Weatherdem's Weblog

Bridging climate science, citizens, and policy

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Carbon Price Already Part of Doing Business

A report issued yesterday by the Carbon Disclosure Project generated a number of news articles today, including in the New York Times.  The report identified 29 major US corporations’ inclusion of future carbon prices in their financial planning.  This is a significant and logical development.  It is financially responsible for companies with billions of annual revenue dollars to consider upcoming costs in their planning.  These companies aren’t partisan, they’re interested only in making money.  If they think there is a way to make more money with carbon pricing than without, they’ll plan and act accordingly.

The NYT article notes that many Republicans might not like this development.  That’s due to the hyper-partisan characteristic of today’s leading Republicans.  Their worldview demands that they yell loudly at developments like carbon prices.  And despite their to-date very successful campaign to prevent policymakers from establishing a national carbon tax (which economists agree is the most economically efficient method) or a cap-and-trade system, they can’t and don’t control global policymakers.  A larger economic body than the US established a carbon price: the European Union.  China has begun limited implementation of carbon pricing.  Regional cap-and-trade systems encompassing US states and Canadian provinces with large economies exist and will only expand in the future.  What this means is US corporations doing business in the EU and China (and soon high population US states) have to take their carbon pricing into account.

The NYT and Huffington Post articles’ authors seem more surprised that companies like ExxonMobil are among those who are planning for carbon pricing than anything.  As I stated above, this is really the only logical development left for Exxon and other companies.  They can either perform their fiduciary duties and protect their shareholders’ interests or they can lose market share or fail.

This is one of the reasons I’ve supported regional carbon pricing following the continued failure to price carbon at the national and international levels.  If the price exists in a large enough portion of the larger economy, companies have to respond.  They can more easily lobby national politicians than local people who are very supportive of carbon pricing and who can run for local offices.  This is an example of my larger point that we need to implement climate mitigation and adaptation policies at the local level first.  Efforts to do this at the international level have failed time and time again.  But if thousands of communities implement their own strategies nationally and internationally, then higher levels of government have examples with which to work and grow.  More importantly, thousands of communities’ influence establishes political and social inertia that lobbying can only blunt.  This is the fastest way toward widespread policy implementation.


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Car mileage evaluation criticism

The Denver Post Editorial Board took a stance on car mileage based on a recent Consumer Reports (CR) article.  Let me state at the outset that I regularly use Consumer Reports rankings as part of my purchase decision-making process.  That said, no testing is ever 100% complete and is much less regularly communicated well to non-experts.  At issue: CR performed independent tests on cars and calculated different miles per gallon values than those the EPA provided.  Should the EPA update their testing?  Perhaps, but the Editorial Board and CR didn’t provide an overwhelming case to do so.  Let’s look at what each entity said.

First, the Post:

Consumers could very well feel deceived by the numbers, but there are other issues at work.

Hybrids with just a single occupant can zip past traffic using high-occupancy-vehicle lanes in some parts of the country — including Colorado — because of their superior efficiency. The idea is to support, through public policy, efficient vehicles that generate less harmful emissions. But if they’re really not substantially more efficient, it’s neither environmentally beneficial nor fair to drivers of traditional vehicles that may, in reality, get similar gas mileage.

There are key parts to this section that I want to highlight.  What does “substantially more efficient” mean?  What value efficiency is enough to warrant public policy?  In the Denver area, suburban drivers love their SUVs and trucks.  So to start, I’ll compare an SUV, a truck, a sports car, and a 2010 Prius.  And I’ll start with the location the Board identified as a policy recipient: the highway.  The EPA’s ratings for these four vehicles are: 15, 18, 26, and 48mpg (highway).  Should Prius drivers receive plicy support for driving a vehicle that averages 2-3X as many mpg as the majority of other vehicles?

Let’s change the argument a little to better match the spirit of the article and consider the “combined” fuel efficiency.  This designation accounts for street driving and highway driving.  The same four vehicles have the following combined ratings: 13, 14, 21, and 50mpg.  The complaint that CR and the Board has is the hybrid value is too high (based on their own testing protocols, which aren’t detailed very well).  So let’s change the hybrid’s EPA combined value with CR’s “overall” value: 44mpg.  Should we direct public policy toward cars that get 2-3X as many mpg as the majority of other vehicles?  Note that the comparison, and thus my argument, didn’t change.

