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Regulating existing power plants under the U.S. Clean Air Act: Present and Future Consequences of Key Design Choices

In June 2014, the U.S. Environmental Protection Agency (EPA) released its proposed rules to regulate carbon dioxide emissions from existing fossil fuel power plants, triggering considerable debate on the proposal’s design and its environmental and economic consequences. One question not addressed by this debate is this: What if the EPA regulations turn out to be inadequate to address future mitigation goals? That is, what will the landscape for future policies look like if these regulations turn out to be just an interim measure? This analysis in the journal Energy Policy compares potential short- and long-term consequences of several key regulatory design choices, including mass-based versus rate-based standards, tradable versus non-tradable standards, and differentiated versus single standards. It finds that long-term consequences may be significant in terms of the legacy they leave for future policy revisions: tradable standards lead to lower electricity prices and become weaker over time; differentiated tradable standards lead to relatively greater investment in coal retrofits; non-tradable standards lead to relatively greater retirement of coal capacity. It may be the case that key policy choices entail one set of tradeoffs if proposed EPA rules are viewed as relatively permanent and final and another set of tradeoffs if the rules are viewed as an interim solution.

Author(s): Brian Murray, William Pizer, Martin Ross

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Climate & Energy

Clean Air Act

Policy and Design

Environmental Economics

Climate Change Policy

National

Journal Articles

Incentivizing the Reduction of Pollution at Dairies: How to Address Additionality When Multiple Environmental Credit Payments Are Combined

Anaerobic digesters (ADs) can reduce waste volumes and capture methane emissions from concentrated animal feeding operations (CAFOs), but their adoption rate is low because their cost is high relative to other forms of waste management. Farmers who use ADs can attempt to sell carbon credits and nutrient credits as well as renewable electricity certificates (RECs) generated by on-site electricity production from captured methane. These credits and RECs can be used as marketable “offsets” that buyers can use to help meet their greenhouse gas and nutrient pollution reduction goals. One issue that arises is whether a single operation can sell into multiple credit markets by “stacking” credits—that is, receiving multiple environmental payments to finance the conversion to AD technology. This practices introduces the possibility that some credits might be “non-additional”—i.e., produce no incremental pollution reductions and thus be suspect pollution offsets. Non-additionality in environmental credit stacking occurs when multiple payment streams do not produce incremental pollution reductions, thus allowing the credit buyer to pollute more than is being offset by the AD project. A possible solution to the stacking problem may be to allow stacking of all credits available at the time of AD installation, but to prohibit any further stacking if new credit streams become available after installation.

Authors: Brian C. Murray and Tibor Vegh

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Environmental Markets

Policy and Design

Agriculture

Land

Environmental Economics

Energy Sector

National

Working Papers

Get the Science Right When Paying for Nature's Services

Payments for Ecosystem Services mechanisms leverage economic and social incentives to shape how people influence natural processes and achieve conservation and sustainability goals. Beneficiaries of nature's goods and services pay owners or stewards of ecosystems that produce those services, with payments contingent on service provision. Integrating scientific knowledge and methods into Payments for Ecosystem Services is critical. Yet many projects are based on weak scientific foundations, and effectiveness is rarely evaluated with the rigor necessary for scaling up and understanding the importance of these approaches as policy instruments and conservation tools. Part of the problem is the lack of simple, yet rigorous, scientific principles and guidelines to accommodate Payments for Ecosystem Services design and guide research and analyses that foster evaluations of effectiveness. The Nicholas Institute's Lydia Olander, along with other scientists and practitioners from government, nongovernment, academic, and finance institutions, propose a set of such guidelines and principles in a new Science article.

Author(s): S. Naeem, J. C. IngramA. VargaT. AgardyP. BartenG. BennettE. BloomgardenL. L. BremerP. BurkillM. CattauC. ChingM. ColbyD. C. CookR. CostanzaF. DeClerckC. FreundT. GartnerR. Goldman-BennerJ. GundersonD. JarrettA. P. KinzigA. KissA. KoontzP. KumarJ. R. LaskyM. MasozeraD. MeyersF. MilanoL. Naughton-TrevesE. NicholsL. OlanderP. OlmstedE. PergeC. PerringsS. PolaskyJ. PotentC. PragerF. QuétierK. RedfordK. SatersonG. ThoumiM. T. VargasS. VickermanW. WeisserD. WilkieS. Wunder

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Ecosystem Services

Environmental Economics

National

Journal Articles

Signed Peer Reviews as a Means to Improve Scholarly Publishing

In a new article in the Journal of Ocean and Coastal Economics, the Nicholas Institute for Environmental Policy Solution's Linwood Pendleton discusses peer review. Pendleton notes that peer review is necessary process with a long history of complaints, including over-solicitation of a small number of reviewers, delays, inadequate numbers of reviewers, and a lack of incentives to provide strong reviews or avoid reviews with little helpful information for the author. In the era of web-based distribution of research, through working paper or project reports, anonymous peer reviews are much less likely. The Journal of Ocean and Coastal Economics will use signed peer reviews and an open communication process among authors, reviewers, and editors. This approach, to be developed over time, should lead to stronger communication of research results for the journal's readers.

