Do Bridges Leak? Natural Gas Sure Does – Just Ask California…

By Andrea Lang, Energy Fellow

Last week, I wrote about why Oregonians should be wary of shifting away from coal by investing in more natural gas infrastructure to power our electric grid. Besides the fact that such infrastructure would be in place for years and thus is unlikely to be a “bridge” to renewable energy, it is not necessarily less carbon intensive than other fossil fuels.  While burning natural gas results in less CO2 emissions than coal, there are also lots of methane leakages during natural gas production, storage, and transportation. And since methane is 25-37 times more potent (it depends on the timeframe considered) as a greenhouse gas than CO₂, these leakages are significant.  The ongoing methane leak in California, along with numerous other leaks across the country, illustrates the hidden climate cost of natural gas.

A methane leak in Porter Ranch, California has already leaked more than 86,000 metric tons of methane, or the equivalent of more than seven million metric tons of CO₂. That leak is expected to continue at least into late February or March. In the meantime, you can watch the methane emissions go up in real time on a methane counter created by the Environmental Defense Fund. The leak has caused California’s governor to declare a state of emergency in the area, and has resulted in thousands of evacuations. But in addition to the local impacts of the leak, it highlights one of the major problems with natural gas in terms of global climate impacts. Though invisible to the eye, the leak in California is currently the daily equivalent of driving seven million cars.

  

The California methane leak is by no means an isolated incident. A recent study concluded that for natural gas to produce more climate-friendly electricity than coal, leakage must be kept below 3.2%. However, there is a lot of uncertainty about how much leakage is actually occurring from natural gas infrastructure and whether it is in fact below that 3.2% threshold. Although the EPA has estimated that leakage rates are well under the threshold, numerous studies (see here, here, and here) have concluded that EPA may be drastically underestimating methane leakage.

Chances are, even with all of these leaked emissions, natural gas is still cleaner than coal. But the scary part (aside from the terrible local impacts of large-scale leakages like the one in California) is that nobody is totally sure about how much fugitive emissions really occur. And with natural gas being touted as the “bridge” to a renewable and sustainable energy future, it seems like a big risk to take. In the transition away from coal, we would be much better served by investing in truly green infrastructure, increasing the percent of electricity from solar, wind, and other renewable energy sources. 

Climate and Energy Initiatives From President Obama's Final SOTU: Are they Enough?

By Tyler Johnson, GEI Policy Extern

                                                                                      

President Obama addressed the nation this past Tuesday with his final State of the Union Address. The President made a number of comments regarding climate change and energy. Specifically, President Obama’s address mentioned 1) the need to revise the nation’s federal coal leasing program; 2) the need to transition the nation’s transportation system for the twenty-first century; and 3) the need to advance renewable energy development.

Coal Leasing on Federal Lands

Most significantly, Obama called for a “push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.” The administration followed up the claim on Friday by issuing an Executive Order to overhaul the coal mining leasing process on federal lands. The stated purpose of the Order is to “consider whether and how the program may be improved and modernized to foster the Orderly development of Bureau of Land Management (BLM) administered coal on Federal lands in a manner that gives proper consideration to the impact of that development on important stewardship values, while also ensuring a fair return to the American public.” The Order calls for a significant review of the Federal coal-mining program and a temporary pause on new leases. The US Geological Survey will also monitor greenhouse gas emissions from all resources extracted on federal lands.

According to the Executive Order, federal coal represents 41% of U.S. coal production and 10% of total US greenhouse gas emissions. Furthermore, coal royalties, currently set at 12.5% for coal surface mining, are remarkably lower than the royalties received for offshore oil and gas exploration (18.75%), and don’t adequately account for environmental costs. A Congressional report concluded that the government is missing out on billions of dollars in lost revenue due to the low royalty rate (and additional accounting failures). The Executive Order directs BLM to address whether the current rate of return on leases is fair and whether it adequately accounts for externalities such as environmental harm. A rate adjustment could thus potentially be a win for both the environment and taxpayers.

