FREE Thoughts Blog

December 23, 2015

China’s Cap-and-Trade Decisions

By Joseph Nyangon
How China Can Shape the Future of Carbon Markets

About 75% of current electricity supply in China comes from thermal power generation, mostly coal-fired power plants. In the above February 17, 2015 photo, a man cycles past cooling towers of coal-fired power plants in Fuxin, a prefecture-level city in northwestern Liaoning province, China (AP Photo/Greg Baker).

In the lead-up to the 2015 Paris climate change conference, policymakers stressed the need for creation of integrated carbon markets and called for linking new climate financing mechanisms with the United Nations-organized Green Climate Fund (GCF) based in South Korea. Both the U.S. and China have committed to accelerating the transition to low-carbon development internationally. Through a $3 billion per year pledge to GCF by the U.S. and a new $3.1 billion climate finance guarantee by China to support other developing countries to combat climate change, the two countries have committed to enhance multilateral climate cooperation. [1]

Carbon markets have emerged as part of the solution to the problem of climate change. Examples of these markets include the EU Emissions Trading System (EU ETS), the Regional Greenhouse Gas Initiative (RGGI) in the U.S., and the Western Climate Initiative (a joint program of California and two Canadian provinces – British Colombia and Quebec). New cap-and-trade schemes for 2016 have been announced by South Korea, Switzerland, Kazakhstan, and China (which will test models with seven ETS pilots).

While carbon markets are being used more frequently as a policy option, the question remains if such markets will actually reduce emissions and make development more sustainable. A common worry is how cap-and-trade decisions would be balanced with those stemming from often regulated markets governing carbon-intensive sectors, especially energy commodity markets, which have a clear growth orientation.

On his historic state visit to the U.S. in September 2015, Chinese President Xi Jinping announced new and strengthened climate actions, including the establishment of a national cap-and-trade program for carbon dioxide (CO₂) emissions by 2017. [1] The declaration made in Washington D.C. in a joint meeting with President Barack Obama builds on the historic November 2014 U.S.-China joint announcement on climate change, enhances bilateral and multilateral climate cooperation and together, provided momentum for securing the Paris Agreement—a historic climate change policy architecture to cut greenhouse gas (GHG) emissions and ramp-up mitigation and adaptation worldwide. This is truly a bright spot for cap-and-trade systems, especially considering the potential implications for China’s price-controlled energy sector. The nation accounts for nearly 30% of global GHG emissions, placing it as the world’s biggest emitting nation, followed by the United States.

China’s market-based carbon pricing system will be the world’s largest, and will apply initially to power generation, iron and steel industries, chemical firms, building materials, cement and paper-making industries, and non-ferrous metals manufacturing. The electricity sector is particularly important because China’s energy-related CO₂emissions are expected to grow until 2030. [2] For this reason, the discussion here focuses on the energy sector and how China can balance its domestic commitments in the electricity industry and the proposed nationwide ETS market to advance emissions trading as the most efficient policy instrument to address GHG emissions, in lieu of command-and-control or carbon taxes measures. While important details remain to be worked out, including the level of the cap, accreditation and verification systems, allocation of allowances, registry and market oversight, and regulations on the use of carbon offsets, the key takeaway is that China has signalled its commitment to achieving its post-2020 intention to move toward a low-carbon and climate resilient economy.

Here are six critical ways China can shape the future of carbon governance through reforms of its energy sector and a balanced ETS market development:

1. Develop a priority dispatch policy for renewable energy generation
This tool would enable China to prioritize power generation from renewable sources in its power sector. It would also establish distribution and dispatching guidelines to accept electricity from the most efficient and lowest-polluting fossil fuel power generators first. China has committed to implementing a clean electricity dispatch system. The 2005 landmark Renewable Energy Law includes a provision for a priority “green dispatch” system in the power sector but its actual implementation has been difficult because of the current structure of the power system. This is particularly critical for China because even though it now leads in global wind and solar energy manufacturing, 75% of its current electricity supply comes from thermal power generation, mostly coal-fired power plants.

2. Ensure state-owned and private energy companies have equal rights and liabilities in the ETS
Most state-owned Chinese companies enjoy monopoly positions due to the current political system and state capitalism policy, which give them a dominant position in the energy and power sector. Success of a nationwide cap-and-trade policy will depend upon rules in which state-owned and private energy firms have equal responsibility to avoid carbon emissions. Such a responsibility would obviate fears that the state industry sector would have undue control of the energy market and the potential to manipulate electricity prices.

