Energy Transition

Nuclear exit, the US energy mix, and carbon dioxide emissions

If the United States were to adopt a policy to phase out nuclear generation, as has happened recently in other developed countries, what would the environmental and energy-mix implications be? Based on alternative scenarios of nuclear exit that consider the influence of potential policies to limit greenhouse gas emissions, a model of the US and global economy indicates that, under current policy, a US nuclear exit would increase carbon dioxide emissions, and likely raise electricity prices and reduce gross domestic product by relatively small amounts. Those economic impacts would be increased by additional measures to limit carbon dioxide emissions.

© 2013 the authors

Passenger Transport in China Under Climate Constraints: General Equilibrium Analysis, Uncertainty, and Policy

Vehicle sales and road travel volume in China have grown rapidly in recent years, and with them energy demand, greenhouse gas emissions and local air pollution. Aviation and rail travel have also grown, while ceding a large share to private vehicles. What path will household transport demand in China take in the future? How might it interact with policies which limit greenhouse gases, and what are the implications for energy use, the environment and the economy? To contribute policy insights and a foundation for future study in this area, I undertake a new calibration of the Chinese household transport sector in the MIT Emissions Prediction & Policy Analysis (EPPA) computable general equilibrium (CGE) model, implementing income elasticities of demand for vehicle travel and vehicle stock growth based on historical data. To bracket uncertainty in the literature, I impose three scenarios of future growth in demand for purchased (air, rail and marine) and vehicle modes. These are explored under a no-policy baseline, a climate-stabilization policy, and with a policy that extends the emissions-intensity goal of China’s Twelfth Five-Year Plan—both policies are modelled as caps creating prices on carbon. Examining the results, I find that trends in growth are only modesty affected by policy continuing present energy-intensity goals, with small decreases in travel activity and energy intensity of vehicles combining for a reduction in refined oil use; such a policy has modest cost and affects household transport less than other sectors. In contrast, my results show that a stringent emissions cap has large impacts on vehicle efficiency, limits vehicle ownership and general travel activity levels. Compared to the no-policy baseline, a smaller vehicle fleet (250 million total, or 200 per 1000 capita). Sixteen percent of the fleet is new energy vehicles (plug-in hybrid-electrics), while total refined oil use increases by 2050 to nearly three times its 2010 level. However, these effects come with a reduction in total primary energy as the policy is introduced, and large costs economy-wide. Chinese national and municipal policies include objectives of promoting vehicle ownership and mobility on the one hand, and of reducing dependence on carbon-intensive refined oil on the other. My findings illustrate that 3 these goals are at odds, and offer inputs to policy design related to vehicle sales, public transit, congestion, pollution and energy security.

Reducing the Contribution of the Power Sector to Peak Concentrations of Ground-Level Ozone: An Assessment of Time-Differentiated Pricing of Nitrogen Oxide Emissions

Nitrogen oxide (NOx) is a prevalent air pollutant across the United States and a requisite precursor for tropospheric (ground-level) ozone formation. Both pollutants significantly impact human health and welfare, so National Ambient Air Quality Standards (NAAQS) have been established for each. As of 2013, over 100 million people in the U.S. lived in areas with ozone concentrations above the NAAQS.

NOx emissions from the power sector, roughly 12% of total NOx emissions, are and will be significant contributors to ozone concentrations in the U.S. As such, states have reduced peak ozone concentrations through technology-based standards and cap-and-trade programs on NOx emissions from the power sector. These policies have largely treated NOx emissions uniformly. But marginal damages from NOx emissions are greatest on hot sunny days when meteorological conditions favor high ozone formation rates and, consequently, peak ozone concentrations.

