Climate Change

With much of the world’s attention fixated on climate change, the Our Ocean conference is a great opportunity to address the health of the oceans and garner commitments to save it from the scourges of pollution, overfishing, and transnational crime. 

A recent study by noted climate scientists is particularly bad news for the planet’s most vulnerable regions, including the Arctic and small Pacific islands. 

Nigerians fear that flooding in October 2018 could be as bad as or worse than it was in 2012, when two million Nigerians were displaced and 363 died. In 2015, floods displaced 100,000 and led to 53 deaths. In 2016, 92,000 were displaced 38 died. In 2017, floods affected 250,000.  The United States, too, has experienced an apparent upsurge in hurricane activity and accompanying flooding. Hurricane Katrina killed about 1,800 in 2005; Super Storm Sandy killed 147 in 2012; Hurricane Harvey killed 106; and Hurricane Maria killed 3,057 in 2017, mostly in Puerto Rico 2018, a U.S. commonwealth whose residents are American citizens. Most recently, Hurricane Florence killed 48 in 2018, but that total could grow.  Though the United States and Nigeria are hardly similar in terms of infrastructure, there are striking similarities with respect to flooding.  In both countries, property destruction and damage to the economy is measured in the billions of dollars, and there is an ongoing conversation about whether rebuilding should take place in flood-prone areas. Flooding, not high winds, results in the greatest property damage and number of lives lost. Rebuilding certain sections of New Orleans generated considerable debate, but in both countries, it is difficult to prevent rebuilding in flood-prone areas. There has been widespread criticism of Nigeria’s National Emergency Management Agency (NEMA) and the U.S. Federal Emergency Management Agency (FEMA). The poor response of NEMA to the 2012 flood appears to have politically damaged President Goodluck Jonathan, while the U.S. federal government’s poor response to Hurricane Katrina did the same to President George W. Bush. There are media reports that President Donald Trump was concerned about criticism of his administration in the aftermath of Puerto Rico’s Hurricane Maria and Hurricane Florence, where most of the damage was in North Carolina. In the United States, the flooding has been the direct result of hurricanes, while in Nigeria, the flooding is associated with heavy rains that cause the Niger and Benue rivers and their tributaries to overflow (as also happened in North Carolina in the aftermath of Hurricane Florence) and in the Niger Delta, sea surges. The elephant in the living room in both countries is the impact of climate change. In the United States, hurricanes appear to be more frequent and more severe. In parts of Nigeria, rains are notably heavier, and the sea level in the Gulf of Guinea is rising. In other parts of Nigeria, rainfall is diminishing and the Sahara is advancing. There is little consensus in the United States about how to respond to climate change, and the Trump administration withdrew from the Paris treaty that set limits on the emissions of greenhouse gases and provided for other measures designed to ameliorate climate change. Unfortunately, Climate change does not appear to be an issue of public debate in Nigeria.

