The role of CO2 emissions from large point sources in emissions totals, responsibility, and policy

A large fraction of anthropogenic CO2 emissions comes from large point sources such as power plants, petroleum refineries, and large industrial facilities. The existence and locations of these facilities depend on a variety of factors that include the distribution of natural resources and the economy of scale of operating large facilities. These large facilities provide goods and/or services well beyond the political jurisdiction in which they reside and their emissions to the global atmosphere are not a simple reflection of the consumption of goods and services within the geographic region in which they reside. And yet many accounting schemes do not distinguish between emissions for local consumption and emissions for export. Looking at the geographic distribution of large point sources of CO2 emissions in theU.S. suggests that per capita emissions from a geographic area are not necessarily a good indication of the mitigation responsibility of the residents. The design of effective and fair mitigation strategies needs to consider that emissions embodied in the products of large facilities, such as electric power and refined petroleum products, are often transferred across accounting boundaries; e.g. the CO2 emissions occur in one jurisdiction even though the electricity is used in another. We close with a short discussion of how two sub-national emissions trading schemes in the U.S. have confronted the issue of embodied emissions crossing their jurisdictional boundaries

Can personal gasoline permit trading be effective? An investigation into permit demand

© 2016 Elsevier Ltd This study proposes a personal gasoline permit trading scheme to limit the total gasoline consumption, thus reducing its environmental impact. We studied the effectiveness of this scheme by analyzing the permit demand of a gasoline-driven vehicle in transportation sector. A general utility optimization model is formulated and a Cobb-Douglas utility function is further assumed to analyze the response of permit demand to its price changes with the Slutsky decomposition of price effects. The results, when defined in economic terms, indicate that the permit demand of consumers in higher income groups are negatively related to permit price; permit demand are also negatively related to permit price for consumers in medium income groups, but with positive income effect; and the direct relationship between permit demand of lower income groups and the price is defined as a Giffen-good effect. That is, for those low income groups, when the permit price rises their demand for permits would also increase. Then US and Singapore household expenditure data are used to show comparable results of a pilot personal gasoline permit trading scheme. Further, some regulations on critical parameters, such as permit allocation and permit prices in the policy design are proposed to make the scheme feasible in different income groups. Based on these results, implications, limitation and suggestions for future study are discussed

Biofuel supply chain, market, and policy analysis

Renewable fuel is receiving an increasing attention as a substitute for fossil based energy. The US Department of Energy (DOE) has employed increasing effort on promoting the advanced biofuel productions. Although the advanced biofuel remains at its early stage, it is expected to play an important role in climate policy in the future in the transportation sector. This dissertation studies the emerging biofuel supply chain and markets by analyzing the production cost, and the outcomes of the biofuel market, including blended fuel market price and quantity, biofuel contract price and quantity, profitability of each stakeholder (farmers, biofuel producers, biofuel blenders) in the market. I also address government policy impacts on the emerging biofuel market. The dissertation is composed with three parts, each in a paper format. The first part studies the supply chain of emerging biofuel industry. Two optimization-based models are built to determine the number of facilities to deploy, facility locations, facility capacities, and operational planning within facilities. Cost analyses have been conducted under a variety of biofuel demand scenarios. It is my intention that this model will shed light on biofuel supply chain design considering operational planning under uncertain demand situations. The second part of the dissertation work focuses on analyzing the interaction between the key stakeholders along the supply chain. A bottom-up equilibrium model is built for the emerging biofuel market to study the competition in the advanced biofuel market, explicitly formulating the interactions between farmers, biofuel producers, blenders, and consumers. The model simulates the profit maximization of multiple market entities by incorporating their competitive decisions in farmers’ land allocation, biomass transportation, biofuel production, and biofuel blending. As such, the equilibrium model is capable of and appropriate for policy analysis, especially for those policies that have complex ramifications and result in sophisticate interactions among multiple stakeholders. The third part of the dissertation investigates the impacts of flexible fuel vehicles (FFVs) market penetration levels on the market outcomes, including cellulosic biofuel production and price, blended fuel market price, and profitability of each stakeholder in the biofuel supply chain for imperfectly competitive biofuel markets. In this paper, I investigate the penetration levels of FFVs by incorporating the substitution among different fuels in blended fuel demand functions through “cross price elasticity” in a bottom-up equilibrium model framework. The complementarity based problem is solved by a Taylor expansion-based iterative procedure. At each step of the iteration, the highly nonlinear complementarity problems with constant elasticity of demand functions are linearized into linear complimentarity problems and solved until it converges. This model can be applied to investigate the interaction between the stakeholders in the biofuel market, and to assist decision making for both cellulosic biofuel investors and government