The argument that CR made is that their hybrid vehicle test values differed from EPA values by more than 3mpg on average.  Yes, 6mpg is a difference.  Are consumers being tricked?  I don’t think so.  And this is really where I split with CR.  Here is their take:

Overall, fuel-efficiency shortfalls have narrowed considerably over the years. When Consumer Reports conducted a similar study in 2005 that compared our gas-mileage results with the EPA estimates, we found that most cars got significantly fewer mpg than their window stickers promised. Conventional gas-powered vehicles missed their EPA estimates by an average of 9 percent, and hybrids by 18 percent.

So it isn’t as if CR is bashing hybrids; far from it.  All of the EPA sticker values differed from CR’s.  That isn’t surprising since CR tested vehicles differently.  One vital question: which test best mimics real-world driving?  Most people drive very aggressively (hard acceleration and braking), which has a big impact on gas mileage.  Are the CR values too high?  What if we consider additional factors: heat and cold, wind and rain.  Those happen in the real world.  But not in the CR tests.  Isn’t it interesting that a consumer advocacy group is challenging the EPA’s tests for being unrealistic when they themselves didn’t test vehicles in real-world conditions?  How far off are CR’s values?  We don’t know.  Should we reengineer public policy in the face of CR’s unrealistic tests?  For what purpose?  Should the EPA and CR develop a more rigorous testing protocol – perhaps one that both entities can perform and therefore directly compare against one another?

I have another problem with the CR quote.  Note the bolded words.  EPA doesn’t promise drivers that they’ll attain the sticker mileage.  In fact, the EPA goes out of its way to emphasize and explain their values are merely estimates.  That’s not a promise, not even close.  It’s annoying that people read too much into things.  In fact, CR could do what I did: check the EPA website for common misconceptions.  The ninth most common:

9. Fuel Economy Label The EPA fuel economy estimates are a government guarantee on what fuel economy each vehicle will deliver.
The primary purpose of EPA fuel economy estimates is to provide consumers with a uniform, unbiased way of comparing the relative efficiency of vehicles. Even though the EPA’s test procedures are designed to reflect real-world driving conditions, no single test can accurately model all driving styles and environments. Differing fuel blends will also affect fuel economy. The use of gasoline with 10% ethanol can decrease fuel economy by about 3% due to its lower energy density.

Like I said, the EPA goes out of its way to explain what its published values are.  CR and the Board should have done 60 seconds of checking before they called out the EPA for deceiving consumers with “promises”.

A more appropriate target are auto manufacturers, who know what the tests are and try their best to optimize the results.  The same entity that has a financial interest in optimizing estimated mileage should not test vehicles’ mileage.  Like I wrote above, this is where CR and EPA should work together to independently test vehicles.

But as far as the basic argument goes, hybrids do get better overall mileage than other vehicles.  They get the best mileage if drivers drive them where manufacturers intended them to drive: in stop-and-go city traffic.  But they still drastically outperform their competition in highway driving, enough so that I think current public policies provide nearly the correct incentive for drivers to think of another dimension when choosing which vehicle they will purchase.

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Obamacare’s ‘Cadillac Tax’ Exposes Policy Weaknesses

In 2009 and 2010, I had many discussions with people about the Affordable Care Act (Obamacare).  At the outset let me explain that health care reform would have been expanding Medicare to every American.  It has the lowest overhead of any service and would have resulted in providing health care to everybody regardless of income or any other metric.  My fallback position was a Medicare opt-in as part of state-based or national-based health exchanges.  Let the private for-profit corporations compete against Medicare in the free market.  As conservatives usually say (but ran away from in this instance), let the market decide.  Well, we all know how non-free the market is.  Conservatives and Libertarians love to pick winners: as long as they’re winning.

Instead, President Obama spent two years’ worth of political capital on a search for his First Grand Bargain.  And make no mistake: he got exactly what he wanted.  Instead of health care reform, Americans were saddled with a health insurance giveaway.  Millions of Americans won’t be allowed to make a choice in the market; they will be forced to buy something.  That is a disgusting development in our country’s history.

