“Greenhouse-Gas Fight Escalates” – Wall Street Journal, 2 September 2013

The Obama Administration is seeking to increase prices on greenhouse gas (GHG) emissions, a move that has inevitably stirred up trouble in Congress, causing Congress to introduce new legislation.

In May, the DOE publicized estimates of how much a ton of carbon dioxide emissions costs the US — the estimate in 2010 dollars was $21, a decrease from the 2007 estimate, which was $36 per ton.

Carbon dioxide emissions fell out of demand, and prices plummeted, between those years because the administration did not lawfully require companies to buy CO2 stock. But Obama has found that those estimates are significant because the pricier carbon pollution becomes, the greater impact it can have on both the US environment and economy. The EPA is planning to introduce additional, similar regulations, which also include limits for new power plants.

This August, House Republicans passed a bill, prohibiting the use of those estimates; House Republicans would rather have Congress price out estimates, rather than the administration.

Energy Secretary Ernest Moniz has concluded that the 2007 $36 estimate is similar, or lower, than estimates used by major oil companies. Exxon Mobil Corp, for instance, has priced carbon dioxide emissions at $80 per ton by 2040, while BP currently prices carbon at $40 per ton.

The great assumption behind placing a price tag on carbon emissions is that climate change is rapidly developing, and that more CO2 in the atmosphere will give way to more natural disasters and growing sea levels. The Bush Administration was also moving to price carbon emissions, though unsuccessful. The Obama Administration has employed many computer economic models in order to ascertain current estimates, though such estimates are not trusted by all. A $36/ton estimate could surely lead to stricter regulations on coal-fired power plants, meaning higher electricity costs for consumers.

Yale economics professor William Nordhaus is the innovator behind the best-known climate change model. While numerous scientists have tried to deny the fact that climate change exists, Nordhaus, though “no climate hawk”, continues to present key facts as to why it is important that CO2 emissions be regulated. Read more here.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

September 13, 2013

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“President Details Sweeping Climate Policies” – Wall Street Journal, 25 June 2013

This past Tuesday, President Obama announced his three-part strategy to curb US greenhouse gas (GHG) emissions, help spur international efforts on climate change, and guard the US from any further effects of climate change. His strategy is sure to thoroughly redefine how the US generates and uses electricity. Moreover, Obama added that he is looking to approve the Keystone XL pipeline – a very contentious issue — in 2013, noting that he would only do so if the pipeline doesn’t have an extreme impact on GHG emissions.

Obama’s climate policy plan has spurred conflicting reactions from the energy industry: manufacturers are concerned that slashing emissions would increase electricity prices and  undermine competitiveness; while nuclear and clean-energy companies are in favor of the plan, as they will profit if GHG emissions are curbed.

Limited emissions could mean the collapse of coal, which accounts for one-third of the US’s GHG emissions. For the past few years, natural gas has been America’s favored energy source — Obama’s new regulations would push the energy industry even further towards natural gas and nuclear power, both of which produce far less carbon dioxide than coal-based power plants. Improvements in energy-efficiency and the renewable energy sector, like wind and solar power, are also likely to occur.

Obama’s plan will involve other tactics that will help reduce emissions, such as providing federal loan guarantees for cleaner fossil-fuel energy projects; new fuel-economy guidelines for trucks; a more positive alliance between the US and key economies like China, India and Brazil; and creating strong emission standards for new power plants, which must be acted out before any rules are created for established power plants.

The new regulations have been met with resistance by industry groups such as the Kentucky Coal Association, which believes that any effort to limit coal and fossil fuel-based power plants will prevent Kentucky from creating jobs, ultimately forcing Kentucky families to endure job loss, and rising bills and food prices. This is a prevailing notion among most coal companies and politicians from coal country – they believe Obama is waging a ‘war on coal’.

Energy analysts predict that, if Obama’s measures are put into action, one-third of US coal will go into retirement, a potentially hard hit to industries and consumers alike. Coal companies fear that the demise of coal may give way to unstable prices, which could undercut the coal industry’s competitive edge over other countries. Power companies often avoid depending on gas for these reasons.

