Monday, March 24, 2008

Climate battle continues in Kansas

Kansas' governor vetoes power plant permit (03/24/2008)

Debra Kahn, ClimateWire reporter

Kansas' fight over two coal-fired power plants is intensifying, raising the possibility of multi-state battles over such plants unless the federal government steps in with greenhouse gas emission regulations.

Gov. Kathleen Sebelius (D) vetoed a bill Friday that would have reversed the denial of two coal-fired power plants. In addition to vetoing the bill, she created a state Energy and Environmental Policy Advisory Group to examine ways Kansas can reduce its greenhouse gas emissions.

The Kansas Department of Health and Environment denied the plants' air quality permits in October, citing the potential damage caused by global warming. The two 700-megawatt plants proposed by Sunflower Electric Power Corp. would be located in Holcomb, next to an existing plant.

In response, state legislators filed and speed-tracked bills in both the House and Senate to overturn the state's decision. The bills argue that the state agency went outside its scope in taking CO2 emissions into account in denying the permits. Sunflower says it followed existing state rules. It also argued appeals before two state courts in November, one of which is now pending before the state Supreme Court.

Kyle Nelson, Sunflower's vice president of power production and engineering, said his interpretation of the law was the same as U.S. EPA's. A provision in the Clean Air Act allows EPA to act to prevent imminent health threats from pollution sources, but that provision is meant only for existing emissions sources for which sudden, new information is revealed, Nelson said. What Kansas did "had the effect of creating new law outside the legislative effort," he asserted.

The bill "acknowledges greenhouse emissions are a global problem and a patchwork of individual state rules are likely only to lead to inconsistency in application, and a more holistic approach is appropriate," Nelson said.

Kansas says it is following the Supreme Court's decision

Kansas is citing last April's Massachusetts v. EPA decision as a precedent for its opposition. In testimony to the House Select Committee for Energy Independence and Global Warming earlier this month, Rod Bremby, who heads the Kansas health agency, said the decision that greenhouse gases are an air pollutant subject to the Clean Air Act was "highly influential."

Furthermore, Bremby testified, EPA's failure to decide whether CO2 contributes to air pollution is limiting Kansas' ability to address emissions. "It would make sense from both a human health and business perspective for EPA to issue its regulations as quickly as possible," he said.

Federal politicians, in turn, are using Kansas' decision as fodder against EPA; committee Chairman Ed Markey (D-Mass.) hailed Bremby and Kansas state Rep. Joshua Svaty (D) as "climate heroes."

"Unlike the EPA administrator, who still can't seem to accept the scientific consensus and declare that greenhouse gas emissions are dangerous, Kansas used its own state authority to deny a permit for a new coal-fired power plant on just those grounds," Markey said.

In her veto, Sebelius offered Sunflower a compromise: one power plant of about 660 MW, equipped with carbon capture and sequestration technology, for which Kansas' baseload power needs would receive top priority. Sunflower officials did not respond to a request for comment but said in a statement that "this veto will unnecessarily raise electric rates for Kansas families and punish our Kansas workers and industries."

The supply's side

"Lots of people have attacked us based on, 'You want to build a coal plant because you're greedy and you want to make a profit,'" Nelson said. "That's a great story, but we're a co-op and don't operate for profit. There is no shareholder that we're answering to that has a profit motive. We have no fuel bias, we don't want to build coal forever."

"Just because we want to build a coal plant doesn't mean we don't like windmills or natural gas," he said. "They see it like a beauty contest -- they want to pick the one prettiest girl. I say it's like drafting a sports team: If you already have a point guard, you need a center."

Sunflower said its opposition was mainly in the form of 501(c)(4) groups funded by generators of other forms of energy, like Know Your Power, a coalition organized by natural gas company Chesapeake Energy Corp.

A spokesman for Know Your Power's ad agency, Corporate Communications Group, said the group has run a few print, television and Internet commercials aimed at the Holcomb plants.

"It's been an interesting dogfight," said spokesman Michael Grimaldi. "There are a lot of organizations that have a dog in this fight and are contributing to it in different ways."

Another group, Great Plains Alliance for Clean Energy, is funded by wind power interests. Its primary target is the Holcomb project, but it also features articles maligning biomass and other alternative energies.

