Does Wind Power Reduce Air Pollution?

Transcription

1 Does Wind Power Reduce Air Pollution? Effects of Power Dispatch & Cap and Trade Design National Research Council Committee on Environmental Impacts of Wind Energy Projects December 14, 2005 Richard Cowart 50 State Street, Suite 3 Montpelier, Vermont USA Tel: Fax: The Regulatory Assistance Project Website: Water St. Gardiner, Maine USA Tel: Fax:

2 Four topics (A) Ways to measure the environmental benefits of wind power (B) Basic elements of cap and trade (C) Impacts of wind power and Renewable Portfolio Standards (RPS) in a cap and trade setting (D) How to support voluntary green markets in a cap and trade system

3 The setting: New gas does not displace old coal-- both are rising

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5 Topic A: How to measure environmental benefits of wind? Environmental Premise: One 1.5-kW wind turbine displaces 6 million lbs of carbon dioxide per year, equivalent to nearly 4 million miles driven in an SUV Generating same amount of power with average U.S. utility mix produces 28,000 lbs of sulfur dioxide & 17,000 lbs of nitrous oxides annually Equivalent of 1,800 tons of coal or 6,600 barrels of oil each year Source: Tom Gray, American Wind Energy Association, October 2003

6 If we add this.

7 .do we avoid this?

8 Environmental benefits Are they real? Where is wind in the resource stack? Dispatch- what is displaced short-term? New capacity -- what is avoided longterm? Is there a bounce-back effect? Does long-term load growth erase short-term gains?

9 Three different ways to consider avoided emissions

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11 Will more wind just mean more power?

12 12,000 10,000 8,000 6,000 4,000 2,000 0 Demand responds to technology, price, and policy, not greenness Residential Electricity Use kw h per customer per year, USA New England Vermont kwh per customer per year

13 Sad projection: just the growth in coal will exceed expected TOTAL renewable generation

14 Topic (B) Power sector carbon management - 4 basic options Carbon tax Politically unlikely Emissions performance standard (EPS) Focus on intensity With growth, emissions can keep growing Cap and trade generator-based Cap and trade load-based Note: Cap and trade credits can be auctioned or allocated, or both.

15 Why electricity matters

16 Criteria Emissions from Coal Generation Decreased by 1/3 While Coal Use Tripled (But what about carbon?) 250% Percentage Above or Below 1970 Levels 200% Coal Usage, Million Tons 150% 100% Generation, Billion kwh 50% Nitrogen Oxide 0% Sulfur Dioxide -50% Particulate Matter -100% % 122% -6% -35% -85% Source: U.S. EPA and Energy Information Administration.

17 What is cap-and-trade? Set a fixed limit on OVERALL emissions, not each single source, declining over time. Create a new kind of currency (tradable allowances) for quantities of emissions. Carbon credits are just another form of money Require emitters (or consumers) to retire allowances to match their emissions in each time period. Sell or give out allowances Permit trades in an allowance market Perhaps permit earning and trading offsets

18 Cap and Trade Programs Existing SO2 Trading Program (Acid Rain Program) National, Annual NOx Budget Trading Program Regional (19+ eastern states), ozone season (May Sept.) only Complex Kyoto and European carbon trading markets Finalized in 2005 & begin in 2009/2010 Clean Air Interstate Rule (CAIR) NOx, 28 eastern states, Annual SO2, National, Annual, tightens existing cap in 28 eastern states Mercury Rule Hg, National. Annual Anticipated? Regional Greenhouse Gas Initiative Regional Haze Rule in western states?

19 The Northeast Regional Greenhouse Gas Initiative (RGGI) 9 states actively engaged 2 states (PA, MD) are observing Begun 2003, Model Rule expected 2005 We ll see.maybe tomorrow State-by-state adoption Launch 2009

20 Cap and Trade Architecture (1) Cap coverage - what s included? Generator-based or Load-side? (2) Cap basics: base year, level & rate of decline (3) Auction or allocation? (4) Allocation choices: generators, consumers, set-asides, etc. (5) Circuit breakers, price caps and accelerators (6) Leakage control (7) Flexibility mechanisms: Offsets, Banking and Borrowing

21 Cap Level and Structure The cap decreases by a fixed percent each year. Glide slope defined in advance. A ramp is better than a cliff, esp for carbon Test the markets and technologies gradually, with low risk. Provide immediate price discovery and monetization. Provide a clear driver for new technology and long-term results.

