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Similaire à Valuing External Costs in Energy Decision Making
Similaire à Valuing External Costs in Energy Decision Making (20)
Valuing External Costs in Energy Decision Making
- 1. Externality Valuation in the Energy-Generating Decision Making Process Brenton Spiker West Michigan Environmental Action Council Grand Valley State University Master of Public Health
- 2. Agenda Overview of the Issue Define External Costs Economics of Energy Resources Effects of Energy Generation Externalities Case Studies Minnesota Public Utilities Commission Holland Board of Public Works Michigan’s Electricity Profile Integration of Externalities into Michigan’s Energy Facility Decision-Making Process
- 3. Overview of the Issue Unaccounted costs Environmental Health/Social New electric generating plant decision-making, in Michigan SB 437 Sec. 6s (1) Establish requirements of Integrated Resource Plan (IRP) HB 4298 Sec. 6s. (5) The commission can consider other costs associated with electricity generation
- 4. External Costs Economical Costs/benefits affecting a party who did not choose to incur those costs/benefits (Buchanan & Stubblebine, 1962) Not reflected in market price (Helbling, 2012) Social & Environmental Costs Adverse Health Outcomes Environmental Damage Climate Change
- 5. Economics of External Costs Fossil Fuel: Underpriced Renewable Energy Sources: Overpriced Efficient Market Optimally priced D – Demand S – Individual Supply EC – External Cost(s) SC – Social Cost Curve E* - Market Equilibrium O* - Optimal Market p1 – Actual Market Price p2 – Optimal Price q1 – Actual Quantity q2 – Optimal Quantity
- 6. Effects of Air Pollution Health Excess morbidity Premature mortality (CDC, 2014; Goodkind & Polasky, 2013; EPA, 2015) Coal Plants in MI 68,000 asthma exacerbation cases 180 premature deaths, annually (EH&E, 2011) Airbetter.org
- 7. Effects of Air Pollution Environmental Forests/Trees Agriculture/Crops Wildlife Water/Aquatic Life Mercury accumulation Geospatial Effects (EH&E, 2011; Goodkind & Polasky, 2013; EPA, 2015)
- 8. Air Pollution Components Criteria Pollutants Particulate Matter Ground-level Ozone Carbon Monoxide Nitrogen Oxides Sulfur Dioxide Lead Other Components Carbon Dioxide Mercury
- 9. Particulate Matter Distribution from MI
- 10. Externality Valuation in Other States Nevada Massachusetts New York Oregon California Vermont Arizona Minnesota
- 11. Other States: Key Differences State (Department) Statute/Order Notes Oregon (OPUC) Order No. 93-695 Consider costs of CO2, NOx, SOx, Hg; no values established Arizona (ACC) Arizona Administrative Code Title 14, Chapter 2, Article 7 Analyze/address environmental impacts related to air emissions, solid waste, and other environmental factors; no values Vermont (VPSB) 30 V.S.A. § 218c Consider CO2, NOx, and SOx emissions, along with any other enviro. impacts; loosely defined, no values Minnesota (MPUC) Stat. § 216B.2422 Range of external costs for: SO2, PM10, CO, NOx, Pb, CO2; values defined by MPUC
- 12. Case Study:
- 13. Case Study: MPUC Total Costs-Minimization Approach Minn. Stat. § 216B.2422 (1993) “…to the extent practicable, quantify and establish a range of environmental costs… “A utility shall use the values established by the commission in conjunction with other external factors…when evaluating and selecting resource options...” How? Integrated Resource Plan (IRP)
