, raising the cost of reaching our goal.  We have a huge debt growing every year with a huge deficit.  There's no excuse for raising trillions of dollars through carbon revenues when we're trillions of dollars in debt and leaving the really crucial government action for "other revenues."  

That's an interesting paper, thanks for the link.  I certainly never thought of including energy as a primary factor of production like capital or labor from a macroeconomic sense.  But I would just say, it seems like your worry is that my program would lead to some sort of shortage for energy, pricing out fossil fuels without deploying enough clean tech.  The extremely high demand for energy we have built up as a society is more than adequate deployment for today's technology though.  And no fossil fueled power plants will go out of business until they are replaced by more efficient clean tech.  There won't be a shortage.  The risk of shortage is if you commit to 80% reductions below 1990 levels, which is a 95% reduction below projected 2012 levels where the program would start, without taking steps to ensure we'll have the technologies we need down the road to achieve that.  On Smart ideas for post Lieberman-Warner climate policy posted 1 year, 4 months ago 71 Responses

Sean,

I saw you were going with that and here's where the misstep came:

"Now let's assume that all those costs are raised by $10/MWh due to carbon pricing, and further that the $101/MWh plant has no carbon emissions."

I'm not gonna spend much time pointing out the problem with this, because you make the point often in the rest of your post - the clean generation is not the generation whose bid just misses the cut.  How many peaking wind/solar/hydro/nuc plants are there?  The variable costs are extremely low, and while eventually enough clean will come online to push out a lot of the expensive peaking stuff, and coal+carbon price may become the new peak clearing price and stabilize it around old nat gas prices, this is a ways coming.  The grid won't transform overnight.

But, after answering your criticism of my argument, let me make my own.  Your plan wouldn't increase the cost of natural gas plants (tend to be peaking capacity) because they're more efficient than the grid on average.  So I should have recognized that.  That being said, I don't think a perkwh subsidy to new natural gas plants is a good idea.  This is not an ideological opposition that we need an absolute moratorium on fossil fuels or anything, I just think we're overreliant on natural gas already (hard to argue with that) and a perkwh subsidy is not a good idea.  The market doesn't properly value fuel security or diversity.  While any carbon pricing regime will lead to some fuel switching as combined cycle nat gas will pass coal for new baseload, your plan would have I believe the significant unintended consequence of exacerbating this.  

But actually, for all the offpeak hours that nat gas peaking capacity isn't firing (though I know we have some nat gas baseload in some markets), where coal is setting the clearing price prices will go up.  These aren't the most expensive times of day, in fact it would mostly be at night, but the market is moving towards time-sensitive pricing and so as outlined in my original point this will increase bills at the end of the month.On Smart ideas for post Lieberman-Warner climate policy posted 1 year, 4 months ago 71 Responses

GRL's Sequestration

I don't know anything about the science behind this, but I would just back up GRL's point that some solutions will not happen naturally in the market place.  The issue is that if you are going to incorporate sequestration into any carbon pricing regime (which would be necessary for any such carbon-reduction to be marketable) it has to be as an offset.  And the big issue with offsets is measuring them reliably, which comes with a bunch of issues.  Though the general sticking point, additionality, probably wouldn't be an issue with GRL's thing, other measuring/verification issues would apply.  At some point, it may cost more to measure and verify than its worth to include in the cap/trade system itself.  Then it would just be better off done by public expenditure (likely with cap auction revenue) where the government can just do it based on a knowledge that it will do a lot of good (if its research shows its cost effective), but not have to waste money determining accurately -and assigning ownership to someone for- every incremental benefit.  

Regardless of whether GRL's preference pans out, this point definitely holds for other tricky-to-measure offsets being tossed around, like the land-use and forestry ones.  If you did some of these things from the public purse without incorporating them into the system, you get the climate benefit, without wasting money on measurement, and without creating a really counterproductive incentive to do things worse so you can sell the improvement, which has been the really unfortunate CDM experience.  People want to keep around offsets as to keep down the price of permits.  You could keep down the price of permits if you gave companies permits for buying me lunch too.  The issue is does the method represent a cost effective way of producing actual reductions.On CCS: Environmental whack-a-mole posted 1 year, 4 months ago 21 Responses

Sean - property

I agree with you that its less of a worry that Congress will lower a cap then a tax, but I don't think your emphasis on property rights is why.  Lieberman-Warner (and I think at least one other cap/trade bill I've read) has had an explicit provision that said "CO2 allowances are not a property right," which I think is to address exactly your issue, in case we were to want to make like the EU and reduce free allocation midstream.  (well they do it phase by phase but its still sorta midstream in the scope of the ongoing program).

You might still have a point that Congress might face increased political pressure because now certain companies will be obliged to deliver certain amounts of allowances forward, and those plans will be complicated by seeing their allocation diminished.  But Congress is all over the legal question. On Smart ideas for post Lieberman-Warner climate policy posted 1 year, 4 months ago 71 Responses

Sean

the point of a price floor is not to permanently increase the number of emissions reductions achieved at a burdensome cost.  It's to smooth out the cost curve and lend some predictability, which gives certainty to investment.  The point of the price floor, which rises over time (as the general price trend would) is that in periods where there's plenty of low hanging fruit to be had, people actually pick more of it instead of just bidding down the price of the permits real low.  That way the extras are around for demand shocks to mitigate potential price spikes.  

And the certainty issue shouldn't be dismissed either I think.  You talk about needing a degree of certainty to deploy capital.  This allows firms to know that certain projects won't end up having been bad investments if all of a sudden the price of permits crashes.  This has effectively happened now with CAIR being thrown out, which the utility industry was investing in preparation of needing compliance with.

If in every year of compliance the price floor is triggered, then its just a carbon tax and misses the point.  But no one ever suggests a price floor like that.  The idea is that you encourage more actual reductions to happen when they're cheaper to soften what would otherwise be volatile price spikes when reductions might become suddenly more expensive.On Smart ideas for post Lieberman-Warner climate policy posted 1 year, 4 months ago 71 Responses

Standardized Interconnection Procedures

Thanks Sean, I guess you can implement your (2) on day two of your reign as king, right after the production based carbon pricing.  One more question though.

Interconnection to the local transmission system is another obvious opportunity for a utility to place undue burdens on a DG facility.  FERC has taken some steps to remedy this with its Large Generation Interconnection Procedure (LGIP) and Small Generator Interconnection Procedure (SGIP; <20MW).  While obviously FERC only has direct jurisdiction over those transmission providers operating interstate transmission, I found the following in a report by DOE/FERC commissioned by EPAct2005 on DG:

"While municipal and cooperative utilities are not under FERC regulation, FERC has obtained their involvement and cooperation in transmission rules and requirements--such as for interconnection--by using a "reciprocity" provision: municipal and cooperative utilities are not allowed to take advantage of open access transmission or regional markets unless they offer their own systems to others on comparable terms."

My question is are you seeing any progress on this on the ground, or is this just a paper protection?  Obviously interconnection procedure does not encompass the range of discrimination faced, this has nothing to do with standby fees, exit charges, etc.  Still it would be encouraging if this was improving things, and the 'reciprocity' card could be played in promulgating other standards to remedy other problems as well.On Forbes on utility objections to combined heat and power posted 1 year, 4 months ago 11 Responses

Cap sans trade?

"I'd combine this active technology program with a cap on carbon emissions, which I think would be far more effective than a tradable permit system."

What does this mean?  Quotas on emissions per class of technology?  I can't imagine a professional economist would see this as more efficient than Cap/Trade.  I must be missing something here...On Jeffrey Sachs, economist and eco-problem solver, chats about his plans to save the world posted 1 year, 4 months ago 9 Responses

Nuclear pays those costs already

"He also briefly discussed nuclear energy, which he says is not cost competitive if you include the following three costs into the price: 1) waste disposal, 2) plant insurance, and 3) the cost to decomission, which he says can be more than the original cost of construction."

1) Over $27 billion dollars as of late 2007 has been paid into the Nuclear Waste Fund from a $.001/kwh fee on nuclear power plants (since 1982).  $9 has been spent studying Yucca.  Nuclear power plants not only already front the funds that will be used for disposing their waste, but in the political stalemate over Yucca this money is being used to pay down our deficit.
http://www.ocrwm.doe.gov/about/budget/index.shtml

2) Plant insurance for accidents from nuclear power plants would have to exhaust a $10 billion dollar pool before public money is touched.  Each plant carries $300 million in private coverage (paying a $400,000 annual premium), and if damage exceeds that every nuclear plant in the country will be assessed a prorated share of the additional damages, up to $95.8 million per.
http://www.nrc.gov/reading-rm/doc-collections/fact-sheets ...