3. Ensure transparency in allocation of allowances and trading rules
For the success of a nationwide carbon market, China must encourage full participation of companies, especially energy and power firms, by addressing current concerns that ETS will increase their production costs or reduce profits. The experience of the EU ETS demonstrates that cap-and-trade as a policy instrument can fail if there is insufficient political will to limit the number of available allowances to energy-intensive production sectors.

4. Establish independent carbon market monitoring systems
The central government selected the National Development and Reform Commission (NDRC) and the Provincial Development and Reform Commissions (PDRCs) as the lead authorities responsible for managing its ETS pilots. Because energy and power sectors are controlled by the National Energy Administration (NEA), [3] a department affiliated with NDRC, establishing an independent carbon market monitoring body could help to promote the development of the ETS in China and diminish potential institutional imprinting challenges from the old system.

5. Increase the share of non-fossil energy sources and establish a carbon intensity cap
Economic restructuring to promote low-carbon development, promoting technology advancement and improving energy efficiency are essential strategies for mitigating GHG emissions. These strategies as well as implementing measurable targets for CO₂ intensity would help China to explicitly address climate protection concerns (e.g., increasing the share of non-fossil energy composition in the mix of primary energy sources, and creating carbon trading exchanges). In addition to improving energy efficiency and increasing renewable energy generation, establishing a carbon intensity cap would be an important step toward an eventual introduction of a nationwide ETS.

6. Establish inter-regional carbon trading
China’s twenty-three provinces differ with respect to economic strength, industrial composition and related energy demands, making implementation of a national carbon trading a daunting challenge. The initial pilot ETSs (begun in 2013) did not allow inter-regional carbon trading. At the national level, this would be critical to carbon governance in China and should be developed via a bottom-up approach to achieve numerous mandatory intensity and efficiency targets.

China has a unique opportunity to shape the future of carbon markets. Its pilot carbon trading experience, industrial structure, economic development and capacity to link its national ETS with other schemes give the country a distinguished advantage. A future well-linked Chinese national ETS with other schemes internationally will require harmonisation of rules, reliable emissions accounting, mutual acceptance of the scheme caps, and enforcement of trading regulations in all participating jurisdictions. Although China’s pilot ETSs are at a very early stage and assessing them in terms of impact on emissions reduction and regional integration of carbon markets would be immature, certain problems are apparent when one examines the potential of the carbon market. These issues concern transparency in allocation of allowances and the effectiveness of legal enforcement, lack of unified ETS framework at the inter-regional level, and incentive-inducing policy tools.

Final Remarks
China’s pledge to create the world’s largest market-based carbon pricing system is an exciting step and demonstration of its commitment to achieve a unified ETS market and to pursue a low carbon economy. Can China innovate on both economic and environmental fronts, bringing these key factors together to boost the next phase of climate-resiliency? Any change in the Chinese energy sector will surely have a global impact, and striking the right balance to realize just and sustainable solutions to the problems of climate change will place the country in a strong carbon leadership position.

Notes
[1] White House Joint Presidential Statement: https://www.whitehouse.gov/the-press-office/2015/09/25/us-china-joint-presidential-statement-climate-change
[2] The Chinese ETS Pilots: An IETA Analysis: https://www.ieta.org/assets/China-WG/ieta%20china%20pilots%20analysis%20feb%2026.pdf
[3] Chinese Government Releases Major Policy Guidance on Renewable Integration and Related Issues: https://www.raponline.org/featured-work/chinese-government-releases-major-policy-guidance-on-renewable-integration-and-related

December 20, 2015

Microbeads and Environmental Concerns

By Ariella Lewis
The environmental threat posed by microbeads in personal grooming products

Americans are progressively kicking the habit of relying on disposable plastic water bottles for their hydration needs. We tote our reusable water receptacles with pride, aware that we are contributing towards the eradication of our planet’s plastic plague.

But, alas, the plastic plague is seemingly perpetual. Imagine grinding these plastic water bottles that infect our planet into miniscule bits and subsequently cleansing your body with these plastic bead-like fragments. As regressive and perplexing as it sounds, consumers are increasingly being encouraged to follow this detour. The tiny 3D dots sprinkled in many skin exfoliants, soaps, toothpastes and other personal grooming products are small but dangerous.