- 14. What is an Integrated Resource Plan? Integrated Resource Plan (IRP) Road map Long-term planning tool Time- and resource- intensive pnm.com
- 15. MPUC Case Study: Process Interim Values – (1993–1994) SO2, NOX, VOCs, PM10, CO2 Expedited process “Final Values” – (1994-1997) Formal evidentiary hearing Contested case hearings
- 16. MPUC Case Study: Process (continued) Environmental values quantified (Jan 3, 1997) SO2, PM10, CO, NOx, Pb, CO2 Geographically sensitive values Using the values: Apply Without Apply Minimum Range Values Apply Maximum Range Values Update values as necessary
- 17. MPUC Case Study: Xcel Energy Decision Xcel 2010 Resource Plan Capacity Increase Necessary Scenario Comparison Include externalities Decision Solar and Purchase Power Cost-Effectiveness
- 18. MPUC Case Study: Benefits of Externality Valuation • Declining Aggregate emissions • Declining GHGs • Many Factors • Governmental Standards • Grants for MN Businesses • Reduce VOCs (Minnesota Pollution Control Agency, 2015)
- 19. MPUC Case Study: Benefits of Externality Valuation • Power plant emissions • ~70% reduction since 1990 (Minnesota Pollution Control Agency, 2015)
- 20. MPUC Case Study: Benefits of Externality Valuation • Largest decline of GHG emissions by Electric Utilities (Minnesota Pollution Control Agency, 2015)
- 22. Case Study: Sustainable Return on Investment Sustainable Return On Investment (SROI): Comprehensive analysis Cost-benefit and financial analysis Engages many stakeholders Compares different scenarios James De Young Power Plant in Holland, MI
- 24. Case Study: HBPW July, 2011: Discussion Potential costs/benefits & values Financial, social, economic, environmental, health impacts Capacity Needs Holland’s Community Energy Plan A driving force of the SROI process Provide residents/businesses with efficient, reliable, clean energy
- 25. SROI Framework
- 26. Case Study: HBPW - Scenarios
- 27. Case Study: HBPW - SROI
- 28. Case Study: HBPW - Decision Recommendations: Combined-cycle natural gas technology New Location Renewable Energy - Wind Retire JDY unit 5 Decision: Approved by City of Holland 2017 anticipated completion Design of New Natural Gas Power Plant in Holland, MI
- 29. Case Study: HBPW – Potential Benefits Improved Efficiency Reduced Emissions Holland-Specific Benefits: Downtown snowmelt system Potential district heating Other
- 30. At a Glance: Michigan’s Electricity Profile Top 10 Electricity Generating Plants (MWh) Coal Powered: #1 #6 #7 #8 (EIA, 2015) 53% 27% 12% 8% % ENERGY SOURCE Coal Nuclear Natural Gas Other
- 31. At a Glance: Michigan’s Electricity Profile Emissions Profile SO2: 237,091 short tons (2013) 5th highest in US 4.5 pounds/MWh 3rd highest in US NOX: 86,058 short tons (2013) 8th Highest in US CO2: 67,193 short tons (2013) 10th highest in US (EIA, 2013) PM2.5: 44,470 short tons (2011) PM10: 46,501 short tons (2011)
- 32. Economic Valuation – Applied using current knowledge Using Minnesota Externality Values: NOx: $4.86bil - $9.24bil PM10: $135mil - $196mil CO2: $30k - $131k = Unaccounted Costs!
