Monday, March 21, 2016

Global Solar Wars: India Edition

By Tyler Johnson, GEI Policy Extern

Graphic courtesy of Tori Rector under CC BY-SA 2.0
 This post will be the first in a series centered around international trade disputes and the affects these disputes have, if any, on the development of renewable energy around the world. Here, I explore the World Trade Organization (WTO) ruling against India’s “domestic content requirement” provision in its National Solar Mission, an initiative to increase India’s solar capacity to 20 gigawatts (GW) by 2022. A second post will explore the disputes between the U.S. and China currently before the WTO. Finally, a third post will discuss the practical and theoretical impacts these international trade agreements have on democracy and the ability of nations, especially poorer countries, in achieving sustainable economic development while improving their environment and addressing climate change.

India—Certain Measures Relating to Solar Cells and Solar Modules

A WTO panel held last week that a so called “domestic content requirement” in India’s National Solar Mission was inconsistent what Article III Paragraph 4 of the General Agreement on Tariffs and Trade (the GATT) and Article 2.1 of the Agreement on Trade-Related Investment Measures (TRIMs).

India’s National Solar Mission was broken into three separate phases. The United States had issues with the first two phases. India’s National Solar Mission, an ambitious endeavor, seeks [1]to “establish India as a global leader in solar energy” through various implementing phases with an overall objective of reaching 20 GW of solar capacity by 2022.

The National Solar Mission achieves its solar capacity objectives by directing the Government of India to enter into long-term power purchase agreements (PPAs) with solar power developers (SPDs). Each PPA guarantees a rate over a 25 year time period for each SPD. The Indian Government then resells that electricity to downstream distribution utilities which in turn distribute the electricity to end users.

The United States did not object to the Mission’s overall objectives or the general scheme of the plan. However, the plan also required the SPDs, during the first two phases of the plan, to use domestically produced PV cell modules in certain situations.

The United States argued that this domestic purchase requirement violated Article III of  the GATT and Article 2.1 of the TRIMs agreement, thus discriminating against foreign producers.

Article III:4 states:

“The products of the territory of any Member imported into the territory of any other Member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.”

The TRIMs agreement includes an “illustrative list” of TRIMs contrary to Article III:4 and among them include violations “mandatory or enforceable under domestic law” that require “the purchase or use by an enterprise of products of domestic origin or of any domestic source.”

The WTO had previously held that a similar “made in Ontario” provision from Ontario’s Green Policy Act of 2009—demanding a certain amount of labor and manufacturing input to receive the special purchase rates from renewable energy facilities—violated the same GATT and TRIMs provisions.

Consistent with precedent and the plain language of Article III:4 of the GATT and Article 2.1 of TRIMs, the WTO panel determined that the domestic content requirement in the National Solar Mission should be voided and called for India to amend the provisions to fall in compliance.

What does this mean for India’s Solar Mission? Is it fair?

My first reaction to this decision—aided by the media—was extremely negative. Many environmental groups blasted the decision. Articles were misleading, suggesting that the entire Solar Mission was shot down by the WTO. See here. However, the National Solar Mission will still move forward. The WTO panel made clear that the only issue before them was a determination regarding the domestic content requirement. To remedy, India merely has to delete that requirement from its regulation. Ontario did exactly that when the WTO ruled against it and its program moved forward just the same.

So, overall, I don’t think that the decision will affect India’s ability to achieve its 22 GW objective under the National Solar Mission. Indian solar companies will just have to compete on a level playing field with foreign solar manufacturing companies, which some argue benefit consumers.

The fairness of this decision, and others like it, is much more questionable for me. Is it wrong for India to favor its own solar manufacturers over those of developed countries? What does this mean for India’s own economic development? Do these decisions mean that multinational corporations trump democracy and the ability of countries to secure the health and welfare for their people and environments? Who usually wins these disputes, rich or poor countries? I do not currently know the answers to these questions, but I plan to explore them in later blog posts.

[1] Resolution, Jawaharlal Nehru National Solar Mission, Ministry of New and Renewable Energy (Jan. 11, 2010).

Wednesday, March 16, 2016

Daylight Savings Time: Who Stole my Hour and Why?

By Andrea Lang, Energy Fellow 

Last Sunday, Americans (save Hawaiians and most Arizonans) lost an hour of their weekend to daylight saving time. While many Americans have a vague understanding that daylight savings time is meant to save energy, others mistakenly believe that the policy was designed to help farmers (in fact, most farmers have been opposed to daylight savings time from the beginning). Today’s blog dives into the history and justification for daylight savings time, and examines the studies into its efficacy in terms of energy conservation.  
I say it is impossible that so sensible a people… 
 should have lived so long by the smoky, unwholesome,
 and enormously expensive light of candles, 
if they had really known, that they might
 have had as much pure light of the sun for nothing. 
 –Benjamin Franklin

Who thought daylight saving time up?
Many attribute the idea of daylight savings time to Benjamin Franklin’s 1784 essay  in the Journal of Paris. Mr. Franklin wrote in that essay about the expense of candles used in the dark hours of the evening and the wasted daylight hours spent sleeping in the morning. He jokingly suggested that “[e]very morning, as soon as the sun rises, let all the bells in every church be set ringing; and if that is not sufficient?, let cannon be fired in every street, to wake the sluggards effectually, and make them open their eyes to see their true interest.” 

