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Modeling a Clean Energy Standard. Karen Palmer Senior Fellow Resources for the Future palmer@rff.org USAEE/IAEE Annual Conference Washington, DC October 11, 2011. What is a Clean Energy Standard (CES)?.
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Modeling a Clean Energy Standard Karen Palmer Senior Fellow Resources for the Future palmer@rff.org USAEE/IAEE Annual Conference Washington, DC October 11, 2011
What is a Clean Energy Standard (CES)? CES is a portfolio standard requiring a minimum percentage of electricity be generated by qualified sources. Design parameters: • Qualified sources • Renewables • Beyond renewables: nuclear, CCS, NGCC; partial credit • Energy efficiency • Compliance entity • Coverage • Exclude small utilities • Exclude existing hydro and nuclear • Targets and timetables • Flexibility • Credit trading, banking and borrowing • Alternate Compliance Payment (ACP) • ACP revenue uses
What to expect from a CES Cleaner mix of generation technologies and fuels CO2 emissions reductions Electricity price impacts with regional variation Design parameters will affect outcomes. Treatment of existing nuclear and hydro Level of the Alternative Compliance Payment (ACP)
Policies Evaluated • Baseline • Core CES • Goal of 80% Clean Energy by 2035 • Clean energy credit (CEC) trading but no banking • All utilities must comply • No Alternate Compliance Payment (ACP) • Crediting scheme • No credits for existing nuclear and hydro • No credits for energy efficiency • Full credit for renewables and incremental nuclear • Half credit for natural gas combined cycle • 90% credit for coal with CCS • Credit Existing Nuclear and Hydro (CreditNH) • Core CES with varying ACP levels ($15 - $55 per CEC)
Generation Mix in 2035 Billion kWH
How much does a CES reduce CO2? Billion Tons
CO2 Reductions vary with ACP levels Billion Tons
ACP and Electricity Price $ / MWh
Conclusions • Cumulative CO2 emissions from the electricity sector would be reduced by 30% through 2035. • A broad set of clean technologies and fuels would displace conventional coal generation. • Average electricity prices would rise by 11%-15% in 2035 and mitigate regional price differences. • Crediting existing nukes and hydro would barely affect emissions, but would lead to higher average electricity prices and exacerbate regional price differences. • Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.
For more information see: Clean Energy Standards for Electricity: Policy Design Implications for Emissions, Supply, Prices and Regions by Anthony Paul, Karen Palmer and Matt Woerman Available at www.rff.org/centers/climate_and_electricity_policy/Pages/ Renewable_and_Clean_Energy_Resource_Library.aspx
National Results • Cumulative CO2 emissions from the electricity sector would be reduced by 30% through 2035; less with binding ACP. • A broad set of clean technologies and fuels would displace conventional coal generation. • Average electricity prices would rise by 11%-15% in 2035; less with binding ACP. • Crediting existing nukes and hydro does not affect emissions, but raises average electricity prices. • Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.
Preview of results Cumulative CO2 emissions from the electricity sector would be reduced by 30% through 2035. A broad set of clean technologies and fuels would displace conventional coal generation. Average electricity prices would rise by 11%-15% in 2035, but with substantial regional variation. Crediting existing nukes and hydro would barely affect emissions, but would lead to higher average electricity prices and exacerbate regional price differences. Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.
Discounted Value of ACP Revenue Billion $
Drivers of Regional Outcomes Existing generation fleet Renewable resource endowment Electricity market regulatory structure Competitive vs. Cost-of-Service Qualified generators under CES
Electricity Market Regulation • Suppose closed markets that do not trade power or credits with other markets. • Cost-of-Service • CES will yield higher production costs, so higher prices. Consumers bear the burden. • Competitive • Price effects depend on marginal costs, which may rise or fall under CES. Producers and consumers share the burden/benefit. • U.S. markets are not closed. They trade power and would trade credits. So these rules apply not strictly.
Preview of Regional Results • Credits flow east, $ flow west. • Pre-existing regional price differences would be mitigated. • Largest price increases tend to occur in the regions currently facing the lowest prices. • Smallest price increases, or even reductions, tend to occur in the regions currently facing the highest prices. • Qualifying existing nuclear and hydro benefits northwest and southeast, exacerbating pre-existing price differences.
