Older Items

Navigating the New Carbon World conference presentations by Adam Diamant (March 2007)
At the Navigating the New Carbon World annual conference co-hosted by the California Climate Action Registry, the California Air Resources Board, and the International Emissions Trading Association in Santa Barbara, California on March 19-21, 2007, Adam Diamant gave two presentations. Cost Containment and the Linking of Global GHG Emissions Trading Markets was given during the pre-conference IETA linkages workshop on March 19. Linking Global GHG Emissions Trading Markets: Issues and Approaches was presented in the North America Track: Linking Regional Carbon Programs panel on March 20. For more information, contact Adam Diamant.

2007 Global CO₂ Cap-and-Trade Forum-Pacific presentation by Adam Diamant (March 2007)
Adam Diamant presented Cost Containment and the Linking of Global GHG Emissions Trading Markets at the "Putting the Pieces Together - Strategic Issues in Linking the World's Carbon Markets" panel of the Strategic Research Institute's 2007 Global CO₂ Cap-and-Trade Forum-Pacific in San Francisco, California on March 5, 2007. For more information, contact Adam Diamant.

EPRI Technical Report Available: A Conceptual Framework for Modeling the Impact of CO₂ Policy on Generator Cash Flow (February 2007)
Program on Technology Innovation: A Conceptual Framework for Modeling the Impact of CO₂ Policy on Generator Cash Flows (1013296). Climate policy represents a fundamental uncertainty for electricity generating companies. Although many analyses are available, the timing and stringency of domestic climate policies are unknown and will likely be dependent upon the actions of other countries. The outcomes of these deliberations can dramatically change the return on generation investments. Today, many electric companies are actively considering substantial investments in new capacity. The technology choices these companies make and the financial return on investments are integrally tied to future environmental policies and, in particular, to climate policy. This report presents a conceptual framework for evaluating how climate policy leading to a price on CO₂ emissions would affect the cash flows of generating assets. The conceptual framework is illustrated with many examples drawn from data for the ECAR-MAIN region of the U.S. power market. The examples demonstrate how a price on CO₂, changing prices of natural gas, and additions of new generating capacity impact the economics of existing generation and proposed additions of new generation. The report concludes with an analysis of how CO₂ prices affect incentives for new non-emitting generation and the corresponding effect on emissions. For more information, contact Vic Niemeyer.

EPRI Deliverable Published: Managing the Transition to Climate Stabilization (January 2007)
One of the 2006 deliverables for Program 102's Assessment of the Near-Term Costs of GHG Emission Reduction Proposals at the International Level (E222368) has been published and is available for download from the AEI-Brookings Joint Center website. The paper entitled Managing the Transition to Climate Stabilization authored by Richard G. Richels, Thomas Rutherford, Geoffrey Blanford, and Leon Clarke builds upon recent work by the U.S. Climate Change Science Program (CCSP). Among its products, the CCSP developed new emission projections for the major man-made greenhouse gases, explored the effects of emission limits on the energy system, and calculated the costs of various stabilization constraints to the economy. This paper applies one of the models used for that analysis to explore the sensitivity of the results to three potentially critical factors: the stabilization level, the policy design, and the availability and costs of low- to zero-emitting technologies. For more information, contact Richard Richels.

EPRI Technical Report Published: Managing the Risks of Climate Policies (December 2006)
Program on Technology Innovation: Managing the Risks of Climate Policies - The Effect of a Carbon Price on Existing Generation and Evaluation of Emission Reduction Investments (1012577). Today, many electric companies are actively considering substantial investments in new capacity. The technology choices these companies make and the financial returns on investments are integrally tied to future environmental policies and, in particular, to climate policy. This report examines the implications of possible future climate policies for existing capacity from two perspectives. First, it evaluates the near-term implications of a carbon value for the operation and net revenue of plants in two regional electricity markets. Next, the report explores the implications of climate policy for retirement of a single plant. The report also discusses the challenge of complying with a greenhouse gas emissions limitation and an approach for comparing possible emission reduction investments on a consistent basis. For more information, contact Tom Wilson.

Two New Technical Updates Published (December 2006)
Two new EPRI Technical Updates have been published and are available on the EPRI website. For more information, contact Adam Diamant.