3) Decommissioning costs are also covered by a fund or bond started upfront and added to over the lifetime of the reactor.  With 40-60 year operating lifetimes and compound interest, amassing the funds necessary to cover the decommissioning cost at the end is fairly trivial.
http://www.nei.org/keyissues/nuclearwastedisposal/factshe ...

All of these costs are internalized in the price for nuclear power.  They're always cited by critics as these intractable externalities, but its just not true.On Lester Brown unveils plan for 80 percent cuts by 2020 posted 1 year, 4 months ago 42 Responses

Not Mutually Exclusive

I keep seeing this argument - don't price carbon, invest in clean energy.  For the life of me I can't understand why the two would be mutually exclusive.  Shouldn't these people be advocating for a more sensible use of revenue from carbon pricing programs - which could easily yield the tens of billions a year they want for R&D with plenty left over for consumer assistance.  This either/or thing does the debate a real disservice, because it just gives more political cover to the conservatives who want to do nothing.On His argument is still bogus posted 1 year, 5 months ago 10 Responses

Kyoto will not just be renewed, but improved

I don't feel like going through all the major problems with Kyoto here, but abandoning cap/trade or carbon pricing generally because Kyoto has a bad record is like placing a moratorium on auto transport because Hummer's pollute so much.  

over 90% free allocation to polluting industries, including reserves specifically for certain fuels, which, surprise surprise incentivize construction of more of those sources because someone's gotta collect on the pot (for those of you wondering why new coal goes up with a $40 "price" on carbon).  I say "price" because no one is actually paying $40 per ton they emit, which means overconsumption/production of emissions intensive goods continues, which creates a scarcity of remaining credits and drives up the price for all credits, even for their puny reductions.  All of which are overshadowed by the the CDM problems.  

Nothing against Europe, they're taking some licks while we sit back and watch how it goes - we're gonna have an easier time of this than they did and we owe them (though we do subsidize their low Rx prices with our high ones, so maybe we call it even).  But there is no need to defend the admittedly broken Kyoto (Phases I&II) to defend action on GHG's in the future.On 'Kyoto is a big effort for almost nothing'--Kyoto is only in its first phase posted 1 year, 5 months ago 16 Responses

advancednano,

dude no way are 96 nuc plants gonna be started and completed by 2016.  And even the 36 is site permits applied for (maybe even granted), not started construction.  With maybe a couple exceptions there's not gonna be much coming on line before 2018.  I agree nuc will play an important role after that but let's not overdo it.On Lovins and Sheikh defend their work in 'The Nuclear Illusion' posted 1 year, 5 months ago 23 Responses

You're a mobile source of CO2 emissions too

Wolverine.  So are you gonna stop breathing?  No matter how organic you buy, the land used to make your food used to be forest or native habitat that was cleared (and for anyone West of the Mississippi, likely with the aid of government subsidies).  And if you have any kids or ever do, you're contributing to the overpopulation problem you constantly rail against.  In fact since we (even you) consume so much more in terms of natural resources with our standard of living, you're almost certainly contributing more to the effective overpopulation problem (in terms of resource depletion) you rail against so much -and which I'm still waiting for an answer on here: http://gristmill.grist.org/story/2008/6/16/16354/6767/#14 ...
- than someone in a poor developing country even if they had 50 kids.

None of our hands are 100% clean.  It's impossible.  So get off your high horse man.  The whole world is not going to abandon any care for the standard of living of themselves and their loved ones because you tell them too.  So acknowledge you do your own fair share of eco-wreckage yourself, and stop chastising people here for their (generally probably pretty successful) attempts to live more sustainably, without moving into a cave.  And even if you did that, you're still a mobile source of CO2 running 24/7.

And btw, since you always challenge people to live with native people, I lived and worked with several Dine people, right across from the reservation in N. Arizona.  They built a coal plant themselves, ruined the most beautiful scenic environment I've ever seen - red rocks and blue sky as far as the eye can see for 330 degrees, and then that coal plant.  Obviously its not the only coal plant that doesn't belong in a beautiful place, and I'm not saying anything against the Dine people, I made great friends.  But you go overboard with your self-righteousness.     On Gallons per mile: A better way to express fuel efficiency posted 1 year, 5 months ago 24 Responses

Interesting, but changing the name isn't the issue

Most consumers ultimately won't choose their cars based on what is projected to help the environment more.  They'll choose based on how much they're willing to pay now and how much they're willing to pay for gas later.  Not everyone, but most.  So just flipping the fraction so that everyone gets it isn't really the point, the point is to explain this to policy makers so we start focusing on getting those old dirty vehicles off the road.  

An argument against upping fleet efficiency standards is often that it will deter people from buying new cars, holding onto their old (and so really low mileage, especially trucks) ones longer.  This is always brushed aside as, well, nothing's perfect.  In light of this, maybe we should give this more thought.  Not saying don't raise standards, but maybe a buyback on old trucks or something.  Emphasis on the something.  But point is I think its more important that policy makers start thinking about this than that every consumer get it, since ultimately it really doesn't affect (most of) their decision.On Gallons per mile: A better way to express fuel efficiency posted 1 year, 5 months ago 24 Responses

Battery not Fuel

I think people are deceptively attracted to Hydrogen because it's a "clean fuel."  The problem is its really more of a battery.  Hydrogen "fuel" cells just store energy made from another process (lots of electricity or heat) in the form of chemical bonds.  And like Joseph Romm points, all that just to break it back down to electricity.  

But the classification as an alternative fuel makes it deceptively attractive.  Once you realize its just a battery storing the same old electric power, the only differences are 1) way more cost, for 2) way lower efficiency, plus 3) massive investment in an entire new infrastructure just to make it relevant.

Good article Joseph.On Honda fuel-cell vehicle: Not marketable, practical, or environmental posted 1 year, 5 months ago 10 Responses

Joebhed,

I'll just return to one point, because you quote the CBO as saying

" The most efficient policy tool for decreasing CO2 emissions is the one that can best balance the costs and benefits of the reductions, even when both are uncertain."

Again, I don't disagree.  I'm just emphasizing that it's important to remember where this efficiency comes from.  Its that the CBO presumes a CO2 tax will not be changed, ever.  Thus a company can set up a plant in 2012 and know what carbon will cost him in 2040.  

The point is this is not possible if you prioritize getting to 80% reductions, because you cannot know the level of reductions you will get from a certain tax in advance.  You can guess, but you'll inevitably be wrong, or if you're right at first you'll have the pace of the increase wrong.

I don't think its as simple as 'they both have uncertainties, but the carbon tax is more efficient.'  They each have certainty about some things at the risk of uncertainty of others.  Namely C&T provides certainty of level of reductions (you disagree, but I think the point is more that costs might skyrocket in the short term than that reductions won't be met.  The cap will be met unless you introduce shady offsets or politicians change the bill.  But these cost increases can be addressed to some extent by short term permit borrowing against a relatively high interest rate, banking with early price floor, etc) but uncertainty about cost of compliance.  Carbon tax provides certainty about cost of compliance, but uncertainty about level of reductions.

I just mentioned above in the parentheticals a couple ways you can help improve the cap/trade's uncertainty about costs, without undermining the certainty of aggregate reductions (by preserving the cap).  I do not happen to know of a similar way to bring a carbon tax more certainty about level of reductions, without undermining its certainty of future cost of compliance (which any CBO economist will tell you is why they found it to be more efficient).

So bottom line is each has a benefit and drawback.  But with cap/trade, I see ways of minimizing the drawbacks without sacrificing the benefit.  With carbon tax I see it more as a zero sum game.  Because any means of providing flexibility to ensure you get to a certain level of reductions (whether reactionary or pre-prescribed formulaic) undermines the certainty about costs, and so efficiency.  

But if someone could show me a way of designing a carbon tax with some assurance of getting to an 80% reduction, sign me up.  I just don't see getting there without forfeiting the reason for picking the CO2 tax in the first place.  Otherwise, the certainty on 80% is more important to me than knowing whatever reductions I get, I got them from a bargain.  I don't care so much how much I get unless I can be assured it is very near to 80%.

I fear I'm repeating myself so I'll stop here.  Sorry if its been terribly redundant, but I do mean to drive home this point because I think its a major one that gets totally ignored in the mainstream debate.  On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

oops

last line was just a note to myself.  also, somewhere in there I said "CO2" instead of "CO2 tax" again.On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

Question - Cogeneration

The generation numbers that are being thrown around for global cogeneration, which are to some extent gas and coal fired- are those numbers 1) generation from the entire plant (primary loop and secondary/heat capture)?  Or 2) just the numbers for the additional energy captured from what would otherwise be waste heat?