Are Targets for Renewable Portfolio Standards Too Low? The Impact of Market Structure on Energy Policy

In order to limit climate change from greenhouse gas emissions, governments have introduced renewable portfolio standards (RPS) to incentivise renewable energy production. While the response of industry to exogenous RPS targets has been addressed in the literature, setting RPS targets from a policymaker’s perspective has remained an open question. Using a bi-level model, we prove that the optimal RPS target for a perfectly competitive electricity industry is higher than that for a benchmark centrally planned one. Allowing for market power by the non-renewable energy sector within a deregulated industry lowers the RPS target vis-à-vis perfect competition. Moreover, to our surprise, social welfare under perfect competition with RPS is lower than that when the non-renewable energy sector exercises market power. In effect, by subsidising renewable energy and taxing the non-renewable sector, RPS represents an economic distortion that over-compensates damage from emissions. Thus, perfect competition with RPS results in “too much” renewable energy output, whereas the market power of the non-renewable energy sector mitigates this distortion, albeit at the cost of lower consumer surplus and higher emissions. Hence, ignoring the interaction between RPS requirements and the market structure could lead to sub-optimal RPS targets and substantial welfare losses

Economic and Emissions Implications of Load-Based, Source-based and First-seller Emissions Trading Programs under California AB32

In response to Assembly Bill 32, the State of California is considering three types of carbon emissions trading programs for the electric power sector: load-based, source-based, and first-seller. They differ in terms of their point-of-regulation, and in whether in-state-to-out-of-state and out-of-state-to-in-state electricity sales are regulated. In this paper, we formulate a market equilibrium model for each of the three approaches, considering power markets, transmission limitations, and emissions trading, and making the simplifying assumption of pure bilateral markets. We analyze the properties of their solutions and show the equivalence of load-based, first-seller and source-based approaches, when power sales in both directions are regulated under the cap. A numeric example illustrates the emissions and economic implications of the models. In the simulated cases, "leakage" eliminates most of the emissions reductions that the regulations attempt to impose. Further, "contract reshuffling" occurs to such an extent that all the apparent emissions reductions resulting from changes in sources of imported power are illusory

Economic Efficiency of Alternative Border Carbon Adjustment Schemes: A Case Study of California Carbon Pricing and the Western North American Power Market

A local jurisdiction that regulates power plant emissions, but participates in a larger regional power market faces the issue of emissions leakage, in which local emissions decrease, but emissions associated with the imported power increase. Border carbon adjustment (BCA) schemes can be imposed on imports in an attempt to lessen leakage. This paper explores the potential cost and emission impacts of alternative BCA policies that could be implemented in the California AB32 carbon pricing system. We focus on cost and emission impacts on the power sector in California and the rest of the Western Electricity Coordinating Council (WECC) region, the latter of which provides approximately 23.5% of California’s electricity requirements. With both a simple schematic model and a detailed WECC generation-transmission expansion planning model for the year 2034 called JHSMINE, we examine the following deemed emission rate schemes for estimating and charging for emissions associated with electricity imports: no BCA, facility (import source)-specific deemed rate, a facility-neutral and constant deemed rate, and a facility-neutral and dynamic deemed rate. Our results suggest that, compared with cases with either no BCA or a BCA using facility-based deemed emission rates, facility-neutral schemes can provide efficiency gains by simultaneously lowering WECC-wide emissions and costs without raising payments by California consumers. Emissions leakage declines greatly. The precise value of the deemed rate affects these gains. One particular facility-neutral dynamic scheme in which rates are set by marginal emission rates external to California provides the greatest gain in economic efficiency. Our results also show the impact of carbon pricing and BCAs on transmission investment economics: California’s unilateral AB32 carbon pricing encourages more interstate transmission expansion because power imports are more profitable; however, BCAs that are cost-effective in lowering total regional emissions will dampen those incentives

Biofuel supply chain and bottom-up market equilibrium model for production and policy analysis

