Category: Climate Regulation

Energy Tradeoffs Podcast #10 – David Adelman

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For this week’s EnergyTradeoffs.com podcast interview, we have Josh Rhodes interviewing David Adelman, his colleague at the University of Texas, about David’s research on “Modeling the Evolution of a Greener Grid.”

David’s research compares renewable portfolio standards, which are the most commonly used instrument for encouraging renewable power, with carbon pricing, which could be implemented through a cap-and-trade system or a tax. David concludes that carbon pricing is “dramatically more effective at reducing carbon emissions and increasing the percentage of renewables than a renewable portfolio standard.” And he explains why even a modest carbon tax could be better for the climate than a relatively aggressive renewable portfolio standard. At the same time, David acknowledges that renewable portfolio standards may, in some cases, help surmount non-market barriers to renewable power.

The interview principally draws from a 2018 article that David wrote with with David Spence titled “U.S. climate policy and the regional economics of electricity generation.”

The Energy Tradeoffs Podcast can be found at the following links: Apple | Google

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Climate & the Courts: Juliana Oral Arguments

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How much can the federal courts do on a climate change? If you want more climate regulation than Congress is willing to provide, it’s an urgent question. The most recent and most ambitious climate lawsuit is Juliana v. United States, a lawsuit by children asking the courts to order the government to aggressively regulate carbon emissions. These plaintiffs argue that they have unwritten constitutional and federal common law rights to a stable climate and that the government must uphold these rights by imposing limits on private carbon emissions. The Ninth Circuit recently heard their argument and its upcoming decision will help define the outer boundaries of what the courts can do on climate change.

There has been no progress on federal climate legislation for ten years, since a 2009 cap-and-trade bill narrowly passed the House of Representatives and then died in the Senate. Since then, climate activists have pushed climate action in the courts, hoping to build on their major 5-4 victory in Massachusetts v. EPA, 549 U.S. 497 (2007), which held a) that states had standing to consider the government’s refusal to consider carbon regulations for cars under the Clean Air Act and b) that the government had to consider such regulations.

But in the ensuing decade climate efforts have largely been stymied in the courts, particularly in the Supreme Court:

The Juliana case will also likely prove fruitless in the end. The district court did initially allow the case to go forward and denied a government request for interlocutory appeal. But the Supreme Court again stepped in: it took the extraordinary step of first staying the case and then, while lifting the stay, suggesting it might reimpose it if the Ninth Circuit did not do so first. The Ninth Circuit then stayed the case and invited the district court to reconsider its decision on interlocutory appeal, which it did, allowing the appeal that was just argued in the Ninth Circuit.

The Supreme Court has already unanimously rejected federal common law climate claims. And it has already signaled its skepticism about this particular case. For this reason, some have suggested that it would be best for the plaintiffs to lose in the Ninth Circuit, because if the case goes to the current Supreme Court, the Court might well overturn its 2007 decision in Massachusetts v. EPA, or at least that decision’s holding on climate standing, which would be an even greater setback for climate regulation.

For an extremely helpful breakdown of the Juliana v. United States case and appellate arguments, as well as the likely results and implications, check out this Regulatory Transparency Project podcast.

Energy Tradeoffs Podcast #9 – Nathan Richardson

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This week’s EnergyTradeoffs.com podcast features Shelley Welton interviewing Nathan Richardson, her colleague at the University of South Carolina, about his research on “The Politics of Carbon Taxes vs. Regulation.”

Nathan recaps much of the history of efforts to adopt federal climate regulation, and explains what steps a new administration could take to establish durable greenhouse gas controls. He explains why he is skeptical that much will be accomplished under the existing Clean Air Act and lays out some of the costs and benefits of alternate approaches such as a carbon tax and the Green New Deal.

The interview builds on a 2014 article that Nathan wrote with Art Fraas, who is a fellow at the think tank, Resources for the Future. Here’s the article: “Comparing the Clean Air Act with a Carbon Price.” 

The Energy Tradeoffs Podcast can be found at the following links: Apple | Google

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Energy Tradeoffs Podcast #8 – Jesse Jenkins

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Another week, another EnergyTradeoffs.com podcast episode. This week, Princeton’s Jesse Jenkins talks with David Spence about his research on “The Best Route to Net-Zero Emissions.”