Guidance for Electric Companies on the Use of Forest Carbon Sequestration Projects to Offset Greenhouse Gas Emissions. Mandatory limits of GHG emissions now exist in many industrialized nations and are being developed in individual states and regions within the United States. Legislation has been introduced for national mandatory programs in the United States. Forest carbon sequestration can provide electric companies and other entities that emit GHGs with desirable opportunities for GHG emissions mitigation for a variety of reasons.

Interactions of Cost-Containment Measures and Linking of Greenhouse Gas Emissions Cap-and-Trade Programs. Many recent greenhouse gas (GHG) emissions cap-and-trade proposals in the United States-including proposals in the Northeast, California, and at the national level-include specific measures designed to contain the potential compliance costs of the proposed programs. These cost-containment measures include "new" provisions not included in existing emissions trading programs-notably a "safety valve" that would cap the allowance price-as well as provisions such as banking or the use of offsets that have been included in prior programs. At the same time, this proliferation of potential GHG emissions trading programs in the U.S. and elsewhere (as well as the major existing program, the European Union Emissions Trading Scheme) raises the issue of whether (and how) to link various GHG emissions trading programs to one another. The potential gains from linking are clear-a combined program offers the possibility of additional cost savings. At the same time, linking raises issues of compatibility among the linked programs.

EPRI Launches Project with MSU on N₂O GHG Offsets in Agricultural Production (November 2006)
In November 2006, EPRI executed a new R&D contract with Michigan State University (MSU) that sets in motion a three-year effort to conduct the scientific work to support the supplemental project, "Developing GHG Emissions Offsets by Reducing Nitrous Oxide (N₂O) Emissions in Agricultural Crop Production." This project is investigating an innovative approach that potentially can be used to develop large-scale, cost-effective greenhouse gas (GHG) emissions offsets that could be implemented across broad geographic areas of the United States and internationally. Dr. Phillip G. Robertson at MSU, a world-renowned expert on non-CO₂ GHG emissions in agriculture, is the Principal Investigator on this EPRI project. The work focuses on five areas: determining the technical potential and cost to offset GHG emissions by reducing N₂O emissions in agricultural crop production; field testing to confirm that N₂O flux can be reduced by decreasing nitrogen fertilizer application with little or no loss in crop productivity; developing more-robust computer simulation models to predict the relationship between N₂O flux and crop yields; ascertaining socioeconomic factors that may affect farmer participation in N₂O emissions reduction projects; and identifying incentives needed to encourage farmers to change cropping practices to achieve N₂O reductions. The tools and information developed in this project may broaden the GHG emissions offset options available to electric companies, and can serve as a mechanism to develop and strengthen partnerships with the agricultural communities that they serve. For more information, contact Adam Diamant.

New Reports Published by MIT Joint Program (November 2006)
Three new reports from the MIT Joint Program on the Science and Policy of Global Change are now available. EPRI is one of many sponsors of this work. For more information, contact Larry Williams.

V.M. Otto & J. Reilly. Directed Technical Change and the Adoption of CO₂ Abatement Technology: The Case of CO₂ Capture and Storage (Report 139), August 2006. This paper studies the cost-effectiveness of combining traditional environmental policy, such as CO₂ trading schemes, and technology policy that has aims of reducing the cost and speeding the adoption of CO₂ abatement technology. The authors develop a dynamic general equilibrium model that captures empirical links between CO₂ emissions associated with energy use, directed technical change, and the economy. They specify CO₂ capture and storage (CCS) as a discrete CO₂ abatement technology, and find that combining CO₂ trading schemes with an adoption subsidy is the most effective instrument to induce adoption of the CCS technology. Such a subsidy directly improves the competitiveness of the CCS technology by compensating for its markup over the cost of conventional electricity. Yet introducing R&D subsidies throughout the entire economy leads to faster adoption of the CCS technology as well, and in addition can be cost-effective in achieving the abatement target.