Like a whisper that is in reality a roar, these “microbeads” pose a bigger environmental threat than a consumer might assume. These beads cunningly evade wastewater treatment systems as they are rinsed off from the body; thereby flowing through pipes and drains, and eventually being discharged into oceans, lakes and rivers. A rainbow of hope is on the horizon, as state lawmakers in the U.S. take steps to ban microbeads in beauty products.

To the naked eye, the Great Lakes appear to be enormous water bodies, not easily polluted by the purchase of personal cleansing products. However, in reality, this is far from accurate. A study conducted by the State University of New York (SUNY) Fredonia on Lake Michigan found approximately 17,000 microbeads per square kilometer in the lake. To accumulate this data, a fine mesh net was hauled every half-hour in the lake to capture items bigger than a third of a millimeter. Another study by SUNY Fredonia with the same methodology at Lake Ontario, found 1.1 million plastic particles per square kilometer. [1]

These tiny plastic artifacts have the incredible ability to soak up tremendous amounts despite their size. Microbeads act like sponges, absorbing immortal toxic chemicals in their environment. Examples of these pollutants include pesticides, flame- retardants and motor oil. The absorbency of these microbeads are so incredible that a single particle can be up to a million times more toxic than the surrounding water. [2] These plastic pollutants resemble fish eggs and are perceived by marine critters as a food source. When eaten, they enter the food web. Yes, this means that we are consuming what we washed from our skin – the toxicity associated with aquatic microbeads is yet another case of pollution from our ‘cleanliness’.

Despite the evidence associated with the threat of microbeads, states like New York struggle to bar this plastic constituent (and eventual pollutant/health hazard). In 2014, legislation was voted on but failed to pass although microbeads were present in 74 percent of water samples taken from 34 municipal and private treatment plants across the state. Additionally, data suggested that the third most populace state washes more than 19 tons of microbeads down the drain annually. [3]

Upon recognizing the hazardous effects of plastic microbeads on our environment and human health, renewed efforts are being made by numerous states to ban them. The first state to implement such a ban was Illinois. In 2014, the adopted regulation banned the manufacture of personal care products containing microbeads by the end of 2017, and its sale by the end of 2018. [4] In October 2015, California became the most recent state in which lawmakers have banned the sale of personal care products containing plastic microbeads. Other states that have passed measures restricting the use of the microbeads include Colorado, Connecticut, Indiana, Maine, Maryland, New Jersey, and Wisconsin. [5]

While progress made by these states is commendable, they contain loopholes that protect stockholders in the hygiene industry. For example, the bans of microbeads often allow biodegradable microbeads to be amalgamated into hygiene products. Although newer plastics are categorized as “biodegradable,” they cannot be broken down through ecological processes; thus, the presence of environmentally harmful plastic microbeads would endure in products and the environment, despite the spike in legislation. California and New Jersey are the only states that include biodegradable plastics in their legislature’s restriction on microbeads. [6]

Legislators sometimes miss the mark in their policy efforts, so it is also up to consumers to demand safer products. The demand for reusable water bottles has decreased despite feeble action by lawmakers. Likewise, when in the skincare aisle, be sure to look for natural alternatives by purchasing personal hygiene products containing ingredients such as apricot shells, jojoba beans, and pumice. Both your health and the environment will be grateful!

Notes
[1] Corley, C. (2014). Why Those Tiny Micorbeads in Soap Pose Problem for Great Lakes. May 14, NPR
[2] Chelsea M. Rochman, Eunha Hoh, Tomofumi Kurobe & Swee J. (2013). Ingested Plastic Transfers Hazardous Chemicals To Fish And Induces Hepatic Stress, Scientific Reports 3, November 13, Article number: 3263
[3] Reilly, K. (2015). New York Politicians Seek Ban On Microbeads In Cosmetics, Cite Water Pollution. Reuters. July 20
[4] Staff Report. (2014). Governor Signs Bill Making Illinois First State To Ban Microbeads. Chicago Tribune, June 8.
[5] Abrams, Rachel (2015). California Becomes Latest State to Ban Plastic Microbeads. New York Times. October 8
[6] Coalition against microbeads: https://www.beatthemicrobead.org/

December 16, 2015

Paris Agreement: A Landmark Climate Change Policy Architecture Reached

By Joseph Nyangon

“History is written by those who commit, not those who calculate,” declared François Hollande, France’s president, after all nations reached a new climate change agreement in Paris. The 21st UN climate conference opened in Paris on November 30, 2015 and ran over its original deadline, closing a day late on December 12. Unlike previous conferences the mood among the negotiators and ministers from nearly 200 countries was celebratory. A historic action, the “Paris Agreement” was struck on the last day, ushering in a new policy commitment to ramp-up climate mitigation and adaptation worldwide.