Jesse describes why “firm low-carbon power resources,” such as nuclear and natural gas with carbon capture make it much cheaper to reduce greenhouse gas emissions from the electric power sector. Unlike variable solar and wind resources, these firm sources are “not weather-dependent, can be used anytime of the year, and can generate power for any length of time.”

The interview builds on Jesse’s 2018 article “The Role of Firm Low-Carbon Electricity Resources in Deep Decarbonization of Power Generation.”

The Energy Tradeoffs Podcast can be found at the following links: 
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Energy Tradeoffs Podcast #7 – Michael Wara

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In this week’s EnergyTradeoffs.com podcast interview, Stanford’s Michael Wara talks with David Spence about his research on “California’s Energy Transition—Decarbonization & Decentralization.”

Michael discusses the necessary tradeoffs in meeting California’s varied goals for its energy grid: the challenges of moving away from gas power plants and increasing rooftop solar and different ways to meet those challenges while limiting the costs borne by low-income ratepayers.

The interview builds on Michael’s 2017 article in the NYU Environmental Law Journal, which is titled “Competition at the Grid Edge:  Innovation and Antitrust in the Electricity Sector.” 

The Energy Tradeoffs Podcast can be found at the following links: 
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Guest Blog: Monika Ehrman on Energy Realism

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Guest blogger Monika Ehrman is here to discuss her fascinating new paper on energy realism and the keep it in the ground movement, which is a coalition of groups that seeks to ban oil and gas production on federal lands, and is becoming a major focus of discussion in the Democratic presidential primary. 

In A Call for Energy Realism: When Immanuel Kant Met the Keep it in the Ground Movement, I examine the Keep it in the Ground Movement, which is a coalition of environmental groups that seek to end fossil fuel extraction by halting oil and gas development. I argue that an immediate or short-term divesting of petroleum is unrealistic and disregards the possibilities of (1) serious economic impacts with respect to domestic revenues, (2) disruptions to infrastructure, and (3) geopolitical risks tied to energy independence and regional stability. I do so while first acknowledging the importance and risk of climate change. In the article, I promote the adoption of Energy Realism, which I set forth in two forms: Pragmatic Energy Realism and Philosophical Energy Realism. Pragmatic Energy Realism incorporates the realities of actual petroleum consumption and reliance. Philosophical Energy Realism borrows philosophical concepts arising from Kant’s theories of realism. I assert that there is only one reality with respect to energy, environment, poverty, and other aspects of energy consumption and environmental impact. It is therefore impossible to isolate any single perspective without fundamentally dismissing reality and instead embracing a subjective perspective. The article also recommends that these anti-extractive movements support initiatives such as adoption of a carbon tax, increasing energy efficiency, and promoting awareness of and addressing energy poverty.

The article A Call for Energy Realism: When Immanuel Kant Met the Keep it in the Ground Movement appears in Utah Law Review and is available here: https://www.utahlawreview.org/article/9447-a-call-for-energy-realism-when-immanuel-kant-met-the-keep-it-in-the-ground-movement

Here is the article abstract:

The “Keep it in the Ground” Movement (the “Movement”) is a coalition of environmental groups that seek to end fossil fuel extraction by halting oil and gas development on federal lands. Supporters of the Movement demand a safer climate future and the transition to a renewable energy economy. However, the Movement is premised on the notion that the United States can divest fossil fuels, particularly petroleum hydrocarbons, from its energy economy and terminate oil and gas development in the near-term future. The Movement disregards the possibilities of serious economic impacts with respect to domestic revenues and infrastructure framework, and geopolitical risks tied to energy independence and regional stability. This Article examines the rise of the Keep it in the Ground Movement and analyzes the challenges that would follow its evolution and implementation if it continues to ignore the reality of American energy use and reliance. It promotes the adoption of Energy Realism in two forms. 