G.E. Metcalf. Energy Conservation in the United States: Understanding its Role in Climate Policy (Report 138), August 2006. Efforts to significantly reduce carbon emissions will require considerable improvements in energy intensity, that is, the ratio of energy consumption to economic activity. Improvements in energy intensity over the past thirty years suggest great possibilities for energy conservation: Current annual energy consumption avoided due to declines in energy intensity since 1970 substantially exceed current annual domestic energy supply. However, the author argues that estimates of avoided energy costs due to energy conservation are overly optimistic. Avoided costs are likely to be significantly higher than estimates from recent energy technology studies suggest, once behavioral responses are taken into account. The author analyzes a data set on energy intensity in the United States at the state level between 1970 and 2001 to disentangle the key elements of energy efficiency and economic activity that drive changes in energy intensity. Rising per capita income plays an important role in lower energy intensity; higher energy prices also are important. Price and income influence intensity predominantly through changes in energy efficiency rather than through changes in economic activity.

M. Babiker & R.S. Eckaus. Unemployment Effects of Climate Policy (Report 137), July (revised August) 2006. This paper models the unemployment effects of restrictions on greenhouse gas emissions, embodying two of the most significant types of short-term economic imperfections that generate unemployment: sectoral rigidities in labor mobility, and sectoral rigidities in wage adjustments. A labor policy that would reduce the negative direct economic effects of emissions restrictions is also analyzed. The politics of limiting GHG emissions are often dominated by relatively short-term considerations, yet current economic modeling of emissions limitations does not embody economic features likely to be particularly important in the short term—in particular, the politically sensitive unemployment rate. Moreover, only a few of these studies also consider policies that would offset the negative direct economic effects of emissions restrictions. For plausible estimates of the parameters, the model shows that, with the labor market imperfections, if there were no offsetting policies, the reductions in GNP in the United States in the first ten years after emissions restrictions were imposed would be as much as 4 percent. However, if there were two policies—a counteracting labor market policy, as well as the emissions restrictions—the negative direct economic effects could be completely eliminated.

EPRI Co-Sponsors Sixth Annual Workshop on International GHG Emission Trading (November 2006)
The Sixth Annual Workshop on Greenhouse Gas Emission Trading was held in Paris, France on Sept. 26-27. Co-sponsored by EPRI, the International Energy Agency (IEA), and the International Emissions Trading Association (IETA), the workshop provided an opportunity for government, industry, broker, finance, and nongovernmental representatives to discuss key issues relating to international greenhouse gas (GHG) market developments. Adam Diamant represented EPRI and chaired a session, in addition to providing opening and closing remarks. The workshop combined presentations of papers on recent research with extended discussions on the following topics:

•	GHG market developments in Australia, Japan, Norway, the United States, and Ukraine;
•	GHG market news;
•	Green investment schemes and Joint Implementation;
•	Carbon capture and storage and market mechanisms: baseline methodologies and verification
•	GHG market design options
•	Linking GHG markets: technical and strategic issues

At the workshop, David Harrison of NERA Economic Consulting presented preliminary results from a soon-to-be-published EPRI report entitled Carbon Markets, Linking and Cost Containment: How to Achieve Gains from Linking Carbon Markets When Some Schemes Attempt to Contain Cost Impacts. In addition, EPRI sponsored a presentation by Billy Pizer of Resources for the Future on Intensity-Based GHG Regulation, and another by Anthea Harris of Australia's National Emissions Trading Taskforce on a recent proposal by the Australian States and Territories to adopt a National Emissions Trading Scheme. These two presentations and others can be downloaded from the workshop website. For more information, contact Adam Diamant.

Supplemental Project: Corporate Climate Change Policy Risk Assessment (November 2006)
A new supplemental project, Corporate Climate Change Policy Risk Assessment is designed to help individual electric companies estimate impacts of possible carbon mitigation policies on their potential corporate GHG reduction liabilities, compliance costs, and competitive market position. This project can be done on a stand-alone basis or as a follow-up to a corporate GHG emissions inventory (see supplemental project Greenhouse Gas Risk Assessment). For the Strategic Climate Change Policy Risk Assessment, the EPRI team will evaluate the potential implications of several different potential GHG mitigation policy scenarios that span alternative GHG policy designs and stringencies, in order to develop a "quantitative compliance assessment" for the company. This assessment will take into account direct (i.e., stack) GHG emissions history, generation asset data, long-term fuel and power commitments, and plans for generation retirement and new construction. It will provide the company with estimates of the quantity of GHG emissions reduction required to be achieved and the estimated financial cost to comply under each scenario. A "regional competitive market assessment" will then be conducted to evaluate how alternative prices for CO₂ emissions might impact the company's assets, net revenues, operating hours, and regional wholesale power prices every five years through 2025. This assessment will be used to quantify the company's costs relative to regional averages over a range of assumptions about possible future CO₂ prices, natural gas prices, generation plant retirements, and the quantity and mix of new generation. The cost for this project is $60,000. Companies that fund any Environment program can use Tailored Collaboration (TC) funds for up to half of their contribution, $30,000 (with $30,000 matched by EPRI). Companies that have not purchased any EPRI Environment program may co-fund this project for the full $60,000. For more information, contact Victor Niemeyer or Adam Diamant.

