Cooperation and Carbon Taxes: confronting the challenges of climate policy with the En-ROADS Climate Solutions Simulator and Princeton’s Energy and Climate Scholars

Posted on by Highwire Earth

Written by Abigale Wyatt

The science of climate change is clear, so shouldn’t passing new climate policy be simple? The folks at Climate Interactive have a way for you to decide for yourself: the En-ROADS (Energy Rapid Overview and Decision-Support) climate solutions simulator. According to their website, En-ROADS is a “global climate simulator that allows users to explore the impact that dozens of policies— such as electrifying transport, pricing carbon, and improving agricultural practices— have on hundreds of factors like energy prices, temperature, air quality, and sea level rise.” Practically speaking, it’s an easy and intuitive way to look at future climate scenarios based on the latest climate science. 

Princeton Energy and Climate Scholars (PECS) members exploring the En-ROADS climate solutions simulator. Background left to right: Max Elikan, Maya Chung, Carli Kovel, Marco Rupp, Front: Aaron Leininger, Moriah Kunes.

In October, I introduced En-ROADS to the Princeton Energy and Climate Scholars (PECS), a diverse group of graduate students interested in climate issues from departments all across the university (politics, chemistry, engineering, geosciences, atmosphere and oceanic sciences, ecology and evolutionary biology, and more). I have led these En-ROADS events for the past three years and was excited to share with a group of Princeton students who were really invested in climate mitigation. For this event, I led a role-playing game where players act as climate stakeholders in a simulated emergency climate summit organized by the United Nations (UN). Acting as the UN secretary-general, I called on the group to propose a climate action plan that would keep total global warming under 2 degrees Celsius by the year 2100. Over the course of three rounds of play, the PECS attendees— role-playing interest groups like “Agriculture, forestry and land use” or “Clean Tech”— suggested policy or mitigation strategies to reduce net greenhouse gas emissions that could be implemented in the En-ROADS simulator. 

We started the first round with the baseline scenario in En-ROADS, which results in 3.3o C of warming by the year 2100 (Figure 1). This baseline assumes social and technological progress continues at the current rate, without additional climate policies or action, similar to the “Current Policies Scenario” of the Integrated Assessment Models or the IPCC reports. 

Figure 1: Dashboard of the En-ROADS simulator, displaying the baseline scenario resulting in 3.3o C of warming by the end of the twenty-first century.

In the first round, each stakeholder group unilaterally proposed one mitigation strategy that aligned with their own priorities, but quickly found issues with this approach. One group proposed subsidizing renewable energy sources and another subsidizing nuclear energy, both with the hope of reducing fossil fuel emissions from the energy sector. Adding a $0.03 /kWh subsidy to renewable energy expanded the energy market share of renewables, thus reducing the more fossil-fuel intensive sources like coal and oil. This change resulted in reducing the projected 2100 warming by a modest tenth of a degree to 3.2o C. However, adding a subsidy for nuclear not only reduced fossil-fuel intensive energy sources as intended, but also ate into the market share of renewable energy. This is because nuclear and renewable energy compete with each other as much as with coal, oil and gas (Figure 1). As a result, adding the nuclear subsidy on top of the renewable energy subsidy had a negligible effect, keeping projected 2100 warming at 3.2o C. This surprising result demonstrated a need for more synergistic mitigation strategies, fueling negotiations between stakeholder groups in the next round. 

Round two saw periods of intense debate between stakeholder groups, as individual actors formed coalitions with two blocs emerging. One coalition, led by “Conventional Energy”, which included “Clean Tech”, “Industry and Commerce” and the “Developed Nations”, proposed investment in technological carbon removal, or carbon capture, to offset emissions. This would prop up the “Industry and Commerce” and “Clean Tech” sectors by increasing funding for research and development without negatively impacting the status quo of “Conventional Energy” and “Developed nations”. Alternatively, the second coalition led by the “Climate Justice Hawks” in coordination with the “Agriculture, forestry and land use” and the “Developing Nations”  focused on reducing methane, nitrous oxide and other greenhouse gas emissions that were more relevant to their sectors. This two-pronged approach resulted in a total 2100 temperature increase of 2.7o C, a significant improvement from the 3.3o C starting baseline, but short of the 2o C goal set out at the beginning of the game.