The first form of this realism, Pragmatic Energy Realism, addresses the realities of actual petroleum consumption and reliance. The second form, Philosophical Energy Realism, borrows philosophical concepts arising from Kant’s theories of realism to develop the theory that there is only one uniform reality of energy. Application of these theories highlights the flaws of examining the issue from solely an environmental perspective. In fact, I hypothesize that such an evaluation is not correct. Rather, this Article asserts that there is only one reality with respect to energy, environment, poverty, and other aspects of energy consumption and environmental impact. It is therefore impossible to isolate any single perspective without fundamentally dismissing reality and instead embracing a subjective perspective. This Article also proposes initiatives that the Movement could adopt to affect changes in consumer demand and energy consumption including: energy efficiency measures, implementation of a carbon tax, and addressing energy poverty. The author intends that understanding and adopting Energy Realism will provide new directions and goals for the Movement and further the necessary dialogue between stakeholders on the interrelationships between energy and environment.

Energy Tradeoffs Podcast #5 – Sheila Olmstead

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This week’s EnergyTradeoffs.com podcast features David Spence interviewing the University of Texas’s Sheila Olmstead about her research on “Cost-Benefit Analysis, ‘Secret Science,’ and OIRA Reviews of Rulemaking.”

Sheila talks about two challenges of doing cost-benefit analysis on climate regulation. First, she describes why the bulk of benefits from carbon rules actually are indirect benefits of reduced air pollution, not climate benefits from reduced carbon emissions. Second, she talks about why many studies on the effects of air pollution depend on private health data that cannot be released to the wider public for replication. She also describes what she sees as hopeful avenues for regulatory reform.

The Energy Tradeoffs Podcast can be found at the following links: Apple | Google

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Energy Tradeoffs Podcast #4 – Shelley Welton

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This week’s EnergyTradeoffs.com podcast features David Spence interviewing the University of South Carolina’s  Shelley Welton about her research on “The Distributional Impacts of Distributed Energy Resources.”

Shelley talks about how rooftop solar and other smaller sources of power are changing energy policy. The interview builds on her article on “Clean Electrification,” which was published in the Colorado Law Review.

The Energy Tradeoffs Podcast can be found at the following links: Apple | Google

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Guest Blog: Joshua Macey on “Rate Regulation Redux”

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  • Guest blogger Joshua Macey is here to discuss his new paper on how electricity regulators and grid operators are responding to increased solar and wind power, and how their interventions raise old questions that were supposed to be resolved by electricity deregulation. You can also hear an Energy Tradeoffs interview with Joshua about his piece here.

In Rate Regulation Redux, forthcoming in the University of Pennsylvania Law Review, Jackson Salovaara and I consider whether the American system for compensating electric power generators can accommodate high levels of renewables. We find that the current market structure is ill-suited to a high-renewables world. Regulators and grid operators (grid operators are the utilities that manage the power grid), it seems, are aware of the challenges renewables pose. However, instead of developing a payment system that would preserve competition in the energy sector and allow renewables to enter the market, regulators have begun an ad hoc process of reregulation that raises rates, leads to excess capacity, and prevents renewables from competing with traditional energy sources.

For most of the twentieth century, FERC treated electricity as a natural monopoly. To ensure that suppliers met demand, regulators gave utilities exclusive franchises over their service territories and permitted them to charge rates sufficient to cover their costs. In exchange, generators agreed to provide electricity to customers in their territories and cap prices. For years, this system provided reliable electricity. Nonetheless, critics complained that it limited consumer choice, failed to promote innovation, rewarded utilities for overinvesting in supply, and reduced incentives to retire uneconomic generators.

In the 1990s, FERC began to encourage a “market-based” approach to promote competition and control costs. Under this “restructured” model, which has been adopted in two-thirds of the country, an independent grid operator determines demand for electricity, solicits bids from generators, and clears enough bids to meet demand. The grid operator clears bids starting with the lowest bid but ultimately pays every generator the price bid by the highest clearing bidder. In this system, generators bid at their marginal cost. If a generator bids below its marginal cost, it risks having to provide electricity even when it would lose money in doing so. Above-marginal cost bids risk failing to clear when it would be profitable for the generator to operate.

This system promotes competition and keeps short-run costs low, but it is ill-equipped to integrate significant volumes of renewables. Generators that are dispatched infrequently or operate on the margin cannot make a profit or recover their costs. These plants are known as “peaking plants” and operate a few times in a year when demand is high (often on the hottest days of the summer or the coldest days of the winter when Americans consume a lot of electricity). Without them, grid operators would not be able to meet peak demand.