This thesis informs what type of policy is the most efficient for reducing peak ozone concentrations on high ozone days by assessing the cost-effectiveness of three policies for reducing NOx emissions on high ozone days. Emissions and costs under a relatively-novel differentiated policy, time-differentiated pricing, are compared for the first time to two currently-implemented undifferentiated policies, cap-and-trade and technology-based standards. Two power systems are studied, Texas and the Mid-Atlantic. A unique two-phase model is developed to capture the short- (redispatching) and long-term (control technology installation) effects of pricing schemes on power plants. The two-phase model dispatches generators with a unit commitment model, which, unlike past studies, captures real-world operational constraints of generators that may strongly influence emissions and costs under time-differentiated pricing. Technology-based standards are simulated via Monte Carlo analysis to capture the uncertain rulemaking process.

For reducing NOx emissions on high ozone days in both power systems, time-differentiated pricing is shown to be the most cost-effective policy with regards to producer and consumer costs. Most emissions reductions are due to substitution of gas- for coal-fired generators, as control technology installations are only observed at very high time-differentiated prices. For reducing summer-wide NOx emissions, undifferentiated pricing is the most cost-effective. In a minority of allocations, technology-based standards also achieve more cost-effective summer-wide reductions than time-differentiated pricing, but such allocations cannot be guaranteed ex ante. These results suggest that time-differentiated pricing is the most efficient policy for reducing peak ozone concentrations, depending on ozone formation rates.

Regulatory and Technical Barriers to Wind Energy Integration in Northeast China

China leads the world in installed wind capacity, which forms an integral part of its long-term goals to reduce the environmental impacts of the electricity sector. This primarily centrally-managed wind policy has concentrated wind development in a handful of regions, challenging regulatory frameworks and grid architectures to cost-effectively integrate wind. In 2013, according to official statistics, wind accounted for 2.7% of national generation, while the rate of curtailment (available wind not accepted by the grid operator onto the system) reached 12%.

Wind integration challenges have arisen in China for technical, economic and institutional reasons. From a technology standpoint, the variability and unpredictability of wind resources interact with technical limits of conventional generators, resulting in efficiency losses and grid stability concerns. Existing coal-based electricity and district heating installations play a large role in grid integration challenges because of the inflexible operation of coal plants relative to natural gas and hydropower, and the “must-run” nature of cogeneration units supplying residential heat. A competing set of hypotheses to explain current rates of wind spillage focus on institutional imperfections in China’s power sector, such as poorly designed market incentives, inadequate oversight, and a mixture of conflicting policies that are the result of an incomplete transition to a market-driven electricity system.

A unit commitment and dispatch optimization was developed to understand the underlying technical factors leading to wind curtailment in northeastern China. It incorporates electricity output restrictions from exogenous district heating demands, a hydro-thermal coordination component considering inter-seasonal storage, and transmission between adjacent provincial nodes. Averaging over six historic wind profiles, a curtailment rate of 6.6% was observed in the reference case from various forms of inflexibility and insufficient demand. The impacts of several technology-based solutions on total cost, coal use and wind curtailment, were also examined: more flexible operation of coal units, temporary heat storage and minimum cogeneration outputs that vary with heat load.

Contributing to the existing body of qualitative work on the effects of these factors, this thesis developed a straightforward methodology to assess the relative contribution of regulatory and technical causes. Two important institutional arrangements – the decentralization of dispatch to individual provinces and minimum generation quotas allocated to all coal generators – were quantified in an optimization framework, and found to be significant contributors of power system operational inflexibility.

Regulatory Control of Vehicle and Power Plant Emissions: How Effective and at What Cost?

Passenger vehicles and power plants are major sources of greenhouse gas emissions. While economic analyses generally indicate that a broader market-based approach to greenhouse gas reduction would be less costly and more effective, regulatory approaches have found greater political success. Vehicle efficiency standards have a long history in the U.S and elsewhere, and the recent success of shale gas in the U.S. leads to a focus on coal–gas fuel switching as a way to reduce power sector emissions. We evaluate a global regulatory regime that replaces coal with natural gas in the electricity sector and imposes technically achievable improvements in the efficiency of personal transport vehicles. Its performance and cost are compared with other scenarios of future policy development including a no policy world, achievements under the Copenhagen accord, and a price-based policy to reduce global emissions by 50% by 2050. The assumed regulations applied globally achieve a global emissions reduction larger than projected for the Copenhagen agreements, but they do not prevent global GHG emissions from continuing to grow, and the reduction in emissions is achieved at a high cost compared to a price-based policy. Diagnosis of the reasons for the limited yet high-cost performance reveals influences including the partial coverage of emitting sectors, small or no influence on the demand for emissions-intensive products, leakage when a reduction in fossil use in the covered sectors lowers the price to others, and the partial coverage of GHGs.