Here is an anecdote that demonstrates the fundamental weakness of the “reform”: “While it might reduce health care spending, for many people it doesn’t reduce the cost of care.”  If you’re healthy, things will be great because you’ll receive free or cheap preventative care.  If you’re really sick, things will get worse because you’ll pay more and more for the same care you’ve been receiving.  Oops.  As Joan says, “if you have a serious health issue and were previously uninsured because of your pre-existing condition, you can at least get insurance now.”  Note the critical missing piece in that sentence: you won’t get quality care; you’ll get insurance.  Which, depending on your socioeconomic status, means you could get good care or crappy care.  That is the big reform as part of the President’s Grand Bargain.

Joan goes on to say, “The actual health care they receive needs to be made less expensive. That’s where the next steps in reform have to be made.”

Um, duh.  But just when we make those next reform steps?  That was the elephant in the room in my 2009-2010 discussions with Obamacare zealots.  Nobody was willing to say how they would make those next steps … or when.  The only thing they would say was it would eventually happen because incrementalism was the proper strategic political choice.  It became clear to me later that incrementalism works for folks in the establishment.  It keeps them employed for years and decades as tiny steps are taken every decade or two.  Meanwhile, Abbey and Casey Bruce’s bills will double in cost.  How many millions of Americans face higher medical bills in 2014 because the establishment folks decided incremental steps are the best?  President Obama and a bunch of other folks were reelected in 2012.  Are they pushing additional health care reform?  No and they won’t either.  They did health care reform.  We’ll have to wait until some undetermined point in the future to try for true health care reform again.

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CO Public Utilities Commission Rejects Xcel Energy’s Bid To Collect Remaining $16.6 Million in SmartGridCity Costs

I last wrote on this topic a couple of months ago, following a Denver Post article that started with a Judge’s decision that ratepayers should not be responsible for cost overruns associated with Xcel’s SmartGridCity program.  The judge’s decision was not the final step in the matter.  As a matter of course, the final step was the Colorado’s Public Utilities’ Commission decision whether to grant Xcel’s request to collect $16.6 million from Colorado ratepayers.

If this is the first time you’ve read about this, here is a short history.  In 2008, Xcel proposed SmartGridCity, in which they would install approximately 50,000 smart meters in the city of Boulder by year’s end.  It was one of the most ambitious smart grid projects announced at the time.  Xcel’s proposal totaled $15 million in costs, which they themselves would completely bear.  Seven partner companies were supposed to pay for the remainder of the $100 million project.  A little something called the Great Recession got in the way, along with little transparency and project mismanagement on Xcel’s part.  Today, 23,000 smart meters are installed – at a cost of $44.5 million, triple the original estimate for less than half the project deployment.  The PUC previously approved Xcel’s request for $27.9 million, which is currently collected through customer rates, not from Xcel’s assets.

Thankfully, the PUC decided today to reject Xcel’s request with prejudice, which means Xcel cannot appeal the decision.  I support this decision mainly because I do not think Xcel should saddle regional ratepayers with costs for benefits they cannot receive.  That is a disgusting business practice and terrible precedent to set for future projects.  In a similar vein, Xcel’s success in expanding a coal plant in Pueblo, CO seemed to many to be a grab at capital to pad profit.  Ratepayers overwhelmingly rejected the plant’s expansion because it would generate more electricity than demanded by the population as well as its long life: Xcel stuck CO with this expanded plant for the next 50 years.

I have expressed my frustration with the PUC on occasion.  I do not think they exert the appropriate level of oversight over Xcel when the energy utility asks for rate increases, especially given Xcel’s lack of correctly forecasting generation capacity or demand.  This decision doesn’t atone for past decisions I didn’t agree with, but I am glad of this result.

I reiterate my general support for the smart grid.  I think we will eventually witness a significant transformation of the US’s power sector, including its infrastructure.  Smart grid technologies could usher in an era of increased efficiency.  Energy consumers currently do not have much access to data on their usage.  Many (not all) people could change their consumption habits if they had access to that data.

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Customers Not Responsible For Xcel’s SmartGridCity Cost Overruns

So ruled a judge yesterday, with which I agree.

I was very excited when Xcel first announced their SmartGridCity plans back in 2008Work on the project started shortly thereafter.  It quickly became apparent to me that something was amiss: their flagship project was woefully under-reported.  The project, by generous description, was mismanaged almost from the start.

