On the Economic Value and Price-Responsiveness of Ramp-Constrained Storage

The primary concerns of this paper are twofold: to understand the economic value of storage in the presence of ramp constraints and exogenous electricity prices, and to understand the implications of the associated optimal storage management policy on qualitative and quantitative characteristics of storage response to real-time prices. We present an analytic characterization of the optimal policy, along with the associated finite-horizon time-averaged value of storage. We also derive an analytical upperbound on the infinite-horizon time-averaged value of storage. This bound is valid for any achievable realization of prices when the support of the distribution is fixed, and highlights the dependence of the value of storage on ramp constraints and storage capacity. While the value of storage is a non-decreasing function of price volatility, due to the finite ramp rate, the value of storage saturates quickly as the capacity increases, regardless of volatility. To study the implications of the optimal policy, we first present computational experiments that suggest that optimal utilization of storage can, in expectation, induce a considerable amount of price elasticity near the average price, but little or no elasticity far from it. We then present a computational framework for understanding the behavior of storage as a function of price and the amount of stored energy, and for characterization of the buy/sell phase transition region in the price-state plane. Finally, we study the impact of market-based operation of storage on the required reserves, and show that the reserves may need to be expanded to accommodate market-based storage

The Design of a Carbon Tax

We consider the design of a tax on greenhouse gas emissions for a developed country such as the United States. We consider three sets of issues: the optimal tax base, issues relating to the rate (including the use of the revenues and rate changes over time) and trade. We show that a well-designed carbon tax can capture about 80% of U.S. emissions by taxing fewer than 3,000 taxpayers and up to almost 90% with a modest additional cost. We recommend full or partial delegation of rate setting authority to an agency to ensure that rates reflect new information about the costs of carbon emissions and of abatement. Adjustments should be made to the income tax to ensure that a carbon tax is revenue neutral and distributionally neutral. Finally, we propose an origin-based system for trade with countries that have an adequate carbon tax and a system of border taxes for imports from countries without a carbon tax. We suggest a system that imposes presumptive border tax adjustments with the ability of an individual firm to prove that a different rate should apply. The presumptive tax could be based either on average emissions for production of the item by the exporting country or by the importing country.

California Carbon Market Watch: A Comprehensive Analysis of the Golden State's Cap-and-Trade Program, Year One - 2012-2013

January 1, 2014 marked one year since the start of California's landmark cap-and-trade program, a market-based system to reduce greenhouse gas (GHG) pollution. The program will be the second-largest carbon market in the world, after the European Union's, and will cover 85% of all carbon pollution in the state by 2015. It is the most discussed program in a suite of strategies being deployed to achieve the goal of California's Global Warming Solutions Act -- also known as Assembly Bill 32 (AB 32) -- a 2006 law requiring the state to reduce GHG emissions to 1990 levels by 2020. California is the eighth-largest economy in the world and the first state in the nation to employ an economy-wide cap-and-trade program. While no state or country can stop climate change alone, California's environmental policies have a history of success and replication. The importance of California's program is thus magnified by the example it sets, and the world is watching to see whether the state's carbon market will succeed.One year into the program, the outlook is positive. California's cap-and-trade system weathered legal challenges and demonstrated a successful launch and viability during its initial year. In the first five auctions, all of the offered emission allowances usable for compliance in 2013 were sold. Similarly, the secondary market for carbon allowances has shown stability, and carbon prices close to the floor indicate the long-term possibility of low marginal abatement costs for regulated entities. Contrary to some predictions of harsh economic damage, capping carbon pollution in California has occurred amidst sustained and promising economic recovery and growth, including a stronger housing market and lower unemployment rate.This report provides an overview and analysis of California's carbon market after one year in operation. Included are a background on the cap-and-trade program, an account of the carbon market's progress to date, and an analysis of what the market's performance means for California's environmental and economic goals. This analysis includes in-depth summaries and trends observed from the quarterly auctions and secondary market activity, along with evaluations of market performance by industry experts and academics. Updates regarding litigation, proposed regulatory amendments, and international agreements are also discussed

Post-Foreclosure Community Stabilization Strategies: Case Studies and Early Lessons 2008