- 33. Integration into MPSC Process Senate Bill 437 Introduced July 1, 2015 Senator Nofs Sec. 6s (1) “…establish statewide parameters for integrated resource plans…” (E) “Establish the modeling scenarios and assumptions each electric utility must use in developing its integrated resource plan…including…” (vi) The projected costs of different types of fuel…” Need to include ALL costs Direct costs External costs
- 34. Integration into MPSC Process HB 4278 Introduced March 5, 2015 Rep. Nesbitt Sec. 6s. (5) The commission may consider any other costs or information related to the costs associated with the power that would be supplied by the existing or proposed electric generation facility or pursuant to the proposed purchase agreement or alternatives to the proposal raised by intervening parties. “Other Costs” Externalities – environmental/social costs
- 35. Integration into MPSC Process Possible stakeholder process: Start from Scratch Why?! Build from others’ successes: Minnesota’s Approach Holland Board of Public Works Involve numerous stakeholders
- 36. References [Incomplete –as of 1/15/16] Buchanan, J. M., & Stubblebine, W. C. (1962). Externality. Economica, 29(116), 371–384. http://doi.org/10.2307/2551386 Centers for Disease Control and Prevention. (2015). Air quality. Retrieved from http://www.cdc.gov/air/default.htm Goodkind, A. L. & Polasky, S. (2013). Health and environmental costs of electricity generation in Minnesota. Retrieved from http://www.minnpost.com/sites/default/files/attachments/Polasky%20report%20on%20externality%20costs.pdf Helbling, T. (2012). Externalities: Prices do not capture all costs. Retrieved from http://www.imf.org/external/pubs/ft/fandd/basics/external.htm Minnesota Pollution Control Agency. (2015). Air quality in Minnesota: 2015 report to the legislature. Retrieved from http://www.pca.state.mn.us/index.php/view-document.html?gid=22170 Principles of Economics and Business. (2014). Positive externalities vs. negative externalities. Retrieved from http://principles-of-economics-and-business.blogspot.com/2014/10/microeconomics-externalities.html United States Energy Information Administration. (n.d.). Glossary. Retrieved from http://www.eia.gov/tools/glossary/index.cfm?id=E United States Energy Information Administration. (2015). Michigan electricity profile: 2013. Retrieved from http://www.eia.gov/electricity/state/michigan/index.cfm United States Environmental Protection Agency. (2015). Why should you be concerned about air pollution? Retrieved from http://www3.epa.gov/airquality/peg_caa/concern.html
Notes de l'éditeur
- There are “costs” that are unaccounted for, in energy generation (electricity power plants): These costs are both downstream and upstream, including: Extraction of fuel (e.g. coal, natural gas, etc.) Transportation and exposure of chemicals/toxins to workers Combustion of fuels causes air pollution This can lead to environmental damage and social costs (e.g. health complications) According to a study prepared for the Michigan Environmental Council by Environmental Health and Engineering, Inc. (EH&E): estimate MI-specific health-related damages associated with PM2.5 from 9 coal fired facilities (in MI), in the study: $1.5billion annually National impact (from only these MI coal plants): $5.4billion annually Used Health Impact Assessment (HIA) published in numerous peer-reviewed publications (see EH&E report for citations) SB437 & HB4298: Decommission of Coal Plants in Future Cleaner air/ Informed decision making (re: new utilities) Opportunity to incorporate these costs in new-power plant decisions
- Costs/Benefits: Affect a party that did not choose to incur the costs/benefits Air pollution – negative externalities (costs) Not in market price Social/Environmental Adverse Health Outcomes Not paid for by entities that emit (US Environmental Information Administration [EIA], n.d.)
- The social cost curve (SC) > individual supply curve (S) External cost(s) (EC) not included As a result: Market equilibrium (E*) is different from the optimal market situation (O*) oversupply of harmful behavior/goods/etc The optimal price of the good (p2) > actual market price (p1) When external costs not included: Fossil fuel underpriced Overproduced, over-demanded Renewable energy overpriced Undersupplied, underdemanded Efficient Market: A true price reflects ALL external costs/benefits
- Morbidity A diseased state (e.g. asthma, asthma exacerbation, etc.) Respiratory Disease: Asthma Lung Cancer Difficulty breathing/ Irritation/ Inflammation EH& E Study: The 9 oldest coal plants in MI are annually responsible for approximately: 68,000 asthma exacerbations 180 premature deaths