Risk Implications of the Deployment of Renewables for Investments in Electricity Generation

This thesis explores the potential risk implications that a large penetration of intermittent renewable electricity generation -- such as wind and solar power -- may have on the future electricity generation technology mix, focusing on the anticipated new operating conditions of different thermal generating technologies and their remuneration in a competitive market environment. In addition, this thesis illustrates with an example how risk should be valued at the power plant level in order to internalize the potential risks to which the generators are exposed.

This thesis first compares the impacts of three different bidding rules on wholesale prices and on the remuneration of units in power systems with a significant share of renewable generation. The effects of bidding rules are distinguished from the effects of regulatory uncertainty that can unexpectedly increase renewable generation by considering two distinct situations: 1) an 'adapted' capacity mix, which is optimized for any given amount of renewable penetration, and 2) a 'non-adapted' capacity mix, which is optimized for zero renewable penetration, but that operates with a certain non-zero renewable capacity, added on top of an already adequate system. The analysis performed stresses the importance of sound mechanisms that allow the full-cost recovery of plants in a system where the intermittency of renewables accentuates nonconvex costs, without over-increasing the cost paid by consumers for electricity. Additionally, the analysis quantifies the potential losses incurred by different thermal technologies if renewable deployment occurs without allowing for adaptation.

Methodologically, this thesis uses a novel long-term generation investment model, the Investment Model for Renewable Electricity Systems (IMRES), to determine the minimum cost thermal capacity mix necessary to complement renewable generation to meet electricity demand, and to extract hourly wholesale prices. IMRES is a capacity expansion model with unit commitment constraints whose main characteristics are: 1) reflecting the impact of hourly resolution operation constraints on investment decisions and on total generation cost; 2) accounting for the chronological variability of demand and renewable output, and the correlation between the two; and 3) deciding on power plant investments at the individual 5 plant level. These characteristics allow for a detailed analysis of the profits obtained by individual plants in systems with large renewable penetration levels. In addition, this thesis tests the performance of a heuristic method that selects four weeks from a full year series to optimally represent the net load duration curve (i.e., the difference between demand and renewable output, decreasingly ordered). For each application of this heuristic method, three metrics are proposed to reflect that the approximation also represents the chronological variability of the net load.

Lastly, this thesis explores the role of risk in the valuation of electricity generating technologies and shows how to incorporate standard risk pricing principles into the popular Monte Carlo simulation analysis. The exposition is structured using the standard framework for a typical Monte Carlo cash flow simulation so that the implementation can be readily generalized. This framework stresses the necessity of an asset pricing approach to assess the relationship between the risk in the assets cash flows and the macroeconomic risk with which the financial investors are concerned. The framework provided is flexible and can accommodate many different structures for the interaction between the macroeconomic risk and the risks in the asset's cash flows (such as those from shocks in renewable deployment).

Shale Gas in China: Can We Expect a "Revolution"?

Natural gas in China has a substantial potential to grow from its current small share of the total energy use. The growth will contribute to lower air pollution and carbon emissions. Shale gas resources provide an opportunity for expansion and their development reduces dependence on energy imports. We estimate the costs of shale gas supply in China and use the MIT Emissions Predictions and Policy Analysis (EPPA) model to consider the impact of shale gas development on production, consumption, and international trade in natural gas. China’s shale gas production is assessed to be more expensive in comparison to the current shale gas production in the U.S. The large shale resource might be a potential game changer in terms of energy production and consumption in China. However, even with favorable economic conditions, a substantial development of this resource might take a considerable amount of time.