Today is my last day at CFR. I’m joining ReNew Power, India’s largest renewable energy firm, as their CTO. I’m excited for a new adventure but sad to leave the Council, which has given me support and autonomy to study the innovations needed for global decarbonization. As I leave, I wanted to share a new article in the energy journal Joule that I published along with John Dabiri at Stanford University and David Hart at ITIF and George Mason University. In it, we write: Solar energy, wind energy, and battery energy storage are widely regarded as the three most prominent clean energy technology success stories. In 2017, the International Energy Agency listed them as the only technologies being deployed rapidly enough to help limit climate change. Power from solar and wind farms is now routinely sold at prices below that of electricity from fossil-fueled generators, and cheaper batteries are fueling rising sales of electric vehicles as well as a building boom of grid-scale electricity storage projects. Governments around the world might conclude that innovation in solar, wind, and storage is no longer a priority. Such a conclusion would be a mistake. The impressive performance and promising projections for these three technologies obscure an underlying stagnation. In each case, a single dominant technological design has emerged, which private industry is presently scaling up. As Figure 1A reveals, crystalline silicon panels have strengthened their near-monopoly in solar photovoltaic energy in recent years. Figure 1B demonstrates that a similar trend is emerging in grid-scale energy storage, as lithium-ion batteries relentlessly increase their market share. And in wind energy, horizontal-axis wind turbines have enjoyed a virtually 100% market share for decades. Figure 1. Global Market Shares of Dominant Designs in Solar Photovoltaic and Nonhydro Grid Energy Storage (A) Percentage of global annual solar photovoltaic panel deployed capacity by technology (Source: Fraunhofer ISE). (B) Percentage of global annual grid-scale energy storage deployed capacity by technology, excluding pumped hydroelectric storage (Source: International Energy Agency, Tracking Clean Energy Progress, 2018). While these ‘‘dominant designs’’ have made clean energy more competitive with fossil fuels in the near term,  they pose a significant risk in the long term: ‘‘technological lock-in.’’ Technological lock-in has been documented across a range of industries in the past—especially in legacy sectors with entrenched incumbent firms and regulatory inertia. Once it sets in, new technologies struggle to achieve commercial traction even if they are superior to existing ones. The warning signs of lock-in are clear across all three fields. Private industry is devoting virtually no investment to the development of next-generation technologies, while making massive bets on the rapid deployment and incremental improvement of existing technologies. If new solar, wind, and storage technologies are ‘‘locked out,’’ global efforts to reduce greenhouse gas emissions could fall well short of those needed to avoid the worst consequences of climate change. To be sure, it is impossible to be certain that new technologies will be needed, but a prudent risk management strategy would be to prepare for the likely scenario that they are. Governments around the world should step in to boost funding for research, development, and demonstration of new solar, wind, and battery technologies that have the potential to outperform the current market leaders. These technologies will not attract substantial private investment without such public support. Well-designed policies would spread public funding across a diverse range of technologies and phase out that support as technologies mature, ensuring maximal return on public investments in innovation. Governments are not the only—or even the primary—entities needed to advance clean energy innovation. The private sector is center stage for the development and commercialization of new technologies, and I’m eager to help my new firm establish itself as a technology leader. Still, I’ve learned through my time at the Council that supportive public policy can unleash private innovation. At the Council, I am grateful to all of my colleagues who have made my time here enjoyable and stimulating. I’m especially thankful to Richard Haass and Jim Lindsay for their support of my work. I’m also indebted to Michael Levi for taking me under his wing (and trusting me with his blog!). None of my work would have been possible without my two superb research associates, Sagatom Saha and Madison Freeman, and our dynamic interns. Finally, I’ve been fortunate to work with world-class collaborators, who have opened my mind to new ways of thinking. I’ll miss the vibrant DC policy ecosystem and would love to host visitors over a cup of chai in New Delhi!

Background reading on the future of the global nuclear trade and the commercial opportunities and national security risks that it presents to the United States.

