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Impacts of CO2 Emissions Reduction Policies on Upper Midwest Renewable Energy Production

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Left to right: Rolf Nordstrom, Mike Bull, Bruce Ringrose. Credit: E. Gertz

The question at this panel, playing to a room of at least a few hundred of today's E3 attendees, is how low-carbon fuel standards, carbon markets, and greenhouse gas regulations will impact renewable energy production in the upper Midwest?

 Rolf Nordstrom, of the Great Plains Insititute sees impending carbon regulations as the "starting gun" -- with markets hopefully following as an incentive.  He sees a low-carbon standards as a useful policy tool, but by itself easily overwhelmed if vehicle miles driven increase.

Putting a price on carbon will lead to more renewable energy, no question, he says.

Mike Bull of Xcel Energy says that a) his opinions today are his own, and not those of Xcel, and b) he largely agrees with Rolf.  His sense is that a cap-and-trade market, properly structured, would have the most impact on reducing heat-trapping greenhouse gas emissions, with least impact on "ratepayers" ("I speak as a utility schmuck now, about ratepayers; others will speak of customers.").

EPA regulation of stationary sources of greenhouse gases will be the most expensive approach, he expects, and promote expansion of "bridge fuels" like natural gas, in place of coal, as opposed to moving to biomass and other renewables, at least in the short run.

Bruce Ringrose is with the Canadian company ClimateCHECK, which is involved in greenhouse gas measurement and control strategies, largely with private interests rather than governments.  In Canada, he says, there is already a cap-and-trade system in place in Alberta; large emitters are regulated to reduce their emissions.  "How they do that gets quite interesting," and is the arena where opportunities for renewables can present themselves, although that's not a given.

Cap is $15 per ton.  So large emitters will look for internal measures to reduce cost.  Then they'll go looking for projects w/in Alberta to buy into as offsets, usually agricultural projects.  This creates a layering effect in the market, as hedgers and brokers into the market.   Without clean technology solutions, how will we acheive any reductions, he asks?

Cap-and-trade will help create green jobs, green investments, and green technologies, says Ringrose.

After the jump, more on the politics of global warming, the quandries of transitioning to renewables, and more. 


Moderator Jonathan Dettmann asks each panelist to comment on how politics will affect the renewable energy picture.

Ringrose: If you look at Waxman-Markey bill, the issue that stands out, at least for Canada, is the carbon tariff.

Bull: Where energy economics and energy politics come together is bulk of my career.  At the end of the day, the economics influence the politics.  Those being made better off will lobby for a policy; those being made worse off lobby against it.  That drives how responsive policy-makers will be.   (He seems to be saying, actually, that despite the economics, it's political clout that's going to drive renewable energy and carbon reduction policies.)

Nordstrom believes that in terms of the large shift in how we produce and consume energy, the decisions we face are social and political rather than technological -- that is, "where there's a will, there's a way."  Politics is the trump card; the wrinkle is to have the debate be not only about economics.  And how far out we're looking: the next five years, or the next fifty years?

At a faith-and-climate change conference his institute organized, a Regan-era economist said that it would cost about 2% of GDP to deal with climate change.  To Americans, this sounds like a lot, but over the scope of growth anticipated in the coming 50 years, it becomes extremely small.

Questions from the audience begin:

Thinking about possible US legislation, based on your most conservative estimates, what impact would that have on the price of electricity in the next year to two years?

Bull: A lot depends on the carbon mix of the supply of each individual utility.  For a utility like Xcel, our plan results in a 20% reduction of CO2 emissions based on 2005 levels.  We're already decarbonizing our system; a lot of other utilities are not in that situation.  We're already making the cost-effective and prudent choices ("for any regulators that are in the room") and our customers have been paying those forward for Xcel and themselves, and will not feel a bit impact.

Energy-efficicieny, use-reduction policies, programs and technologies could have a hugely offsetting effect on the price of energy.  The pressures [that is, energy rates] in the short run are going to be upwards for most utilities; but energy-efficiency could offset a lot of that.

If you have the transmission, the price to the ratepayer will go down as you bring renewables into the system.  So how can you even talk about carbon prices without bringing improved transmission into it?

Nordstrom: The cost impact is hard to assess, and not treated very well in the popular press. The price of energy may go up some under a climate policy, it's hard to argue otherwise, but there's a difference between the price of energy and your bill.  That's where energy-efficiency comes in.  People like me could do more to make our home energy efficient, bring use down, and keep costs the same.  [Sometimes this is called "decoupling." - Emily]

Ringrose: In Ontario, we're moving toward time of use, which is going to have a huge impact on costs for consumers. First 1500 kw of use cost, say, $0.05 a kwh; then price goes up to $0.06. (He speaks quickly and I didn't get his exact figures here.) Premiums could be implemented for midday in summer, which would likely cause people to use less during top-rate hours, and lead to less dependence on importing coal power from the south to meet peak demand.  