Shale Gas Production: Potential versus Actual GHG Emissions

Estimates of greenhouse gas (GHG) emissions from shale gas production and use are controversial. Here we assess the level of GHG emissions from shale gas well hydraulic fracturing operations in the United States during 2010. Data from each of the approximately 4,000 horizontal shale gas wells brought online that year is used to show that about 900 Gg CH4 of potential fugitive emissions were generated by these operations, or 228 Mg CH4 per well—a figure inappropriately used in analyses of the GHG impact of shale gas. In fact, along with simply venting gas produced during the completion of shale gas wells, two additional techniques are widely used to handle these potential emissions, gas flaring, and reduced emissions “green” completions. The use of flaring and reduced emission completions reduce the levels of actual fugitive emissions from shale well completion operations to about 216 GgCH4, or 50 Mg CH4 per well, a release substantially lower than several widely quoted estimates. Although fugitive emissions from the overall natural gas sector are a proper concern, it is incorrect to suggest that shale gas-related hydraulic fracturing has substantially altered the overall GHG intensity of natural gas production.
 

Shale gas production: potential versus actual greenhouse gas emissions

Estimates of greenhouse gas (GHG) emissions from shale gas production and use are controversial. Here we assess the level of GHG emissions from shale gas well hydraulic fracturing operations in the United States during 2010. Data from each of the approximately 4000 horizontal shale gas wells brought online that year are used to show that about 900 Gg CH4 of potential fugitive emissions were generated by these operations, or 228 Mg CH4 per well—a figure inappropriately used in analyses of the GHG impact of shale gas. In fact, along with simply venting gas produced during the completion of shale gas wells, two additional techniques are widely used to handle these potential emissions: gas flaring and reduced emission ‘green’ completions. The use of flaring and reduced emission completions reduce the levels of actual fugitive emissions from shale well completion operations to about 216 Gg CH4, or 50 Mg CH4 per well, a release substantially lower than several widely quoted estimates. Although fugitive emissions from the overall natural gas sector are a proper concern, it is incorrect to suggest that shale gas-related hydraulic fracturing has substantially altered the overall GHG intensity of natural gas production.

© 2012 the authors

Should a vehicle fuel economy standard be combined with an economy-wide greenhouse gas emissions constraint? Implications for energy and climate policy in the United States

The United States has adopted fuel economy standards that require increases in the on-road efficiency of new passenger vehicles, with the goal of reducing petroleum use and (more recently) greenhouse gas (GHG) emissions. Understanding the cost and effectiveness of fuel economy standards, alone and in combination with economy-wide policies that constrain GHG emissions, is essential to inform coordinated design of future climate and energy policy. We use a computable general equilibrium model, the MIT Emissions Prediction and Policy Analysis (EPPA) model, to investigate the effect of combining a fuel economy standard with an economy-wide GHG emissions constraint in the United States. First, a fuel economy standard is shown to be at least six to fourteen times less cost effective than a price instrument (fuel tax) when targeting an identical reduction in cumulative gasoline use. Second, when combined with a cap-and-trade (CAT) policy, a binding fuel economy standard increases the cost of meeting the GHG emissions constraint by forcing expensive reductions in passenger vehicle gasoline use, displacing more cost-effective abatement opportunities. Third, the impact of adding a fuel economy standard to the CAT policy depends on the availability and cost of abatement opportunities in transport—if advanced biofuels provide a cost-competitive, lowcarbon alternative to gasoline, the fuel economy standard does not bind and the use of lowcarbon fuels in passenger vehicles makes a significantly larger contribution to GHG emissions abatement relative to the casewhen biofuels are not available. This analysis underscores the potentially large costs of a fuel economy standard relative to alternative policies aimed at reducing petroleumuse and GHG emissions. It further emphasizes the need to consider sensitivity to vehicle technology and alternative fuel availability and costs as well as economy-wide responses when forecasting the energy, environmental, and economic outcomes of policy combinations.

© 2013 Elsevier B.V.

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