- Acidic precipitation NOx, SOx mix with rain usually precipitates in East Ground Level Ozone NOx and VOCs react with Ultraviolet (UV) light from sun Quote from Nick, regarding air pollution: “We often complain about Chicago and Western Air Pollution affecting West Michigan, but we do the same to Eastern states” due to wind patterns moving East [EH&E: Environmental Health & Engineering: 2011 Study prepared for Michigan Environmental Council]
- Criteria Pollutants: EPA uses health-based and/or environmentally-based criteria (science-based guidelines) for setting permissible levels National Ambient Air Quality Standards Required by Clean Air Act (last amended in 1990) Primary standards provide public health protection, including protecting the health of "sensitive" populations such as asthmatics, children, elderly Secondary standards provide public welfare protection, including protection against decreased visibility and damage to animals, crops, vegetation, and buildings Others Clean Power Plan – reduce carbon emissions from power plants (i.e. CO2, CO, etc.) Mercury and Air Toxics Standards – Hg Picture: Size of particulate matter (very small) PM2.5 approx. 1/20th diameter of a human hair! Segway into next slide: Picture of PM distribution from MI Coal Plants
- EH&E: Environmental Health & Engineering 2011 Study prepared for Michigan Environmental Council Map: Small particles widely distributed Primarily to East – wind patterns Regionally – affecting other states Affects Canada as well, although not depicted on this map
- Numerous other states require utilities to address environmental costs Limited, loose definitions On the utility company to determine valuation Most do not utilize modeled rates Minnesota does (established) Not an exhaustive list Next Slide: Brief comparison of Oregon, Vermont, Arizona, Minnesota
- Many states require utility companies to consider costs and effects of emissions Minnesota has defined values that must be used in all IRPs
- Total costs minimization approach: Process that identifies ALL costs, prior to resource decision making Reasonable estimation of up- & downstream costs A “planning” approach (vs. a “pricing” approach) b/c environmental costs are only applied to resource evaluation/selection Adder Approach: Taxation for excessive emissions (over standards defined) (a) The commission shall, to the extent practicable, quantify and establish a range of environmental costs associated with each method of electricity generation. A utility shall use the values established by the commission in conjunction with other external factors, including socioeconomic costs, when evaluating and selecting resource options in all proceedings before the commission, including resource plan and certificate of need proceedings. (b) The commission shall establish interim environmental cost values associated with each method of electricity generation by March 1, 1994. These values expire on the date the commission establishes environmental cost values under paragraph (a). Next Slide: Identify and define IRP
- Integrated Resource Plan (IRP) provide: A road map for utilities to forecast costs and benefits Long-term planning for a specific number of years (forecasted into future, usually for 10+ years) Ensure capacity, report load, and resource forecast can be met Ensure all requirements mandated by state are met Utility commission/public services board can: approves/deny/offers comments [IMAGE] PNM.com New Mexico’s largest electricity provider Highlights things they consider for their IRPs
- Interim Values: expedited process, only 1 year to establish The commission received comments, but NOT a contested case hearing Over 20 parties participated in commenting process Including potentially affected utility companies Commission establishes a range of values, due to uncertainty of estimations Based on presentation of current knowledge, by parties Final Values: - Administrative Law Judge oversees (Per Minn. Stat. 14.57-14.62 (1992)) Series of contested Case hearing in front of ALJ Much longer process than for interim values (~3years) Expert testimony, commenting, rebuttals Administrative law judge released findings of fact, conclusions, recommendation and memorandum on the matter Commission meets to determine whether to accept the values recommended by ALJ Final values determined and ordered Jan 3, 1997