Just weighing in on this argument over to what extent those numbers unfairly attribute too much of the progress on micropower/DE to coal/gas -

if it's number 1) above, then it is in fact lumping a plant which becomes less dirty (per energy produced), but still significantly dirty, with entirely clean renewables. And so I think that would be misleading on behalf of RMI.  If its 2) above, then the fuel is really just waste heat, and it shouldn't matter if the waste heat originally came from the combustion of coal or dandelions, its power without extra pollution, and so the number is legit to call clean/micropower/RE.  On Lovins and Sheikh defend their work in 'The Nuclear Illusion' posted 1 year, 5 months ago 23 Responses

Its been fun Sean

I would go through and respond but I'm afraid that this thread will continue indefinitely without either of us swaying the other.  And I for one have to get back to work.  This has all been a bit on borrowed time for me over the past couple days.  I still think you continue to miss the implications of your plan being a cap with full allocation, albeit by production (which is a significant but not fundamental difference for the issues- like inevitable price increases- we've been debating).  So we're just going to have to agree to disagree I guess.  

There really are a lot of environmental economists that do just this though.  The idea of giving out credits by production is not new - it was even in L-W originally (section 3902 as passed out of EPW) though only for fossil fuel plants.  Which of course is different than across the board (like yours), but the point is the idea has been around.  The crucial aspects of why free allocation doesn't prevent price increases, and why a carbon constrained economy's private sector undersupplies advanced research, still apply.  I really would encourage you to talk to one then.  If for no other reason than to practice the sales pitch for when you're king and declare this.  But you really might be surprised if some of the things you hear sound awfully familiar...

You can take the last word/post, but, unless you say something about my mom, I'll just leave it at that.On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Sean, not "eventually," now

Sean, do you really think that if a national cap and trade program passed and every company had to pay some price for their carbon, PUC's wouldn't adjust allowed rates?  That would, for a lot of coal plants, mandate they operate below even variable costs (because of the added carbon cost premium on the coal).  This to me seems unlikely.  But, even if you disagree, this is why I tried to preempt you with this:

"And since I'm afraid we're gonna end up going in a circle with your pointing out generators won't all act rationally because of regulations, I'd again repeat your plan suffers that consequence too.  Regulated utilities would rather spend a new massive capital investment on clean power (and earn their rate of return) than contract with your company B, lower operating expenditures and earn no rate of return.  But at least my plan can help fix this by enticing states to get their regulatory act together."

So it doesn't actually incentivize those wonderfully efficient transactions you keep attributing to it.  And in fact you compound the build build build mentality of utilities enshrined in our current regulatory model, because you incentivize new production by giving cash (credits are a marketable commodity, giving a $20 credit is just giving $20) for each new kwh sold.

I still haven't gotten an answer to that. On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Sean,

First, I guarantee you plenty of environmental economists have indeed thought about allocation by production - actual or capacity.  Sean you're a reputable guy, call up a Harvard or MIT environmental economist who works on carbon trading and ask if full output based allocation cap and trade will eliminate price increases.  I guarantee you'll get "no," and hopefully I guess better explained than I've been able to.  Its been a bit humbling for me, 'cause I could have sworn I've hit on the key points.

You say "We conflate costs and prices at our peril."  I agree.  The point I keep making is that you keep telling me how your plan prevents COST increases, but my point (and seemingly yours) is that that doesn't mean it will prevent PRICE increases.  While the ETS allocates allowances differently (more by politics than production) they made the very same point about not incurring additional costs, and yet still saw prices go up.  Your plan is not fundamentally different in that respect.  

Here's one reason I think L-W would have helped your business.  Emissions from a coal plant are basically a product of how much coal they burn.  Merchant coal plants may see no reason currently to invest in CHP or cogen because the penalty for wasting all that heat is just buying more coal.  And coal is cheap (maybe not the plant but the rock), so its not worth the capital expenditure to save some of that wasted coal.  A cap and trade will nominally would reduce the price of coal because of reduced demand, but a better way of thinking about it's effect on coal plants is that it raises the price of coal.  This is because burning a ton of coal comes with an automatic additional cost (that of retiring an allowance) that for practical reasons you can just consider as part of the "actual" price of coal. The EIA, in their model of L-W, found that coal will triple in price by 2020 (varies a bit between cases but this is pretty middle of the road, and I think their most reasonable case based on assumptions - HC) if you consider it this way.  So the increased effective variable/fuel cost of a coal plant from a cap/trade makes your cogen/chp look good, because it lets them get more heat/kwh/$ without spending more on "fuel" (fuel+allowances).  And again, that "fuel" cost isn't significant now but is under a cap/trade.      On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Sean,

(I'll number my paragraphs in response to your numbers)

1)You write: "Company X's costs per MWh go up to accomodate the tons they need to buy.  Company Y's costs per MWh go down to reflect the tons they got to sell.  When you net that out on the system, the total cost per MWh as perceived by the customer (averaged across all MWh) doesn't necessarily change."

I keep trying to draw the distinction between costs and prices, although obviously I haven't done a very good job since you keep making this point.  But the economic literature is very clear that if you allocate allowances, though they keep DOWN COSTS, they result in windfall profits and so still HIGHER PRICES (sorry for the obnoxious caps, I'm new to the blogging thing and not html savvy).  

Take the example of the EU ETS.  Though they allocated allowances differently, the point translates.  Because they could have made the same point (and they did) that the costs of purchasing a credit would be more than offset by the allocations of the credits to cover those costs.  But this cost offset does not eliminate the price increase, it just lead to windfall profits.  The price increase is a fundamental result of having these credits on the market, no matter who you give them to or how (at least in the scope of our discussion), because of the opportunity cost thing that I won't go into detail again here, but its unavoidable.  I really urge you to talk to an environmental economist if you still disagree.  Ask him/her if full allocation based on production will eliminate price increases, and maybe they can explain it better.      

2. Your write that in your plan "all payments and reciepts are directly linked to actual tons of GHG."  That's just as true in mine.  Even with government auction there will be trading, and even if there wasn't you see a fundamental change where  there is none in whether that allowance is bought from the government or a wind farm or my grandma.  

3. You write "By giving industrials and developers a fiscal incentive to build clean energy plants, an output-based standard does that.  But go through Lieberman-Warner and try to find any way for those same industrials and developers to see a dime worth of revenue for the same project - you won't find it...presume that if you just slap a penalty on the existing dirty folks, magical good things will happen."  

Badass

that is all.  props biod.On Ultimate Seattle hybrid plug-in posted 1 year, 5 months ago 25 Responses

Sean,

Your 2P example is not really relevant to my 2G number, I think you're mixing up transactions.  Under my system I could say a nat gas plant, which may have permits it bought or was allocated for any reason, increases its efficiency in some way.  So now it sells a permit, and it has P extra dollars and the coal plant that bought it has P less, and so the difference is 2P.  Note this is totally separate from any consideration of your output based system, so I don't think your example quite captures my criticism of the 2G thing, which was separate and was unique to your system.  But we might have to just agree to disagree on this, we've been rehashing this point for a while and I don't think either one of us seems to be budging.  Although it has been really interesting and certainly educational at parts for me.

Your second paragraph also is not specific to your plan as opposed to mine, so I definitely agree but don't think it really proves your point.    

On the third paragraph, I think you still miss a bit how this would play out when you distinguish it from a cap and trade.  This was why once upon a time I started this thread by asking if you'd agree it was fundamentally a cap and trade with full allocation by production, and the answer I got was yes.  I would just return to that here, when you say you're not allocating capital, you're just mandating transactions, even tho it ends up in a wealth transfer from the dirty to the clean.  Its more than that, because by imposing the liability that all must get to that .6 (which is the equivalent of a cap mandating you have a permit for every ton of emissions), you are making the "cleanliness" of the clean sources itself valuable capital.  Which is the point, but in doing so and allowing it to contract out that cleanliness, whether you want to call it offsets, allowances, or bilateral contracts, it is a cap and trade, with certain consequences for how you use the permits, and certain consequences (like higher prices) that are inevitable just by letting such permits on the market at all(via the opportunity cost thing I've mentioned a few times).  

I would just finish then with reiterating what was the main point of my last question, that I still don't think I saw an answer to.  How does your program actually incentivize utilities to behave more rationally and contract for new power at the load or cogen?  This is the main benefit you attribute to it, as I gather from our discussion.  But doing that would represent reducing operating/variable costs, which just get passed through anyway so they have no incentive to save.  But using the permits/capital/bilateral-cleanliness-contracting-rights to build its own major capital expenditure in clean generation would allow a utility to profit at its prescribed rate of return.  I don't see how your program fixes this fundamental problem.  It definitely offers an incentive to install clean power somewhere, but it doesn't avoid the fact that regulations make utilities prefer to make that big investment themselves rather than outsource it for efficient savings.  Like you said, utilities make money by spending money, not saving money.