While this is a step in the right direction, more must be done. For one, enough leases already exist on federal lands to maintain the current rate of coal production for another 20 years. Recently, Parties of the UN Climate Change Conference in Paris articulated that current science suggests that zero global emissions must zero out somewhere between 2030 and 2050 to hold global warming at 1.5 degrees Celsius above pre-industrial levels. Anything above a 1.5 degree global increase is predicted to come with drastic effects for humanity, including rising sea level, increased storm intensity, drought, and more. As unrealistic as it seems to achieve zero global emissions in the next 20-30 years, that’s no excuse to not do everything possible. Due to these warnings, many groups are calling for a complete end to fossil fuel extraction on federal lands, which doesn’t seem likely from this order.

Republican backlash is another cause for concern. The temporary pause on federal coal leases and the promise of a thorough review still remain in doubt with the looming 2016 presidential election. Republicans are reportedly furious over the Order, raising legitimate concerns that a Republican victory for the White House will result in the Executive Order being withdrawn.

A 21^st Century Transportation System?

In addition to a federal coal mining lease overhaul, President Obama also referenced the need to transition to a 21^st century transportation system. On Friday, the White House released plans to invest $4 billion in automated car research. The administration has been active in other transportation initiatives as well. For example, Beyond Traffic is “an invitation to the American public—including the users, developers, owners, and operators of the transportation network and the policy officials who shape it—to have a frank conversation about the shape, size, and condition of that system and how it will meet the needs and goals of our nation for decades to come.” Also, the Smart City Challenge offers $40 million for one mid-sized city to “put forward bold, data-driven ideas to improve lives by making transportation safer, easier, and more reliable.”

These transportation initiatives sound great because they address important concerns regarding how our cities are positioned to adapt to climate change and the new energy economy. However, the actions taken by the administration again only represent first steps. Much more needs to be done. As scientists repeatedly warn, we don’t have time to wait on action. Obama was correct in stating that we need an effort akin to the space race in the 1960s. These policy initiatives, by themselves, are not enough to jumpstart such an effort. One can hardly blame the administration, however. Executive action alone can only achieve limited progress. Congress must pass new laws to effectively deal with greenhouse gas emissions. Unfortunately, up to now the current Congress has been unwilling to take action to legitimately address greenhouse gas emissions or climate change.

Advance Renewable Energy

After criticizing climate deniers, President Obama’s State of the Union address also offered an economic argument to justify adopting policies to advance renewable energy development. President Obama called for American companies to be at the forefront of the new energy economy.

The modern economy thrives on innovation. If we as a nation give into special interest groups such as coal and big oil, who argue for the status quo, we are denying ourselves a fantastic economic opportunity by inhibiting technological innovation in the new energy economy. Investing in renewable technologies will both help ensure a more sustainable environment AND help the economy grow. While the scientific alarm for a potential environmental catastrophe is enough to act on climate change, economic benefits should not be ignored as another justification for embracing renewable energy development. As an added benefit, making the economic argument more often may help persuade climate skeptics that encouraging renewable energy development is sound policy.

Last Week’s Deal on Coal and Oregon’s RPS: Why I’m Skeptical

By Andrea Lang, Energy Fellow

Credit: Oregon.gov

Last week, Oregon’s two major utilities – PacifiCorp and Portland General Electric (PGE) – came to a seemingly game-changing agreement with some environmental advocates to support a bill that would almost completely eliminate coal from the state’s electric grid while increasing the amount of renewable power. The proposed bill has some laudable goals, but as more details emerge I think renewable energy advocates and environmentalists should carefully consider where this proposal will leave us in twenty-five years, and question whether it will actually move us beyond our current business-as-usual projections.

There are essentially two major pieces of the bill that utilities agreed to support last week. First, the bill would require PacifiCorp and PGE to phase out coal by 2030. Considering Oregon currently gets around a third of its electricity from coal, phasing out coal is critically important to reducing the state’s consumption-based emissions. Second, the bill would expand Oregon’s existing renewable portfolio standard (RPS) from 25% renewables by 2025 to 50% renewables by 2040.

There is no question in my mind that getting Oregon off of coal and increasing its renewable portfolio standard are vital steps towards reducing our state’s carbon footprint. Nevertheless, without further information on the details of the bill (a draft has not yet been released), I have several preliminary concerns about the deal as it’s been reported.

