Electric vehicles (EVs) represent a new source of electricity demand and their market share is expanding at a fast pace. How electricity is generated for these vehicles will, to a large degree, determine their net emissions benefits and their value in meeting any long-term climate and environmental goals.
This analysis published in the journal Climate Change Economics examines impacts of nationally-imposed carbon taxes on different regions of the United States. The goal is to see what can be learned about the drivers of regional political support for and opposition to such measures. Whether at the state, regional or national levels, carbon taxes are one option for reducing greenhouse gas emissions; several state and regional programs are already under way and lowering emissions. This analysis uses a U.S. regional version of the Dynamic Integrated Economy/Energy/Emissions Model (DIEM) computable general equilibrium model to explore relationships between carbon taxes, emissions, and economic growth.
This analysis published in the journal Energy Economics examines how changes in market trends and technology costs are likely to affect electricity generation in the United States in the context of possible future carbon taxes. It uses the Dynamic Integrated Economy/Energy/Emissions Model (DIEM) electricity-sector model to examine a wide range of sensitivity cases for technology and fuel costs under different economic conditions. The model finds that carbon taxes can be an effective way to quickly lower emissions. Shifts among natural gas and renewable generation can vary significantly, depending on capital and operating costs.
Data and Modeling Infrastructure for National Integration of Ecosystem Services into Decision Making: Expert Summaries
Resource managers face increasingly complex decisions as they attempt to manage for the long-term sustainability and the health of natural resources. Incorporating ecosystem services into decision processes provides a means for increasing public engagement and generating more transparent consideration of tradeoffs that may help to garner participation and buy-in from communities and avoid unintended consequences. A 2015 White House memorandum from the Council on Environmental Quality, Office of Management and Budget, and Office of Science Technology and Policy acknowledged these benefits and asked all federal agencies to incorporate ecosystem services into their decision making. This working paper, expanded since its initial publication in November 2016, describes the ecological and social data and models available for quantifying the production and value of many ecosystem services across the United States. To achieve nationwide inclusion of ecosystem services, federal agencies will need to continue to build out and provide support for this essential informational infrastructure.
In a new report, the Bipartisan Policy Center and Nicholas Institute for Environmental Policy Solutions explore the value, use, and limitations of economic modeling of the electricity sector. The report presents a suite of recent analyses by different organizations, showing how economic modeling can be used to simulate possible policy, market, and technology changes as the electricity sector transforms due to growth of domestic natural gas, increased use for electric generation, the rapid progress of renewable technologies, and environmental regulations. It is meant to be a guide for state policymakers who have both the benefit and challenge of unpacking modeling results and figuring out how best to learn from diverse findings. It provides them with both an understanding of how to best utilize economic models and interpret their results as well as explores key modeling structures often being deployed to model carbon regulations such as the Clean Power Plan and input assumptions that impact power sector modeling results.
Ongoing Evolution of the Electricity Industry: Effects of Market Conditions and the Clean Power Plan on States
The electricity industry is evolving as changes in natural gas and coal prices, along with environmental regulations, dramatically shift the generation mix. Future trends in gas prices and costs of renewables are likely to continue moving the industry away from coal-fired generation and into lower-emitting sources such as natural gas and renewables. The U.S. Environmental Protection Agency’s Clean Power Plan (CPP) is likely to amplify these trends. The CPP rule regulates emissions from existing fossil generators and allows states to choose among an array of rate-based and mass-based goals. The analysis in this paper uses the electricity-dispatch component of the Nicholas Institute for Environmental Policy Solutions’ Dynamic Integrated Economy/Energy/Emissions Model to evaluate electricity industry trends and CPP impacts on the U.S. generation mix, emissions, and industry costs. Several coordinated approaches to the Clean Power Plan are considered, along with a range of uncoordinated “patchwork” choices by states. The model results indicate future industry trends are likely to make compliance with the Clean Power Plan relatively inexpensive; cost increases are likely to be on the order of 0.1% to 1.0%. Some external market conditions such as high gas prices could increase these costs, whereas low gas or renewables prices can achieve many of CPP goals without additional adjustments by the industry. However, policy costs can vary substantially across states, and may lead some of them to adopt a patchwork of policies that, although in their own best interests, could impose additional costs on neighboring states.
The proposed Clean Power Plan gives U.S. states flexibility in how they attain state-level carbon dioxide emissions rate goals from existing power plants. This analysis uses the Dynamic Integrated Economy/Energy/Emissions Model to illuminate the implications of three key decisions: whether to choose rate- or mass-based compliance, whether to pursue multistate or individual state compliance, and whether—if allowed in the final rule—to include new natural gas combined cycle (NGCC) units under the emissions limit.
Regarding power sector adjustments, modeling shows that (1) a rate-based approach initially decreases coal generation 25% and increases use of existing NGCC units and construction of new renewables; (2) compared to that approach, a mass-based approach initially increases coal generation and removes incentives for use of existing NGCC and new renewables generation; (3) assumptions about renewables capital costs, energy efficiency savings, and natural gas prices significantly affect generation responses; and (4) rate-based approaches allow for more emissions growth than mass-based approaches post–2030.
Regarding policy costs, the modeling shows that (1) a mass-based approach, especially with multistate cooperation, offers large cost savings opportunities; (2) neither approach has a big effect on wholesale electricity prices, but including new NGCC units lowers prices under a rate-based approach and increases them under a mass-based approach; and (3) costs differ across U.S. regions and across the mass- and rate-based approaches within regions.
The proposed Clean Power Plan gives U.S. states flexibility in how they attain state-level carbon dioxide emissions rate goals from existing power plants. This analysis explores the potential impact of the proposed CPP on Southeast states across a range of compliance options relative to a baseline without the CPP. The analysis presents modeling results from the Dynamic Integrated Economy/Energy/Emissions Model for eight primary compliance scenarios involving rate-based or mass-based compliance, unilateral state action or regional cooperation, and inclusion or non-inclusion of natural gas combined cycle (NGCC) units as regulated entities under the CPP.
Regarding electricity sector adjustments, the modeling shows that a rate-based approach initially decreases coal generation, encourages use of existing and construction of new NGCC units, and incentivizes renewable generation, although use of renewables is not cost-effective in the Southeast under baseline cost assumptions. By comparison, a mass-based approach initially increases coal generation and removes incentives for use of existing NGCC units while significantly increasing new NGCC generation. Including new NGCC units under CPP compliance shifts generation from those units to existing NGCC units under mass-based compliance and increases coal generation under rate-based compliance.
Regarding policy costs, the modeling shows that individual state compliance costs vary considerably, that a mass-based approach initially entails half the costs of a rate-based approach, and that both regional rate-based and mass-based approaches create significant net cost savings over unilateral state compliance.
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.
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.