Two last brief things - first, that Southern Company joke was great, I'm gonna have to borrow that.  Also, I actually stumbled across that article of yours you linked above a while ago.  As a prelaw student interested in energy policy, needless to say it was right up my alley and really fascinating.    On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

But does yours really fix this

Sean, I certainly buy that there's regulatory issues preventing the efficient pass through of variable costs (which would include permit costs, which are a function of production and fuel type) to encourage optimum consumption.  But I'm not sold that your plan really fixes this.  You do say that there will be ample opportunity for bilateral agreements between customers at the load for onsite generation and the utilities.  But there are now as well.  If I've learned anything from you in all my gristing its that.  

So when you break it down your program is giving away tons of capital to sources based on output, net assets for some and net liabilities for others (with the cap requirement).  But everyone at first has lots and lots of capital.  Like you have said, utilities get money by spending money, not by saving money, because of their fixed rate of return.  So what makes the utility suddenly want to contract with a customer for on site generation to reduce the utility's operating expenditures (permit requirement) which you point out they rarely have any incentive to do, when they could instead seek permission (and inevitably get it) to build a solar/wind farm or nuc plant, or install their own CHP on their coal plant, and get a fixed rate of return on it.  

In essence you're really just throwing a lot of capital into the system.  Which is important in enabling solutions, but I think you overestimate the extent to which it is incentivizing smarter ones.  Its tricky and people make this mistake all the time in understanding the incidence of where permit revenues really end up and what (if anything) they actually encourage.  The answer is not always, in fact rarely is, intuitive.

So I get the distinct impression that your last post is a problem for both of us.  And that we're both stuck trying to institute some sort of regulatory reform.  If its any encouragement though, right now its mostly an environmental problem of excess pollution from wasting dirty fuel.  If you price carbon, without smart solutions like regulatory reform for low hanging fruit, prices will go up.  A couple well timed washington post/nytimes articles to expose the nonsense will be a lot bigger news and generate a lot more political support and pressure behind it, once its an issue of preventing people from getting fleeced on this price hike, instead of a (largely) environmental issue.  The world is not all grist.  Wasting dollars is a much more captivating public outcry than wasteful emissions.On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Smart Metering

Hey Sean, on the subject of electricity regulation, there's something I don't understand that companies don't do on their own.  Everyone complains about the uniform rates during the day, despite different marginal costs of producing electricity (more expensive sources get fired up to meet peak load).  As I'm reading, I see that EPAct 2005 mandated that utilities craft a graduated rate schedule to be available to customers if they ask.  Why should customers have to ask?  Isn't it clearly in the utilities' interest as well to have their customers shift some of their consumption to when the utility can provide it for at less cost to themselves?  I don't understand why the free market didn't implement this long ago on its own.  And PUC's don't prevent them.  Or do they?

PS nucbuddy, its Sean Casten, not Caston.On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Sean

I definitely hear you on hoping for the best but planning for the worst, at least for the foreseeable future, on utility regulations.  I have to admit I feel like most of the complications and jurisdictional overlaps, or gaps, in how we regulate electricity in this country are beyond me.  I really wish I knew more about it (and if you happen to know of good book on it that would be great).  I do assume though that FERC, or at least Congress, could preempt/prevent PUC's from mandating that permits allocated to electricity plants be used to artificially depress price increases (tho Lieberman Warner recommended they do exactly that, perversely).  The question though is would they.    

I think the real place we disagree is illustrated by your point that: "But in order for a ton of increase to have the same price as a ton of decrease (but for the sign change), you need to link buyers and sellers."

It sorta goes with your insistence that a price on carbon alone is a stick without a carrot.  I think this thinking in general misses the point.  Because demand for electricity is so inelastic, and most consumers are served by vertically integrated monopolies, you have these companies with a basically captive market.  People will be stuck paying whatever rates they get, which is why we regulate them so heavily (although obviously not always intelligently), and people will be stuck still needing (and consuming) the product (kwhs) more than most.  The issue then for any energy policy is relative economics.  To what extent does it rearrange investment appeal among the menu of options technically available to encourage the demand be met sustainably, factoring in carbon pollution.  To that extent a carrot and a stick are a distinction without a difference.

I'm afraid it might seem that I'm arguing back to where your point is - that a ton of carbon should cost the same whether its a + or a -.  But the thing is, I don't think your coverage then extends "full" coverage so much as its double coverage.  There is significant demand already for electricity in this country.  To the extent that any policy prices polluting sources out of the market for meeting that demand and recovering costs, that is guaranteed market share for clean sources.  It's like a free market feed in tariff.  And all the costs incurred by the fossil fuel generators, even the ones that do stay in business, serve to raise the wholesale price of electricity, which is a further benefit to the investment appeal for clean generation.

But what's inescapable in both our plans is that the nominal cost of electricity will raise.  This is why I prefer keeping a substantial portion of the money for consumer assistance, to lower the effective price increase.  Meaning price increases occur in both our plans, but consumers can better afford it in mine, meaning less economic disruption, which we both agree is important.  You're spending the money on doubling down an incentive that already exists without that extra spending.  So aside from the perversity of    inadvertently disincentivizing negawatts, its just not the best use of the money.

Technology research is one of my other programs, and I have very few.  Consumer assistance (lump sum, not graduated like a tax cut), corporate tax cuts to free up capital for firms to invest (which yours does by just giving them all the permits), and technology research.  And the research really is key for a few reasons.  First, you can't try and mess with the market to prevent price increases per unit of a good if you're not decreasing the carbon intensity of that good, or you can but it does more harm than good (like I wrote in the oped).  So research allows you to develop ways to fundamentally lower the carbon intensity of certain goods, which is the only way to lower the actual bills (along with conservation/efficiency).  

Second, the flood of capital in the private sector will quite naturally go to the low hanging fruit.  That's good and rational, but we need to start now to ensure that the price of additional reductions doesn't spike unreasonably once those are picked.  Like I've written before, the entire electricity sector is low hanging fruit, relatively speaking.  We need better batteries to bring the transportation sector under that roof to keep those national emissions reductions going without having to turn to a more complicated/expensive means of reductions, just to give one example.  The cap itself compels deployment of today's solutions, but it still underdeploys research for tomorrow's, because that creates benefits that no one company can capture.   That's why the public sector has to be involved.  

Your program seems really appealing at first, and I grant its better than L-W.  But when you realize how this really works out, that trading to get around that .6 average is really a cap with full allocation by production, you run into some unintended consequences that compel me at least to conclude we could use the permits better.On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Ok

Sean, in response to my saying I didn't think giving these permits to industry was the best use, you wrote:

"the critical point here isn't that industry is deemed worthy, but rather that the optimal point of regulation is at the point of emissions release.  ...At the point where fuel is burned to release CO2, the emitter has a choice to change fuels, invest in different capital or any of a suite of other options, both good and bad...  Too much GHG policy is instead focused on penalizing upstream sources (LNG imports, petroleum refining, etc.) who really have no other options than the status quo.

You're definitely right that the point is not who is deemed "worthy."  But pragmatically, requiring credits be submitted upstream (for some fuels, namely oil and nat gas - its not done for coal b/c coal is almost exclusively used in power plants, which have emissions monitoring equipment) is just far more convenient.  It's easier to get credits from 20 major importers than however many millions of cars or households, or even businesses.  And this requirement doesn't "penalize" the upstream sources.  Those costs get passed along.  No one doubts that the actual reductions happen downstream.  But those reductions are still incentivized with upstream regulation because the cost of that pollution gets internalized to everyone who buys from those who are regulated (e.g. everyone when upstream is regulated) by the cost premium passed along on emissions-intensive fuels.  This actually then makes it harder to game the system or slip through the cracks.

The other point is I think more important.  Prices would still rise.  The grid as a whole will still be overwhelmingly carbon intensive in the near term, steadily declining but still fairly so for a while.  This is inevitable unless you set a draconian cap. The wholesale price of electricity is then going to be set at the price where fossil fuels + cost premium = renewables - benefit from permit sale.  This is going to inevitably be above our current prices, which are basically set by fossil fuels without that cost premium.  

Cost increases for fossil fuels will be offset with cost decreases for renewables, but this is not to say price increases for fossil fuels will be offset by price decreases from renewables.  They'll sell at the clearing price as well and pocket the difference.  So I'm a bit wary of your creating such a cap with no consumer assistance for inevitable higher prices.  Though admittedly there are some very bad ways to design consumer assistance (like L-W) but there are some good ways as well.

Also, to the extent that your program gives an extra permit per extra MWh sold, I'm afraid its losing the neutrality we both prize because this puts end-use efficiency (home appliances, etc) at a disadvantage, by incentivizing build build build, sell sell sell.  This comes with associated costs of course of new transmission, load imbalance, reliability, etc - you know more about this than I do.