EPRI-Sponsored Researchers Author Book Chapter on Prospects for Carbon Sinks in Emissions Trading Systems (October 2006)
Reilly, J., B. Felzer, D. Kickligher, J. Melillo, and H. Tian. "The prospects for carbon sinks in greenhouse gas emissions trading systems." In Greenhouse Gas Sinks, D. Reay, N. Hewitt, J. Grace, K. Smith (eds.), CABI Publishing, in press. This book chapter discusses the role of sinks in climate policy, which has become controversial and confusing. The authors state that, in principle, accounting for and crediting sinks under a cap-and-trade system should be straightforward:

1.	Measure the carbon stock at an initial year.
2.	Measure the carbon stock in subsequent years.
3.	If the carbon stock rises from one period to the next, add the increased sequestration to the allowances or cap on emissions of the country or entity; if the stock declines, subtract the net release to the atmosphere from the allowances or cap.

This simpler system avoids the need to identify specific types of sink-enhancement actions that could be included (or not) under agreed caps by bringing the entire terrestrial biosphere carbon stock within a policy target. Current approaches attempt to define, for example, how many trees make a forest and what the difference is between reforestation and afforestation. The authors argue that many of these problems are largely the result of the Kyoto Protocol's faulty architecture for sinks, which were added relatively late in the Protocol negotiation process. These issues largely disappear if land use is brought fully under a cap-and-trade system. To do so will require fundamental reevaluation of goals and targets, but not doing so means that low-cost sequestration and bio-energy options needed to limit atmospheric concentrations of warming substances may not be used effectively. For more information, contact Larry Williams.

EPRI Members Provide Feedback on EPRI Analysis of Potential Market Risks of CO₂ Policy (October 2006)
On Sept. 14, EPRI researchers held a working meeting with representatives of 11 utilities on "Including CO₂ Policy Uncertainty in Generation Investment and Retrofit Decisions." The purpose was to obtain feedback on analyses that EPRI has conducted to date and to guide future research. The meeting included four presentations, each followed by discussion:

•	Analysis of CO2 and Natural Gas Price Impacts on Existing and New Generation
•	Characterization of Climate Policy Uncertainty
•	Characterization of Natural Gas Prices and Their Uncertainty
•	Assessment of the Value of the Option to Retrofit CO2 Capture on New and Existing Capacity

EPRI's work to date has shown that at present, efficient coal-fired power plants are largely protected against market risks of CO₂ policy by the high price of natural gas. For these plants, the costs imposed by a CO₂ policy would be about equal to overall electricity price increases, and net revenues would stay about the same even with major increases in the value of CO₂. Less efficient plants would be more vulnerable to CO₂ policy because of their greater CO₂ emissions. Both groups of coal-fired units are more vulnerable to changes in natural gas prices than to changes in CO₂ prices. The utility representatives suggested that EPRI extend this work to examine impacts on rate-regulated utilities with obligations to serve, and also impacts over the long term to 2025 and beyond as choices for new generation respond to CO₂ value and the capacity mix of the region changes. For more information, contact Victor Niemeyer.

Climate Policy Featured in EPRI Journal (October 2006)
The Summer 2006 issue of the EPRI Journal features two articles that include research from the Global Climate Change group. "Climate Policy Gets Down to Business" discusses a number of market-based policy initiatives being considered on state and regional levels, including the Northeast's Regional Greenhouse Gas Initiative, the Western Governors' Association's Clean and Diversified Energy Initiative, and individual state action plans. The article also discusses efforts being considered by individual utilities and the importance of having a technology research, development, and demonstration policy. "Generation Technologies for a Carbon-Constrained World" discusses the need to migrate from a generation mix that is mostly carbon emitting today to one that is essentially non-emitting if the atmospheric concentration of CO₂ is to be stabilized. The article suggests that the best technology strategy is "to develop a robust portfolio of power generation options," including coal, nuclear, gas, and renewables. For more information, contact Tom Wilson.