We can all be thankful that Benjamin Franklin’s solution of firing off cannons at sunrise every morning was never adopted. Instead, a New Zealand entomologist seeking more daylight hours by which to examine insects first proposed the idea of adjusting the time, resulting in the first daylight savings time in 1917 New Zealand. Until the US permanently adopted a daylight savings time in the mid 1960s, it was purely a wartime policy.  During World War I, Congress passed the first daylight savings law in 1918, but repealed it just a year later in 1919. Another daylight savings time law during World War II lasted from 1942-1945. It wasn’t until 1966 that Congress established a permanent daylight savings schedule for the purpose of conserving energy. That schedule has been periodically changed to shift or expand daylight savings time. The existing schedule was established by the Energy Policy Act of 2005, which extended daylight savings time by several weeks.  

Does it make sense?

I was able to find two recent American studies on the electricity savings afforded by daylight savings time, both conducted in 2008. Each comes to a conflicting conclusion:

The first study is a Department of Energy (DOE) report to Congress that was required by the Energy Policy Act of 2005. The DOE study simply compared annual electricity consumption between different years, using the difference between the electricity used in the added weeks of daylight savings and the electricity used before the 2005 act extended daylight savings. It concluded that the total electricity savings amounted to 1.3 Terawatt-hours, amounting 0.5% per day in electricity savings. 

On the other hand, a different independent 2008 study found that daylight savings time actually increases electricity demand by 1%, at least in Indiana. That study used data from Indiana, where various counties had historically practicing daylight savings time, while others had not. When a 2006 state law required all counties to begin practicing daylight savings time, the researchers took advantage of the unique circumstances that created a set of treatment and control data sets. The ability to use a control set of data makes this study more appealing than the DOE study, because it allowed the researchers to say more definitively whether energy savings or losses were a result of the policy itself. The study concluded that although Benjamin Franklin was correct that daylight savings time saves on electricity used for lighting, those savings are more than offset by an increase in consumption used for heating and cooling. 
Both studies have their limitations. As I’ve noted, the DOE study is simplistic and lacks a control data set to confirm the cause of the alleged 0.5%/day savings. The Indiana study, while well designed, is specific to Indiana, which experiences more seasonal variation than many other states. More temperate states may use less energy for heating and cooling. Regardless, given the conflicting results of the two 2008 studies, it’s surprising to me that more haven’t been conducted. 

Perhaps I’m just grumpy about my lost hour of sleep on Sunday, but the justification for daylight savings time seems dubious at best. While energy conservation is an important goal, it may be past time to reevaluate whether daylight savings is the best policy to that end.

Monday, March 14, 2016

Overhauling America’s Transportation System

By Ben Swerdlow, Policy Extern

In connection with my previous blog post advocating for self-sufficient green communities, I am going to now turn to the future of transportation, with an emphasis on the transportation of freight. This week’s post specifically focuses on freight because of the large but not always visible role it plays in our lives. Each year, approximately 40 tons of freight are shipped for every person in the United States. This freight can account for a significant amount of emissions.

Container ship CSCL Globe
By Kees Torn via Wikimedia Commons
Just as the internet has brought the world together, so has the shipment of goods in international commerce. In 2014, an estimated 10 billion tons of freight was shipped around the globe, which represented a 66% increase from goods shipped in 2000. With the expectation of continued growth, we must ensure that there is an efficient process to transport all of these goods. Moreover, as more and more goods are shipped, it is imperative that we assess the current status of this shipment system to make it more efficient and green for the future.

To understand how we can increase efficiency in the shipping industry, it is first important to understand the steps involved in the shipment process. The first leg of a shipment’s journey is often on a ship, which is currently where an estimated 90% of global trade occurs. Increasing efficiency in maritime transport is important, especially considering a recent European Parliament report estimated that the emissions from shipping, which currently account for three to four percent of carbon emissions, could be as high as 17 percent by 2050

Maritime shipping is currently considered the most carbon efficient transportation method. However, it is still important that we implement emissions controls and consider some alternative fuel sources for oceanic transport. Currently, ships are primarily fueled by Heavy Fuel Oil. This type of fuel is particularly high in sulfur, leading to significant sulfur oxide and nitrogen oxide emissions. With technology ever improving, there have been several attempts at “green” cargo ships, including a partially solar powered cargo ship, and, in future development, an LNG Cargo Ship and even a Dyna-rig Sail System. So far, though, petroleum remains the fuel of choice for the near future, with LNG possibly playing a larger role in the next few years. 

Following the journey on ship, the product can either go from port on a train or a truck. This choice can lead to vastly different emissions. With current technology, a train is four times as fuel efficient as a truck, which indicates that we should favor train transportation. However, the American Trucking Associations report that 70% of the tonnage moving throughout the U.S. is currently carried by truck. The reason for this preference of trucks over trains is due to the flexibility that transportation by trucks allows. 