Grimaldi said Know Your Power was pleased with Sebelius' decision but that the compromise proposal was "not something we've talked about in our team meetings."

What's next?

While Kansas' legislative session ends April 5, a session where lawmakers can try to override Sebelius' vetoes begins April 30. In the state House, the votes have fallen short of a two-thirds majority.

But another bill to allow Sunflower to build its plants may be in the works. According to a report by Harris News Service, the bill might include mandates for Sunflower to report its emissions and pledge to reduce them. Sunflower spokesman Miller pledged to continue the fight as well. "We'll be here till this place closes down," he said.

Tuesday, March 18, 2008

New EPA Analysis Released on Climate Bills

March 14, 2008

Lieberman, Warner Welcome EPA Finding that Climate Bill Achieves Strong Results With Manageable Costs

Senators Joseph Lieberman (ID-CT) and John Warner (R-VA) today thanked the U.S. Environmental Protection Agency for completing the analysis that they had requested of their Climate Security Act (S. 2191) last November. (The slides presenting the results of EPA’s analysis are available at The Senate Environment and Public Works Committee favorably reported the bill on December 5, 2007. The full Senate is expected to consider the measure this June.

“EPA’s detailed analysis indicates that the US can curb global warming without sacrificing economic prosperity,” Lieberman said. “We will examine the results closely for improvements that they might suggest for the bill.”

Warner said, “I am satisfied that EPA’s analysis demonstrates what we have long known: You can control greenhouse gas emissions in a manner that leaves the economy whole and is not burdensome on consumers.”

The ADAGE (Applied Dynamic Analysis of the Global Economy) computer model used by EPA projects the economic impacts of government policies that are designed to speed advanced energy technologies to market. The Climate Security Act is such a policy. ADAGE contains detailed treatment of new technology deployment in the power sector and explicitly models the global economy.

EPA has not yet updated the ADAGE model to reflect the provisions of the energy bill enacted last year. In order to approximate the underlying impact of those provisions, however, EPA selected a “high technology reference scenario” when running the Climate Security Act through the ADAGE model. That modeling run found:

Ø The Climate Security Act’s cut in cumulative US greenhouse-gas emissions is deeper than one found earlier by EPA to be consistent with keeping global CO2 concentrations below 500 parts per million in 2100. [Slide 141] The finding assumes that other developed countries reduce their emissions by less than the US, and that the developing countries do not start making similar reductions until 2025. According to the Intergovernmental Panel on Climate Change, keeping the global concentration below 500 ppm greatly decreases the risk of severe global warming impacts in the US and elsewhere.

Ø Under the conservative assumptions described above concerning action by other nations, the Climate Security Act does not shift US greenhouse-gas emissions abroad. In EPA’s words, “no international emissions leakage occurs.” [Slide 5]

Ø Under the same conservative assumptions, the Climate Security Act causes US exports of energy-intensive products (e.g., steel, cement) to developing nations to increase and causes US imports of energy-intensive products from developing nations to decrease. [Slide 83]

Ø Under the Climate Security Act, US gross domestic product grows by 80% from 2010 to 2030. That is just one percentage point less than the growth in the absence of the bill. [Slide 61]

Ø Under the Climate Security Act, average annual per-household consumption in the US grows by 81% from 2010 to 2030. That is just two percentage points less than the growth in the absence of the bill. [Slide 65]

Ø EPA notes, “The economic benefits of reducing emissions were not determined for this analysis,” [Slide 3] and “While the models do not represent benefits, it can be said that as the abatement of GHG emissions increases over time, so do the benefits of the abatement.” [Slide 108]

Ø The Climate Security Act’s allowance price and financial support for carbon capture and sequestration (CCS) make that technology a commercial reality in the US by 2015 – several years earlier than in the absence of the bill. [Slide 4]

Ø One of the effects of the accelerated CCS deployment is to drive natural gas out of the electricity sector, to the benefit of manufacturers who use natural gas. [Slide 57]

Ø Under the Climate Security Act, the price of an emission allowance is $22 in 2015 and $46 in 2030. [Slide 24] That is significantly lower than allowance price predictions made by models that ignore the recent energy bill, artificially limit technology deployment, and ignore technology incentives and cost-saving provisions of the bill.

