Reducing Greenhouse Gas Emissions: Reducing Greenhouse Gas Emissions: How and at What Cost?How and at What Cost?

Robert L. Hance

President/CEO

Midwest Energy Cooperative

Climate Change• Greenhouse Gases (GHG) in atmosphere

that absorb and emit radiation – water vapor, carbon dioxide (CO2), methane, nitrous oxide and ozone– Real and human caused– Impacts often wildly exaggerated– Need simpler, smarter and more efficient

solutions– More important issues – hunger, poverty,

disease, etc.

Climate Change Information• United Nations International Panel on Climate

Change (IPCC)• http://en.wikipedia.org/wiki/Climate_change• http://masterresource.org/• Cool It by Bjorn Lomborg

Cap and Trade BasicsCap and Trade Basics

0

2

4

6

8

10

Baseline

Declining Cap

Time

How Cap and Trade WorksHow Cap and Trade Works• Step #1 – Set Goal

– 17% below 2005 CO2 emissions by 2020

– 83% below 2005 by 2050

• Step #2 – Establish Cap– Total emissions of GHGs from designated

group of emitters (e.g., power plants, manufacturers, smelters, transportation) is capped based on current totals or reduced totals

How Cap and Trade WorksHow Cap and Trade Works• Step # 3 – Cap is allocated among

emitters– Total cap is allocated among regulated facilities as

allowable emissions permit that allow GHG emissions by ton per year

– Or, part of the cap is allocated “free” and part is auctioned by government with proceeds used to:

• Invest in research and development• Reduce individual income taxes or provide energy

rebates• Reduce corporate taxes

Federal Climate Change ProposalsFederal Climate Change Proposals• HR 2454 – The American Clean Energy and Security Act HR 2454 – The American Clean Energy and Security Act

(Waxman-Markey) (Waxman-Markey) passed U.S. House of Representatives in June – 219-212– Section One: Consumer Protection (now there’s a

clue)– Caps CO2 emissions 17% below 2005 level by 2020

(adjusted for growth in electricity demand could mean a 24% reduction)

– 83% below 2005 by 2050 (estimated to reduce global temperature by a mere 0.05 degree Celsius)

– Price of carbon permits could reach $48-$61 per metric ton of CO2 by 2020

Federal Climate Change ProposalsFederal Climate Change Proposals• Obama Administration budget projects $624

billion revenue from carbon cap & trade tax over 2012-2019. More than 80% earmarked for tax credits – not clean energy development

• “Under my plan, of a cap and trade system, electric rates would necessarily skyrocket.”

• Candidate Barack Obama in January 2008 (view on YouTube)

• EPA greenhouse gas endangerment finding

NY0.28

WV1.84

NJ0.72

LA1.82

MN2.21

OK1.89

VT0.72NH

0.72

NC0.89

KY2.29

VA1.14

ID0.02

AL1.71

CA0.50

CO2.02

IA1.60

IL2.22

IN2.00

KS1.71

ME0.72

MI1.84

MO1.94

MS1.57

MT0.47

ND1.98

NE1.80

NM1.71

OH2.00

SD1.82

UT1.93

WA0.02

WI2.02

WY1.89

NV0.99

TN1.41AZ

1.91AR2.04

TX1.62

OR0.02

PA0.72

SC1.90

GA1.17

FL1.79

Source: 2007 EIA-906 Generation & Emissions dataStrategic Analysis UnitMay 2009

*based on fuel mix of co-op-owned generation and other known co-op power suppliers (TVA, BPA, Santee Cooper etc); any other co-op power purchases were assumed to be at an emissions rate typical of the NERC sub region.

CO2 emissions in pounds per kWh:

High 1.70 and above

Medium 1.00 to 1.69

Low 0 to 0.99

CO2 Intensity of Distribution Co-ops*

AK1.06

HI0.59

DE 1.23MD 1.71

CO2 emissions in pounds per kWh

With Cap-and-Trade, the devil is in the details…With Cap-and-Trade, the devil is in the details…

Program design requires choices among dozens of alternatives

– Choices will create winners and losers among stakeholders

– Costs to Michigan consumers could be billions of dollars depending on how the cap and trade program is designed

– Congressional Budget Office estimates HR 2454 will raise a family’s electric bill $175 per year. Does not include impact on costs of other fuels, food and consumer goods

the devil is in the details…the devil is in the details…

– Heritage Foundation estimates by 2035

• An average of 844,000 jobs will have been lost each year

• Electric rates up 90% (inflation adjusted)

• Gasoline prices up 74%

• Residential natural gas up 55%

• Average family’s energy bill up by $1,500 a year

– At $20/ton price on CO2, a residential electric co-op consumer in MI could see a 16% increase – at $50/ton a 40% increase

Copenhagen Consensus ConsultingCopenhagen Consensus Consulting• Expert panel of five top economists including three Nobel Laureates concluded that greater resources should be spent on research into climate

engineering and green energy.• Panel scrutinized 21 ground-breaking research papers by top climate economists that analyzed the costs and benefits of different responses to

global warming.• Based on analysis of the research, they created a prioritized list that outlines the best and worst ways to respond to climate change.

RATING SOLUTION CATEGORY

“Very Good” 1 Marine Cloud Whitening Research Climate Engineering

2 Energy R&D Technology

3 Stratospheric Aerosol Insertion Research Climate Engineering

4 Carbon Storage Research Technology

“Good” 5 Planning for Adaptation Adaptation

6 Research into Air Capture Climate Engineering

“Fair” 7 Technology Transfers Technology Transfers

8 Expand and Protect Forests Forestry

9 Stoves in Developing Nations Cut Black Carbon

“Poor” 10 Methane Reduction Portfolio Cut Methane

11 Diesel Vehicle Emissions Cut Black Carbon

12 $20 OECD Carbon Tax Cut Carbon

“Very Poor” 13 $0.50 Global CO2 Tax Cut Carbon

14 $3 Global CO2 Tax Cut Carbon

15 $68 Global CO2 Tax Cut Carbon

Michigan Capacity Need Forum• January 2006 findings:

– Peak electric demand is projected to increase at an annual rate of about 2.1%.

– The average age of Michigan’s power plants is 48 years. Demand growth, coupled with the expected retirements of some of Michigan’s existing base load power plants, will necessitate the addition of one or two base load plants by 2014. Build time on a base load plant is at least six years.

– By 2009, unless enhancements to existing supplies are undertaken, growing demand will cause existing electric generation and transmission capacity in the Lower Peninsula to be insufficient to maintain reliability standards. 

– Resource enhancements available could include a wide variety of near-term options, including additional demand-side options (energy efficiency improvements, load management, and demand-response programs) and generally faster-to-complete supply-side options such as transmission improvements, natural gas combustion turbines or combined cycle generators, renewable energy, and combined heat and power systems. 

Lower Peninsula Forecast Demand and Supply

Questions?