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Economics of Energy & Environmental Policy
Volume 12, Number 2






Symposium on "What happened in Texas? Understanding the February 2021 blackouts and learning lessons to prepare the grid for extreme weather events"



The Texas Deep Freeze of February 2021: What Happened and Lessons Learned?

Peter Hartley, Kenneth B. Medlock III, and Elsie Hung

DOI: 10.5547/2160-5890.12.2.phar
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Abstract:
Although various factors were blamed for the extended power outage on the ERCOT electricity grid in February 2021, no single problem fully explains the calamity. All forms of generation experienced capacity deratings, but failure to identify and address risks along fuel supply chains was a major contributor. Moreover, most proposed remedies do not fundamentally address what occurred. Some may be driven by opportunistic lobbying. We make several recommendations, some of which are already being implemented.




Making Electricity Capacity Markets Resilient to Extreme Weather Events

Marie Petitet, Burcin Unel, and Frank A. Felder

DOI: 10.5547/2160-5890.12.2.mpet
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Abstract:
The devastating 2021 blackout in Texas, among others, has highlighted the need to reform electricity markets to make them resilient to extreme weather events. We review related efforts by system planners and operators within electricity market contexts, focusing on Europe and the United States, and we analyze possible reforms to electricity capacity markets. To account for extreme weather events, capacity requirements and markets, along with other regulatory measures throughout the electricity and fuel supply chains, should be modified. First, capacity requirements must be tailored to the specific severe weather failure modes applicable to a given power system to achieve policymakers' reliability and resiliency objectives: reducing the frequency, magnitude and duration of blackouts. Second, all capacity requirements should be cost-effective and integrated with other non-capacity resources and requirements, such as transmission, distribution and other infrastructure systems. Third, for a capacity market to produce the desired efficiency benefits, the product (capacity) must be well-defined and backed by sufficient credit and other policies to ensure providers have sufficient incentives to perform when called.




How Should We Think About Pricing Electricity in the Context of Potential Life-Threatening Weather Events?

Charles F. Mason

DOI: 10.5547/2160-5890.12.2.cmas
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Abstract:
This paper argues that in markets characterized by highly inelastic demand, such as markets for electricity, market-clearing can force some individuals—particularly those with limited financial resources—out of the market, subsequently exposing them to significant risk. In the particular case of abnormally cold temperatures, as with the Texas deep freeze, or particularly hot temperatures, as may become more common with climate change, these risks can be life-threatening. Market-clearing therefore implies that society accepts a gamble where one of the possible outcomes entails loss of life. This possibility induces a risk premium that suggests a tradeoff in the analysis of appropriate incentives to mitigate the missing money problem.




Enhancing the Reliability of Bulk Power Systems against the Threat of Extreme Weather: Lessons from the 2021 Texas Electricity Crisis

Chiara Lo Prete and Seth Blumsack

DOI: 10.5547/2160-5890.12.2.clop
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Abstract:
The February 2021 cold weather outages in Texas remain a subject of important investigation, and lessons learned from the crisis have broader relevance for bulk power systems around the world. This article focuses on the policy responses to what we view as the root causes of the extended blackouts: the insufficient preparation of electric generating units and natural gas infrastructure for the winter storm, and the inability of natural gas supply to meet demand for residential heating and electricity generation. Measures to reduce the risk of power interruptions during extreme weather events should not be limited to hardening existing infrastructure. We discuss three additional systems-level strategies to prevent and mitigate the adverse consequences of extreme weather events: improving generation resource adequacy and planning in the electric power sector; promoting demand-side tools, such as dynamic pricing options that do not expose residential customers to bill volatility; and implementing market and planning reforms that recognize critical infrastructure interdependencies. The response in Texas so far has considered weatherization requirements for electric generators and critical natural gas facilities, and mapping of critical infrastructure sources in the electricity supply chain. However, enhancing grid reliability against the threat of extreme weather will require more systems-level reforms.




Symposium on "Issues in the Future of Transport"

Issues in The Future of Ground Transportation

Shanti Gamper-Rabindran and Charles F. Mason



Winter Ends

Julian Silk

DOI: 10.5547/2160-5890.12.2.jsil
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Abstract:
There is a common assumption that all-electric automobiles, powered by lithium-ion batteries, are the future of vehicle transportation. It is argued here that this is not the likely outcome, especially in the less-developed countries. Use of photovoltaic (PV) cells, in conjunction with gasoline or hydrogen-hybrids, will be less expensive, and more likely to be adopted late in this decade.




Electric Vehicles are Good, Actually

Eric Hittinger

DOI: 10.5547/2160-5890.12.2.ehit
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Abstract:
Electric vehicles are the primary alternative to transportation based on internal combustion engines and the most promising route to decarbonization of light- and medium-duty transportation systems. A transition to electric vehicles does face important challenges in terms of scaling of battery production, charging infrastructure, and grid coordination, which may make aggressive EV targets difficult to meet. However, these known challenges are surmountable given the historical and expected future trend of falling costs and improved technical and environmental performance of these vehicles. While the vehicles of the future are likely to use a variety of energy sources and conversion technologies, electric vehicles will be a central part of future transportation systems.