1.      The compromise bill does not ramp up the RPS quickly enough, and would allow natural gas to establish an unacceptable foothold in Oregon.

Oregon is currently on track to meet its existing RPS, so extending and expanding this standard are important steps towards transitioning the state to a 100% renewable power grid. But a 50% by 2040 goal isn’t nearly ambitious enough to achieve Oregon’s greenhouse gas emissions goals. As Oregon transitions away from coal, natural gas plants will likely serve as the so-called “bridge fuel” in the state. But building more natural gas infrastructure is likely to lead to long-term reliance on fossil fuels, and not a bridge to more renewables (see Amelia Schlusser’s blog post from this summer for more detail on the fiction of natural gas as a bridge to more renewables). Moreover, with the specter of California’s current massive natural gas leak looming, there is a chance that such a leak in Oregon would offset much or all of the state’s efforts to reduce emissions in the first place. Requiring a phase-out of coal while setting the RPS so low only encourages more natural gas development in Oregon, and could give natural gas a long-term foothold in the state.

2.     Oregon’s transition away from coal is already inevitable.

Although Oregon does still get an alarming amount of its electricity from coal, the phase-out of this carbon-intensive fuel is already inevitable under existing laws and agreements. A 2009 law effectively prohibits construction of new coal-fired power plants in Oregon and prohibits utilities from entering into long-term power purchase agreements for output from out- of-state coal-fired power plants. Meanwhile, Oregon’s only existing coal-fired power plant in Boardman is already set to be retired by 2020. And according to OPB, many of PacifiCorp’s coal-fired power plants located outside of Oregon are projected to reach the ends of their useful lives within the next fifteen years. Finally, compliance with the Clean Power Plan will likely require a transition away from coal throughout the west by 2030, even without this bill. Thus, a state bill with a coal phase-out provision is likely unnecessary to achieve the important goal of transitioning Oregon off of coal.

3.     The proposed bill represents a continuation of Oregon’s piecemeal approach to climate policy.

As we detailed in our Countdown to 2050: Sharpening Oregon’s Climate Action Tools report, Oregon has a history of doling out climate policy in a piecemeal fashion. Instead of enacting a law with clear emission reduction mandates and a comprehensive and holistic approach to achieving them, Oregon has created a series of tenuously connected laws aimed at reducing emissions from a limited subset of sources and sectors without taking account of how the laws and implementing agencies might work together to reduce emissions from all sectors. While this proposed bill will undoubtedly achieve some additional emissions reductions and should encourage more renewable energy development in Oregon, it is yet another example of Oregon’s piecemeal approach to addressing climate change.

To be sure, any action to address climate change and advance renewable energy is better than inaction. Further, it may be that the devil is in the details with this bill, and that the draft that ultimately goes to the legislature will contain some provisions that alleviate some of my concerns. But, as our Countdown to 2050 report shows, Oregon can and should be doing much more to reduce greenhouse gas emissions and increase renewable energy generation. The proposed bill is a step in the right direction, but renewable energy supporters should also be wary of committing to piecemeal compromises at the expense of long-term policy shifts. By spending political capital on passing this bill, we may reduce our chances of enacting what the state really needs: comprehensive climate change legislation that includes enforceable greenhouse gas emission mandates.

Two Steps Forward, One Step Back: A Tough Win on Renewable Tax Credit Extensions

By Andrea Lang, Energy Fellow

 

Credit: USDA.gov

Congress’s last day of work this year saw a major win and a major loss in terms of transitioning away from fossil fuels. The victory was in extending the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) for wind and solar development, respectively. However, to pass these extensions, Democrats on Capitol Hill had to agree to lift a 40-year-old ban on exporting crude oil. Despite this loss, I think the deal represents two steps forward and one step back in terms of the transition away from fossil fuels.