The Center for Energy and Environmental Policy (CEEP) at the University of Delaware is an official observer organization and participant in the UN Convention on Climate Change (UNFCCC) process. It participated at the 21st Conference of the Parties (COP 21) to UNFCCC conference, focused on the promotion of a “polycentric strategy” to initiate and implement programs to realize just and sustainable solutions to the climate change. Its proposal is based on ideas and models developed at the Center. The CEEP delegation included its director, Dr. John Byrne, and Dr. Job Taminiau (a postdoctoral research fellow). The Center’s position paper submitted to the UNFCCC is titled: “A Polycentric Response to the Climate Change Challenge Relying on Creativity, Innovation, and Leadership.”

Dr. Byrne presenting findings from a study on the financeability of large urban solar plants in Amsterdam, London, Munich, New York, Seoul, and Tokyo. Photo by IISD/ENB

The Paris Agreement promises a flexible, ambitious and rule-based climate policy regime that represents a break from the past. The agreement commits all nations—developed and developing—to hold the increase in the global average temperature to “well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”—a more ambitious goal than had been expected based on efforts outlined in the pledges on climate action—“intended nationally determined contributions.” It reflects a consensus built over the previous year among the leaders of China, the U.S. and India, which contributed to the political support needed for adoption of the Paris Agreement. CEEP co-sponsored a side event with representatives from the Climate Alliance of European Cities with Indigenous Rainforest Peoples (or simply “Climate Alliance”), the Global Covenant of Mayors, and others at the COP 21. Climate Alliance works with more than 1,700 cities and municipalities spread across 26 European countries to reduce their greenhouse gas emissions. The event discussed the importance of cities in making meaningful contributions towards more aggressive national targets to reduce emissions.

Dr. Taminiau offered CEEP’s perspective on subnational climate change innovation, leadership, and governance. Other speakers at the event included Camille Gira, Secretary of State, Luxembourg European Union Council Presidency; Magda Aelvoet, Minister of State, President, Federal Council for Sustainable Development, Belgium; Tine Heyse, Deputy Mayor of Ghent, Belgium; Josefa Errazuriz, Mayor of Providencia, Chile; Julie Laernoes, Vice-President of Nantes Metropole, France; Marie-Christine Marghem, Belgian Federal Minister of Energy, Environment and Sustainable Development; and Ellý Katrin Gudmundsdottir, Chief Executive Officer and Deputy Mayor of Reykjavik, Iceland.

CEEP also worked with the Climate Change Center (Republic of Korea) to present a side event on “Preparing for the Action Plans on Post-2020 Climate Change Regime in Asia,” attended by former prime ministers and senior government officers from Asia. The event was well attended. Dr. Byrne presented a talk on “financeability of large scale solar.” His talk focused on technical assessment and financing feasibility tools to show that megacities can use a modest portion of their rooftops to generate over one-third of their electricity needs. Duck-Soo Han, Chair of the Board of Directors of the Climate Change Center and Former Prime Minister of Republic of Korea called for stronger cooperation and partnerships in Asia to combat climate change. Richie Ahuja, Regional Direct for Asia, Environmental Defense Fund (EDF) summarised his organization’s work in Asian region on clean energy and clean cooking systems as low-carbon solutions. Professor Haibin ZHANG of Peking University and a Member of the Global Advisory Board of the Center for Climate and Sustainable Development Law and Policy (CSDLAP) offered a Chinese perspective on climate policy governance. And Dr. Oliver Lah of Wuppertal Institute for Climate, Germany examined EU-Asia climate partnerships.