By the start of the third round, no one had proposed any mitigation strategies that would directly reduce CO2 emissions from fossil fuel burning. This was, in part, to accommodate the strong personalities of the “Conventional Energy” team, who had aggressively lobbied for anything else. However, in the third round, the PECS role-players were encouraged to open the En-ROADS simulator themselves and quickly discovered the power of a substantial carbon tax. 

“We just need the carbon tax to be $100 [per ton CO2]” said one member of the “Agriculture, forestry and land use” team.

“Who’s going to pay the carbon tax?” asked a member of “Conventional Energy”.

The conversation quickly escalated as the groups sparred over which mitigation strategies should be implemented in the final round. In short order, the two blocs became one, with every PECS member gathered around a single table, advocating for their stakeholder interests. Ultimately, with a compromise on the carbon tax, increased energy efficiency, a tax on oil, investment in carbon removal technologies and decreased deforestation, the group argued and laughed their way to the targeted 2o C of warming by 2100.

The event was a great success, and the players walked away with a new appreciation for the various perspectives at play when discussing our climate future. “We need to invest more in research; we need to put money into new technologies,” said one student who thought that negative emissions were a powerful factor in their final scenario. Another student said, “This really validates the “all of the above” energy policy of the Obama era” noting that there are still ways to the 2o C threshold without slashing the fossil fuel industry. In the long run, the PECS members all agreed that the solution was complex, requiring cooperation across sectors and a variety of mitigation strategies, with no “one-size fits all” answer. The En-ROADS Climate Action Simulation worked; it facilitated an informative, engaging, and fun discussion of climate change mitigation and policy.

The roleplaying game is my favorite way to introduce the En-ROADS simulator but Climate Interactive also has other ways of engaging. If you’re interested in bringing En-ROADS to your classroom, group or workshop, check out: https://www.climateinteractive.org/en-roads/ or reach out to Abigale Wyatt in the Geosciences department for more information. 

Abigale Wyatt is a PhD Candidate in Geosciences working with Prof. Laure Resplandy to study how ocean physics and climate variability impact surface ocean biogeochemistry. After completing her degree, Abigale will join the team at [C]Worthy, an initiative investigating the efficacy of marine-based carbon dioxide removal, as a postdoctoral research scientist.

Integrating Renewable Energy Part 2: Electricity Market & Policy Challenges

Posted on by Highwire Earth

Written by Kasparas Spokas

The rising popularity and falling capital costs of renewable energy make its integration into the electricity system appear inevitable. However, major challenges remain. In part one of our ‘integrating renewable energy’ series, we introduced key concepts of the physical electricity system and some of the physical challenges of integrating variable renewable energy. In this second instalment, we introduce how electricity markets function and relevant policies for renewable energy development.

Modern electricity markets were first mandated by the Federal Energy Regulatory Commission (FERC) in the United States at the turn of millennium to allow market forces to drive down the price of electricity. Until then, most electricity systems were managed by regulated vertically-integrated utilities. Today, these markets serve two-thirds of the country’s electricity demand (Figure 1) and the price of wholesale electricity in these regions is historically low due to cheap natural gas prices and subsidized renewable energy deployment.

The primary objective of electricity markets is to provide reliable electricity at least cost to consumers. This objective can be further broken down into several sub-objectives. The first is short-run efficiency: making the best of the existing electricity infrastructure. The second is long-run efficiency: ensuring that the market provides the proper incentives for investment in electricity system infrastructure to guarantee to satisfy electricity demand in the future. Other objectives are fairness, transparency, and simplicity. This is no easy task; there is uncertainty in both supply and demand of electricity and many physical constraints need to be considered.

While the specific structure of electricity markets varies slightly by region, they all provide a competitive market structure where electricity generators can compete to sell their electricity. The governance of these markets can be broken down into several actors: the regulator, the board, participant committees, an independent market monitor, and a system operator. FERC is the regulator for all interstate wholesale electricity markets (all except ERCOT in Texas). In addition, reliability standards and regulations are set by the North American Electric Reliability Council (NERC), which FERC gave authority in 2006. Lastly, markets are operated by independent system operators (ISOs) or Regional Transmission Operators (RTOs) (Figure 1). In tandem, regulations set by FERC, NERC, and system operators drive the design of wholesale markets.