In theory, peaking plants would be able to make enough money to operate. While generators bid their variable costs almost all of the time, that assumption does not apply to peaking plants that bid only when demand is high. In most circumstances, a generator risks losing out on profitable bids if it submits a bid above its marginal costs. Because peakers are the last plants to be dispatched, they do not need to worry that they will be outbid because there are no plants available to outbid them. They can therefore submit bids that significantly exceed their marginal costs. As a result, peaking plants can drive prices to levels that would allow them to recover their fixed costs and make a profit despite the fact that they operate only a few times a year

However, a system that relies entirely on energy markets can lead to rampant market manipulation and excessive price volatility. Peaking plants have market power. Because they are the last units dispatched, if they do not operate, there will not be enough electricity to meet demand (these incentives contributed to the California energy crisis in the beginning of the twenty-first century). Peaking plants can therefore drive prices to extremely high levels. To avoid these problems, every regulator in the United States sets a ceiling on its energy market’s clearing price.

Unfortunately, a system that imposes price caps on energy markets is ill-equipped to integrate significant volumes of renewables. Renewables have a different cost structure than other generators. While the marginal costs for most generators are above zero, wind and solar facilities have very low operating costs. As renewables provide an increasing percentage of electricity, they suppress revenues for all generators. Imagine if four generators had been providing electricity to a region. Two bid $20 MWh, one bid $40 MWh, and one bid $50 MWh. All four generators were paid $50 MWh. If, however, a solar plant replaces the $50 MWh generator and offers $0 MWh, it will reduce revenues for all generators. That is because it will drive out the $50 MWh generator, making the $40 MWh generator the clearing bid, which means that every generator would be paid $40 MWh.

The challenge with this system is that as renewables suppress prices, energy markets become increasingly reliant on price spikes to ensure that all generators receive sufficient revenue. But if regulators do not increase price caps, then energy prices will not increase enough during scarcity to allow generators to make enough money to continue to operate.

There are a few possible solutions to this problem. One would be to increase price caps, but no regulator (with the possible exception of Texas) has expressed a willingness to let spot market prices rise enough to allow generators to recover their costs. Regulators have been reluctant to allow prices to rise to extremely high levels out of fear that doing so would encourage market manipulation. 

Another option is to develop other markets that would ensure that crucial generators are able to survive. To date, most regulators seem inclined to adopt this approach. Unfortunately, the markets regulators are developing do not allow meaningful competition between energy sources and instead prevent renewables from competing with traditional generators. For example, grid operators in the east coast have begun to rely on capacity markets, which pay generators for being available to provide electricity instead of for actually providing electricity, to make sure that generators receive enough revenue to continue operating. The problem with this this system is that capacity markets do not actually reward generators for providing the services the grid needs. Not all electricity has the same value. Generators that can turn on and off quickly, that can provide electricity when it is most needed, and that provide electricity to areas that are resource-constrained should be rewarded for providing these services. Energy markets are uniquely effective because they reward generators that provide electricity where and when it is really needed. Capacity markets fail to do this. To make sure that the “right” generators are being compensated in capacity markets, some grid operators have taken steps to make it more difficult for some types of generators (often renewables and nuclear) to enter capacity markets.

Equally problematically, it is difficult for generators to exit the market once they clear a capacity markets. Generators that clear capacity markets commit to operating for a period of time (often three years). During that period, they are not permitted to exit the market unless they receive regulatory approval to do so. Thus, customers are often stuck paying for dirty electricity that is no longer necessary for the grid.

Worse still, grid operators have begun to rely on “reliability-must-run” (RMR) agreements to provide even more competition to the generators that are perceived to be critical to grid reliability. When capacity markets are not able to retain generators perceived to be critical to grid reliability, grid operators have simply bailed individual generators, and they have done so without any kind of competitive bidding procedure.