I think your program is a great way to get more capital in the hands of the firms that will need it to invest in the solutions we need.  That's important.  But its not the whole goal, and I'm afraid this as a standalone program thus fails to take account of other issues.  To the extent that some "transition assistance" or other cash/permits thrown to companies might be politically necessary, it would definitely be better to have it output based than fuel or historical pollution based.  But in striving for fuel neutrality I think you've deincentivized (at the risk of sounding like Amory Lovins, whom many gristers probably know I'm not such a fan of) negawatts.  And not included consumer assistance which will still be necessary.  Those are my two main issues.
On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Let me Rephrase

Sean, instead of responding to all your points, I want to back up a bit because I don't think either of us really seems to understand the other right now.  So I'd like to get back to the real thrust of my question:

For all practical purposes I'm pretty sure that this idea is- to take your electricity sector example- the equivalent of 1)capping CO2 economy wide at 2,393 million metric tons; 2)allocating .6 permits to every generator per MWh.  The solar plants would be able to just sell all their credits, and coal plants would have to buy credits enough to balance out the extent to which their actual production is over the .6 average.  It works out just like you described.

I'd first like to know if you'd agree that this is essentially what your plan does.  Then I'd be happy to continue the discussion on inter-sectoral neutrality, point of regulation (upstream vs downstream), etc.  But first I want to make sure we're talking about the same plan.  On The solution: Output-based standards posted 1 year, 5 months ago 72 Responses

Bill - Tipping Points

You wrote:

"The point of any carbon policy should be to maximize quality of life.  If an 80% reduction causes far more suffering and death than 50% reduction, because of its high cost, it is bad policy.  

That's why the fee on the dumping of toxic waste into the atmosphere should be set equal to our best estimate of the cost of the damage that it causes."

You're definitely right that the point is to maximize quality of life (I won't take up Wolverine's objections here).  I think you don't take into account though how the notion of a tipping point affects our "best estimate of the cost of the damage that it [CO2] causes."  An 80% reduction may be the better path than a 50% reduction, even if it costs 3 times as much, if it prevents 10x as much damage in global climate change.  This is the nature of having a tipping point you need to avoid.  And I think there's a pretty general consensus that climate change presents such a challenge, where we're trying to get to a very specific PPM in the atmosphere to avoid catastrophe.

A tax would definitely be more efficient for most criteria pollutants, where the damage incurred from 100 tons is basically 100 times the damage incurred by 1 ton.  But when you have GHG concentrations where 100X is wayyy more dangerous than 100 times X if you cross that tipping point, the Carbon Tax argument doesn't pan out.  On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

Sean,

I realize you probably have better things to do than keep refining this point for me, so perhaps we'll have to agree to disagree.  I feel compelled though to point out something that keeps jumping out as not being addressed in your analysis, though I bear in mind that you could very well be right and I could be wrong.  You write:

"On an output basis, this is all perfectly captured and incentivized.  But on a ton/year basis, we get pinched.  The facility installing the cogen unit is locally going to release more tons/year (since they're now making heat and power as opposed to just heat) even as their actions are causing GHG emissions to fall globally.  So directionally, they are treated as an incremental source.  Meanwhile, the local plant that dials back has less demand for their electricity, which causes them to burn less fuel and release less CO2.  So they now find it easier to stay in compliance with their permit, in spite of the fact that their tons/MWh is essentially the same."

Again with the revenue point.  Even though they're an incremental source, if they get more incremental (additional) production, whether heat or power (anything they can use/sell), then they have still benefited from the efficiency.  When a cap/trade makes a source buy a permit for each ton of emissions (CO2, NOx, w/e), you can consider those permits as basically just a factor cost like any other.  A wind turbine plant that finds a way to build wind turbines with less steel per turbine profits from that efficiency, even if they do it by installing a bigger plant that actually forces them to pay more for (more) steel.  Because they take in even more revenue.  So when you add 'carbon permits' to the list of materials you need to build a widget, turbine, or kwh, then the gains of efficiency from carbon reduction (using permits more efficiently, like steel in the previous example) are captured as well.

And your example that the Coal Plant far away dials back production and finds it 'easier to stay within their permit' I think is misplaced.  The coal plant is not gaining from the CHP's efficiency, its losing market share!  "Dialing back" means selling less of its product, because it can no longer compete profitably with the CHP, precisely because the CHP's efficiency gains have been internalized.  There's no 'staying within their permit' issue for the coal plant, because there's no firm-level quota.  If the coal plant could still compete as well in selling its product, it could buy another permit- just like a turbine plant will buy another ton of steel if it could profitably turn it into something to sell.  I think your chain of causation of the CHP powering up and the coal plant powers down (when they're selling the same good basically) proves exactly what I've been saying.

Does any of this seem on target to you?On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

Sean,

Then how again is a 'pay per ton' not an implicit output based standard?  If you add extra generation without needing extra permits, you are improving the output based standard of pollution per MWh.  Sorry if I'm missing something really obvious.  But you keep grouping 'pay per ton' with the ppm standard, and opposing those two in favor of an output based standard.  But for the reason above it seems to me like a neutral pay per ton is much closer (if not identical) to an output based standard, and much different than the ppm one.  So I don't get the way you classify these three.On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

More disingenuous than dumb

I think he's just trying (very poorly) to differentiate his (and everyones) cap/trade from individual quotas or command and control.  That was my first thought when I read Kate's quotes, and then that's what the campaign says.  Its true that an economy-wide cap is more flexible than quotas on individual plants.  He's still being a bit disingenuous because each individual plant MUST retire an allowance for every ton of CO2 it emits.  So there is a real binding obligation on every major facility in the country, despite the flexibility of being able to buy some of those allowances from other facilities.  I think this is more just disingenuous than evidence that he truly doesn't understand it.  Which is not to say he's an expert.  Still, this would be a great chance for Obama to call him out in a debate, to be more honest about the implications of his own program.

On the topic of not understanding cap and trade - Bill Richardson.  He answered in one of the Democratic debates that he prefers a cap/trade to CO2 tax because 'a carbon tax is a cost that will be passed onto consumers.'  (Obama corrected him immediately that cap/trade incurs a cost as well).  How was this fool Secretary of Energy?     On McCain campaign clarifies (some of) McCain's climate malapropisms posted 1 year, 5 months ago 1 Response

Cap/Trade vs. Carbon Tax

Joebhed,

There's actually a really good reason to prefer cap/trade vs. carbon tax to deal with GHG pollution.  A carbon tax is "more efficient" because there's certainty about compliance costs, so businesses can plan accordingly and prudently.  But this certainty about compliance cost comes at the cost of uncertainty about the level of reductions incurred.  So its true that a Carbon Tax will achieve reductions more cheaply than a Cap and Trade, its just that you can't know in advance the level of reductions you're gonna get.  You just know, whatever you get, you got it for cheaper than setting the cap to that level.

So since you can't have certainty about both compliance costs and level of reductions, neither one is "better," they're for different problems.  If 1000 units of pollution is only 1000 times worse than 1, then take a carbon tax.  However, if theres a particular threshold you really don't want to get to, than you need a cap/trade, because the point is the point of the program is to ensure you get a certain level of reductions.  

Everyone always insists o we need a carbon tax instead, its more efficient.  Ok, what will you set it to?  Its not just a matter of political haggling, its a real policy deficiency.  No one has any idea what you'd need to set the tax to, and how fast it would need to increase over time, to achieve a 70-80% reduction.  And even if you took political haggling completely out of the picture, the way it would be done (remember in a perfect world, without political haggling) would be by using a CGE model to chart the optimum course of GHG reductions and set the CO2 tax to that cost trend.  This is what Peter Orszag, director of the CBO told Congress, when he testified in favor of a Carbon Tax.  

I'm not even going to get into now how problematic this is, because of how unreliable those models are.  You  really can't reliably model the rate of technological innovation in an industry that basically doesn't even exist yet, at least not in any comparable way to how it would under a Carbon price.  But that's what a Carbon tax relies on, if you want any indication at all of getting near a certain level of reductions.   Its so fashionable to rip on cap/trade and advocate a carbon tax because its "more efficient."  People don't even stop to think that that economic efficiency comes at the cost of the whole point of the program in the first place - ensuring a necessary level of reductions in a certain defined time frame.On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

Cap and Trade Catch 22

Unfortunately, making the bill simpler and giving out less pork is easier said than done.  Or I should say, it contributes to passing the bill among some, but also raises significant opposition.  Let's not forget that that "transition assistance" only got in there in the first place to try and soften what otherwise was feared as 100% bill-killing opposition by some powerful interests.  None of the bill's supporters actually wanted it.  I talked to a few staffers working on it and that was made really clear.  There is a bit of damned if you do and damned if you don't on the chances of helping passage by doling out allowances for votes.