Wholesale energy market ISO/RTO locations (colored areas) and vertically-integrated utilities (tanned area). Source: https://isorto.org/

Before we get ahead of ourselves, let’s first learn about how electricity markets work. A basic electricity market functions as such: electricity generators (i.e. power plants) bid to generate an amount of electricity into a centralized market. In a perfectly competitive market, the price of these bids is based on the costs of an individual power plant to generate electricity. Generally, costs are grouped by technology and organized along a “supply stack” (Figure 2). Once all bids are placed, the ISO/RTO accepts the cheapest assortment of generation bids that satisfies electricity demand while also meeting physical system and reliability constraints (Figure 2a). The price of the most expensive accepted bid becomes the market-clearing price and sets the price of electricity that all accepted generators receive as compensation (Figure 2a). In reality it is a bit more complicated: the ISO/RTOs operate day-ahead, real-time, and ancillary services markets and facilitate forward contract trading to better orchestrate the system and lower physical and financial risks.

Figure 2. Schematics of electricity supply stacks (a) before low natural gas prices, (b) after natural gas prices declined, (c) after renewable deployment.

Because real electricity markets are not completely efficient and competitive (due to a number of reasons), some regions have challenges providing enough incentives for the long-run investment objective. As a result, several ISO/RTOs have designed an additional “capacity market.” In capacity markets, power plants bid for the ability to generate electricity in the future (1-3 years ahead). If the generator clears this market, it will receive extra compensation for the ability to generate electricity in the future (regardless of whether it is called upon to generate electricity) or will face financial penalties if it cannot. While experts continue to debate the merits of these secondary capacity markets, some ISO/RTOs argue capacity markets provide the necessary additional financial incentives to ensure a reliable electricity system in the future.

Sound complicated? It is! Luckily, ISO/RTOs have sophisticated tools to continuously model the electricity system and orchestrate the purchasing and transmission of wholesale electricity. Two key features of electricity markets are time and location. First, market clearing prices are time dependent because of continuously changing demand and supply. During periods of high electricity demand, prices can rise because more expensive electricity generators are needed to meet demand, which increases the settlement price (Figure 2a). In extreme cases, these are referred to as price spikes. Second, market-clearing prices are regional because of electricity transmission constraints. In regions where supply is low and the transmission capacity to import electricity from elsewhere is limited, electricity prices can increase even more.

Several recent developments have complicated the economics of generating electricity in wholesale markets. First, low natural gas prices and the greater efficiency of combined cycle power plants have resulted in low electricity bids, restructuring the supply stack and lowering market settlement prices (Figure 2b). Second, the introduction of renewable power plants, which have almost-zero operating costs, introduce almost-zero electricity market bids. As such, renewables fall at the beginning of the supply stack and push other technologies towards the right (higher-demand periods that are less utilized), further depressing settlement prices (Figure 2c). A recent study by the National Renewable Energy Laboratory expects these trends to continue with increasing renewable deployment.

In combination, these developments have reduced revenues and challenged the operation of less competitive generation technologies, such as coal and nuclear energy, and elicited calls for government intervention to save financial investments. While the shutdown of coal plants is welcome news for climate advocates, nuclear power provided 60% of the U.S. carbon-free electricity in 2016. Several states have already instated credits or subsidies to prevent these low-emission power plants from going bankrupt. However, some experts argue that the retirement of uneconomic resources is a welcome indication that markets are working properly.

As traditional fossil-fuel power plants struggle to remain in operation, the development of new renewable energy continues to thrive. This development has been aided by both capital cost reductions and federal- and state-level policies that provide out-of-market economic benefits. To better achieve climate goals, some have argued that states need to write policies that align with wholesale market structures. Proposed mechanisms include in-market carbon pricing, such as a carbon tax or stronger cap-and-trade programs, and additional clean-energy markets. Until now however, political economy constraints have limited policies to weak cap-and-trade programs, investment and production tax credits, and renewable portfolio standards.

