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A Mandatory US Federal Carbon Emissions Program (Kyoto-II) Will Reduce the Cost Advantage that Michigan Fossil Electricity has over Michigan Wind Electricity
 

A Mandatory US Federal Carbon Emissions Program (Kyoto-II) Will Reduce the Cost Advantage that Michigan Fossil Electricity has over Michigan Wind Electricity

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My presentation at the 2009 Michigan Wind Conference, Cobo Hall, Detroit, MI, March 3, 2009

My presentation at the 2009 Michigan Wind Conference, Cobo Hall, Detroit, MI, March 3, 2009

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    A Mandatory US Federal Carbon Emissions Program (Kyoto-II) Will Reduce the Cost Advantage that Michigan Fossil Electricity has over Michigan Wind Electricity A Mandatory US Federal Carbon Emissions Program (Kyoto-II) Will Reduce the Cost Advantage that Michigan Fossil Electricity has over Michigan Wind Electricity Presentation Transcript

      • A Mandatory US Federal Carbon Cap (Kyoto-II) will Help Reduce the Cost Advantage that Michigan (MI) Fossil Electricity has over MI Wind Electricity
      • Tues., 03/03/09 2:00-3:00pm
      • Cobo Hall Detroit, MI 
    • The Conference
    • The Presenter Michael Stavy Consulting Energy Economist 432 N. Clark St. Suite 204 Chicago, Il 60654 USA 312-832-1631 www.michaelstavy.com [email_address]
    • The Lecture Handout
      • Download lecture handout with details and footnotes
      • At end of presentation provide webpage, username and password
    • The Disclaimer
      • While I prepared this presentation and I believe that it contains correct information, I make no warranty expressed or implied, nor do I assume any legal responsibility for the accuracy, completeness or usefulness of any information presented.
      • Presentation © 2009 Michael Stavy
      • The Global Problem
      • Increase in GHG emissions is causing an increase in the earth’s surface temperature
      • Global warming is an observed scientific fact
      • An increase in temperature will change life as usual (LAU)
    • Life as Usual Parc Montsouris, Paris 14 th
    • An OECD Coal Plant Life as Usual will not continue
      • Solutions to Global Warming
      • Suffer
      • Adjustment
      • Mitigation
      • The Kyoto Protocol is an attempt at mitigation
      • Windpower is a mitigating technology
      • Kyoto Protocol mitigating “Galbraithian” technostructure
    • The Lecture
      • Michigan wind-centric
      • Kyoto-I (and Kyoto-II) centric
      • Carbon reduction centric
      • The Kyoto Protocol
    • Protocol Basics
      • Tries to change the human economy so that it will produce the required output with less carbon
      • A treaty among sovereign nations
      • UNFCC Secretariat administers Protocol for signatory nations
      • Protocol only applies to signatory nations and their citizens
    • Protocol Basics
      • Only citizens of signatory countries can trade Protocol carbon units
      • No matter what the Annex B domestic architecture, Protocol trading is sovereign government to sovereign government
    • Protocol Basics
      • Sets a cap (ceiling) on carbon emissions in the Annex B signatory countries
      • U S A not currently a signatory
      • Protocol (Kyoto-I) used as model for future mandatory US federal carbon cap (Kyoto-II)
    • The Green House Gases
      • Protocol measures GHG in metric tons (t m ) of carbon dioxide (CO 2 ), the major GHG.
      • In the Protocol, the other GHG emissions (i.e. CH 4 , N 2 O, HFC, PFC, SF 6 ) are standardized into t m -CO 2 by their global warming potential (GWP).
    • Protocol Carbon Unit
      • Main GHG from burning fossil fuels (coal, natural gas, oil) to generate MI electricity is CO 2
      • t m -CO 2e or t m -CO 2 or t-CO 2
      • carbon emissions or C emissions
    • More on the Protocol Carbon Unit
      • A ssigned Carbon Emission A llowance U nit (AAU) is the basic Protocol carbon unit of measurement
      • AAU = 1 t m -CO 2
      • AAU are only issued by the UNFCC Secretariat
    • Protocol Carbon Cap
      • Carbon cap is maximum t-CO 2 /yr that a country is allowed emit into air
      • Base Year 1990-t 0
      • Emissions measured from base year
      • First Commitment Period 2008-2012
      • Period during which Annex B countries must reduce their carbon emissions by, on average, 5.2% from t 0
    • The Annex I Countries
      • Annex I countries are all the OECD countries plus CIT countries.
      • CIT are former East European countries that are transitioning from central planning to market economies
      • The developed countries
    • The Non-Annex I Countries
      • Countries under development
    • The Annex B Countries
      • Certain Annex I countries that have been assigned to reduce their emissions
      • Protocol assigns carbon cap in AAU (1 AAU = 1 t-CO 2 ) to each Annex B county