In the midst of all the foreclosures sweeping the country, and the turmoil on Wall Street, nonprofit housing organizations are quietly going about the work of stabilizing communities hard hit by the crisis. Most have had frontline responsibility for counseling families threatened with foreclosure. With their assistance tens of thousands of families have restructured their budgets, negotiated with servicers to modify their loans, and saved their homes. Other families, too far along in the foreclosure process to stop it from happening, have received help transitioning to new housing arrangements.While the work with distressed homeowners must continue, nonprofits are feeling increased pressure to deal with the growing foreclosed housing stock. These units are causing incalculable harm to neighborhoods, and any hope of housing recovery must ensure that these units are swiftly put back into productive use or demolished. This collection of 14 case studies outlines strategies that nonprofit organizations across the country are using to begin the process of repairing damaged communities.The stakes are enormous. Vacant housing invites vandalism, and becomes a hub for gangs and crime. Virtually all case study subjects reported that, within weeks of housing becoming vacant, thieves break into the units and strip them of their valuable copper plumbing and wiring, heedless of any destruction they leave in their wake. In Phoenix a half-finished, abandoned subdivision was used as an informal "Home Depot" as other homeowners broke in and helped themselves to fixtures and appliances. In Cleveland, vandals remove not just the copper but the aluminum siding from vacant houses. In photos these houses have a desolate, post-disaster look, like the aftermath of a hurricane. When units get demolished the vacant lots soon sprout grass and trash, adding to the community's forlorn appearance.Vacant, deteriorated units place a downward pressure on housing values that puts nearby neighbors in a bind. In order to sell their units they will have to reduce the price, as no one will pay top dollar to live in a blighted neighborhood. Yet their ability to refinance into a more affordable mortgage may be compromised by the drop in property values; in some cases this leads to additional foreclosures and the downward cycle continues.Intervening in these troubled neighborhoods is challenging. In some markets housing prices are still falling, making it hard to determine the value of the units. Bank asset managers and servicers often lack detailed knowledge of the markets, or even of the units they have in their own inventory. This leads them to overvalue their properties and hold out for more than they are worth, delaying the process of acquiring and renovating them for resale to new homebuyers. Finally, the complex ownership structure of mortgages which were rolled into collateralized debt obligations and other investment vehicles makes it very difficult to establish who owns properties and who has authority to negotiate their sale.0

Dynamic Product Assembly and Inventory Control for Maximum Profit

We consider a manufacturing plant that purchases raw materials for product assembly and then sells the final products to customers. There are M types of raw materials and K types of products, and each product uses a certain subset of raw materials for assembly. The plant operates in slotted time, and every slot it makes decisions about re-stocking materials and pricing the existing products in reaction to (possibly time-varying) material costs and consumer demands. We develop a dynamic purchasing and pricing policy that yields time average profit within epsilon of optimality, for any given epsilon>0, with a worst case storage buffer requirement that is O(1/epsilon). The policy can be implemented easily for large M, K, yields fast convergence times, and is robust to non-ergodic system dynamics.Comment: 32 page