The Center has actively participated in proceedings of the UNFCCC since Cop 3 in Kyoto, submitting position papers and attended 8 if the COP meetings. In 1998, CEEP pioneered an equity- and sustainability-based strategy for resolving conditions of socioeconomic and environmental inequality if full international participation in negotiating legally binding climate architecture is to be expected. In a journal article, CEEP researchers, Dr. Byrne and Dr. Young-Doo Wang joined Dr. Hoesung Lee (the current chair of the Intergovernmental Panel on Climate Change—IPCC), and Dr. Jong-dall Kim (current president of the International Solar Cities Initiatives) in proposing a global benchmark of CO2 to realize aims on sustainability and justice.

Dr. Byrne has contributed since 1992 to Working Group III of the Intergovernmental Panel on Climate Change (IPCC). His work is published in IPCC assessments which led to greater global awareness of the problem and the award of the 2007 Nobel Peace Prize to the Panel. The Center developed the Sustainable Energy Utility (SEU) model to address energy and environmental crises in an environmentally, socially and economically sustainable manner. The White House in an announcement made by President Obama recognized the Delaware SEU for its successful $70.2 million bond offering which received a AA+ rating by Standard & Poor’s. Dr. Byrne was the architect of this pioneering climate finance structure and with State Senator Harris B. McDowell III, led the Delaware SEU in adopting this and other innovations to dramatically lower energy and carbon requirements while improving state economic development.

The Paris Agreement marks an unprecedented inflection point in the global response to climate change. Unlike the Kyoto Protocol (adopted for action at COP 3 in Kyoto, Japan), it puts emphasis on registering commitments at all scales—global, national, provincial/state, local, and corporate—and tracks national performance over time. It covers a number of key issues: financing support—including technology transfer and financing amounting to US$ 100 billion annually by 2020 for mitigation and adaptation for developing nations to deal with climate change impacts; adaptation—to strengthen ability of countries to deal with the impacts of climate change; mitigation—to reduce emissions fast enough to achieve the temperature targets; loss and damage—to strengthen ability of countries to recover from extreme weather events and slow onset events; and global stock-take—to account for climate action. It also recognizes the efforts of all non-party stakeholders to address and respond to climate change, including those of “civil society, the private sector, financial institutions, cities and other subnational authorities” [2]. Studies conducted by the Center over the years have demonstrated the need for a polycentric policy approach to “bend the carbon curve” as Dr. Byrne often says. Implementing the Paris Agreement will require rethinking the role of cities and sub-national actions for climate finance so that the advantage for decentralized, small-scale and community driven initiatives is realized.

Additional Resources
[1] “A Polycentric Response to the Climate Change Challenge Relying on Creativity, Innovation, and Leadership.”
[2] Adoption of the Paris Agreement, FCCC/CP/2015/L.9/Rev.1. Available at: https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf
[3] Byrne, J., Taminiau, J., Kim, K.N., Seo J., and Lee, J. (2015). “A solar city strategy applied to six municipalities: integrating market, finance, and policy factors for infrastructure-scale photovoltaic development in Amsterdam, London, Munich, New York, Seoul, and Tokyo.” Wiley Interdisciplinary Reviews: Energy and Environment. Available at: https://ceep.udel.edu/wp-content/uploads/2015/11/2015_WIRE_EnergyEnvironment_paper_6-city-solar-financing_jb-jt-knk-js-jl_WENE-182_10.1002_FINAL-1.pdf
[4] Byrne, J., Wang, Y-D., Lee, H., and Kim, J. (1998).“An Equity- and Sustainability-Based Policy Response to Global Climate Change.” Energy Policy. Vol. 26, No. 4: 335-343. Available at: https://ceep.udel.edu/wp-content/uploads/2013/08/1998_ge_sustainability_equity_climate_change_2.pdf
[5] Byrne, J., and Taminiau, J. (2015). “A Review of Sustainable Energy Utility and Energy Service Utility Concepts and Applications: Realizing Ecological and Social Sustainability with a Community Utility.” Wiley Interdisciplinary Reviews: Energy and Environment. Available at: https://ceep.udel.edu/wp-content/uploads/2015/03/2015_ge_WIRE_Energy-Environ_seu-esu_jb-jt_WENE-171_FINAL.pdf
[6] White House recognizes SEU Model developed at CEEP. White House Press Release. December 02, 2011: https://ceep.udel.edu/wp-content/uploads/2013/08/2011_SEU_Oversight-Board_bond_press-release_White-House_excerpt4_Dec-21.pdf