Also, we really should put this "the best estimate is that the legislation would increase gasoline prices only about 2.5 cents per gallon per year" thing to bed.  That "best estimate" is the EIA's CORE modeling case, which has many entirely untenable assumptions.  Just to give a couple: World Oil Price steadily declines to $65 a barrel by 2030 (2006 dollars) - the 25 cent increase was based on a %, so if you don't expect oil to be $65 a barrel than you can't read that model (and %) as projecting only a 25 cent nominal increase.  

Second, the % is almost certainly underestimated, for, among other reasons, that modeling case projecting 240GW of new nuclear capacity being built in 10 YEARS, from 2020 to 2030.  If you're thinking 'but electricity doesn't run cars (for the most part yet),' its actually not relevant here.  Because the price increase in gas will be a function of the permit price, and the permit price will be a direct function of the cost of overhauling the electricity sector, which all models predict will contain the vast majority of emissions reductions.  And obviously the cost of overhauling the electricity sector will be higher than the EIA CORE case models if you doubt that 240 nuc plants will be built at $2.5billion and 4 years each in 10 years, which is what that model counts on.  

The Republicans threw around some really phony numbers, but the Dems (and many greens, including plenty on grist) stoop to their level when we rely on ridiculously unrealistic numbers like these as well.  I'm not trying to moralize here, I think politically its a better bet if we're more upfront about this.  It really pained me to hear Inhofe counter B-L-W supporters during Senate debate that the 2 cent a year gas increase projection relied on over 200 new nukes, knowing that he actually had the high ground in that exchange.  We have more credibility to make the argument that theres enough money in the program to offset these rising costs, as long as we don't trash that credibility by pretending the rising costs won't exist in the first place.On What went wrong on Lieberman-Warner? posted 1 year, 5 months ago 7 Responses

Grandfathering

Sean, maybe we mean different things by 'grandfathering.'  If plants are exempted from compliance obligations altogether, then you're clearly right that that reduces the demand for credits.  As I understand it, 'grandfathered' plants under the 1990 CAA were simply the ones that got substantial amounts of credits given to them for free to them comply.  However this doesn't change prices because retiring a free credit still incurs the opportunity cost of not selling it for cash.  In this case, the opportunity cost is exactly the same as the 'real' cost of buying a credit: the going market rate for a credit.  Or am I wrong on the policy- did 'grandfathered' plants get exempted from needing to submit allowances at all?

And wolverine, what part of the 'trade' inherently threatens the aggregate level of pollution reduction (if you take out questionable offsets)?  We shouldn't be opposed to economic gain if it is sustainable, i.e. compatible with emission reduction goals.On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

Good post Sean, but people err the other way too

It certainly is important to keep the cost in perspective as a means towards the end of GHG reductions, and not as retribution.  However, I think there's just as problematic arguments from the other side that costs must be held low, even if that means compromising the integrity of the program (level of reductions).

When confronted over issues of reliability of offsets, supporters insist 'but its an effective mechanism to contain the cost of permits.'  This completely misses the point.  You could contain the cost of permits by allowing companies to offset a certain percentage of their emissions by buying me a Big Mac, and it would be even more effective at containing costs.  So the question is really how many actual, additional, verifiable, and permanent tons of carbon sequestration some of these offsets would really produce.  Unfortunately, the answer is not so encouraging.

The Boxer cost-containment auction ("offramp") is another measure that would allow the economy to "meet the cap" while actually circumventing actual emissions reductions.  Finally, if we were discussing a carbon tax, as opposed to cap, then certainly a higher carbon price would lead to more reductions than a lower one (all other things equal).  So while its important not to view carbon costs as punishment, its equally important I think not to view them as unacceptable to the point where we rationalize compromising the actual reductions to avoid them.  If we refused that, and carbon prices spiked, then eventually there would emerge a political necessity to identify more low-hanging fruit that doesn't compromise reductions. Then people in power would start listening to your ideas about needed regulatory reform to put CHP on a level playing field with new generation.  

One last thing.  You wrote about the 1990 CAA SOx program "To be fair, grandfather rights given to existing coal plants did artificially depress demand in that market [thus lowering price of permits]."  Grandfathering credits, which was referred to as 'free allocation' during the Lieberman-Warner debate, does not actually affect the price of permits, because it does not affect the underlying supply or demand.  I wrote about it in more detail here:
http://www.washingtonpost.com/wp-dyn/content/article/2008 ...
On The goal of climate policy is not high GHG prices posted 1 year, 5 months ago 69 Responses

Misrepresenting the FPL report

David Bradish's point that Joseph Romm mischaracterized the FPL report is apt, whatever his affiliation.  In fact, in reading the reports, he was probably even pretty charitable.  

First, I'm not sure where Mr. Romm got $5,500 to $8,100 per kilowatt from (for the FPL plant), all I keep seeing (in both the FPL request for determination of need, and the Florida Commission document granting it) is $3208 to 4540/kw, which appears over and over again.  It is also mentioned (in both) that that number includes significant investments in transmission improvements.  Also, Romm attributes the range of costs for just 2,200MW generation. However, the cost range is partly due to the fact that FPL is still deciding on what kind of reactors to build. The capacity would be between 2,200MW - 3,040MW, depending on whether they build a couple of GE ESBWR's or Westinghouse AP1000's.  Only citing the low end of generation, while including the high end of cost, disingenuously inflates the per-unit costs.

Second, what comes across most after reading the FPL documents is that the nuke plants are being pursued only after significant investments in alternatives that still just won't come close to meeting demand.  From the request for determination of need:

"By 2020, FPL expects that it will need approximately 6,200MW of additional power supply, after taking into account approximately 1900MW of additional DSM [Demand Side Management]" plus 414MW uprates of existing nuke plants, 300MW of new renewables (specified later as solar thermal) they plan to build, and 287 MW of renewable generation they would purchase.
...
"Even if renewables and conservation are achieved at levels far greater than expected, FPL's need for Turkey Point 6 & 7 will not be eliminated."-  Because there will be a shortfall of "3120MW to 3960MW even with the addition of Turkey Point 6 & 7."
...
"In short, there is no reasonable scenario under which the projected need for Turkey Point 6 & 7 will not manifest itself"

Objections were also brought up during the Commission's deliberation over whether to approve the request for need, ranging from economics to life-cycle GHG emissions.  Below some quotes from the Commission's findings.  

"The evidence in this proceeding supports that efficient and renewable technologies currently available cannot satisfy FPL's demand for base-load capacity...Witness Silva testified that FPL has investigated solar in various forms and has not been convinced that the capability exists to make solar a base-load type of generation."  

"The evidence presented in this case shows that the nuclear generation option bears the lowest amount of life-cycle emissions compared to other generating technology available in Florida.  Moreover, life-cycle emissions for nuclear generation are low compared to non-emitting renewables and are equivalent to wind generation and are three times lower than solar generation."

And finally, "There are no renewable energy sources and technologies or conservation measures taken by or reasonably available to FPL which might mitigate the need for Turkey Point 6 and 7."On Nuclear power is expensive posted 1 year, 5 months ago 39 Responses

Good Policy Isn't Always Politically Feasible

It's true that Lieberman Warner devolved into funneling most of its revenue towards pork projects of dubious merit.  However, while everyone stood up and opposed it on these grounds, that doesn't necessarily mean changing it will win bipartisan support.  Politicians oppose bills for reasons other than the ones they state publicly.  No one stood up and said "I'm kinda worried about higher energy prices with inadequate consumer relief, but the real deal-killer is insufficient pork for my important contributor."  But there are definitely a lot of Senators that were thinking exactly that.  

I don't mean to be overly cynical, but I'm afraid that the political reality just isn't quite as encouraging as we're making it out to be.  Any sufficiently 'pure' bill  will inherently have major political enemies because its point is to make major changes in consumer and investor behavior.  And its not just coal.  Emissions intensive manufactures got greedy as well, and a lot of Senators are more sympathetic to them. Manufacturing isn't viewed as negatively as coal, so losing their support can be a PR as well as funding issue for Senators.

And there are a lot of policy issues that need to be resolved as well (more money should be for research, not deployment; helping  consumers pay for higher prices, not trying to mitigate the price increases themselves, etc) although the major issues definitely are political.

And dcrawford, interesting idea, but you don't want to tax the trade/sale of permits.  The efficiency of a cap/trade comes from the trade part allowing the credits to make their way to where they're needed most, and so the actual reductions get made where they're cheapest.  Restricting the trading forces the economy to make more expensive cuts, raising prices for everyone.  If you could cut emissions easier than I could, we don't want policy to get in the way of your selling your credits to me.   On The silver-lining of Lieberman-Warner's demise posted 1 year, 5 months ago 11 Responses

I'll take that in cash.

I've got it.  A tree.  Where do I collect?  Cha-ching!