- Environmental Values: RANGES used again, uncertainty Geographical value ranges, depending on location of the proposed generation site Urban, metropolitan fringe, rural, within 200mi of MN border (same as rural values) Primary source of geographic information (model): Determined by Triangle Economic Research (TER) study in Minnesota Presented by Dr. William Desvouges (lead author) Estimated damages to zipcode level (618 zip codes) for each hour of the year Examined 3 main effects: 1. human health effects (morbidity AND mortality) 2. agricultural effects (crop yields) 3. material damages (stone/metal corrosion & surface soiling) Reviewed by expert witness: Dr. Mark Thayer Identified results of study consistent with results/trends in recent research Mercury value NOT established b/c: Uncertainty in current literature to establish values complexity of chemistry, changes, and amount from coal combustion USE of Values: Utilities must estimate external costs using established ranges 1. Direct costs of resources without regard to environmental externalities 2. The direct costs plus the minimum values in the ranges 3. The direct costs plus the maximum values in the ranges Utilities shall explain how mercury emissions were considered in their evaluation of resource options Values will be updated as necessary due to inflation, and improved knowledge/accuracy of modeling
- MPUC reviewed Xcel’s 2010 IRP for increased capacity needs: By 2017 Initial 2010 plan stated necessary increase capacity of 150 megawatts (MW) Reevaluation in 2013 found no need to increase by this time By 2019 Initial 2010 Plan: Increase capacity up to 500 MW Reevaluation in 2013: found increase of merely 27MW was required Xcel Proposal 3 Nat Gas Plants to increase capacity 645MW (215MW each) Decommissioning other plants Commision’s Decision: Found less capacity was needed then originally thoughts, so chose solar power to meet needs: Geronimo Solar Power – purchase power: 72MW Xcel will meet Solar Energy Standard adopted by MN (one of most stringent) Xcel required 72-200MW by 2020 Additional capacity (2019) will be met using Calpine Corporation’s (Calpine) natural gas combustion turbine and heat recovery steam generator to its Mankato Energy Center Provide an additional 290 MW (intermediate capacity) & 55 MW (peaking capacity) Why didn’t the ALJ/Commission accept Xcel’s Proposal While the Department’s analysis found other proposals to be more cost-effective, the difference in the cost of Geronimo’s proposal and other proposals was less than half a percent, and depended on values of externalities, among other factors Also, no CO2 emissions from Solar Easier attainment of CO2 emissions limitation by Clean Power Plan
- Despite: Overall INCREASE in vehicular travel, population growth, and energy consumption Due to: EPA Mercury and Air Toxics Standard [MATS] (2012) Limits mercury, acid gases, other pollution from coal-fired plants Expected to save $1.6bil in avoided health costs Clean Air Act – Section 111 Reduce carbon emissions Review 6 criteria air pollutants every 5 yrs Updated standards for: O3, PM2.5 & PM10, Pb, SO2, NO2 CO only criteria pollutant not updated MPCA Grants (>$370k) For small businesses to reduce VOC emissions
- Combination of externality valuation and standards amendments Point sources regulated by permitting, compliance, and enforcement actions by Minnesota Pollution Control Agency (MPCA) !!!!!!!!!!!!!! Not sure if this slide should remain in the presentation, or not --draws out the “benefits” of this case study. May be able to mention along with other slides (previous), or leave in to skip over if necessary?
- Point source emissions Declining ~25% Total Emissions Factories Power Plants Due in large part to MPCA regulations Limited regulation over other sources (vehicles, lawn equipment, recreational fires, etc.)
- NOTE: Electric Utilities are still the largest contributor of GHG 2007: Minnesota Legislature enacted the Next Generation Energy Act Set statewide greenhouse gas (GHG) reduction goals of 15 percent below 2005 emissions by 2015 30 percent below by 2025 80 percent below by 2050 Minnesota = one of the strongest renewable energy standards in the nation Requires 25 percent of power consumed in Minnesota to come from renewable energy sources by 2025 (http://www.pca.state.mn.us/index.php/view-document.html?gid=22170, 2015). Clean Power Plan: expected to reduce carbon-based greenhouse gases further
- Holland Board of Public Works (HBPW) HDR, Inc. Consulting firm – performed SROI Power for the 21st Century Enhanced community and stakeholder communications
- Sustainable Return on Investment (SROI): Cost-benefit analysis Methodology that compares multiple projects (scenarios) Accounts for entire life-cycle of the projects Accounts for social, health, environmental costs Levels the field for different projects Engages numerous stakeholders: In HBPW HDR, Inc. – consulting firm Holland Board of Public Works Community members – their needs/wants/concerns