This post is co-written by Daniel Scheitrum, an assistant professor at the University of Arizona’s Department of Agricultural and Resource Economics. In the U.S. Environmental Protection Agency document summarizing the newly proposed Affordable Clean Energy rule (ACE), the notice correctly points out in the background section of the executive summary that carbon dioxide emissions in the U.S. power sector have steadily declined in recent years “due to a variety of power industry trends, which are expected to continue.” The EPA document specifically mentions an expectation that the price of natural gas will remain low and solar capacity will continue to grow. It notes that some power plant generators have announced plans to change their generation mix “away from coal-fired generation towards natural gas fired generation, renewables and more deployment of energy efficiency measures” and cites the U.S. Energy Information Administration’s (EIA)’s 2018 Annual Energy Outlook, “the cumulative effect of increased coal plant retirements, lower natural gas prices and lower electricity demand in the AEO2018 reference case is a reduction in the projected CO2 emissions from electric generators even without [implementation of] the [CPP].” These same market trends have been noted by independent experts who also contend that the ACE is unlikely to change the trajectory for U.S. coal. S&P Global Market Intelligence reported last week that it saw no evidence that electric and municipal utilities were going to reevaluate plans to shut down coal generation as a result of the shift to the new ACE plan. S&P Global’s analysis forecasts that 23,700 Megawatts (MW) of coal-fired capacity is scheduled to be retired between 2018 and 2032, including thirty-six coal units expected to shut down prior to 2020. Some major utilities have already publicly confirmed retirement plans will continue unchanged. For example, AEP and Dominion Energy have announced that they will not adjust plans. Dominion still plans to retire its Yorktown coal units while Duke Energy will retire coal at Asheville, North Carolina and bring on natural gas-generation in the same location. Duke also has plans to retire plants in Gaston County, North Carolina and Citrus County, Florida in a business decision the company says was not related to the CPP. Notably, First Energy Corporation has said the new proposed ACE will not change the planned retirement or transfer of the 1,300 MW Pleasants coal plant in West Virginia. FirstEnergy Solutions announced it plans to shut down four coal fired power plants, including three in Ohio, by 2022. Colorado’s Public Utility commission also gave preliminary approval this week for Xcel Energy to close 660 MW of coal fired generation and replace it with renewable energy plus battery storage. The utility says the plan will save ratepayers $213 million. While there seems to be a lot of agreement on these basic trends, the numbers on anticipated emissions reductions from the U.S. electricity sector between now and 2035 vary considerably. We take a closer look at the differences and offer some background. The Clean Power Plan, proposed by the Obama administration in 2014, prescribed that each state would meet specific standards for carbon dioxide emissions based on their individual energy consumption. States were free to determine how to achieve the reductions through a state action plan to be approved by EPA. The plan was challenged in court by twenty-seven states. At issue, among other objections, was the plan’s broad scope covering actions that went beyond regulating steps to be taken at the individual plants themselves. The new proposed ACE rule limits regulation to plant-specific compliance to performance standards.  Estimates for the emission reductions that will come via the ACE diverge from other forecasts for the U.S. power sector and are lower than reductions projected for the Clean Power Plan. To delve into the differences, we start by pointing out that estimates from 2015 regarding the CPP’s expected effect on emissions are considered out of date. That’s because so much change in fuel sources for U.S. generation has already taken place in the power sector that emissions reductions have gone beyond estimates for the current time made four years earlier. There are even notable differences between the EIA’s AEO 2017 and AEO 2018 estimates which makes sense since market driven changes in the sector are happening so rapidly. One important input variable producing differences in analysis for 2025 to 2035 is assumptions about future U.S. domestic natural gas prices. The EIA reference case assumes natural gas prices of $3.40-$5.00 per million Btu (mmBtu) while its “high resource” case projects natural gas prices in the range of $2.90-$3.30/mmBtu. We believe the high resource case estimate for U.S. natural gas prices is most likely given that prices have averaged $3.15/mmBtu over the past five years. Futures prices out to the year 2025 range from $2.91/mmBtu at the end of 2018 to $2.70 in summer 2025 and while they are not predictors per se, they reflect the amalgamation of current bets by natural gas traders. Barclays raised its natural gas forecast for fourth quarter 2018 to $2.83 mmBtu, up from $2.58 mmBtu, noting that injections of natural gas to storage this year have been the lowest in almost a decade. Cheniere’s new liquefaction trains at Corpus Christi, Texas and Sabine Pass are also expected to come on line soon ahead of schedule, originally scheduled for early 2019. A new plant at Elba Island will also start operations this year. The three projects together will boost U.S. export capacity by about 1.5 billion cubic feet a day. Barclay’s also notes that U.S. natural gas production will reach record highs next year, growing by 4.5 bcf/d. EIA’s 2018 reference case for greenhouse gas emissions without the CPP in place expected emission reductions of 694 million metric tons (MMT) by 2025 compared to 2005, 662 MMT in 2030, and 683 MMT in 2035. By comparison, the high resource case without the CPP projects emissions reductions of 807 MMT in 2025 compared to 2005, 751 MMT in 2030, and 738 MMT in 2035. The EPA’s ACE proposal does not provide estimate of total levels of emissions, but rather changes in the baseline emissions. EPA’s models differ from those of EIA and focus on changes on a state by state, facility by facility level and caps only existing sources. That is in contrast to EIA’s model which looks across state lines at regional balances and projections for competition among new sources. EPA’s estimates in the rollout of the ACE projects that repealing the CPP would increase emissions by 45 MMT in 2025, 67 MMT in 2030, and 60 MMT in 2035. The proposed emissions reductions of the ACE program are provided in comparison to these values. For instance, the ACE scenario of Replacing the CPP with Heat Rate Improvements of 4.5 percent at a cost of $50/kW projects emissions to increase by 34 MMT by 2025, 55 MMT in 2030, and 50 MMT in 2035. The contribution of the ACE in 2025 is then reducing emissions by 11 MMT compared to replacing the CPP with no policy. Jason Bordoff of Columbia University’s Center for Global Energy Policy (CGEP) noted the gaps in these estimates in a recent op-ed, and compared them to Rhodium Group’s baseline forecast, which anticipates higher emissions reductions of about 35 percent by 2030 and assumes similar natural gas prices as the high resource case for EIA. In his op-ed, Bordoff notes that a recent joint Columbia-Rhodium study calculated that a carbon tax starting at $50 per ton and rising each year by 2 percent could double the 36 percent emissions reduction previously expected from the CPP by 2030 by accelerating the switch to renewables. The bottom line is that there is much uncertainty about the ultimate level of emissions changes that could result by 2025 depending on both market trends and policy frameworks. One interesting aspect of the proposed rule-making under the ACE is that it would give individual states up to two years to develop and submit their climate action plans for the power sector to EPA for approval. That would kick the can into the next U.S. presidential election cycle. Since polling shows that a majority of Americans are in favor of some kind of climate policy and climactic weather events are likely to stay in the news through 2020, it’s anyone’s guess how individual states will choose to proceed. This fall’s midterm elections could provide some hints.