If we an assume that some form of US carbon regulation is coming, either via legislation or via the EPA, who will be the winners and losers in renewable energy, especially in Midwest?

Bull:  Xcel heavily into wind; it's the most cost effective renewable source.  Sees pockets of opportunity of biomass sources, for the "baseload benefit that wind doesn't have." But tends to be somewhat limited b/c fuels difficult to transport over long distances; need to be handled carefully; in the forms we see it, not the most useful fuel.

Xcel sees solar coming up; cost curves in solar PV are coming down dramatically;
grid parity in 2015-2020 time frame.  As the costs become more efficient, that's something the Midwest can "look into."

Nordstrom: Not just the renewables, but what they're paired with.  For example, Xcel looking into pairing wind with large solar sulfur batteries.  The synergies between different energy generation technologies will to some extent drive which renewables come out on top.  

Given the lift that the world faces to produce twice as much energy as we produce today, net carbon free, it's a little bit of a false conversation to say which renewable will we pick. We'll need all of them, and more, no matter what we do with energy efficiency.  The hard truth is we're going to need to push hard on everything; there will be opportunities for everyone who wants to get involved with producing renewable energy.

Pushing the investment question a bit:  Wind energy was developed over past decade or two in part with power purchase agreements; but now there's move by utilities to own the wind farm as the costs rise.  What does this say about solar?

Bull:  Utilities as a general rule very risk-averse.  One reason it took us a long time, as an industry, to decide to own wind resources, was that we wanted to be sure they'd work.  That they'd be as reliable as the other sources regulators are used to us owning: coal, hydro, natural gas, nuclear.  So solar will likely go through same cycle -- with power purchase agreements, where we pay for output -- in order to manage that risk.

There's pressure for utilities to own, but to play that off against the risk, there is going to be a mix.  And regulators will have a lot to say about this as well.

Ringrose: In a project in Alberta, use of solar for community distribution space heating is coming on.  (In essence, an underground aquifer is charged up with heat; then can emit enough heat over the winter to warm the homes.)  This and other ideas he's seeing implemented may improve the potential of solar in the upper Midwest as an investment opportunity.

Bull: Xcel is proposing a solar-to-battery project, in partnership with others, to Department of Energy: megawatt of solar, megawatt of battery, megawatt of demand response, and see how those work together.  Storage of solar power is one area we'll need significant advancement on in order to "meet carbon stabilization goals."

Will carbon regulation make upper Midwest less energy competitive?

Bull: Goal is to spread out the impacts across the states; that's why so many legislators prefer a national cap-and-trade system. [Over regional or state-based, presumably? - Emily]

Will cost something in the short run, like we pay for clean water and safe food and everything else.  But this can be turned on its head.  

Some think we can't act unless China acts, or we'll become less competitive economically with China.

But their industry does not need a price signal to invest in low-carbon energies.  They're going gangbusters to become the new manufacturing home for solar energy technology to underground gasification, and everything in between.  They're not waiting for an agreement in Copenhagen, they're just pushing forward.

It may be a heresy, but US industry needs a deal in Copenhagen more than China does.  If they don't get some sort of certainty, a regulatory signal, they won't know what to invest in safely.  Then US industry will sit on its hands, wondering what to invest in and what not to invest in, while China and other nations take the lead.  So you need to look at this competitiveness question in a different way.

And a final question from moderator Jonathan Dettman:

Setting issues of renewables aside, is there a carbon emissions regulatory and reduction tool that you prefer over another?

Nordstrom is holding the mic, so he starts: Meets a lot of people who advocate a carbon tax as more efficient, lower cost to implement, simple to explain. Sounds very elegant.  

But despite all those what seem like benefits, carbon tax not a panacea either.

C-&-T gives you environmental certainty, although the economics will shift.

Tax gives you economic certainty -- here's the cost of the tax -- but you don't know how much emissions will be cut.  

Given all that, as well as that carbon tax seems to be impossible to talk about in polite company, a cap-and-trade system is the only train leaving the station.

Bull:  I agree with everything Rolf just said.

Ringrose: I believe c-&-t is economic simulus.  Where carbon tax is in place in Canada, the principle is if we give you a carbon tax, we'll give you a personal income tax reduction; we'll see if that comes true.

1 Comment

Any updated thoughts regarding how putting a price on carbon will lead to more renewable energy? Especially after recent incentives for solar panels in several US states it seems like renewables increase, rather than because of the price on carbon.

  The opinions expressed in this blog are those of the author(s) and not necessarily
  of the Institute on the Environment/University of Minnesota.

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This page contains a single entry by Emily Gertz published on November 17, 2009 10:48 AM.

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