This is actually a serious point.  Determining the relative merit of all these inventions that would come through- factoring in technical efficacy, potential other environmental exeternalities, economics affecting mass deployment, etc- to determine how much to give to whom, to keep this prize money energy economy going would take SO much more bureaucracy than a simple cap/price signal.  

Ironically, the cap/trade solution allows entrepreneurs to devise solutions accountable only to their shareholders, while Reihan wants the government to launch a massive program to determine the relative merit of every new major development in what will become an enormous field, and distribute funds accordingly.  Who's the conservative again?On A carbon policy is likely to be less devastating than nature, or oil markets posted 1 year, 5 months ago 1 Response

You can have Cap/Trade without offsets

You might not have been suggesting otherwise Colin, but I wasn't clear so I thought it's worth pointing out.  There are definitely major problems with offsets, but you can have cap/trade without them.  The question is if you can pass cap/trade without them politically.

But cap and trade is still the cheapest way to get an aggregate level of emissions reductions, if you want to be assured of getting anywhere near a certain level of reductions.  Carbon tax will get you the cheapest reductions if you're fine with getting whatever mystery amount you get.  And our modeling on predicting the level is not so solid, which I won't go into here.  So if you feel compelled to achieve a certain level, which tends to be the case with the GHG/climate debate, we should still then be trying to figure out how to improve cap/trade, not replace it.On Post-post mortem on Boxer-Lieberman-Warner debate posted 1 year, 5 months ago 14 Responses

Still need research in the bill

Gar, I'm all for curtailing wasteful military spending and putting it to better use.  Still, you can never really take future sensible congressional action for granted, especially not that.  So I still think its unwise to impose as serious a constraint on the economy as a cap is, or will be in 10 years after most of the low-hanging fruit is picked, without immediately dedicating some of the immense funding that would come in from such a program to research.  There are serious issues yet to be resolved in how to make drastic reductions in carbon emissions.  Underestimating those or figuring they'll just solve themselves is as counterproductive as exaggerating them to justify inaction.  Or, at least almost. On Peter Barnes on cap-and-dividend in U.S. News & World Report posted 1 year, 5 months ago 14 Responses

Judd Greg

As much as I'm for excoriating the Republicans for their very unproductive obstructionism on Lieberman Warner, its worth noting that Republican Judd Greg suggested exactly this.  When L-B-W protested that the money was needed to invest in solutions, he pointed out that most of the money was doled out for votes, very little was productively invested (.25% a year for advanced energy research, for example).  In a lot (not quite all) of senate floor debate I watched, Judd Greg was definitely the most honest about the bill.  

Also, as much as I like the idea, (I wrote on oped supporting it, or at least something close to it)
http://www.washingtonpost.com/wp-dyn/content/article/2008 ...
you really do need some investment in advanced research.  The cap can compel companies to deploy today's solutions, but the public sector needs to be involved in finding tomorrow's.
On Peter Barnes on cap-and-dividend in U.S. News & World Report posted 1 year, 5 months ago 14 Responses

Good Point Sean

As usual.  I definitely didn't mean to suggest that pricing externalities solves all problems.  There are plenty where its not feasible because of being more expensive to monitor/collect than its worth.  There are also plenty of market disconnects, like where residents who consume electricity aren't (directly) paying utilities, which means an increase in price won't affect their incentive to conserve.  

Or, like your windows example, plenty of appliances we buy we just don't even look at power efficiency (except for maybe grist readers), so a company doesn't feel it could recoup higher prices for a more efficient product that might cost a bit more.  Even though it would sell great if we all took time to calculate at the counter what our economically rational purchase would be.  These lack of incentives when things just dont seem 'worth it' at small scales definitely add up to suboptimal capital allocation economywide in the aggregate, and I think you're right that thats especially with energy.  So thanks for the pointer on optimum allocation of capital.

The fact that these CGE models can have trouble reflecting reality really hit home in 2 recent conversations I had with EIA analysts.  One was about the IEO which predicts $65 a barrel oil in 2030 (in 2006 dollars).  The other was about a part of the Lieberman Warner model that figured 'international emissions allowances' from some foreign cap&trade program would be around $30 by 2020.  In each case, I pointed out that the models seemed kinda outta line with reality (the oil case is obvious, on the foreign permit price I noted that ETS EA's are already above that today).  In each case, the answer I got was (at least the beginning of it), pretty near verbatim, 'well, these are general equilibrium models, so...'
On Are the CGE models useful for predicting the effects of climate policy? posted 1 year, 5 months ago 12 Responses

Feed In Tariffs

Sean,

If a company is assured a set nominal rate for delivering its power because of a feed in tariff, shouldn't the incentive still be to lower capital costs?  Even if the rate was originally devised by considering capital costs, if the rate is fixed (in dollar terms, or adjusted for inflation or w/e) then wouldn't the company still stand to pocket the extra if they lower their own costs, keeping it as extra profit, which would imply a preserved incentive to do just that?  Or are feed-in tariffs recalculated to continue to be defined as a percentage of levelized costs, like our regulated industries have acceptable returns on capital they're allowed to earn?  Or am I completely off somewhere?On Coal is no longer cheap -- so what comes next? posted 1 year, 5 months ago 43 Responses

I agree (also disagree)

I was thinking the same thing.  Reading McCain's comment, it reminded me of how all these US states went bankrupt in the mid 1800s backing huge canal projects that went bust.  The politicians sold them as projects that were too good to be true - build this huge project and never have to raise taxes to pay for it.  NY escaped that mess, because their canal (Eerie) was so incredibly profitable and started taking in revenue so fast.  And then they fell into the same problem backing a RR project.  

The epilogue for many of those states (including NY) was that they passed constitutional amendments preventing a huge bond issue (borrowing money) without an increase in taxes.  The idea was that they realized politicians -and the citizens that vote for them- can't be trusted to make sound long term financial decisions when tempted with short term financial considerations.  So if something's truly worth spending all this money on, raise taxes and actually pay for it.

Needless to say we have no such regulation on the federal level.  And I think climate change is a reasonable example of our democracy's trouble with this.  Everyone wants clean energy, but despite a very vocal minority (and I'm afraid it is a minority) most of the population isn't nearly so enthusiastic when faced with the prospect of increased energy costs.  The Republicans know it because they brandish that 52 cent gas increase as their shield against electoral comeuppance - they know that it will satisfy enough of their constituency to keep them in office.  And what's more disheartening, the democrats clearly know it too, because they consistently underplay the legitimate costs of the Lieberman Warner bill. On Is NYT's Revkin pushing unjustified 'balance' in the Senate climate debate coverage? posted 1 year, 5 months ago 7 Responses

Completely Missed the Point

You're pretty consistent yourself, Mr. Amazng.  Way to chide me for not appreciating distributed generation and its benefits to transmission, when I explicitly said distributed generation renewables "make a substantial contribution to this problem [of waste in transmission]."  The point was distributed generation, while contributing to alleviating the need for additional baseload power, can not at present come anywhere near actually replacing a baseload power supply necessary to supply a large urban area, much less a region with many closely packed population centers.  

If you tried to use renewables then as baseload (like massive wind or PV farms) for that amount of power requirement you would stretch so far away that you would introduce even worse transmission losses than we currently have.  Which again, can be helped by distributed generation micropower but that still doesn't make it the whole answer.    On What should I ask the efficiency guru about nuclear power? posted 1 year, 5 months ago 67 Responses

Theres a difference

Gar,

The land area requirements for coal and for solar are different in a crucial respect though.  Despite the huge land area requirements (as described in your post which I saw a while ago and liked a lot), coal can still transport its energy from far off cheap lands to the markets in the East far more efficiently than PV cells or wind turbines.  That's because coal is transported as a solid commodity with relatively little energy waste, while PV or wind turbines in Nevada/Kansas must transfer their energy one electron at a time.  This leads to real problems of efficiency/waste if you try and transport those electrons very far.

That's why the land requirements for renewables, even if on an absolute scale are less than coal, nevertheless are significant.  (This is not to deny that coal's effect on land use is devastating, and their waste dump of not just CO2, but solid waste into streams etc is a horrible distortionary subsidy they should not have).  But if you are going to power NYC by renewables, you have to actually set them up fairly near NYC.

And the point about my land use numbers are that even if you build right next to NYC, you end up stretching pretty far away.  And then the real point even then is that if you want to power not just one (albeit major) city, but the NE region, which has lots and lots of cities, you're talking about extending across such an enormous amount of land, that you end up really really far away.  Which leads to the same problems of waste in transmission and/or needs for incredible investment in super-efficient transmission that renewables' traditional advocates, for distributed generation, harp on as being so damning for the whole system of central generation.

So its worth noting that in one sense, as distributed generation (which should by all means be pursued, and a lot could be done by reforming net metering laws without even spending extra public money) renewables make a substantial contribution to this problem, renewables as baseload would exacerbate those problems.  