A quick description of the project: Xcel Energy planned to hook up residential, commercial, and industrial properties in Boulder, CO to new technologies so that the utility could more easily see which parts of the grid were performing well or poorly and so customers had real-time access to their energy usage.  The latter feature was particularly intriguing to me since I’m a data junkie.  I look at my solar PV system’s website constantly to see how much energy its generating.  I would do backflips of joy if I had access to energy consumption by my appliances and outlets.

The initial cost of the project was reported to be $15 million, although Xcel said that collectively with its partners, $100 million might be spent to lay the infrastructure and get everything working.  Xcel’s publicly stated plan was to install digital meters in 15,000 homes Aug. 1 2008 and approximately 50,000 meters by year’s end.  Xcel targeted 1,850 installations of in-home energy devices.  They told Boulder’s mayor that they would not seek payment for customers for their grand experiment.  Their overall plan?  To revolutionize how power was monitored and controlled by stakeholders.  That’s about where the good news ends.

Due to the Great Recession as well as overall mismanagement, costs tripled: $44.5 million was the final price tag.  Xcel had a good idea a few months after their original announcement that costs would approximately double, but did not inform either the Public Utilities Commission (PUC) or the public.  As usually happens when a corporation has an epic fail, the customer was held financially responsible.  Xcel filed rate increase requests with the PUC that increased over time as they sought more and more money from all its ratepayers.  Customers throughout Xcel’s service region (not just Boulder customers) have already paid $27.9 million!

For what did ratepayers actually pay?  Today, only 23,000 meters are hooked up.  Customer’s with the meters can view 15-minute energy data, not up-to-the-minute data.  Only 101 homes have in-home energy devices (5.5% of the original number).  So fewer than half the original number of smart meters  and 5% of in-home energy devices were installed.  The service delivered does not match the service promised when the project was first proposed.  For all this, Xcel wants 3X the money they initially requested.

Which brings us to the judge’s decision.  In November 2008, Xcel filed a $15.3 million SmartGridCity (SGC) request with the PUC.  In May 2009, they re-filed for $27.3 million with the PUC for SGC.  In July 2009, they re-filed for $42 million.  Xcel included $44.5 million in a 2010 general rate increase, which the city of Boulder and the Colorado Office of Consumer Counsel challenged.  In January 2011, the PUC approved SGC and allowed Xcel to collect $27.9 million for the project (more than the 1st re-filing and almost 2X the original filing).  In December 2011, Xcel filed to collect the remaining $16.6 million.  Yesterday, the judge ruled that “The lack of information provided here regarding customer-facing benefits or justification of the cost overruns fails to meet the Company’s burden of proof.”  The PUC will consider the judge’s ruling at a future meeting, which means that customers still might have to pay for this folly of an experiment.

I could make a dozen analogies why I think this situation is so bad.  Suffice to say corporate experiments should not be paid for by customers, especially when the corporation hasn’t acted in good faith.  Moreover, I challenge anyone to find the local libertarians who take up space in the media railing against Xcel for this money grab.  They’ll complain long and loud about the Transportation District and its decisions regarding expansion of light rail across the Denver metro area.  Due to rising commodity prices and mismanagement, an entire line could be delayed until 2042 while every other line is built out by 2019 and some lines receive luxury stops because District personnel live by them.  There is a big difference, however, in a public agency issuing transit projections based on revenue projections which turned out to be more optimistic because they didn’t forsee the Great Recession and a corporation hiding ballooning costs from a public regulatory agency.  But while RTD is a governmental entity, Xcel is a corporate entity.  In these so-called libertarains’ minds, government can do little good while corporations can do little harm.  Hence, the only commentary on the topic was 3 paragraphs from Vincent Carroll back in August: “SmartGridCity delivered less consumer benefit than originally advertised. More to the point, however, it cost way more than Xcel estimated. Surely this sort of major miscalculation should cost Xcel more than a little bad publicity.”  That’s the same Carroll who has had plenty to say about FasTracks and little of it useful for discussion.

The PUC needs to tell Xcel to eat the costs because Xcel severely mismanaged their project.  Ratepayers already are responsible for twice the originally quoted amount.  Xcel should revamp their smart grid strategy.  The smart grid will be a valuable tool for higher energy awareness in the future.  Other utilities are implementing smaller but more reasonable portions of their smart grids.  A lesson a supervisor hammered into me years ago is apt: don’t go out and design the Cadillac version of something on your first try.  With all the mistakes that will occur with a ground-breaking venture, design something basic but solid first, from which you can add bells and whistles later.