While renewable energy advocates support such policies, system operators and private investors argue these out-of-market policies could potentially distort wholesale electricity markets by suppressing prices and imposing regulatory risks on investors. Importantly, they argue that this leads to inefficient resource investment decisions and reduced competition that ultimately increases costs for consumers. As a result, several ISO/RTOs are attempting to reform electricity capacity market rules to satisfy these complaints but are having difficulty finding a solution that satisfies all stakeholders. How future policies will be dealt with by FERC, operators and stakeholders remains to be resolved.

As states continue to instate new renewable energy mandates and technologies yet to be well-integrated with wholesale markets, such as battery storage, continue to evolve and show promise, wholesale market structures and policies will need to adapt. In the end, the evolution of electricity market rules and policies will depend on a complex interplay between technological innovation, stakeholder engagement, regulation, and politics. Exciting!

 

Kasparas Spokas is a Ph.D. candidate in the Civil & Environmental Engineering Department and a policy-fellow in the Woodrow Wilson School of Public & International Affairs at Princeton University. Broadly, he is interested in the challenge of developing low-emissions energy systems from a techno-economic perspective. Follow him on Twitter @KSpokas.

Integrating Renewable Energy Part 1: Physical Challenges

Posted on by Highwire Earth

Written by Kasparas Spokas

Meeting climate change mitigation targets will require rapidly reducing greenhouse gas emissions from electricity generation, which is responsible for a quarter of all U.S. greenhouse gas emissions. The prospect of electrifying other sectors, such as transportation, further underscores the necessity to reduce electricity emissions to meet climate goals. To address this, much attention and political capital have been spent on developing renewable energy technologies, such as wind or solar power. This is partly because recent reductions of the capital costs of these technologies and government incentives have made this strategy cost-effective. Another reason is simply that renewable energy technologies are popular. Today, news articles about falling renewable energy costs and increasing renewable mandates are not uncommon.

While capital cost reductions and popularity are key to driving widespread deployment of renewables, there remain significant challenges for integrating renewables into our electricity system. This two-part series introduces key concepts of electricity systems and identifies the challenges and opportunities of integrating renewables.

Figure 1. Schematic of the physical elements of electricity systems. Source: https://www.eia.gov/energyexplained/index.php?page=electricity_delivery

What are electricity systems? Physically, they are composed of four main interacting elements: electricity generation, transmission grids, distribution grids, and end users (Figure 1). In addition to the physical elements, regulatory and governance structures guide the operation and evolution of electricity systems (these are the focus of part two in this series). These include the U.S. Federal Regulatory Commission (FERC), the North American Electric Reliability Council (NERC), and numerous state-level policies and laws. The interplay between the physical and regulatory elements has guided electricity systems to where they are today.

In North America, the electricity system is segmented into three interconnected regions (Figure 2). These regions are linked by only a few low-capacity transmission wires and often operate independently. These regions are then further segmented into areas where independent organizations operate wholesale electricity markets and areas where federally-regulated vertically-integrated utilities manage all the physical elements (Figure 2). Roughly two-thirds of the U.S. electricity demand is now located in wholesale electricity markets. Lastly, some of these broad areas are further subdivided into smaller balancing authorities that are responsible for supplying electricity to meet demand under regulations set by FERC and NERC.

Figure 2. Left: North American Electric Reliability Corporation Interconnections. Right: Wholesale market areas (colored area) and vertically-integrated utilities areas (tanned area). Source: https://www.energy.gov/sites/prod/files/oeprod/DocumentsandMedia/NERC_Interconnection_1A.pdf & https://isorto.org/

Electricity systems’ main objective is to orchestrate electricity generation, transmission and distribution to maintain instantaneous balance of supply and continuously changing demand. To maintain this balance, the coordination of electricity system operations is vital. Electricity systems need to provide electricity where and when it is needed.

Historically, electricity systems have been built to suit conventional electricity generation technologies, such as coal, oil, natural gas, nuclear, and hydropower. These technologies rely on fuel that can be transported to power plants, allowing them to be sited in locations where electricity demand is present. The one exception is hydropower, which requires that plants are sited along rivers. In addition, the timing of electricity generation at these power plants can be controlled. The ability to control where and when electricity is generated simplifies the process by which an electricity system is orchestrated.