Wal-Mart Stores, Inc. Strategic Corporate Research Report

[Excerpt] Wal-Mart Stores, Inc. (hereinafter Wal-Mart) is the second-largest company in the world. It has more annual revenue than the GDP of Switzerland. It sells more DVDs, magazines, books, CDs, dog food, diapers, bicycles, toys, toothpaste, jewelry, and groceries than any other retailer does worldwide. It is the largest retailer in the United States, Mexico, and Canada, the second-largest in the United Kingdom, and the third largest in Brazil, With its partners, it is the largest retailer in Central America. Wal-Mart is also the largest private employer in the United States, Mexico, and Canada, and it has 1.8 million employees around the globe. Wal-Mart is so huge that it effectively sets the terms for large swaths of the global economy, from retail wages to apparel prices to transoceanic shipping rates to the location of toy factories. Indeed, if there is one single aspect to understand about the company, it is the fact that Wal-Mart is transforming the relations of production in virtually every product category it sells, through its relationships with suppliers. But its influence goes far beyond the economy. It sets social policy by refusing to sell certain types of birth control. Its construction of supercenters molds the landscape, shapes traffic patterns, and alters the local commercial mix. The retail goliath shapes culture by selling the music of patriotic country singer Garth Brooks but not the critical (and hilarious) The Daily Show with Jon Stewart Presents America (the Book): A Citizen’s Guide to Democracy Inaction. It influences politics by donating millions to conservative politicians and think tanks. Wal-Mart is, in short, one of the most powerful entities in the world. Not surprisingly, Wal-Mart has developed a long list of critics, including unions, human rights organizations, religious groups, environmental activists, community organizations, small business groups, academics, children’s rights groups, and even institutional investors. These groups have exposed the company’s illegal union-busting tactics, its many violations of overtime laws, its abuse of child labor, its egregious healthcare policies, its super-exploitation of immigrant workers, its rampant gender discrimination, the horrific labor conditions at its suppliers’ factories, and its unlawful environmental degradation. They have also chronicled the deleterious effect Wal-Mart has on the public coffers and the quality of community life. New Wal-Mart stores and distribution centers often swallow up government subsidies and tax breaks, take public land, create more congestion, reduce overall wages, destroy retail variety, and increase public outlays for healthcare. To its critics, Wal-Mart represents the worst aspects of 21st-eentury capitalism. Wal-Mart usually counters any criticism with two words: low prices. It is a powerful mantra in a consumerist world. The company does make more products affordable to more people, and that is nothing to sneeze at when wages are stagnant, jobs insecure, pensions disappearing, and health coverage shrinking. With low prices, Wal-Mart helps working men and women get more from their meager paychecks, more necessities like bread, and more luxuries, like roses, too. It is a brilliant and incontrovertible argument, and Wal-Mart’s most ardent defenders take it even farther. They say its obsession with low prices makes the entire economy more efficient and more productive. Suppliers and competitors have to produce more and better products with the same resources, and that redounds to everyone. In the micro, it means falling prices and rising product quality. In the macro, it means economic growth, more jobs, and higher tax revenues. To its defenders, Wal-Mart represents the best aspects of 21st-century capitalism. Despite their radical opposition, critics and defenders of the world’s largest corporation agree on one thing: Wal-Mart represents 21st-century capitalism. It symbolizes a system of increasing market penetration and decreasing social regulation, where more and more aspects of life around the world are subject to economic competition. Wal-Mart’s success rests upon the ongoing destruction of social power in favor of corporate power. It takes advantage of the conditions of the neo-liberal world, from the availability of instant and inexpensive global communication to the continuing collapse of agricultural employment around the world to the rapid diffusion of technological innovation to the oversupply of subjugated migrant labor in nearly every country to the continued existence of undemocratic and corporate-dominated governments. For some, this is as it should be, all part of capitalism’s natural and ultimately benign development. For the rest of us, Wal-Mart is at the heart of what is wrong with the world

Using emissions trading to regulate global greenhouse gas emissions

The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate change issues through flexible market mechanisms. This Article addresses a number of policy issues that must be considered in designing and implementing an international greenhouse gases (GHG) emissions trading scheme. These include emissions trading models, the initial allocation of emissions permits and its competitiveness concerns, banking and borrowing, the liability rules for non-compliance, and bubbles. The following conclusions emerge from the discussion. First, although emissions trading could take place either on an inter-governmental basis or on an inter-source basis, sub-national legal entities are the best entities to trade emissions permits. Allocating permits to individual emissions sources will facilitate private participation in emissions trading. Moreover, it has been argued that individual governments should be left free to devise their own ways of allocating assigned amounts. Second, it has been pointed out that although national emissions trading systems could be modelled as either upstream or downstream or hybrid systems, the distinguishing features of broad coverage and administrative simplicity would make an upstream system the more attractive approach. Moreover, national emissions trading systems should incorporate the maximum degree of flexibility in banking. Third, the liability rules are essential to the success of an international GHG emissions trading scheme. In general, a seller beware liability works well in a strong enforcement environment. In the Kyoto Protocol, however, it may not always work. By contrast, a buyer beware liability could be an effective deterrent to non-compliance, but the costs of imposing it are expected to be very high. To strike a middle ground, it has been suggested a combination of preventive measures with strong but feasible end-of-period punishments to ensure compliance with the Kyoto emissions commitments. Such measures aim to maximize efficiency gains from emissions trading and at the same time, to minimize over-selling risks.Annual retirement; auction; bubbles; buyer beware liability; carbon taxes; clean development mechanism; compliance reserve; compulsory insurance; emissions trading; grandfathering; greenhouse gases; international competitiveness; joint implementation; Kyoto Protocol; seller beware liability; World Trade Organization