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Research: Climate Change Mitigation Cost Estimates

A new paper published in today’s Nature (subs. req’d) estimates costs to keep total man-made temperature rise below a set of thresholds (including 2°C).  This paper joins a long list of previous estimates, all of which are highly dependent on sets of assumptions.  The authors try to take uncertainties from four disciplines into account: geophysical, technological, social and political.  They state that “Our information on temperature risk and mitigation costs provides crucial information for policy-making, because it clarifies the relative importance of mitigation costs, energy demand and the timing of global action in reducing the risk of exceeding a global temperature increase of 2°C, or other limits such as 3°C or 1.5°C, across a wide range of scenarios.”  Given my recent push into the policy side of climate change, this paper provides a good example of something interesting and useful.

I will briefly state a central economic tenet: if you want to reduce how often an action takes place, the most direct way of doing so is to tax it.  Thus, if we want to minimize CO2 emissions, we should tax carbon at the source.  It is also obvious that the higher the cost of carbon, the lower carbon emissions will be within a set of real-world constraints.  What then should a carbon price be today that would work to keep global temperature rise above pre-industrial values below 2°C?  With a 50% probability, the authors estimate the 2012 price of carbon should be US$20 tCO2e−1 ($20 per ton of CO2-equivalent emission), as the following graph shows:


You should ask yourself a question at this point.  If there was a 50% probability of arriving safely at a destination airport on an airplane, would you buy the ticket?  If there was a 1-in-2 chance of me not surviving that trip, there is no way I would buy that ticket.  But that’s me.  But let’s try to stay away from dire sounding language when talking about climate policy.  Yes, substantial changes would result from 2°C warming.   But most people and ecosystems would survive intact.  I mean only to illustrate what probability looks like for scenarios you or I might encounter.

What prices would generate higher probabilities?  A price of more than US$40 tCO2e−1 would achieve the 2°C objective with a probability exceeding 66% – much better odds for something we might think is a worthy goal.

It makes sense too that the graph shows an 80% probability of achieving a 2.5°C objective with a 2012 carbon price of US$20 tCO2e−1 and a >90% probability of achieving a 3°C objective at the same price.  We might not want to use 2.5°C or 3°C as our goal – that is our policy choice.  But probabilities increase for higher temperatures as well as higher carbon prices.  Our climate policies determine which of these two represents our actual goal.

The authors’ also state the following: “Yet, despite all of the uncertainty in the geophysical, social and technological aspects, our analysis indicates that the dominant factor affecting the likelihood and costs of achieving the 2°C objective is politics.  Only for low-energy-demand pathways can global mitigation action be delayed until 2020 and the 2°C objective still be achieved with a probability exceeding 66% (or delayed until 2030 with a 50% probability).”

Does anyone seriously believe that we can keep energy demand at turn-of-the-21st-century levels?  Developing nations want the same access to energy that developed nations have enjoyed for decades.  Demand will continue to rise throughout the 21st century.  Absent radical technological innovation (and continued political inaction), I find a 2°C target is already out of reach.  If carbon prices aren’t enacted in the next few years, it won’t matter very much what the price of carbon is afterwards, with respect to a 2°C target – the target will simply be unachievable.  Other targets will have to come into view.  Left unsaid in this discussion is whether a temperature value should even be our target.  There are other values that likely make more sense to more people in the world and should therefore be the central focus instead.

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Colorado Sues Longmont over Longmont’s Stiffer Drilling Regulations

The state of Colorado wants to do everything it can to facilitate fossil fuel development, even if that means putting drilling rigs in the middle of housing areas.  The city of Longmont doesn’t think drilling should take place amidst residential areas, but the Colorado Oil and Gas Conservation Commission doesn’t care about local controls – they’re pro-drilling no matter the consequences.  So the Boulder County DA is suing Longmont to invalidate the city’s common sense regulations.

The federal government cracked down on Colorado medical marijuana dispensaries that were within 1000ft of schools earlier this year.  Does anyone think the feds will crack down on drilling rigs within 1000ft of those same children’s’ homes?  Toxic pollution from drilling is okay, but not a facility that has similar legal rights to exist and participate in commerce.

Does the state really want to fight for fossil fuel drilling instead of children?  What kind of public policy is that?