      • U S A is an Annex I country assigned to Annex B but is not a signatory
    • Kyoto-II Basics
      • US signatory to Kyoto-II
      • Except for certain parameters, Kyoto-II has same architecture as Kyoto-I
      • Base Year stays 1990-t 0
      • Second Commitment Period 2013-2017
      • Period during which Annex B countries must reduce their carbon emissions by, on average, another X % from t 0
      • Possible goal 385 ppm atmospheric CO 2
    • Carbon Control Architectures
      • Protocol allows each Annex B country to design its own regulatory structure to reduce its carbon footprint
      • Three most common are
      • 1. Cap and command
      • 2. Cap and trade
      • 3. Carbon tax
    • US Cap and Command-C & C
      • Each MI fossil power plant given cap-maximum t-CO 2 /yr that it can emit
      • Based on historical emissions
      • Plant penalized if actual t-CO 2 /yr > cap
      • Not rewarded if actual t-CO 2 /yr < cap
      • Wind plants emit 0 t-CO 2 /yr
    • US Cap and Command-C & C
      • C & C used for HFC emissions caps under the Montréal Protocol
      • US Montréal Protocol signatory
      • Table # 1 below shows Kyoto-II C & C emissions data for 3 hypothetical MI fossil power plants
    • US Cap and Command-C & C
      • Fossil power plant 1 is even with cap
      • Plant 2 is below its cap
      • Plant 3 is above its cap
      • Current US state Renewable Portfolio Standards (RPS) are C & C architectures
    •  
    • US Cap and Trade-C & T
      • Basis for C & T is the “command” from
      • C & C
      • Used by EU ETS
      • EU ETS will be model for US Kyoto-II C & T
      • US voluntary emissions schemes do not significantly reduce CO 2 emissions -- not good for MI wind electricity
      • Each US power plant is given cap (max t-CO 2 /yr that it can emit)
    • EU ETS
      • Protocol allows countries next to each other to cap emissions under a joint emissions bubble
      • European Union Emission Trading Scheme (EU ETS) is one such bubble
    • Countries Under the ETS Bubble
      • 25 EU Countries
    • EU ETS Specifics
      • Study EU ETS because it is currently the only major C & T market
      • Under EU ETS bubble, the AAU is called Eu ropean Carbon Emission A llowance (EUA)
      • Use AAU for US Kyoto-II carbon unit
    • EU ETS Specifics
      • EU Directorate administers the EU ETS
      • EU Directorate receives AAU from the UNFCC Secretariat
      • EU Directorate distributes EUA to EU ETS countries
    • EU ETS Specifics
      • Each EU ETS country decided which industrial sectors are capped during first commitment period
      • For now only look at carbon caps for EU ETS and US electric utility industries
    • US Cap and Trade-C & T
      • Each US plant must have an AAU for each t-CO 2 /yr it emits up to its cap
      • Assigned cap based on historical emissions
      • Plants get AAU from US carbon market purchase, US government auction or US government distribution
    • US Cap and Trade-C & T
      • US government will get Kyoto-II AAU from UNFCC Secretariat
      • US government auctions greatly increases US AAU price- very good for MI wind
      • Auctions also very good for planet Earth
    • US Cap and Trade-C & T
      • Table # 2 below shows Kyoto-II C & T emissions data for same 3 MI fossil power plants
      • Plant 1 is even on AAU
      • Plant 2 is long AAU; sells AAU
      • Plant 3 is short AAU; buys AAU
    •  
    • US Cap and Trade-C & T
      • If a power plant actual emissions < assigned cap, it is long , can sell its AAU in the US carbon market
      • If a power plant actual emissions > assigned cap, it is short , must buy AAU in the US carbon market
    • Cap and Trade Market Efficiency
      • A power plant long is more efficient
      • in reducing carbon emissions than a plant that is short
      • allowing short emitters to buy from long emitters increases economic efficiency
    • US Cap and Trade-C & T
      • Kyoto-II C & T helps reduce US fossil electricity’s cost advantage over wind electricity by including the carbon cost of the fossil electricity ( US$/MWh)
    • Carbon Cost of Fossil Electricity
      • Under Kyoto-II C & T, the carbon content
      • (t-CO 2 /MWh) of US fossil electricity must be offset with AAU
      • US carbon cost of fossil electricity depends on its carbon content and the cost of an AAU
      • Higher the AAU price, the greater the carbon cost, the better it is for MI wind electricity
    • Carbon Cost of Fossil Electricity
      • Table # 3 below shows carbon cost for US coal, natural gas and wind electricity
      • Carbon cost of wind is given as a comparison
      • Carbon content of fossil electricity from my 2004 Global Wind Power Conference Paper
    •  
    • Price of US Kyoto-II AAU
      • EUA price is proxy for US AAU price
      • Currently no US market price for mandatory carbon
      • EUA is best mandatory market price for carbon