Ø Under the Climate Security Act, increases in average US electricity prices materialize slowly and gradually. Even forty years after enactment, those prices reach a level only 18% higher than the 2005 level. [Slide 55] Over that period, the bill directs more than $1 trillion to lowering and offsetting US consumers’ actual energy costs.

The analysis also includes, at the request of critics of climate legislation, other modeled scenarios that make highly pessimistic assumptions about constraints on technology deployment, the formation of natural gas cartels, and the like. In responding to the same request last October, the Energy Information Administration concluded that an analysis would be realistic without those pessimistic assumptions.

– 30 –

Friday, March 14, 2008

EEI Members Call for More Accurate Climate Cost Projections in CRA study

As I discussed here before, the Charles River Associate (CRA) study that is being used by the Chamber of Commerce and others claiming that the Lieberman-Warner bill will generate "catastrophic" economic costs is incredibly flawed.

Now -- it appears, that many of the members of EEI (Edison Electric Institute), the energy association that paid for the study, agree that the study is flawed and should be more responsible. The story below discusses the efforts many of the power generation sector is taking to try to make sure that the flawed study is re-done -- an interesting development to say the least!

The Energy Daily

Nuclear Utilities Press For Changes In EEI Climate Costs Study

March 5, 2008

Under pressure from a coalition of member companies with abundant nuclear generation, the Edison Electric Institute has agreed to direct economic consultant CRA International to make modest changes in assumptions underlying a controversial CRA analysis that projects sharply higher cost impacts from Senate climate change legislation than predicted by other analyses.

A draft presentation of the CRA analysis, obtained last month by The Energy Daily, examined legislation (S. 2181) by Sens. Joseph Lieberman (I-Conn.) and John Warner (R- Va.) to establish a greenhouse gas cap-and-trade program on most of the U.S. economy beginning in 2012.

The analysis concluded the legislation would sharply increase electricity prices, force many power companies to switch from coal-fired generation to natural gas and impose an average cost of $1,500 on every U.S. household by 2015.

The CRA analysis drew immediate criticism from a variety of stakeholders in the national climate change debate, who charged that unrealistic assumptions in the CRA model led the consultant to conclude, for example, that carbon dioxide (CO2) allowance prices in 2015 would reach $64--a price projection far higher than what other studies have predicted.

CRA assumed, for example, that no utilities would take advantage of provisions in the bill that allow the banking of emission allowances and the use of international emissions offsets to reduce compliance costs. CRA said the emission caps in the early years of proposed mandate are so severe that utilities will need all their allowances, and that European Union countries will scoop up all the available overseas offsets.

The analysis also assumed that a Carbon Market Efficiency Board (CMEB) the bill would establish would take no action to limit sharp allowance price increases, as the bill would authorize.

The CRA study prompted behind-the-scenes moves by several members of EEI who also belong to the Clean Energy Group (CEG), a coalition of utilities whose generation portfolios include robust percentages of nuclear, natural gas and renewable resources. The CEG companies for weeks have pressured EEI to change some of the underlying assumptions in advance of a new CRA modeling run on the Lieberman-Warner bill.

EEI has agreed to include in the new CRA analysis provisions of the Energy Independence and Security Act of 2007 (EISA)--approved in December--that tighten federal fuel economy requirements for motor vehicles, boost alternative fuel use and strengthen efficiency standards for appliances and buildings.

In addition, CRA will also incorporate results of the Energy Information Administration's analysis of S.2181--including an expected change in EIA's baseline "reference case" used to model future U.S. energy use--as well as the findings of a separate Environmental Protection Agency analysis of the bill. Both the EPA and EIA analyses are expected later this month.

In a March 4 letter to EEI President Thomas Kuhn obtained by The Energy Daily, the chief executive officers of seven CEG utilities urged EEI to change other assumptions in the CRA analysis, including those concerning the use of allowance banking and international offsets; actions the CMEB might be expected to take to reduce the costs of the cap- and-trade program; and provisions to reduce the impacts of higher energy prices on low-income households.

"We think this is a positive and important development, and we believe the CRA analysis will be both more robust and received as more reliable with the additions you have indicated," the CEG letter said, referring to the changes EEI has agreed to make. "In our view, it is critical that EEI be viewed as a credible voice in the climate change debate. It is our hope that EEI's work will allow members, Congress, the administration and other interested parties to make informed decisions about various policies and proposals before them in terms of impacts on our industry and our customers."

