Buffering volatility : storage investments and technology-specific renewable energy support

Mitigating climate change will require integrating large amounts of highly intermittent renewable energy (RE) sources in future electricity markets. Considerable uncertainties exist about the cost and availability of future large-scale storage to alleviate the potential mismatch between demand and supply. This paper examines the suitability of regulatory (public policy) mechanisms for coping with the volatility induced by intermittent RE sources, using a numerical equilibrium model of a future wholesale electricity market. We find that the optimal RE subsidies are technology-specific reflecting the heterogeneous value for system integration. Differentiated RE subsidies reduce the curtailment of excess production, thereby preventing costly investments in energy storage. Using a simple cost-benefit framework, we show that a smart design of RE support policies significantly reduces the level of optimal storage. We further find that the marginal benefits of storage rapidly decrease for short-term (intra-day) storage and are small for long-term (seasonal) storage independent of the storage level. This suggests that storage is not likely to be the limiting factor for decarbonizing the electricity sector

Computation of Equilibria in OLGModels with Many Heterogeneous Households

This paper develops a decomposition algorithm by which a market economy with many households may be solved through the computation of equilibria for a sequence of representative agent economies. The paper examines local and global convergence properties of the sequential recalibration (SR) algorithm. SR is then demonstrated to efficiently solve Auerbach- Kotlikoff OLG models with a large number of heterogeneous households. We approximate equilibria in OLG models by solving a sequence of related Ramsey optimal growth problems. This approach can provide improvements in both efficiency and robustness as compared with simultaneous solution methods.Computable general equilibrium, Overlapping generations, Microsimulation, Sequential recalibration

Fiscal Consolidation and Climate Policy: An Overlapping Generations Perspective

We examine the distributional and e ciency impacts of climate policy in the context of fiscal consolidation in a dynamic general-equilibrium overlapping generations model of the US economy. The model includes a disaggregated production structure, including energy sector detail and advanced low- or zero-carbon energy technologies, and detail on government taxes and spending. In contrast to revenue-neutral carbon tax swaps, using the carbon revenue for deficit reduction implies a relaxation of future public budgets as debt repayment results in lower interest obligations. While we show that the intergenerational welfare impacts depend importantly on what tax recycling instrument is used, we find that combining debt consolidation with a carbon policy entails the possibility of sustained welfare gains for future generations. We thus argue that combining fiscal and climate policy may o er the chance for positive societal gains (without considering potential benefits from averted climate change). Importantly, this may enhance the political support for revenue-raising climate policies that are framed over the next couples of decades

Computation of Equilibria in OLG Models with Many Heterogeneous Households

This paper develops a decomposition algorithm by which a market economy with many households may be solved through the computation of equilibria for a sequence of representative agent economies. The paper examines local and global convergence properties of the sequential recalibration (SR) algorithm. SR is then demonstrated to efficiently solve Auerbach-Kotlikoff OLG models with a large number of heterogeneous households. We approximate equilibria in OLG models by solving a sequence of related Ramsey optimal growth problems.This approach can provide improvements in both efficiency and robustness as compared with simultaneous solution-methods.Computable general equilibrium, overlapping generations, microsimulation, sequential recalibration

Biofuels, Climate Policy and the European Vehicle Fleet

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 examine the effect of biofuels mandates and climate policy on the European vehicle fleet, considering the prospects for diesel and gasoline vehicles. We use the MIT Emissions Prediction and Policy Analysis (EPPA) model, which is a general equilibrium model of the world economy. We expand this model by explicitly introducing current generation biofuels, by accounting for stock turnover of the vehicle fleets and by disaggregating gasoline and diesel cars. We find that biofuels mandates alone do not substantially change the share of diesel cars in the total fleet given the current structure of fuel taxes and tariffs in Europe that favors diesel vehicles. Jointly implemented changes in fiscal policy, however, can reverse the trend toward more diesel vehicles. We find that harmonizing fuel taxes reduces the welfare cost associated with renewable fuel policy and lowers the share of diesel vehicles in the total fleet to 21% by 2030 compared to 25% in 2010. We also find that eliminating tariffs on biofuel imports, which under the existing regime favor biodiesel and impede sugar ethanol imports, is welfare-enhancing and brings about further substantial reductions in CO2 emissions.This study received support from the MIT Joint Program on the Science and Policy of Global Change, which is funded by a consortium of government, industry and foundation sponsors

Optimal Dynamic Carbon Taxation in a Life-Cycle Model with Distortionary Fiscal Policy