In order to shift what has become a relatively inefficient overland shipping process that heavily relies on individual trucks, there needs to be a technological shift that can enable a transition to a more green and efficient transportation system. Though it may not be easy to achieve such a shift, a system that can provide green, fast and reliable shipments over great distances could move us away from our current processes. A system like the Hyperloop could forward this shift.

Concept Drawing of Hyperloop
By Camilo Sanchez via Wikimedia Commons
Hyperloop is an enclosed high-speed transportation system, which relies on low friction to travel at speeds approaching 700 miles per hour. To achieve these high speeds, the system uses vacuum tubes where the individual pods can travel. Air compressors on the front of the pods pull the pods forward, while also using that air to levitate with air bearings (effectively, air is used to push the pod up just above the ground). The pod is then propelled forward using linear induction motors, which work via the same principals as a typical induction motor (a normal electric motor) but instead of creating rotational force, these motors provide force in a straight line. 

Building an advanced transportation system, such as Hyperloop, will have a significant effect on how goods are shipped, due in part to the speed that they can be shipped. Even though speed is becoming less of a factor these days due to product forecasting, a system which can move faster than any other method will provide so much additional flexibility that not even the benefits of trucks can outweigh.

While a Hyperloop system could be implemented in several ways, it could provide the most benefit if the system was used to transport freight directly from a port to a distribution center miles away. This would allow goods to be processed closer to their delivery locations. This model could significantly reduce the number of trucks needed for transportation, relieving congested highways and drastically decreasing emissions. 

Overall, technologies like Hyperloop have the potential to disrupt a transport system that relies on old, inefficient technology. This is a very important time in the shipping industry, due in part to emerging technology and in part to the drastic increases in freight shipping. It is therefore imperative that we use this time to look at the shipping system as a whole and prepare for the future.

My next blog post will discuss future technologies for trucks and cars, which have the potential to drastically change how we interact with our personal vehicles. 

Wednesday, March 9, 2016

Could New French Rules Lead to Better Corporate Disclosures About Climate Change Risks?

French Decree Enacting Energy Transition Law Might Provide US Financial Firms Pathway to Enhanced Reporting on Climate Change-Related Risks

Brandon Kline, Energy Law Fellow

The French National Assembly (pictured above) recently adopted the Energy Transition Law, broad legislation aimed at reducing French greenhouse gas emissions.

In the United States, federal securities laws require public companies to keep investors abreast of ‘known trends’ that affect their industry. For example, certain companies with exposure to climate-change impacts are required to disclose material risks posed by climate change in their Securities and Exchange Commission (SEC) filings.

A few weeks ago, I explained that, in 2010, the SEC issued guidance indicating that, in the context of climate change, four areas are particularly relevant to investors – legal, technological, political and scientific developments.

However, investors representing more than $1.9 trillion in assets continue to warn that oil and gas companies are not disclosing sufficient information about several converging factors that, together, will profoundly affect the economics of the industry. Meanwhile, a recent GAO report suggests that a lack of SEC enforcement actions has done little to incentivize meaningful disclosures about climate change.

To be sure, providing guidance to the regulated community in this context is understandably tricky. Accordingly, it’s worth paying close attention to new rules by the French Treasury Department to integrate climate-change factors into financial-disclosure requirements. In July 2015, the French National Assembly adopted the Energy Transition Law, broad legislation aimed at reducing French greenhouse gas emissions.

The provision included strengthened mandatory climate disclosure requirements for listed companies and introduced the first mandatory requirements for institutional investors as part of Article 173 of the Law for the Energy Transition and Green Growth. A summary translation of the Final Decree on the Implementation of Article 173-VI of the French Law for the Energy Transition describes the relevant provisions, which became French law on January 1, 2016.

The decree imposes reporting requirements on institutional investors and financial asset managers registered in France. It builds on the European Union-wide disclosure requirements due to take effect in 2017, pursuant to Directive 2014/95/EU of the European Parliament and Council in October 2014, according to Columbia Law School’s Justin Gundlach.

Contrasting the New French Decree with Existing US Securities Law.
U.S. disclosure requirements are primarily focused on public companies. In contrast, the French Decree targets institutional investors and asset managers (i.e, insurance companies, pension and social security funds), and others. Under French law, those who invest assets on behalf of others must now indicate how the companies in which they invest provide information to investors, shareholders, clients and beneficiaries about environmental, social and governance (ESG) factors.

Under U.S. securities law, Regulation S-K, Item 303 (commonly known as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or “MD&A”), requires public companies to disclose, among other things, “known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” 

Item 303 requires a company to disclose an investigation only if it “reasonably expects” the investigation will have a material adverse effect on the company. Thus, if management reasonably expects that government efforts to limit carbon emissions will have a material impact on net sales or revenue, then management must discuss and analyze this known trend in a disclosure to investors.

Some might argue that the French Decree is costly, off target, and will only indirectly result in increased disclosure. Still, the more direct approach favored in the United States has not satisfied institutional investors seeking improved corporate disclosure of material risks in the fossil fuel industry. As financial firms affected by the French decree begin to implement its provisions, no doubt the SEC and the regulated community will pay close attention to whether it leads to meaningful disclosure of known trends.