The letter was signed by the CEOs of Avista Corp., Constellation Energy Group, Entergy Corp., Exelon Corp., FPL Group Inc., National Grid and PG&E Corp. and Public Service Enterprise Group Inc.

A CEG representative said the CEOs "are planning to be very much involved and on top of the whole EEI process" as the CRA analysis proceeds.

"The message between the lines is that these companies are going to be insisting that EEI have a more balanced approach throughout the climate change debate and represent the collective views of all EEI members and not just the views of the coal generators," the CEG representative said.

An EEI official told The Energy Daily Tuesday, however, that--aside from including the EISA provisions and the expected EIA reference case changes--EEI has not decided if it will direct CRA to make other changes, such as accounting for banking and the use of international offsets.

"We're still considering what we are going to do," said Bill Fang, EEI deputy general counsel and climate issue director. "We'll have to consider all that. CEG has raised some good issues, but other member companies have raised other issues. We have to get the views of other companies."

The national advocacy group Environmental Defense, in a February critique of the CRA study, called the analysis "a dramatic outlier when compared to a range of economic models maintained by researchers in academia and government. For example, CRA's estimates for the impact of the bill in 2015 on greenhouse gas emission prices, GDP figures and electricity prices are 75 percent to 300 percent higher than those found by a study done by researchers at Duke University and Research Triangle Institute."

The CRA cost projections also are sharply higher than those found in an analysis of the bill by the Cambridge, Mass.-based Clean Air Task Force, which concluded CO2 emission allowances would cost about $17 in 2015, nearly 75 percent less than what CRA projected.

Fang countered, however, that CRA's assumptions for the likely penetration of new nuclear generation are less optimistic than in other studies and more optimistic for the deployment of new renewable generation.

Tuesday, March 11, 2008

Be Wary of the Agenda Behind Flawed Cost Projections

We've all seen the damage that can come from "studies" that are designed to achieve a given result rather than truly examining the potential cost, impacts or benefits of a given issue. It is often hard to judge the veracity of studies -- which is why it is absolutely critical that the assumptions used are transparent and reasonable -- so as to prove there is no hidden agenda being served.

The latest round of fliers and "fact sheets" being pushed by the Chamber of Commerce is unfortunately relying on a very flawed and secretive analysis done by Charles River Associates (CRA) and paid for by the electric industry group, Edison Electric Institute. The study was so flawed that many of the EEI members have called for it to be re-done using more plausible assumptions. Below is a great analysis of the many flaws of the CRA economic projections -- and why folks need to be careful before believing the cost projections of Lieberman-Warner from groups that clearly have an agenda that is not good for agriculture (i.e favoring a carbon tax instead of a carbon market).

Environmental Defense Fund

The CRA Climate Analysis: Extreme Again

America’s Climate Security Act of 2007 [S. 2191) is a bipartisan bill that would create a cap and trade program to cut greenhouse gas emissions in the U.S. The Edison Electric Institute, a trade organization representing electric utilities, recently paid consulting firm Charles River Associates International (CRA) to assess the possible economic impacts of the legislation. An assessment of CRA’s analysis using accepted academic modeling reaches the following conclusions:

· CRA has a history of presenting extreme views for its industry clients. For example, CRA’s
analysis in 2003 of the McCain-Lieberman Climate Stewardship Act projected household costs that were three to four times higher than the upper range of results in an MIT study, and 10 to 14 times higher than MIT’s lower range.

· CRA’s results are dramatically different than economic assessments by researchers in
academia and government. For example, CRA’s estimates for the impact of the bill in 2015 on
greenhouse gas emission allowance prices, economic output (GDP), and electricity prices are 75%
300% higher than those found by a study performed by researchers at Duke University and Research Triangle Institute.

· Determining exactly why CRA’s numbers are so high is difficult, both because of how CRA
reports their results and because the CRA model remains a “black box” to outsiders. Although
CRA released some information in a response to a request from Senator Lieberman, they have never fully opened up their model to outside peer review, so key assumptions remain hidden. Moreover, CRA lumps together results from various scenarios without specifying which scenarios lead to which results. One reason for the divergence from other models, however, appears to be that CRA ignores the role of international credits, which under the Lieberman-Warner bill could meet up to 15% of compliance obligations. In addition, their analysis assumes high costs for new coal-fired power plants with carbon capture and sequestration technology, and imposes artificial constraints on how widely that technology is used.