September 22, 2015

Two Very Different Perspectives on Carbon Emissions Trading

By Jeongseok Seo

In an effort to address climate change, carbon emissions trading schemes (hereafter, ETS) have been widely championed as an instrument for mitigating greenhouse gas (GHG) emissions. Currently there are about 40 countries where a regional or national scheme is in operation, including 31 countries in Europe. Several states in the United States, the world’s second largest emitter of GHGs, are participating in state- or regional-level ETS, such as Regional Greenhouse Gas Initiative (RGGI) or Western Climate Initiative (WCI). The world’s biggest emitter, China, also plans to roll out its national ETS in 2016, which is expected to dwarf the EU ETS [1].

Despite its popularity, however, there are concerns about whether ETS is an effective vehicle to reduce carbon emissions as many have claimed. As evidenced in the EU ETS, emission trading has so far failed to meet the core objective of effective emission reduction. For example, recent empirical study finds that the share of emission abatement due to the EU ETS is a mere one-eighth of the total reduction recorded by the EU-25 Member States from 2005 to 2012, but the rest of the region’s emission reduction attributable to the 2008 global financial crisis [2].

With growing risks arising from climate change and the coming 2015 Paris climate change negotiations, it may be timely to evaluate the effectiveness of ETS, potentially its impact on equity and sustainability. To effectively address an unprecedented crisis involving every country, social equity and ecological sustainability would be critical factors to incorporate into our strategies or tools.

Environmental economics is often cited as a supportive theory behind existing carbon emissions trading platforms. Central concepts of this framework are externality and cost efficiency [3]. Externalities occur when a choice made by one person affects other people in a way that is not accounted for in market prices. From an environmental economics perspective, climate change is an example of externalities and a result of market failure. Therefore, this school of thought argues that externalities like climate change can be solved through an efficient market mechanism, and reductions in carbon pollution could be achieved at least cost in carbon markets where polluters can sell and buy their emissions [4][5].

On the other hand, some criticize the ETS model. Byrne and Glover argue that ETS has been used to reinforce the commodification of nature [6]. By treating the atmosphere as a commodity and trading it in the form of pollution permits via a marketplace, i.e. carbon markets, ETS turned the part of the global commons into saleable pieces of property [see also 7]. Heavy polluters like the steel and cement industries often escape the need to actually reduce carbon emissions through mechanism, such as grandfathering or free allowances. This school of thought argues that an institutional reform or ‘techno-fix’ approach wouldn’t be sufficient to address the problems inherent in ETS [8]. Instead, some propose that climate change requires us to tackle the root causes of climate change, such as modernity’s pursuit of “economics first” ideology.

A new global climate regime requires strategies and tools to address the crisis as effectively as possible since we may have limited time [9]. In this vein, there are valid concerns about the social and ecological effectiveness of ETS. Hopefully the Paris talks open the dialogue about such concerns and identify timely and more appropriate actions.

Notes
[1] Reuters (2014). China’s National Carbon Market to Start in 2016 – official. Accessed on 06-13-2022. https://www.reuters.com/article/idUSL3N0R107420140831
[2] German Bel and Stephen Joseph (2015). Emission Abatement: Untangling the Impacts of the EU ETS and the Economic Crisis. Energy Economics Vol 49, May 2015, pages 531-539
[3] John Dixon, et al. (1994). Economic Analysis of Environmental Impacts (London: Earthscan Publications). Page 27
[4] EEA (2006). Application of the Emission Trading Directive by EU Member States. Technical Report No. 2/2006, European Environment Agency (EEA), Denmark, p. 54
[5] UNFCCC. Accessed on 2014-11-30. https://unfccc.int/kyoto_protocol/mechanisms/items/1673.php
[6] John Byrne and Leigh Glover (2000). Climate Shopping: Putting the Atmosphere Up for Sale. TELA: Environment, Economy and Society Series: 28 pp. Melbourne, Australia: Australian Conservation Foundation.
[7] Martin O’Connor (1994). “On the Misadventure of Capitalist Nature,” in Martin O’Connor, ed., Is Capitalism Sustainable?: Political Economy and the Politics of Ecology (New York: The Guilford Press). Page 126
[8] John Byrne and Noah Toly (2006). Energy as a Social Project: Recovering a Discourse. In John Byrne, Noah Toly, and Leigh Glover, eds. Transforming Power: Energy, Environment, and Society in Conflict. New Brunswick, NJ and London: Transaction Publishers. Pp. vii-xii.
[9] IPCC (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change

Photo: The Huffington Post

September 15, 2015

Why the U.S. Urgently Needs to Invest in a Modern Energy System

By Joseph Nyangon
Investment in ‘smart’ energy offers a viable and effective long-term solution that allows the energy industry to shift its supply sources, build new transmission and storage systems, and increase its energy efficiency goals.