We quantitatively characterize optimal carbon, capital, and labor income taxes in an economy-climate integrated assessment model that features overlapping generations and distortionary fiscal policy. First, we show that the optimal carbon tax significantly differs from the Pigouvian carbon levy in a first-best setting with overlapping generations in which fully rational households optimize over finite lifetimes. The key driving force behind this result is the life-cycle structure of the our model, in conjunction with endogenously chosen labor supply. We also show that the assumed labor supply elasticity is important for the size of deviation of the optimal carbon tax from the Pigouvian tax, but not the existence of the deviation from Pigouvian pricing. Second, interacting life-cycle household behavior with distortionary fiscal policy is shown to further drive a wedge between the second-best optimal carbon tax and a Pigouvian carbon levy

Distributional and Efficiency Impacts of Clean and Renewable Energy Standards for Electricity

http://globalchange.mit.edu/research/publications/reports/allWe examine the efficiency and distributional impacts of greenhouse gas policies directed toward the electricity sector in a model that links a “top-down” general equilibrium representation of the U.S. economy with a “bottom-up” electricity-sector dispatch and capacity expansion model. Our modeling framework features a high spatial and temporal resolution of electricity supply and demand, including renewable energy resources and generating technologies, while representing CO2 abatement options in non-electric sectors as well as economy-wide interactions. We find that clean and renewable energy standards entail substantial efficiency costs compared to an economy-wide carbon pricing policy such as a cap-and-trade program or a carbon tax, and that these policies are regressive across the income distribution. The geographical distribution of cost is characterized by high burdens for regions that depend on non-qualifying generation fuels, primarily coal. Regions with abundant hydro power and wind resources, and a relatively clean generation mix in the absence of policy, are among the least impacted. An important shortcoming of energy standards vis-`a-vis a first-best carbon pricing policy is that no revenue is generated that can be used to alter unintended distributional consequences.The authors acknowledge the support of the Joint Institute for Strategic Energy Analysis, which is operated by the Alliance for Sustainable Energy, LLC, on behalf of the U.S. Department of Energy’s National Renewable Energy Laboratory, the University of Colorado-Boulder, the Colorado School of Mines, the Colorado State University, the Massachusetts Institute of Technology, and Stanford University under grant NREL 6A502020 “Integration of a Computable General Equilibrium Model with an Electricity Sector Optimization Model to Assess the Economic Impacts of U.S. Climate Policy”. We further acknowledge support of the 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 (for a complete list see: http://globalchange.mit.edu/sponsors/all)

Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution?

Bush-era tax cuts are scheduled to expire at the end of 2012, leading to interest in raising revenue through a carbon tax. This revenue could be used to either cut other taxes or to avoid cuts in Federal programs. There is a body of economic research suggesting that such an arrangement could be a win-win-win situation. The first win—Congress could reduce personal or corporate income tax rates, extend the payroll tax cut, maintain spending on social programs, or some combination of these options. The second win—these cuts in income taxes would spur the economy, encouraging more private spending and hence more employment and investment. The third win—carbon dioxide (CO2) pollution and oil imports would be reduced. This analysis uses the MIT U.S. Regional Energy Policy (USREP) model to evaluate the effect of a carbon tax as part of a Federal budget deal. A baseline scenario where temporary payroll cuts and the Bush tax cuts are allowed to expire is compared to several scenarios that include a carbon tax starting at $20 per ton in 2013 and rising at 4%. We find that, whether revenue is used to cut taxes or to maintain spending for social programs, the economy is better off with the carbon tax than if taxes remain high to maintain Federal revenue. We also find that, in addition to economic benefits, a carbon tax reduces carbon dioxide emissions to 14% below 2006 levels by 2020, and 20% below by 2050. Oil imports remain at about today’s level, and compared to the case with no carbon tax, are 10 million barrels per day less in 2050. The carbon tax would shift the market toward renewables and other low carbon options, and make the purchase of more fuel-efficient vehicles more economically desirable.Acknowledgements USREP was developed as a special U.S. model project within the Joint Program. We are especially grateful to funding from sponsors of this special project. We also gratefully acknowledge the support of the Joint Program on the Science and Policy of Global Change, funded grants from DOE, EPA and other federal agencies and a consortium of 40 industrial and foundation sponsors. (For the complete list see http://globalchange.mit.edu/sponsors/all)

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

Identification of pollen-expressed pectin methylesterase inhibitors in Arabidopsis

AbstractPectin methylesterases (PMEs) play an essential role during plant development by affecting the mechanical properties of the plant cell wall. Previous work indicated that plant PMEs may be subject to post-translational regulation. Here, we report the analysis of two proteinaceous inhibitors of PME in Arabidopsis thaliana (AtPMEI1 and 2). The functional analysis of recombinant AtPMEI1 and 2 proteins revealed that both proteins are able to inhibit PME activity from flowers and siliques. Quantitative RT-PCR analysis indicated that expression of AtPMEI1 and 2 mRNAs is tightly regulated during plant development with highest mRNA levels in flowers. Promotor::GUS fusions demonstrated that expression is mostly restricted to pollen