- By incorporating these inputs: Answers questions: Is the public value sufficient to justify the money required to develop the project? Which option provides the greatest return relative to project cost? Because: applies monetary values to all costs and benefits Economic, social, environmental, relative to resources input
- HBPW – Holland Board of Public Works Values/Impacts: Land value: Former plant (James De Young) land value Surrounding residential Snow Melt System: Potential savings from plowing/salt damage Improved downtown economy – access/safety Pollutants: Greenhouse Gases (GHGs) Criteria Pollutants:
- FROI – Financial return on investment Capital + operation costs Does NOT include external costs SROI FROI + External Costs
- 8 scenarios (7 scenarios, compared to the “base case”) 9 different Generation options include: 70 NMW Circulating Fluidized Bed Boiler and Steam Turbine LM2500 Gas Turbine Combined Heat & Power 2x1 LM2500 Gas Turbine Combined Cycle Power Plant James De Young Unit 5 Biomass Conversion 8MW Solar Photovoltaic (PV) Plant 20 MW Wind Farm 4 MW Digester Gas Combined Heat & Power Facility 2x1 LM6000 Gas Turbine Combined Cycle Power Plant Air-Quality Control System (AQCS) Retrofits (for James De Young Units 4 & 5)
- Scenarios A, B, G: Three highest ranking scenarios on an overall SROI basis Rank the highest from both a financial and non-financial basis Natural Gas Scenarios (3): Largest benefits: Reduced emissions Electricity cost reductions Scenario A: Combined cycle & Combined Heat/Power plant (2015) JDY units 4/5 (2016) [$207 million] (Capital costs) Scenario B: 20 MW of wind (2014) Digester Gas combined Heat/Power facility (2014) Combined cycle power plant and CHP plant (2015) JDY Units 4/5 cease operation (2016) JDY U5 Biomass retrofit (2018) Solar PV (2030) [$414 million] –over larger timespan Scenario G: JDY units 4/5 will cease operation (2016) A 2x1 LM6000 CCPP facility (2015) [$182 million]
- Decision utilized the SROI, community energy plan, and community/stakeholder input/commenting Consultants’ Recommendations: Combined-cycle natural gas technology (114MW) Operational efficiency Waste heat for district heating & snowmelt New Location No longer need lake access for cooling Closer to proposed gasline/district heating networks Renewable Energy – Wind 10yr plan with E.ON Wildcat [15MW] 20yr plan with Beebe Wind [17MW] Retire JDY unit 5 Reconsider units 3 & 4 termination
- Combined cycle natural gas: Improved efficiency 50% carbon emissions reduction Reduced emissions (compared to coal-combustion plants) Reduced particle emissions 2x fuel efficiency Other Benefits: Downtown snowmelt system Uses waste heat generated by facility to melt snow on roads/sidewalks downtown Potential district heating Modern building design, development of public space Community retrofitting: energy efficiency
- Electric Generation Sources (EIA, 2015) 1. Coal (53.4%) 2. Nuclear (27%) 3. Natural Gas (12%) Of the top 10 Electric Generating Plants, #s 1, 6, 7, 8 utilize coal as a fuel source
- Emissions Profile SO2: 237,091 short tons (2013) 5th highest in US 4.5 pounds/MWh 3rd highest in US NOX: 86,058 short tons (2013) 8th Highest in US CO2: 67,193 short tons (2013) 10th highest in US (EIA, 2013) PM2.5 source: http://www3.epa.gov/cgi-bin/broker?_service=data&_debug=0&_program=dataprog.state_1.sas&pol=PM25_PRI&stfips=26 PM10 source: (from same “main” website as above, different page)
- EPA value of statistical life (VSL) = $6.3million (2000 USD) =~$8.7million (2015 USD) Mean from 26 VSL studies http://yosemite.epa.gov/EE%5Cepa%5Ceed.nsf/webpages/MortalityRiskValuation.html Externality Valuation Using metropolitan fringe values (midpoint – Urban = higher; rural = lower) Only for these values Some MI emissions were not found (Pb, CO) Limitations: MN has a $0 value for SOx externalities MN does NOT have a PM2.5 value, currently Loose approximations These are for current emissions, but MN uses these for the decision process, not for identifying total costs of air pollution!
- Inclusion of External Costs (not just direct costs)
- Processes: Minnesota (MPUC): Contested Case Hearings multiple stakeholders present their views Community, utilities, experts Holland: Comprehensive SROI from HDR Inc. i.e. Use of consultation firm Involve numerous stakeholders Community Utility companies economists GIS analysts - Always uncertainty, but produce the best model, and value ranges