From Diesel to Electric: Overcoming Grid Integration Challenges in the Medium- and Heavy-Duty Vehicle Sector

Nafisa Lohawala and Elisheba Spiller

DOI: 10.5547/2160-5890.12.2.nloh
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Abstract:
Decarbonizing the medium- and heavy-duty vehicle (MHDV) sector is crucial for a sustainable clean energy transition. This paper focuses on the challenges and opportunities associated with integrating medium- and heavy-duty electric vehicles (MHD EVs) into the electric grid. With large trucks and buses being responsible for a significant share of transportation-related greenhouse gas emissions, the need to address their environmental impact is paramount. Electrifying these vehicles has gained momentum as a technological solution given the environmental and economic benefits of MHD EV adoption, the readiness of the vehicle technology, and the existing range allowing for successful commercial operation of most use cases. From the most local to the federal levels of government, policymakers have injected billions of dollars into making this transition a reality; but the question remains—will it be enough? This paper explores the massive grid investments still remaining that are required to support the transition to electric MHDVs, along with technological solutions and policies that can help keep these costs down while accelerating vehicle adoption and improving environmental outcomes. By carefully designing policies based on sound research and analyses, an equitable, efficient, and cost-effective transition to MHDV electrification can be achieved. The paper concludes by highlighting open research questions that can guide further advancements in this field. This work aims to inform policymakers, industry stakeholders, and researchers involved in the pursuit of a sustainable transportation sector.




Articles

Household Environmental Kuznets Curves: Evidence from Passenger Transport Emissions

John E.T. Bistline

DOI: 10.5547/2160-5890.12.2.jbis
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Abstract:
This paper uses detailed survey microdata to test whether a non-monotonic relationship exists between income and carbon dioxide emissions at the household level for passenger transport in the United States. Although the literature on economy-wide Environmental Kuznets Curves (EKCs) is vast, sector-specific analysis of household transport emissions is less common, is subject to considerable controversy, and is over a decade old in many instances, which does not account for recent trends in vehicle electrification and fuel economy. The analysis provides evidence of an EKC for household vehicle emissions, as emissions increase with income at lower levels but reverse for the highest-income households. Although this effect is statistically significant, the effect size is relatively small, since household emissions decline by 1.2% between the second-highest income households and the highest. This effect is the product of declining pollution intensities and activity levels at higher incomes.




Marginal Emissions Pathways: Drivers and Implications

Richard Klotz, Joel R. Landry, and Antonio M. Bento

DOI: 10.5547/2160-5890.12.2.rklo
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Abstract:
Governments frequently use policies that target the expansion of a clean technology to achieve greenhouse gas emissions mitigation goals, such as those submitted by countries under the Paris Agreement. As a result of direct and indirect market adjustments induced by a particular policy, marginal emissions from expanding a clean technology may vary in the amount of clean technology, reflecting a marginal emissions pathway. This paper analyzes the economic and policy drivers of marginal emissions pathways and the implications when such pathways are non-constant. We show numerically that marginal emissions pathways for a mandate and subsidy to promote biofuels in the U.S. are non-constant in the amount of biofuel and, due to differential impacts on output markets, move in opposite directions and eventually have opposite signs. We also show that explicitly or implicitly treating marginal emissions as constant can generate significant errors in the prediction of mitigation from clean technology policies and can make it difficult to attribute mitigation from decentralized efforts to address climate change, such as the Paris Agreement.




Modeling CO2 Pipeline Systems: An Analytical Lens for CCS Regulation

Adrien Nicolle, Diego Cebreros, Olivier Massol, and Emma Jagu Schippers

DOI: 10.5547/2160-5890.12.2.anic
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Abstract:
Carbon Capture and Storage (CCS) is regularly depicted as a crucial technology to reduce the social cost of achieving carbon neutrality. However, its deployment critically depends on the installation of CO2 infrastructures. As the regulatory procedures governing their provision are yet to be clarified, this paper aims to assess the social and environmental impacts of such regulations. We show how the engineering equations of a CO2 pipeline implicitly define a Cobb-Douglas production function. We then infer that the resulting cost function exhibits economies of scale and verifies the technological condition for a natural monopoly. As the possible exertion of market power is a concern, we evaluate the social distortion of the unregulated monopoly and the average-cost pricing solution, which we compare to the outcomes of the welfare-maximizing solution. While the deadweight loss obtained under average-cost pricing remains lower than 5% compared to the first-best solution, our findings indicate that allocative efficiency is an issue, with more than a quarter of the CO2 emissions not being transported. This analysis will usefully inform the emerging regulatory policy debates on CCS by providing the first analytically determined cost function of a CO2 pipeline.




Do auctions promote innovation in renewable energy technologies? An empirical analysis of solar PV

Leticia García-Martínez and Pablo del Río

DOI: 10.5547/2160-5890.12.2.lgar
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Abstract:
Innovation in low-carbon technologies and, particularly, renewable electricity technologies (RETs) will be a critical component of the decarbonised energy transition. RET innovation requires a wise combination of supply-push (R&D support) and demand-pull policies (support for deployment). Renewable energy auctions are currently the main instrument to support the deployment of renewable electricity capacity worldwide. Thus, auctions indirectly contribute to the energy transition (supporting RET innovation) in addition to supporting their deployment. However, the innovation effects of auctions have received scarce attention in the literature. This paper analyses whether auctions generate an incentive to innovate in solar PV, and whether this incentive is greater or smaller than with other deployment instruments. We use an unbalanced panel dataset of 20 OECD countries with patent data and renewable energy auctions for the period 2000-2016 and perform an econometric analysis with an estimation of a negative binomial model. Our results show that auctions have not had a statistically significant effect on PV innovation. In contrast, administratively-set feed-in tariffs and renewable certificates have had a positive and significant impact on PV innovation. The potential negative innovation effects of auctions can be mitigated by combining them with other instruments and including appropriate design elements which encourage innovation.




Book Reviews

Book Reviews

A Green and Global Europe, by Nathalie Tocci - Book Review by: Jean-Michel Glachant

Global Warming Science: A Quantitative Introduction to Climate Change and its Consequences, by Eli Tziperman - Book Review by: Pippo Ranci




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