· Like most economic forecasting models, CRA’s analysis considers only one side of the ledger:
it considers the costs of reducing emissions, but fails to examine the costs of inaction.

· No single model should be relied upon for policy making. Instead, policy makers should look to
the full range of economic models for guidance on the possible impacts of climate policy. And when confronted with a range of numbers, a common rule of thumb is to throw out the lowest and highest numbers, and concentrate on the middle of the range. Former Federal Reserve Chairman Paul Volcker summarized the economic situation best: “If you don't
take action on climate change, you can be sure that our economies will go down the drain in the
next 30 years. What may happen to the dollar, and what may happen to growth in China or
whatever, will pale into insignificance compared with the question of what happens to this planet
over the next 30 or 40 years if no action is taken."

Our analysis is based on testimony by CRA, documentation supporting that testimony, CRA’s recent update to their analysis, and economic models by researchers at MIT, Research Triangle Institute, and the Department of Energy.

Monday, March 10, 2008

The Attacks on Offsets Continue - Stanford Univ

Below is a story from an environmental trade press publication talking about a "study" that will be coming out from Stanford University soon trashing the domestic offset option within mandatory climate legislation.

This "study" takes the entirely flawed proposition that the domestic ag offsets program would be at all similar to Kyoto's Clean Development Mechanism (a program that allows companies and/or industrialized countries to conduct GHG reduction projects in developing countries in order to create GHG reduction credits). The domestic ag offsets program, as outlined in the Lieberman-Warner bill has nothing to do with Kyoto's CDM -- but that hasn't stopped an academic or two from positing that this is how the program would be run . . . and "finding" as a result that the offsets program would not generate the predicted reductions.

The result, this "study" finds, is that mandatory climate policy should instead use a carbon price cap or carbon tax to control costs rather than a market approach provided by the offset program.

This study WILL be circulated all over the U.S. Congress by both environmentalists who oppose offsets and some industries who don't want a cap-trade bill.

There is significant potential that this type of damaging thinking will sway key members of Congress -- especially since there is not a coordinated defense of the ag offset option being conducted by the agriculture industry at large.

When I say "If you are not at the table, you are on the menu;" this is what I mean.

Carbon Control News

Stanford Study May Stir Debate On Limiting Costs In Climate Bills

Posted March 7, 2008

A soon-to-be-released Stanford University study may spark new skepticism of proposals for using emission offsets as a cost-control mechanism under federal cap-and-trade legislation or in emerging state climate change programs, according to sources familiar with the study.

The study will suggest that a so-called economic “safety valve” approach that limits the price of carbon credits is preferable, and that the use of emission offsets by industrialized nations would have serious shortcomings as a way to encourage emission reductions by emerging economies such as China and India.

The analysis is likely to influence debate on initial drafting of cap and trade legislation by House lawmakers, as well as the debate on pending Senate climate change legislation by Sens. Joseph Lieberman (I-CT) and John Warner (R-VA), which allows some use of offsets to meet compliance obligations. In addition, sources say the analysis also has implications for efforts by states including California to develop rules for crediting offsets in their own emissions control programs.

Furthermore, the study may serve as a counterpoint to an upcoming EPA analysis of Senate climate legislation—a cost analysis that many observers expect to play up the role of emission offsets as a means to lower compliance costs.

At a March 3-4 conference in Washington DC on carbon sequestration, hosted by the Edison Foundation, Stanford University Energy and Sustainable Development Program Director David Victor said the upcoming study will question the effectiveness of using offsets as a substitute for a safety valve approach to limit the cost of carbon credits. In addition, Victor said it will show that “between a third and two thirds” of emission offsets under the Clean Development Mechanism (CDM)—set up under the Kyoto treaty to encourage emissions reductions in developing nations—do not represent actual emission cuts. Victor is developing the analysis with Stanford University’s Michael Wara.

Domestic ‘Offsets’

In the Senate, the Lieberman-Warner measure would allow domestic “offsets”—emission reductions that occur at sources not subject to an emissions limit—to be used for up to 15 percent of a source’s compliance with emission controls. The legislation also would allow similar use of international emission credits, up to 15 percent of a source’s compliance needs, from countries that have emissions trading systems. One source tracking the issue says the legislation amounts to indirect recognition of CDM credits in the European emissions market, since CDM credits are used to lower costs in that market.