QER Report cover — *The U.S. power grid is one of the most advanced energy systems globally, but its growth has been an evolving patchwork of disparate systems, functions, and components.*

In a speech commemorating the thirty-fifth anniversary of the International Energy Agency (IEA) in 2009, former U.S. secretary of state, Henry Kissinger recalled how the energy crisis of the 1970s awakened the world “to a new challenge that would require both creative thinking and international cooperation.”[1] He explained that as “global demand continues to grow, investment cycles, technologies, and supporting infrastructure will be critical.” As a top U.S. diplomat in the 1970s, Kissinger is credited with promoting energy security as a third pillar of the international order through a trifecta of initiatives to bolster incentives to energy producers to increase their supplies, encourage rational and prudent consumption of existing supplies, and improve the development of alternative energy sources. These efforts contributed to the establishment of the IEA in 1974 as a principal institutional mechanism for enhancing global energy cooperation among industrialized nations.

Forty years after the IEA’s founding, the relationship between energy and international cooperation endures, but changes in the energy landscape triggered by a revolution in how we produce, distribute, and consume various forms of energy are affecting the IEA’s fans. The agency interestingly examines the role of sustainable energy options and considers institutional change as often eclipsing conventional supply issues in shaping our energy future. For example, the challenges facing the electric power industry today include the need for diversification of generation, optimal deployment of expensive assets, carbon emissions reduction, and investment in decoupling strategies and demand response. Two key policy imperatives characterize these challenges, notably: the need to adopt policies that combat climate change, and the need for greater energy security due to concerns associated with supply-demand imbalances. Once again, we are at a moment of institutional and industry-wide transformation that calls for strategic investment and partnership to replace, protect, expand, and modernize our energy infrastructure. It is easy to slip into thinking of the nation’s energy landscape as a static challenge. It is not. The boundaries, business models, policies, strategies, and technical solutions have been a function of the incentives and objectives provided by the policy.

The U.S. power grid is one of the most advanced energy systems globally, but its growth has been an evolving patchwork of disparate systems, functions, and components. Because of years of inadequate investment, the electric grid is now aging, outmoded, and unreliable to take full advantage of new domestic energy sources and emerging technologies and business models in the sector. In climate, energy, and economic terms, these issues are defined by whether the next wave of energy infrastructure will further the status quo of the path of least resistance and principally continue relying on conventional fossil energy sources or transition to efficient technologies and a clean energy future. In the first-ever Quadrennial Energy Review (QER) of the U.S. energy infrastructure released in April 2015, modernizing the nation’s energy infrastructure, to foster economic competitiveness, create a domestic clean energy economy, improve energy security, and promote environmental integrity, are identified as central policy concerns facing the country in a time of rapid change. President Obama ordered the review when he unveiled his Clean Power Plan in early January 2014.[2]

Here are six key policy recommendations of the QER report.