Author(s): Linwood Pendleton 

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Oceans & Coasts

Environmental Economics

Journal Articles

Structure of the Dynamic Integrated Economy/Energy/Emissions Model: Electricity Component, DIEM-Electricity

This paper, a companion to NI WP 14-12, describes the structure of, and data sources for, the electricity component of the Dynamic Integrated Economy/Energy/Emissions Model (DIEM), which was developed at the Nicholas Institute for Environmental Policy Solutions at Duke University. The DIEM model includes a macroeconomic, or computable general equilibrium (CGE), component and an electricity component that gives a detailed representation of U.S. regional electricity markets. The electricity model (DIEM-Electricity) discussed in thus paper can be run as a stand-alone model or can be linked to the DIEM-CGE macroeconomic model to incorporate feedbacks among economy-wide energy policies and electricity generation decisions and interactions between electricity-sector policies and the rest of the U.S and global economies. Broadly, DIEM-Electricity is a dynamic linear-programming model of U.S. wholesale electricity markets that represents intermediate- to long-run decisions about generation, capacity planning, and dispatch of units. It provides results for generation, capacity, investment, and retirement by type of plant. It also determines wholesale electricity prices, production costs, fuel use, and CO2 emissions. Currently, the model can consider, at a national policy level, renewable portfolio standards, clean energy standards, caps on electricity-sector CO2 emissions, and carbon taxes.

Author: Martin T. Ross

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Policy and Design

Environmental Economics

Climate Change Policy

Energy Sector

Modeling

Working Papers

Structure of the Dynamic Integrated Economy/Energy/Emissions Model: Computable General Equilbrium Component, DIEM-CGE

This paper, a companion to NI WP 14-11, describes the structure of, and data sources for, the macroeconomic component of the Dynamic Integrated Economy/Energy/Emissions Model (DIEM), which was developed at the Nicholas Institute for Environmental Policy Solutions at Duke University. The DIEM model includes a macroeconomic, or computable general equilibrium (CGE), component and an electricity component that gives a detailed representation of U.S. regional electricity markets, DIEM-Electricity. The DIEM-CGE component can be run as a stand-alone model to look at both global and U.S. domestic policies related to the economy, energy, or greenhouse gas emissions. Alternatively, DIEM-CGE can be linked to DIEM-Electricity to investigate the macroeconomic impacts of policies affecting electricity generation. This paper describes DIEM-CGE’s model structure, data sources, representations of production technologies, and possible linkages to DIEM-Electricity. It provides an overview of the model and details of the equilibrium structure underlying the model. It presents the production equations and discusses the model’s data and forecast sources. It also presents information on the model’s greenhouse gas emissions and abatement options as well as details of the linkage between DIEM-CGE and DIEM-Electricity.

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Environmental Economics

Climate Change Policy

Energy Sector

Modeling

Working Papers

Assessing Carbon-Pricing Policy Options in the United States

Much of the focus of efforts to reduce greenhouse gas emissions has been on the pursuit of policy mechanisms that will put a price on carbon. In the United States, such mechanisms have been established in several states and were the central feature of federal legislative proposals of the last decade. With the political failure of those proposals in 2009-2010, creation of a de novo carbon-pricing regime was given little attention—until recently. Calls for fiscal reform and an evolving regulatory setting (especially use of the Clean Air Act to regulate greenhouse gases) might create political appetite for a new effort to pursue a carbon-pricing policy. To inform discussion, this paper identifies and assesses options for establishing a price on carbon in the United States.

Authors: Brian Murray, Tim Profeta, and Billy Pizer

Filters

Environmental Economics

Climate Change Policy

National

Working Papers

Optimizing the Scale of Markets for Water Quality Trading

Allowing polluters to buy, sell or trade water-quality credits could significantly reduce pollution in river basins and estuaries faster and at a lower cost than requiring facilities to meet compliance costs on their own, a new Duke University led study finds. The scale and type of the trading programs, though critical, may matter less than just getting them started. The analysis in the journal Water Resources Research shows that water-quality trading of any kind can significantly lower the costs of achieving Clean Water Act goals.

Author(s): Martin Doyle, Lauren Patterson, Yanyou Chen, Kurt Schnier, and Andrew Yates

Filters

Science

Water

Ecosystem Services

Environmental Economics

National

Journal Articles

Terminating Links between Emission Trading Programs

Links between emission trading programs are not immutable, as highlighted by New Jersey's exit from the Regional Greenhouse Gas Initiative. This raises the question of what to do with existing permits that are banked for future use—choices that have consequences for market behavior in advance of, or upon speculation about, delinking. We consider two delinking policies. One differentiates banked permits by origin, the other treats banked permits the same. We describe the price behavior and relative cost-effectiveness of each policy. Treating permits differently generally leads to higher costs, and may lead to price divergence, even with only speculation about delinking.

Author(s): William Pizer and Andrew Yates

Filters

Climate & Energy

Environmental Economics

Climate Change Policy

Energy Sector

National

Working Papers

Regulating Existing Power Plants under the Clean Air Act: Present and Future Consequences of Key Design Choices

In June 2014, the EPA released its proposal for rules to regulate carbon dioxide emissions from existing fossil fuel power plants, triggering considerable debate on the proposal’s environmental and economic consequences and on alternatives highlighted by the proposal and by other stakeholders. One question not addressed by this debate is this: What if the EPA regulations turn out to be inadequate to address future mitigation goals? That is, what will the landscape for future policies look like if these regulations turn out to be just an interim measure? This analysis explores the long-term consequences of several key regulatory design choices, including mass-based versus rate-based standards, tradable versus non-tradable standards, and differentiated versus single standards. It finds that these consequences may be significant: differentiated standards lead to relatively greater investment in coal retrofits; non-tradable standards lead to relatively greater retirement of coal capacity. It may be the case that key policy choices entail one set of tradeoffs if proposed EPA rules are viewed as relatively permanent and final and another set of tradeoffs if the rules are viewed as an interim solution.

Authors: Brian C. Murray, William A. Pizer, and Martin Ross

Filters

Environmental Economics

Climate Change Policy

Energy Sector

Modeling

Working Papers

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