The Stanford report builds on previous work analyzing the CDM and will provide a “general critique” of offsets as a cost-control mechanism as well as an in depth look at the CDM’s shortcomings as a means for reducing emissions in developing countries, according to a source familiar with the study. The source adds that while the analysis focuses significantly on international offsets, many of the same problems can also affect domestic markets. “We don’t see these problems going away,” the source says.

The extent to which the report will serve as a counterpoint to other analyses of the Lieberman-Warner bill may become clearer when EPA releases its cost analysis, expected in the next week or two. Many observers expect that report to highlight offsets as a potential strategy for limiting the costs of the legislation.

The source familiar with the study says the Stanford paper will highlight the slowness of the offset market, using CDM as an example, in responding to any sudden demand for emission credits – a lack of liquidity that makes offsets a poor mechanism for cost containment. From a cost-control standpoint, the source says issuance of CDM credits would have to significantly increase to be effective, creating an inherent tension between expanding efforts to verify projects and weakening environmental standards. “The alternative is having an explicit discussion about a price cap and safety valve,” in emerging climate programs, the source says

From the standpoint of developing country actions, the source says the study will identify problems in ensuring that the emission-reduction projects that receive CDM credits go beyond what developing countries would do anyway. One example of the challenge is a major ongoing effort to seek CDM credit for natural gas fired power plant construction in China, despite indications that Chinese energy officials are already pursuing such construction for other reasons.

Sector-Based Approach

The source says a better alternative than the CDM for encouraging emission reductions from developing nations would be a sector-based approach or a climate trust fund that could back clean-energy projects that are truly additional to existing efforts. The source says that the current, narrow focus on crediting project-specific CDM efforts under a cap and trade program makes it hard to devote adequate resources to verifying the real benefits of the projects, according to the source.

The source says offsets can still play a “niche” role in advancing climate change efforts but says that the current Lieberman-Warner bill’s approach to offsets may be overly generous. From the standpoint of international credits, the source says that an argument can be made that the measure gives too much power to other governments to monitor the quality of those emissions reductions.—Doug Obey

Responding to fertilizer fears

Below is a response I received from Sen. Lieberman's office regarding charges that the fertilizer industry has made about potential increased costs to fertilizer coming from the Lieberman-Warner climate bill. The bottom line is that the bill has a provision to minimize any potential cost increase.

The bill directs EPA to hand back to the fertilizer manufacturers any allowances that were submitted upstream for natural gas or petroleum products, to the extent natural gas or petroleum products in question are used as feedstock for fertilizer manufacture, and to the extent that the feedstock use locks the carbon in the fertilizer rather than releasing it to the atmosphere at the fertilizer manufacturing plant.

My understanding is that such a crediting-back provision will end up erasing at least 65% of the cost that the bill otherwise would impose on fertilizer manufacturers.

Last Friday I met with members of the Fertilizer Institute and explained this to them. I told them that we were likely make this clarifying change to the existing feedstock credit provision in the bill (section 1202(e)): Delete "such that no group I greenhouse gas associated with that feedstock will be emitted," and replace with "to the extent that no group I greenhouse gasses are emitted from the use of feedstock.”

And that we intend to include this language about section 1202(e) in the committee report:

This subsection provides that the Administrator of the EPA shall distribute to any entity that uses petroleum- or coal-based product, natural gas, or natural gas liquid as a feedstock during the life of the program a quantity of emission allowances equal to the quantity of allowances, offsets, or international offsets submitted under section 1202(a) for that feedstock. Feedstock is a substance used as a raw material in an industrial process to make an intermediate or final product, such as the use of natural gas to manufacture plastics. For the portion of the fuel that is used as feedstock that does not result in GHG emissions, the Administrator shall establish and distribute to downstream entities a quantity of emission allowances equivalent to the allowances submitted by covered entities under section 1202(a). The requirement to submit allowances under section 1202(a) is calculated based on the assumption that all fossil fuels are combusted resulting in the release of the greenhouse gases generated during combustion. This provision is intended to compensate for that assumption by establishing allowances equal to the quantity of greenhouse gas emissions that do not occur due to the feedstock use of some fuel.