Renewable fuel is attracting increasing attention as a substitute for fossil based energy. The US Department of Energy (DOE) has identified pyrolysis based platforms as promising biofuel production pathways. Although the biofuel market remains in its early stage, it is expected to play an important role in climate policy in the future in the transportation sector. In this thesis, we will first propose a biofuel supply chain model to study the supply chain design and operational planning for advanced biofuel production, then a biofuel market model is developed to study the interactions between farmers, biofuel producers, blenders, and consumers along the biofuel supply chain in the market competitive setting. For the biofuel supply chain model, the focused production pathway is corn stover fast pyrolysis with upgrading to hydrocarbon gasoline equivalent fuel. The model is formulated with a Mixed Integer Linear Programming (MILP) to investigate facility locations, facility capacities at the strategic level, and feedstock flow and biofuel production decisions at the operational level. In the model, we accommodate different biomass supply and biofuel demand scenarios with supply shortage penalty and storage cost for excess biofuel production. Numerical results illustrate the supply chain design and operational planning decision making for advanced biofuel production. Unit costs for advanced biofuel under changing of scenarios are also analyzed. The case study demonstrates the economic feasibility of biofuel production at a commercial scale in Iowa. The second part of the thesis work focuses on analyzing the interaction between the key stakeholders along the supply chain. A bottom-up equilibrium model is built for biofuel market to study the competition in the advanced biofuel market, explicitly formulating the interactions between farmers, biofuel producers, blenders, and consumers. The model simulates the profit maximization of multiple market entities by incorporates their competitive decisions in farmers\u27 land allocation, biomass transportation, biofuel production, and biofuel blending. As such, the equilibrium model is capable of and appropriate for policy analysis, especially for those that have complex ramifications and result in different reactions from multiple stakeholders. For example, the model can be used to analyze the impact of biofuel policies on market outcomes, pass-through of taxes or subsidies, and consumers\u27 surplus or producers\u27 profit implications. The equilibrium model can also serve as an analytical tool to derive market prices of biomass, advanced biofuel, and the value of the Renewable Identification Numbers. Moreover, the model can be used to analyze the impact of the market structure or firms\u27 ownership setting that may arise due to oligopoly competition in the advanced biofuel market

The Constitutionality of California\u27s Cap-and-Trade Program and Recommendations for Design of Future State Programs

Global climate change has emerged as one of the greatest challenges of our time. While action has stalled on the national stage, states have started to take action to reduce their greenhouse gas emissions. Confronted with the risk of severe impacts that could cost it tens of billions of dollars annually by the end of the century, California has taken the lead and developed the first comprehensive cap-and-trade program in the nation and seeks to achieve significant reductions in the greenhouse gas emissions associated with its economy. The success of California’s program will determine whether other states and the federal government follow California’s lead. If California’s cap-and-trade program is defeated by legal challenges or is excessively economically burdensome, it might spell the end of cap-and-trade programs in the United States. The most formidable legal challenge will be brought under the dormant Commerce Clause, which prohibits states from discriminating against, regulating, or unduly burdening interstate commerce. This Article analyzes California’s cap-and-trade program under the dormant Commerce Clause and suggests refinements that could be adopted by California or other states implementing cap-and-trade programs to improve the odds of prevailing against such a challenge. While California will almost certainly be forced to make regulatory concessions, especially in its regulation of the electricity sector, I conclude that state cap-and-trade programs can be structured in a way that, while not ideal, can survive dormant Commerce Clause scrutiny while providing meaningful regulation of greenhouse gas emissions and protection from emissions leakage

Carbon prices. Dynamic analysis of European and Californian markets

Dissertação para obtenção do Grau de Doutor em Alterações Climáticas e Políticas de Desenvolvimento SustentávelCarbon markets’ goal is to promote the reduction of emissions of greenhouse gases where it is most cost-efficient. This makes the price of the tradable good – carbon dioxide equivalent (CO2e) - a key variable in management and risk decisions, in markets related to activities connected with the burning of fossil fuels, such as power generation. This work aims to improve the analysis of carbon prices’ dynamics, considering the possibility of multidirectional effects between prices of CO2e, energy (primary and final), offsets licenses and the economy performance, in various frequencies. The two main research questions are: (i) what drives carbon price variations? (ii) what variations do carbon prices drive? We used two comple-mentary methodologies: (a) a vector autoregression model (of common use in macroeconomics and financial markets but not in carbon-energy relations), which allows the analysis of causality and of impulse-response functions of daily prices; and (b) an innovative multivariate wavelet analysis, which allows us to understand the relationship and causal link between the variables in the time and frequency dimensions, particularly in longer cycles (4~8 and 8~20 months), not perceived in previous studies. As case studies we considered the European (EU ETS) and Califor-nia (AB32) carbon markets. This is the first research to present the analysis of the referred US market. The analysis covers the 2008-2013 period, intentionally excluding the EU ETS phase I, for greater consistency of results. Results suggest that the economy and electricity drive the price of European carbon, while gas and oil have a greater role in California. So, there is a greater influence of final energy prices in the most mature market. We also observe that the price of CERs does not affect the European carbon price. On the other hand, this study shows for the first time that carbon prices have impacts on electricity prices over longer cycles (8~20 months) and in coal over short cycles (lim-ited to the first days). It is suggested that the carbon market has more significant effects in longer cycles. The price of European carbon also has impact in CERs prices. The results are statistically significant and relevant, and will improve the quality of decision making of all parties involved in the energy and carbon markets - polluters and regulators included