In our view, these interventions resurrect many of the principles of rate regulation. Under that approach, regulators gave generators a rate of return intended to make sure that the electricity companies would be able to meet all of a region’s electricity needs. In exchange, power companies provided service at agreed-upon rates. Today, regulators have begun identifying the generators that the grid needs, making sure those generators receive enough money to operate, and preventing them from retiring prematurely. Rather than rely on market forces to determine which generators operate, regulators shield preferred generators from competition in order to ensure that those generators are financially viable. And these generators are required to provide the services the grid needs.

A superior option, which we endorse in the paper, is to design a system based on long-term contracts that would impose penalties on generators that fail to perform as promised. Some of the problems with capacity markets are that they do not compensate generators that provide the services that the grid needs, they prevent generators from competing with each other, and they make it difficult for uneconomic and superfluous generators to exit the market.

Regulators and grid operators want to ensure that there is enough capacity to provide electricity to consumers throughout the year. A bidding process would allow utilities to purchase the electricity that they need. Utilities would have an incentive to keep cost down because doing so would allow them to lower their own costs. And, by penalizing generators that fail to provide services they agreed committed to, this approach would preserve short-term price signals that create incentives for generators to provide electricity where and when it is needed.

Guest Blog: EnergyTradeoffs.com

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By David Spence

EnergyTradeoffs.com is a new web site aimed at a specific audience—those who produce or read law and policy scholarship about the transition to a greener energy mix. It is dedicated to promoting a more thorough understanding of the tradeoffs associated with that transition, particularly the impacts on energy costs (and distribution of costs) and supply reliability. EnergyTradeoffs.com will feature conversations with authors of scholarly articles whose work grapples with transition tradeoffs issues, and avoids the temptation to treat tradeoffs as easy or painless, or to assume them away. We also plan to host a moderated discussion board for energy policy professionals and academics focused on these tradeoff issues.

Since this web site was my brainchild, I thought I would explain why I think its creation is a good idea. I don’t speak for other organizers here, so I hope my friends and colleagues will weigh in on this question as well.

The case for this web site in a nutshell.

We are working from four basic premises:

  1. The enormous costs of climate change necessitate a transition to an energy mix characterized by drastically-reduced (or net zero) carbon emissions.
  2. Despite technological advancements that make the transition more affordable than ever, the energy system is still characterized by difficult tradeoffs between affordability, reliability, and environmental performance.
  3. Reasonable people can disagree about how to balance those tradeoffs.  They are not simple or easy or “win-win,” at least not in every important sense.
  4. We should explore those disagreements, because if we don’t understand them we are likely to choose a policy path that turns out to be less effective or more expensive than need be.

So EnergyTradeoffs.com is intended to be a place for people who want to explore and think critically about these issues. It is not intended to be a place to debate whether climate change is real, human driven, or worth addressing (through policy change) now. Nor is it a place aimed at inspiration or political mobilization, or a place to denigrate those who ask difficult questions about the transition. There are lots of other places online to engage the green transition in those ways.

But what about the politics?

There are strategic political reasons why one might not want to talk openly about tradeoffs. Discussing the devil-in-the-details can undermine the task of building support for a policy goal. “Have your cake and eat it” narratives are attractive and easier to sell—for politicians seeking votes, businesses seeking clients, or web sites seeking clicks. This may have been part of what former New York Governor Mario Cuomo meant when he said that “you campaign in poetry [but] govern in prose.” So political strategists advise candidates to focus on ends rather than means, to adopt simpler, positive narratives, and to avoid uncomfortable truths. That idea may be part of the plan to develop and sell the Green New Deal, which articulates a vision of a desirable future state in which these energy tradeoffs have (somehow) been addressed or resolved.

Regardless of whether the political logic of avoiding discussion of tradeoffs is correct, the question of how best to reach the shared goal of a greener energy mix ought to be debatable.  A full, public exposition of the problem ought to promote a better response to it in the end. One of the quotations featured on our web site comes from Steven Spielberg’s (and screenwriter Tony Kushner’s) version of Abraham Lincoln. When radical Republicans tell a politically-cautious Lincoln that he lacks ambition and a moral compass, he responds that a compass can “show you true north,” but it cannot show you the swamps and chasms between you and your destination. In other words, simpler narratives may build support for a path to change that ultimately proves ineffective or unacceptably expensive to a critical mass of voters. Brexit, for example, was sold successfully as a “have your cake and eat it” idea, but few would argue that the UK is now better off for having bought that sales pitch. 