    • Price of US Kyoto-II AAU
      • EU ETS has no public EUA markets with transparent prices for long-term contracts or for current (spot) trades
      • EUA prices and volumes not in public domain
      • European Climate Exchange (ECX) only provides public access to transparent prices for EUA futures and options
    • Price of US Kyoto-II AAU
      • ECX EUA Dec 08 futures
      • 30 Sept 08 month-end settlement price used as proxy EUA price
      • EUA price is proxy for US Kyoto-II AAU
      • EUA settlement price: 22.35 €
    • Price of US Kyoto-II AAU
      • 1 € = US$ 1.4445 ( 30 Sept 08)
      • Converted proxy EUA € price into US$ for use as proxy US Kyoto-II AAU price
    • Kyoto-II Reduces US Fossil Electricity's Cost Advantage
      • Table # 4 below shows the amount by which the after carbon cost of US fossil electricity is less (more) than MI wind electricity
      • Cost of generation is the levelized cost of generation; not the wholesale price (discussed below)
      • Cost of carbon is from Table # 3 above
    • Kyoto-II Reduces US Fossil Electricity's Cost Advantage
      • Total is the sum of the cost of generation and the cost of carbon
      • Fossil < wind is amount that MI fossil electricity total cost is less (more) than total cost of MI wind electricity
      • Hydro column without data requires further study
    •  
    • Cost of Generating Electricity
      • No public domain data (IEA, EIA) on the actual cost of generating EU (or US) fossil, wind and hydro electricity
      • Cost of generating electricity not transparent
      • Without transparent costs, the efficient market hypothesis (EMH) does not hold in these wholesale electric markets
    • Cost of Generating Electricity
      • Table # 5 below shows EU and US cost of coal, gas and wind generation converted from proxy € values published in January, 2008 Wind Power Monthly (WPM) article and graphs
      • Used WPM 8% cost of capital € values
      • Readers can use their own values
    • Fossil cost < wind cost
    • Reliable Cost Data
    •  
    • The Carbon Tax Architecture
      • Under Kyoto-II, US can also use a carbon tax to cap carbon
      • Tax is $/t-CO 2
      • The carbon content ( t-CO 2 /MWh) of fossil electricity is taxed
      • Must convert tax into $/MWh
    • The Carbon Tax Architecture
      • Table # 6 below uses a tax equal to above proxy price of Kyoto-II AAU $32.29/AAU (22.35 €/EUA)
    • Carbon Tax Computation
    • Carbon Tax Summary
      • Kyoto-II carbon tax is as efficient as C & T but historically unpopular in USA
      • No financial drivers behind it
      • Tax/MWh is the reduction in MI fossil electricity cost advantage over MI wind electricity
      • Carbon tax also very good for MI wind
      • Tax also reduces cost advantage of MI fossil electricity over MI wind electricity
    • The Conclusion
      • EU-ETS has not been able to reduce its carbon emissions to the % from the base year level required under Kyoto-I
      • Current carbon status quo only reduction of 0.6% by 2010
      • New steps in EU-ETS will need to take to reduce GHG by 20% in 2020
    • Some More Conclusions
      • Other “EU non C & T” Kyoto-I carbon reduction drivers have reduced EU fossil electricity's very large cost and institutional advantages
      • EU accelerating the increase in wind and other non-carbon electricity
    • Some “Non EU ETS” C & T Wind + & - & - Drivers
      • ETS country specific wind feed in tariffs (example DK, DE, IT, ES wind feed tariff) ++++++
      • Political parties with Green agenda +++++++++++++++++++++
      • Wind transmission dispatch & bottlenecks --------
      • Rising cost of wind turbines ------
    • Wind Transmission Dispatch
      • Merit dispatch of electric power is currently least costly generation including congestion pricing
      • Not enough transmission to handle all wind plants
      • Congestion pricing; paying economic rents
      • Merit dispatch should also be defined in terms of least carbon generation
    • Wind Facts to consider by MI when planning for Kyoto-II
      • World’s first wind feed-in-tariff was in California U S A under the first Governor Jerry Brown
      • EU transmission and siting regulations supported by EU Green Parties have allowed EU ETS wind to develop
    • MI Government Policies to Help MI Wind During “Kyoto-II”
      • Wind feed-in-tariffs
      • Community wind plants
      • Wind friendly grid access tariffs
      • Green siting statutes for wind plants
      • MI carbon cap with consequences
    • More LAU-Indiana Dunes U S A US ladybug wishes you good luck!
    • Download Lecture Handout
      • My website: www.michaelstavy.com
      • User Name: Detroit2009
      • Password: Mi1837
      • Must use capital D & M
    • My Contact Information
      • www.michaelstavy.com
      • [email_address]
      • 312-832-1631
      • 432 N Clark St., Suite 204,
      • Chicago, IL 60610 USA
      • 3 March 2009