Three New Climate Briefs Published (October 2006)
Three new titles in EPRI's Climate Brief series have been published and are available on this website. For more information, contact Christopher Gerlach.

Climate Change Impacts and the Electric Sector summarizes conclusions of EPRI's 2005 workshop "Identifying Research to Help Electric Companies Adapt to Climate Change." The workshop found that, relative to other uncertainties faced by the electric power industry, the uncertainties of the potential impacts of climate change appear to be relatively small. Some electric companies, however, may face significant shifts in demand; some assets, such as hydropower, may be particularly sensitive to potential climate change impacts; and changes in the probability, intensity, or duration of extreme events could have important implications for electric companies. The Brief discusses possible impacts of climate change on load forecasting; generation, transmission, and distribution; and supply planning. Participants suggested that EPRI could play a key coordinating role between the electric sector and various federal climate science initiatives to facilitate identification, development, and dissemination of key climate change impact information that would be useful to the electric sector.

The Cost of Reducing CO₂ Emissions by Redispatch of Existing Generation describes EPRI research on the cost of reducing CO₂ emissions in an actual system. Researchers applied a simple generation stack model calibrated to 2005 generation costs and power market prices in two regions, one dominated by coal generation and the other by gas generation. Results showed that favoring dispatch of natural gas before coal can provide much larger reductions than generator efficiency improvements but is very expensive at gas price points of $8 or $6 per MMBtu. For the region with coal-dominated generation, a $50 per ton value on CO₂ yields a 77% increase in the wholesale power price but achieves only a 4% reduction in CO₂ for $8 per MMBtu gas (7% for $6 per MMBtu gas). For the region with gas-dominated generation, a $50 per ton value of CO₂ leads to a 42% increase in wholesale power prices and a 10% reduction in CO₂ (20% for $6 per MMBtu gas).

The Impact of CO₂ Emissions Trading Programs on Wholesale Electricity Prices explores how CO₂ prices theoretically will affect electric prices in competitive markets and compares this with early empirical results from the United Kingdom. The Brief discusses the opportunity cost of emitting CO₂ now faced by EU electric companies, the impact of CO₂ prices on the dispatch of generation units (hydropower, nuclear, coal, and natural gas), the role of coal-fired power plants that are marginal power sources, early market experience in the EU Emissions Trading Scheme, and the effects of increasing natural gas prices.

Book Chapter Examines Technology Implications of Limiting Change in GMST to 2°C (August 2006)
Edmonds, J. and S. Smith. "The Technology of Two Degrees," in Avoiding Dangerous Climate Change, H.J. Schellnhuber, W. Cramer, N. Nakicenovic, T. Wigley, G. and Yohe (eds.), Cambridge University Press, February 2006. In 2005, the government of the United Kingdom hosted a conference on "Avoiding Dangerous Climate Change" to take an in-depth look at the scientific issues associated with climate change. This book presents the most recent findings from the leading international scientists that attended the conference. "The Technology of Two Degrees" examines the technology implications of limiting the change in mean global surface temperature (GMST) to two degrees Celsius (2°C) relative to preindustrial temperatures. The implications of this goal are clouded by uncertainty in key physical science parameters, particularly climate sensitivity (the change in GMST with a doubling of CO₂ concentrations). If the climate sensitivity is 2.5°C, then temperature stabilization implies stabilization of CO₂ concentrations at less than 500 ppm, with a peak in global CO₂ emissions occurring in the next 15 years and with a decline in emissions reaching 3.1 billion metric tons of carbon per year by 2095. Under such circumstances the value of technology improvements beyond those assumed in the reference case is found to be exceptionally high, in the trillions of 1990 U.S. dollars. If climate sensitivity is 3.5°C or greater, it may be impossible to hold GMST change below 2°C. On the other hand, if climate sensitivity is 1.5°C, limiting GMST change to 2°C may be a trivial matter requiring little deviation from a reference emissions path until after the middle of the 21st century. For more information, contact Larry Williams.