The new regulations don’t need congressional approval, but will take years to be fully enacted and not likely be completed during Obama’s second term. Obama hopes to successfully limit GHG emissions by 17% by 2020, from 2005 levels.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

June 26, 2013

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“Unburnable Fuel” – The Economist, 4 May 2013

According to the current market, “the more fossil fuels a firm has underground, the more valuable its shares.” However, some of these reserves might actually be unusable — firms might not be able to dig them up, thus making the firms overvalued.

According to Carbon Tracker, a lot of the carbon would have to remain un-dug. Their analyses is based upon the estimation that the world’s temperature would not increase by more than 2°C from now until 2050. Based upon that estimation, the world’s “carbon budget” til 2050 is 1,000 gigatons (GTCO2).

As reported by IEA, the world’s reserves total 2,860GTCO2, around three times bigger than our carbon budget. Anything more than the estimated 1,000GTCO2 is marked as “unburnable carbon”.

Most of these reserves are owned by government and state energy firms, which could easily enact public policy to leave the fossil fuels in the ground. The rest of the reserves — 762GTCO2 are proven to exist, while 1,541GTCO2 potentially exist — are owned by oil companies and fossil fuel firms who have grown the reserves using investors’ money (i.e. investors who anticipate a monetary return). The best case scenario is that private firms’ proven reserves — the total of 762GTCO2 is within the allotted 1,000GTCO2 range — should be carefully used before 2050, giving more money back to investors. Governments, in turn, should not burn their reserves. This, however, isn’t happening: it seems that private firms are betting against government climate policies, and both governments and firms no longer seek long-term environmental improvements.

This could be fairly accurate, as the European Parliament recently voted against saving the EU’s Emissions Trading System from collapse, which is the EU’s leading environmental policy and the biggest global carbon market.

Energy firms assert that they are embracing green culture by increasing carbon prices for their investors, which is often untrue. The market actually overvalues the firms by assuming that all reserves will be burned, and that they are indicative of future monetary gains. When reserves are consumed, investors demand fossil fuel firms to resupply almost immediately. This is called the reserve replacement ratio, and fossil fuel firms’ ratios are expected to stay above 100%. Share prices decline if the ratio declines.

Carbon Tracker’s report advised that firms should be required to reveal how much carbon they have in their reserves; and firms’ enterprises should fall in line with international emission goals. Yet, none of this matters until the world takes serious steps to get ahead of climate change.

See my other entries:
Europe’s Emissions Plan Hits Turbulence
EPA Plans to Require New Standards on Gas
States Cooling to Renewable Energy
Utah Cracks Down on Smog
On Climate Change, Some Arguments Shift

Developed and Written by Dr. Subodh Das and Tara Mahadevan

May 24, 2013

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“On Climate Change, Some Arguments Shift” – Wall Street Journal, 25 January 2013

For years, the US’s dilemma, like Europe’s current dilemma, has been a question of focus: should we center our efforts on supporting a weakening economy, or addressing burgeoning environmental issues? After Obama’s reelection, that question seemed to have been answered, when he made it known that climate change will be a cornerstone of his second term. In addition, the American people’s attitude changed: in a Pew Research Center poll from October, there was large agreement that climate change is manmade and a serious problem that needs to be resolved.

Screen shot 2013-03-12 at 3.31.54 PM

Wall Street Journal

Younger voters, what the WSJ calls “Campus and Careers”, and Latino voters, or “Immigration Nation”, are significant in spurring change to climate change policy. As more people — even those who are conservatively-inclined — believe that climate change has been caused by human activities, and the more votes Congress can garner, the more action Congress can take on the situation.

However, a good deal of the issue with reining in climate change has to do with greenhouse gas emissions. Many lawmakers say that curbing emissions will stunt the US’s economic recovery. California recently put such a program, called “cap and trade“, into effect. The program is a a governmental, statewide system that places a restriction on the amount of emissions a company can produce, or a ‘cap’.

Though no immediate action for climate change is on the table, hopefully President Obama will hold up his end of the deal and address our warming climate. The US federal government, and perhaps even state governments, could also take a cue from California. US leadership is critical to restart stalled global dialogue. A very wise Chinese philosopher — Confucius — once said, “A journey of a thousand miles begins with the first step.” Now that China is world’s number one carbon dioxide emitter, followed by the US, a joint Chino-American initiative is in order. Perhaps the US’s new Secretary of States John Kerry will make this happen.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

March 12, 2013

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