Improve the capacity of states and localities to identify and respond to potential energy disruptions: The review identifies severe weather events as the major cause of electric grid disturbances. From 2003 to 2012, severe weather caused an estimated 679 widespread power outages in the U.S. costing the economy between $18 billion and $33 billion annually.[3] Low-probability/high-consequence events also caused various types of electric grid disturbances in energy transmission, storage, and distribution infrastructure, including natural gas transmission infrastructure systems such as pipeline and storage leading to safety concerns. These threats and vulnerabilities vary substantially by region with the Gulf Coast region being more susceptible to hurricanes, thus requiring regional solutions. The report recommends investing in new technologies like smart meters and automated switching devices to ensure much quicker recovery times from disruptions. It also recommends establishing a multi-year program by the U.S. Department of Energy to support the updating and expansion of state energy assurance plans.
Increase investments in electric grid modernization through the expansion of different business models, utility structures, and innovative technologies: The review identifies increased investments in flexible operations and resilience as a more effective and economical solution for serving customer needs by enabling smart growth, in both transmission and distribution systems. Investment in transmission has been on the rise since the 2000s and is expected to grow with improved system reliability and interconnection requirements of distributed generation sources. In 2013, the report explains that investor-owned utilities spent a record high of $16.9 billion on transmission, up from $5.8 billion in 2001.[4] The growing level of transmission investment is needed to replace the aging infrastructure, increase system reliability, and facilitate competitive wholesale power markets. The report recommends adopting new business models, utility structures, and institutions to shape the operation, management, and regulation of the grid as well as optimize and update the Strategic Petroleum Reserve to reflect modern oil markets.
Strengthen regional integration of the North American energy markets: Opportunities for increased integration of markets and policies exist in the North American neighbours: the U.S., Canada, and Mexico. To further energy, economic, and environmental goals, the report recommends developing a common energy market, shared environmental and security goals, and infrastructure that undergirds the three economies [5]. For example, in 2013, energy trade between the U.S. and Canada was approximately $140 billion, while energy trade with Mexico exceeded $65 billion in 2012—a sign of the existing opportunities for integration.[6]
Update and improve quantification of methane emissions from natural gas systems: To enhance the ability of the nation to achieve the targeted environmental goals, the report calls for urgent need to address the direct environmental impacts and vulnerabilities of energy transmission, storage, and distribution infrastructure, more broadly, carbon sequestration infrastructure, long-distance transmission to enable distributed generation and utilization of renewable resources, and smart grid technologies to support energy efficiency. The QER recommends updating greenhouse gas inventory estimates of methane emissions from natural gas systems, increased funding to reduce diesel emissions under the Diesel Emissions Reduction Act, and enactment of the proposed Carbon Dioxide Investment and Sequestration Tax Credit, to support carbon capture technology and associated infrastructure.
Improve siting and permitting of energy infrastructure: The QER identifies the involvement of multiple federal, state, local and tribal jurisdictions to add the time to siting, permitting, and review process of energy infrastructure projects due to overlapping and sometimes conflicting statutory responsibilities. To enhance the credibility of the process, the QER recommends increased meaningful and robust public engagement with local stakeholders to speed up siting decisions, the establishment of regional and state partnerships, and enactment and funding of relevant statutory authorities to improve coordination across agencies.
Strengthen shared transport infrastructures: The report calls for the strengthening of waterborne, rail, and road transport to move energy commodities. It recommends establishing alternative funding mechanisms, public-private partnerships, and grants for shared energy transport systems.

The energy infrastructure challenges highlighted above can be addressed partly by investing in an assortment of technological innovations. This would repurpose energy sectors to trade energy efficiently in today’s extremely difficult managerial, regulatory, and financial environment. Investing in ‘smart’ energy offers a viable and effective long-term solution that allows the industry to shift its supply sources, build new transmission and storage systems, and increase its energy efficiency goals. Finally, these policy recommendations illustrate a key point: changes associated with modernizing our energy infrastructure and the attendant market solutions may change, interplant or even interfirm efficiency.

Notes
[1] Kissinger, H. (2009). The Future Role of the IEA: Speech for the 35th Anniversary of the International Energy Agency, October 2009. Available at: https://www.henryakissinger.com/speeches/101409.html. Accessed on September 15, 2015
[2] The White House (2014). “Obama Administration Launches Quadrennial Energy Review.” January 9, 2014. Available at: https://www.whitehouse.gov/the-press-office/2014/01/09/presidential-memorandum-establishing-quadrennial-energy-review. Accessed on September 15, 2015.
[3] QER (2015). Quadrennial Energy Review (QER) Report: Energy Transmission, Storage, and Distribution Infrastructure, April 2015. Available at: https://energy.gov/sites/prod/files/2015/04/f22/QER-ALL%20FINAL_0.pdf. Accessed on September 15, 2015, pp. S-10
[4] QER (2015), pp. 3-6
[5] Nyangon, J. (2014). International Environmental Governance: Lessons from UNEA and Perspectives on the Post-2015 Era. Journal on Sustainable Development Law and Policy 4: 174–202. Google Scholar
[6] QER (2015), pp. S-22

Photo: Cover of the Quadrennial Energy Review (QER)

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