Enter solar and wind power. These technologies lack the two features of conventional electricity generation technologies, the ability to control where and when to generate electricity, and make the objective of instantaneously balancing supply and demand even more challenging. For starters, solar and wind technologies are dependent on natural resources, which can limit where they are situated. The areas that are best for sun and wind do not always coincide with where electricity demand is highest. As an example, the most productive region for on-shore wind stretches along a “wind-belt” through the middle of U.S. (Figure 3). For solar, the sparsely populated southwest region presents the most attractive sunny skies (Figure 3). As of now, long-distance transmission infrastructure to transport electricity from renewable resource-rich regions to high electricity demand regions is limited.

Figure 3. Maps of wind speed (left) and solar energy potential (right) in the U.S. Source: https://www.nrel.gov/

In addition, the timing of electricity generation from wind and solar cannot be controlled: solar panels only produce electricity when the sun is shining and wind turbines only function when the wind is blowing. Therefore, the scaling up of renewables alone would result in instances where supply of renewables does not equal customer demand (Figure 4). When renewable energy production suddenly drops (due to cloud cover or a lull in wind), the electricity system is required to coordinate other generators to quickly make up the difference. In the inverse situation where renewable energy generation suddenly increases, electricity generators often curtail the electricity to avoid dealing with the variability. The challenge of forecasting how much sun and wind there will be in the future adds more uncertainty to the enterprise.

Figure 4. Electricity demand and wind generation in Texas. The wind generation is scaled up to 100% of demand to emphasize possible supply-demand mismatches. Source: http://www.ercot.com/gridinfo/generation

A well-known challenge in solar-rich regions is the “duck-curve” (Figure 5). The typical duck-curve (named after the fact that the curve resembles a duck) depicts the electricity demand after subtracting the amount of solar generation at each hour of the day. In other words, the graph depicts the electricity demand that needs to be met with power plants other than solar, called “net-load.” During the day, the sun shines and solar panels generate electricity, resulting in low net-loads. However, as the sun sets and people turn on electric appliances after returning home from work, the net load increases quickly. Electricity systems often respond by calling upon natural gas power plants to quickly ramp up their generation. Unfortunately, natural gas power plants that can quickly increase their output are less efficient and have higher emission rates than slower natural gas power plants.

 

Figure 5. The original duck-curve presented by the California Independent System Operator. Source: http://www.caiso.com/

These challenges result in economic costs. A study about California concluded that increasing renewable deployment could result in only modest emission reductions at very high abatement costs ($300-400/ton of CO2). This is because the added variability and uncertainty of more renewables will require higher-emitting and quickly-ramping natural gas power plants to balance sudden electricity demand and supply imbalances. In addition, more renewable power will be curtailed in order to maintain stability (Figure 6), reducing the return on investment and increasing costs.

Figure 6. Renewable curtailment (MWh) and cumulative solar photovoltaic (PV) and wind power capacity in California from 2014 to 2018. Source: CAISO

Although solar and wind power do pose these physical challenges, technological advances and electricity system design enhancements can facilitate their integration. Several key strategies for integrating renewables will be: the development of economic energy storage that can store energy for later use, demand response technologies that can help consumers reduce electricity demand during periods of high net-load, and expansion of long-distance electricity transmission to transport electricity from natural resource (sun and wind) rich areas to electricity demand areas (cities). Which solutions succeed will depend on the interplay of future innovation, state and federal incentives, and electricity market design and regulation improvements. As an example, regulations that facilitate long-distance electricity transmission could significantly reduce technical challenges of integrating renewables using current-day technologies. To ensure efficient integration of renewable energy, regulatory and energy market reform will likely be necessary. For more about this topic, check out part two of our series here!

 

Kasparas Spokas is a Ph.D. candidate in the Civil & Environmental Engineering Department and a policy-fellow in the Woodrow Wilson School of Public & International Affairs at Princeton University. Broadly, he is interested in the challenge of developing low-emissions energy systems from a techno-economic perspective. Follow him on Twitter @KSpokas.