Those of us involved in this site are academics. Our first obligation is to help people understand all the dimensions of a problem. If we are advocates at all, we are educators first and advocates second. We should work to avoid framing these issues in ways that make our preferred outcome seem more attractive by downplaying or ignoring features of the problem. To the contrary, we should think most critically about our preferred alternatives.

Ideally, this web site will help people think about, and develop a fuller understanding of, the practical realities (including the difficulties) associated with a green transition, not to derail it but rather to make it more sustainable and durable.

Grappling honestly with these tradeoffs is uncomfortable

When the politics of a policy discussion are fraught or emotionally-charged, facing the inconvenient truths associated with the issue is difficult for everyone, including academics. But we should do it anyway.

Productive exchanges of views about tradeoffs require both intellectual humility and respectful dialogue, which are in short supply in today’s fractured, polarized and emotional political environment, particularly in semi-anonymous online platforms.

It is well-understood that caring intensely about something triggers motivated reasoning, in all of us. This manifests in all sorts of ways. We care about climate change and its effects, which makes discussing the costs of addressing it uncomfortable (cognitive dissonance). We value our own prior conclusions about and analyses of the issues (confirmation bias). We care about and value agreement with our friends and members of our social networks (cultural cognition and groupthink). These natural human tendencies sometimes lead us to suspend critical thinking about the ideas we want to champion. Since it is much easier to accept (and to recognize) that problem in others than in ourselves, we have to work at it by subjecting our ideas to challenge. 

I have disagreements with some of my very best friends in academia about some of these tradeoffs issues. Exploring how and why we disagree—making those differences explicit and discussing them—is much more valuable to our own understanding, and to the understandings of others who read our work, than burying them in our assumptions or ignoring them altogether. The kinds of insulated, parallel narratives that arise in online communities may persuade community members, but they only educate those audiences when competing narratives intersect in ways that engage the other’s assumptions and arguments fairly.

Framing and reportage

Changes in the media environment also contribute to misunderstanding tradeoffs. For the first few decades of the modern regulatory era, the three broadcast networks and local newspapers fed viewers and readers carefully-curated news, and that curation was based upon journalistic standards that emphasized verifying and re-verifying facts, and aspiring to objectivity.

Today, the very idea of objectivity is rejected by many; and those traditional sources must compete for readers and clicks with outlets that emphasize the sensational or promote a particular political ideology. Moreover, information is transmitted online through news aggregators, or links sent to friends via online social communities. This way of acquiring and digesting (socially) new information tends to skew our understanding of the world, as algorithms feed us more of what we like and less of what we dislike. 

So as political polarization increases the emotional component of policy debates, and online filter bubbles skew the set of energy information to which we are each exposed, it becomes more and more difficult to develop a complete understanding of the tradeoffs associated with a green transition.  We form and harden our beliefs much more quickly in the digital environment. In the debate about the green transition, it becomes more difficult to respectfully debate questions associated with tradeoffs, and much easier to ascribe malicious or otherwise nefarious motives to those whose policy preferences or understanding of the issues differs from ours. No doubt these trend are amplified during the ever-lengthening political campaign season.

Ideally, all of the talented writers and editors on the energy transition beat would regularly frame their stories in ways that are attentive to the seriousness and difficulty of distributional issues, and of cost and reliability tradeoffs. Sometimes writers choose a narrow angle for a story as a response to the perception that that particular angle is under-reported. But to the extent that writers and editors rely on readers to seek out a representative sample of information about energy issues, that reliance is misplaced. Indeed, in the digital environment even the most avid reader would be hard pressed to develop a complete or balanced perspective on the tradeoffs associated with the green transition. So our hope is that people will come to this site to develop a fuller appreciation for the value choices and tradeoffs that will be an unavoidable part of the green transition.

Going forward

This web site is a purely educational, non-commercial effort, one that is only just getting underway, and is operating on a shoestring budget.  We will be adding work by law and policy scholars to the site as our time and resources allow. As noted above, we also plan to roll out a moderated discussion board dedicated to the civil exchange of expert views on these tradeoffs issues, sometime in the fall of 2019. We organizers of the site hope people find it useful.

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