22 800 If This Looks Difficult % Carper 16% Level Jeffords MMTCE "Business as Usual"

23 The Ultimate Goal is Even More Challenging! "Business as Usual" 600 Carper Jeffords MMTCE % reduction 0.5%/yr ppm Stabilization Goal 133 MMTCE

24 Distribution of Allowances RGGI Emissions Cap Apportionment States Allocation RGGI assumes: States can adopt different approaches to allocation. Sources Sources Consumers Consumers

25 Apportionment Choices: RGGI example State Emissions Generation MWH Consumption NJ 10% 18% 21% MA 18% 12% 15% VT.4% 1.8% 1.6% CT 10% 10% 9%

26 Allocating to generation: on what basis? (1) Historic emissions (or fuel inputs) PRO: nobody badly hurt CON: rewards past pollution; weaker incentives to improve (2) Historic power output: PRO: rewards past producer efficiency, better heat rates, clean fossil generation (with updating, rewards future too) Could award to renewables but nuclear is controversial CON: creates bigger winners and losers (3) Compromise: power output among like fuel users Class averages for each fuel category Coal v Coal still promotes better heat rates (4) RGGI each state will decide

27 Allocating to renewables? Key ideas: Need to accelerate deployment of renewables (and other clean resources) Allocations can lower the consumer cost penalty Green products need to retire credits Option1: Direct allocation to qualified renewable generators (on MWH-output basis) Option 2: Sale of allowances by public trust funds for clean resources Option 3: Allocate to distribution utilities or LSEs that purchase and deliver renewables

28 Generator allocation leads to a generator windfall

29 RGGI innovation: a large consumer allocation Allocate 50% or more of initial credits to consumer representatives (eg, distribution utilities) Generators need to purchase allowances, recycling the windfall revenue BACK to consumers PUCs supervise use of the $$, focus on investments that lower carbon (EE &RE) Result: lower program cost, greater efficiency, more renewables

30 Topic (C) What does wind power accomplish in a cap and trade system? Essential problem: the cap is the cap BUT -- wind CAN make a difference: Before the cap is set, RPS and RE lowers the Reference Case baseline; During the C&T program, RE lowers the cost of compliance, allowance prices, and leakage (avoids triggering circuit breakers, stalls, etc) On renewal, success with RE lowers future cap trajectory

31 RGGI Baseline lowered by current Northeast RPS requirements NY 25% by 2013 MA 6% by 2010, plus 1% annually NJ 6.5% by 2008 PA 20% by 2020 RI 15% by 2019 CT 10% by 2010 ME 30% by 1997 DC 11% by2022 VT 100% of growth

32 RGGI Projected Capacity Additions Reference case (100% RPS) v. Reference w/ 50% RPS 35 GW Other Renewables Wind Gas Nuclear - Reference Ref - 50% RPS Reference Ref - 50% RPS Reference Ref - 50% RPS

33 160 RGGI Region Carbon Emissions Reference case (100%RPS) v. Reference w/ 50% RPS Million Tons Reference Ref - 50% RPS

34 Looking ahead: Carbon price changes economics of wind vs. fossil (if they have to pay) Impact of CO2 Costs On Generation Economics PV Of Life-Cycle Revenue Requirement $2,000 $1,800 $1,600 $1,400 $1,200 Gas CCCT $0 $5 $10 $1,515 $1,588 $1,661 Coal $1,402 $1,714 $2,025 Wind $1,673 $1,673 $1,673 $/ton CO2 Gas CCCT Coal Wind

35 Topic (D) Impact of Cap and Trade on Green Power Environmental Claims Emissions will not exceed cap Emissions will not be reduced below the cap even if new non-emitting generation comes on line The only way to reduce emissions of a capped pollutant is to own and retire allowances Consumer fraud issue: CANNOT claim reductions of capped pollutant unless you own allowance Proposal to RGGI: take voluntary green power credits off the top of the allowance pool, reducing future allocations Failure to do this will undermine green markets

36 Another approach: Load-Side Cap & Trade System Basic rule: LSEs must have credits to cover the emissions associated with their sales to retail customers? Steps: 1. Measure historic emissions associated with electricity serving the state (or region) All sources, wherever located -- both in-state and imports 2. Set hard emissions caps to lower impact in stages 3. Distribute allowances ( carbon credits ) to LSEs 4. LSEs spend credits as needed to match their portfolio of sources can sell excess credits from RE & EE choices 5. Gains: (a) no leakage problem (b) no generator windfall (c) EE and RE earn carbon value automatically 6. CA and OR working on this approach now

37 Flexibility mechanisms Banking saving allowances you don t need now, for future use Borrowing emitting too much now, promising to pay back later Offsets causing reductions outside the capped system E.g.,Controlling landfill methane Trees in China? Problem: anyway tons and hot air reductions

38 For more information Another Option for Power Sector Carbon Cap and Trade Systems Allocating to Load Addressing Leakage in a Cap-and-Trade System: Treating Imports as a Source Why Carbon Allocation Matters Issues for Energy Regulators Richard Cowart, Regulatory Assistance Project Memos prepared for the Regional Greenhouse Gas Initiative (RGGI) --Posted at questions to RAPCowart@aol.com