So the main point here is that the economics of renewables, if you're considering making any inroads into baseload power supply, have to be upfront about including massive overhaul of transmission.  This is like oh, just run a line to the offshore station, or the wind blows harder two towns over and there's no line.  No, if you want to contribute to baseload you need to tap resources so far away from markets that you need to fundamentally revolutionize those lines themselves, not just shell out a bit to lay down more of them.On What should I ask the efficiency guru about nuclear power? posted 1 year, 5 months ago 67 Responses

"Level Playing Field"

David,

First off, a truly level playing field would have to assume some sort of cap on carbon, or other non-trivial carbon price.  The lack of one is effectively a massive subsidy to fossil fuel plants for a free waste dump on the public commons.  

So, lets take Lieberman-Warner as an example, specifically because it imposed a substantial price on carbon without any sort of further support of nuclear (despite the current amendment push).  The "high cost" case of the EIA model (which is of the bill as reported out of committee - which assumes 50% extra cost for nuclear, coal with CCS, and next generation biomass - predicts over 80 new nuclear plants to go online by 2030.  Now if you look into the details, which I won't really go into now, even the "high cost" assumptions are fairly optimistic.  Maybe not in the long run, but definitely on not accounting for regulatory/industrial bottlenecks that will be inevitable in the short run.  But still, taking that number down to 30 or so would certainly be reasonable, and its hard to argue that any source that would provide 30 new GW of capacity (at very high capacity factor) over 18 years (2012-2030) is a marginal contributor or uneconomic.

But the model's methodology also was overoptimistic in terms of renewables for a crucial reason.  It assumed a flat 15% increase in cost of materials, for all power sources, over the life of the model (to 2030).  So solar and wind, which are very capital intensive per kwh (they just get built really small), and require way more steel, aluminum, copper per kwh, all of which would rise very much with a significant price on carbon, will run into that impediment not considered by the model.  This will affect nuclear more than coal/nat gas, but considerably less than wind/solar.  So obviously, that which hinders renewables helps nuclear's market share in a carbon-capped economy.    

So a truly level playing field would actually see a clear surge in nuclear power by private industry.  This is why nuclear opponents, who really oppose the plants for other reasons, should try and lay off the Amory Lovins cool aid of  'incurable market forces' because it just makes them look foolish and lose credibility when the market turns to nuclear in a big way, once a price is put on carbon.  Which is what we all insist is a truly level playing field, right?    On What should I ask the efficiency guru about nuclear power? posted 1 year, 5 months ago 67 Responses

Still a bit off, GreyFlcn

Actually, we haven't had massive subsidies for nuclear power for the last half century.  That's why so many of the companies that built the nuclear power plants operating today went bust.  Then someone else inherited/bought them and made a ton of money because they're very profitable to operate.  But the factors that led to those failures in the 70s don't all exist today.  And some that do are still as ridiculous.

For example, most of the construction delays for nuclear power happened when projects got tied up in Court by opponents.  They sued at every level of government, down to getting local land use boards to deny permits for building supply roads - all sorts of random stuff just to hold up construction.  In a time when inflation hit 10%, obviously having a capital loan out of a billion dollars is a killer if you're tied up in court and so prevented from going online and collecting any revenue.

The greens always trumpet the construction delays and cost overruns as inherent to nuclear power, without ever acknowledging their direct role in it.  This political opposition and promise of litigation is as big a deterrent to companies as anything economic, because as the 70s showed, it translates directly to economics.  

How many wind farms went up in place of those nuclear plant orders that got canceled or went bankrupt in the 70s/80s?  Congratulations Greenpeace, take your medal as one of the largest greenhouse gas contributors in the world.

Bottom line is when the federal government is subsidizing almost half the cost of the wholesale price of power for renewables (in $/MWh like you ask), and not to mention significant state subsidies, and they're still only 1% or w/e of generation, lets be a little more honest about how on the verge of being economically viable on a mass scale they allegedly are.On The latest sorties in the war over nuclear power posted 1 year, 5 months ago 43 Responses

Carbon Tax would bring lobbyists too

Another ridiculous assertion Samuelson makes (and I give him a misleading at best on the economic points discussed above of relative uncertainties) is that cap and trade is worse because it introduces all these lobbyists, trying to get a piece of the pie.  Since the government creates all these allowances, everyone's walking around Congress trying to get some of the action and it leads to massive waste.  That this is happening with Lieberman-Warner is indisputable, but how would it be any better with a carbon tax, Samuelson's stated preference?

Lieberman Warner allocates 5,775 Million allowances economy-wide for 2012, so if you had a carbon tax on the same sectors to kick in then you would be collecting on at least that many emissions.  So with even a mere $10 carbon tax, you would get over $57 Billion in federal revenues the first year.  A $20 tax, which is still less than the current 'cost containment' auction price that many fear will be tripped, would be over $115 Billion.  Do lobbyists really only accept their pork in credit form?  Call me crazy but I feel like any program that brings in $50-100 billion a year to the federal coffers would bring some lobbyists with it.

Its particularly disheartening because so many opponents of Lieberman-Warner are making this point on the Senate floor debate, often claiming that if we just had an 'honest, transparent' carbon tax somehow these problems would go away.On A Post columnist's defenders can't salvage his poor cap-and-trade logic posted 1 year, 5 months ago 2 Responses

Renewables too...

Tasermons,

When you consider it on a per unit energy delivered basis, which is the most relevant way, an incredible amount of emissions intensive and mined resources go into solar and wind energy - copper, steel, aluminum, etc.  There's no free lunch.On The latest sorties in the war over nuclear power posted 1 year, 5 months ago 43 Responses

Honesty about Economics of Nuclear

The argument here that "micropower and efficiency are kicking ass and attracting enormous private investment; nuclear is attracting none," completely misses the point.  Efficiency/renewables are getting more private investment because they are the low hanging fruit.  But the bummer about low hanging fruit is that it runs out.  

Even the relatively large amounts of $ investments in renewables/efficiency are broken up into relatively small projects here and there.  Renewables are never forced to slide up the marginal cost curve.  Eventually, if you are serious about reducing the nation's emissions, you have to power a city.  In fact, many, many cities.  So, since when considering nuclear power you are inherently considering such baseload power, Amory Lovins' numbers are irrelevant.  Don't take nuclear's GWs and chop it down into $/kwh and see how it compares with efficiency/renewables.  Presume you need a GW or more to power a city, and consider alternatives.  Turns out you can't power a city off of negawatts.  Or wind farms, unless you want to pave over the rest of the state with wind turbines.  So in some situations you actually are stuck in large part between nuclear and conventional fossil fuels.  

Does this mean nuclear is "better" than renewables/efficiency?  No, of course not.  They serve different purposes for the grid.  But the point is that like it or not you need baseload power.  Its certainly a good point that in projecting baseload power needs, we should try to mitigate the increased demand before we try and supply it.  But at some point you gotta supply.  

Also, lets be clear about government support of renewable energy.  While subsidies for conventional/nuclear are more than for renewables, that's because conventional/nuclear supplies so much more energy.  For a realistic assessment of how government support actually affects profitability (and so deployment), the important measure is $ per unit energy.  According to recent (2007) EIA numbers, wind and solar each got over $23 per MWhr in FY2007.  Compare this to the wholesale price of electricity at the end of FY2006 of $53 per MWhr.  That's almost half.  Nuclear got 1.59.
http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/subsi ...

In fairness most of EPAct2005's pro nuclear provisions won't kick in until new plants are built, so those provisions are not covered by the EIA study.  However, those subsidies are hardly as egregious as renewables enthusiasts allege.  The direct subsidy was merely extending to nuclear the same tax credit renewables already enjoy.  And the infamous Price-Anderson Catastrophic Insurance fund doesn't actually hit the public dollar until $10 billion is paid out from private insurance from nuclear plants.
http://www.nrc.gov/reading-rm/doc-collections/fact-sheets ...

Finally, since efficiency/renewables and nuclear both are undersupplied by the market because they aren't compensated for the substantial positive externality of pollution abatement they provide, its sorta irrelevant to debate energy economics without first positing a cap on national emissions.  In that situation, while a lot of the first low hanging fruit reductions would indeed be renewables/efficiency, does anyone really doubt that the private market would then turn to nuclear, in a big way?  Its also worth noting that a cap on emissions would lead to a significant increase in the cost of steel/concrete, which would hit wind/solar way harder than nuclear, on a per energy delivered basis.

If you want to debate issues with nuclear, there are legitimate debates worth having.  But Amory Lovins' 'death by incurable market forces' prognosis for nuclear just makes him look like a fool when interest does indeed spike after considering a potential emissions cap. On The latest sorties in the war over nuclear power posted 1 year, 6 months ago 43 Responses