Distributional Impacts of a U.S. Greenhouse Gas Policy: A General Equilibrium Analysis of Carbon Pricing

Abstract and PDF report are also available on the MIT Joint Program on the Science and Policy of Global Change website (http://globalchange.mit.edu/).We develop a new model of the U.S., the U.S. Regional Energy Policy (USREP) model that is resolved for large states and regions of the U.S. and by income class and apply the model to investigate a $15 per ton CO2 equivalent price on greenhouse gas emissions. Previous estimates of distributional impacts of carbon pricing have been done outside of the model simulation and have been based on energy expenditure patterns of households in different regions and of different income levels. By estimating distributional effects within the economic model, we include the effects of changes in capital returns and wages on distribution and find that the effects are significant and work against the expenditure effects. We find the following: First, while results based only on energy expenditure have shown carbon pricing to be regressive we find the full distributional effect to be neutral or slightly progressive. This demonstrates the importance of tracing through all economic impacts and not just focusing on spending side impacts. Second, the ultimate impact of such a policy on households depends on how allowances, or the revenue raised from auctioning them, is used. Free distribution to firms would be highly regressive, benefiting higher income households and forcing lower income households to bear the full cost of the policy and what amounts to a transfer of wealth to higher income households. Lump sum distribution through equal-sized household rebates would make lower income households absolutely better off while shifting the costs to higher income households. Schemes that would cut taxes are generally slightly regressive but improve somewhat the overall efficiency of the program. Third, proposed legislation would distribute allowances to local distribution companies (electricity and natural gas distributors) and public utility commissions would then determine how the value of those allowances was used. A significant risk in such a plan is that distribution to households might be perceived as lowering utility rates That reduced the efficiency of the policy we examined by 40 percent. Finally, the states on the coasts bear little cost or can benefit because of the distribution of allowance revenue while mid-America and southern states bear the highest costs. This regional pattern reflects energy consumption and energy production difference among states. Use of allowance revenue to cut taxes generally exacerbates these regional differences because coastal states are also generally higher income states, and those with higher incomes benefit more from tax cuts.MIT Joint Program on the Science and Policy of Global Change through a combination of government, industry, and foundation funding, the MIT Energy Initiative, and additional support for this work from a coalition of industrial sponsors

Combined Pricing and Portfolio Option Procurement

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/90569/1/poms1255.pd

Carbon Pricing in New York ISO Markets: Federal and State Issues

New York’s Clean Energy Standard (“CES”), adopted in August 2016, aims to steer the state’s electricity sector away from carbon-intensive generation sources. It supports low-carbon alternatives by requiring retail electricity suppliers to purchase credits, the proceeds from which are paid to renewable and nuclear generators. Recognizing that this will affect the operation of wholesale electricity markets, New York’s electric transmission grid operator (the “New York Independent System Operator” or “NYISO”) has commenced a review to assess possible means of incorporating the cost of carbon emissions into market prices. This Article explores two approaches to carbon pricing in NYISO markets: the first would involve NYISO adopting a carbon price of its own initiative with a view to improving the operation of wholesale electricity markets (“Approach 1”), while the second would involve adoption of a carbon price designed to reflect and harmonize state-level policies aimed at reducing electricity sector emissions (“Approach 2”). Under either approach, NYISO would adopt a per megawatt hour carbon price and use it to establish a fee for each generating unit, consistent with its emissions profile. This fee would be added to the prices generators bid into the wholesale electricity market and those adjusted prices used by NYISO to determine the dispatch order. The result would likely be a re-ordering of dispatch, with high-emitting generators dispatched (and paid) less frequently, and cleaner alternatives more frequently. Our proposal, while conceptually simple, is likely to be difficult to implement