The reality that many energy companies are getting more serious about investment in low-carbon solutions is getting lost in the political noise of the day.

A devastating drought that has placed severe restrictions on water usage in South Africa—particularly in the Western Cape province, its capital Cape Town, and the neighboring Northern Cape—has captured U.S. attention. There are several reasons for this, among them the fact that Americans are more familiar with South Africa than with other parts of Africa due to tourism as well as business and cultural links. The drought also is evidence of the deleterious effects of climate change. With regard to climate change, Cape Town is almost a dress rehearsal for what rapidly growing American cities in the Sun Belt, such as Los Angeles or Phoenix, could face in the future. In 2017, Western Cape Premier Helen Zille declared her province a disaster area because of the drought. In March, the ruling African National Congress’ minister for cooperative governance, Zweli Mkhize, declared a national state of emergency. However, with the arrival of winter rains, Mkhize decided not to renew the state of emergency when it expired on June 13. The weather is finally improving. In May, South Africa’s late autumn, more cold fronts than usual pushed across the Western Cape, bringing rain. The South African Weather Service expects “slightly above normal” rainfall this winter season. Water levels in dams around Cape Town are also improving. In early June they were at 32.1 percent of normal capacity, compared to 29.8 percent the week before and 20.9 percent a year earlier. The largest dam in Western Cape, Theewaterskloof, is at 21.5 percent of capacity. Weather experts caution that the welcome rain has not officially broken the long drought. According to the National Drought Coordinating Committee, however, the acute phase of the drought in Western, Eastern, and Northern Cape has ended. It suggested the region is now entering a “resilience building” phase, where officials will focus on adapting to water scarcity exacerbated by climate change. Like the Los Angeles and Phoenix metropolitan areas, Cape Town’s population has been growing steadily over the past decade and a half, adding over a million people from 2001 to 2016 to reach just over four million. The city is wealthy, with a per capita income close to $16,000, and there has been improvement in the quality of township housing, albeit from a low base. However, the city’s water use has increased as precipitation levels have decreased—this is the new reality to which Cape Town, and many other cities around the world, will need to build “resilience.”