Two steps forward…

First, the deal extends the PTC for a full five years. ThePTC is a production-based credit of 2.3 cents per kilowatt-hour (KWh) of energy produced from wind, geothermal, and closed-loop biomass, and has primarily been used for wind energy. It has been tremendously important for providing financing for the relatively capital-intensive development of new wind energy projects, since the credit enables developers to get financing from banks and other institutions in exchange for the tax credit. Unfortunately, the wind industry has been in a boom-and-bust kind of cycle for years as Congress has repeatedly only extended the PTC for a year or two, and sometimes only retroactively. This uncertainty in the ability to get the credit has made financing and developing wind projects, which often takes several years, difficult. The five-year extension Congress agreed to on December 18 would thus give the wind industry much some needed certainty. To ensure the wind industry can survive if Congress lets the PTC permanently expire in five years, the deal also slowly ramps down the amount of the tax credit so that the industry has time to adjust and become cost-competitive in the absence of the PTC. The wind industry itself recognizes that the PTC cannot last forever, and this deal finally puts in place a solid plan to grow the industry in the short-term and help it find its footing in the long-term.

Second, the deal extends the ITC, the tax credit that helps finance primarily solar projects by crediting 30% of eligible costs of developing projects. The ITC, which would have expired at the end of 2016, is now set to extend at its existing 30% rate until 2019, and then gradually decline down to 10% by 2022. Moreover, the bill changes the eligibility date for the ITC from the date the project is “placed in service” to the date it “commences construction.” This is hugely important for solar developers seeking tax equity investors because it provides more certainty that their projects will receive the tax credit. Because solar projects often take years to develop, and there is a certain unpredictability in how long some permit processes take, the “commence construction” provision removes some of this uncertainty and should make it easier for projects to find investors. Between the long-term extension and the modification for eligibility, the ITC extension is a huge win for the solar industry and for the transition away from fossil fuels. Indeed, Greentech Media projects that the ITC extension will add 25 more gigawatts of solar-generated electricity to the grid by 2020, over 50% more than would be added without the extension.

…One step back

The price wind and solar advocates had to pay to get the much needed tax credit extensions was the lifting of a 40-year-old ban on exporting crude oil from the United States. The ban was put in place in 1975 with the passage of the Energy Policy and Conservation Act. Its purpose was to protect the domestic oil supply in the face of the 1973 OPEC oil embargo and the corresponding spike in oil prices.

Now, with the fracking boom providing access to shale oil, domestic oil production has vastly increased from 5.6 million barrels per day in 2011 to 9.3 million barrels per day in 2015. Oil producers wanted to see a larger market for their domestically produced product, and lifting the ban has done that. Ironically, this has happened at a time when there is an oversupply of crude oil on the global market, so there is little demand right now for U.S.-produced crude oil. But whether or not the market for oil changes, the lifting of the ban is likely to lead to increased oil production domestically, as producers hope the price goes back up and they can sell their product overseas. That means more oil—and associated carbon emissions—coming out of the ground that really should be left there. Additionally, lifting the ban may also lead to a bigger push to increase infrastructure to transport the oil to ports for shipping oversees (see my post on the Tesoro Savage project from a few weeks ago).

A win?

Just looking at the impact the deal will likely have on emissions, the compromise is probably a win, albeit a tough one to swallow. The Council on Foreign Relations estimated last Friday that accounting for both emission reductions as a result of the tax credit extensions and the emission increases from lifting the crude oil export ban, the deal would result in anywhere from 20–40 million metric tons less of CO₂ emissions annually over the next five years. The argument that the renewable tax credit extensions would eliminate about 10 times more carbon emissions than lifting the crude export ban would add was exactly the argument Democratic minority leader Nancy Pelosi used to convince wary democrats to vote for the bills.

Of course, the estimate does not take into account what happens if the PTC is phased out and the ITC reduces permanently to a 10% credit in five years. Nevertheless, the tax credits, coupled with States’ need to comply with the Clean Power Plan, should lead to substantial renewable development with the potential to displace gigawatts of fossil fuel-generated electricity over the next five years. Even though the extensions came at a high cost, it is probably the best we could have hoped for from this Congress.

Will the Paris Agreement Help Usher in the End of the Coal Era?

By Amelia Schlusser, Staff Attorney

On December 12, 2015, 195 nations signed onto a new international agreement to address climate change. The agreement sets an ambitious but essential goal of significantly reducing greenhouse gas emissions to prevent global temperatures from increasing beyond 2° Celsius. While the individual emission reduction pledges included in the agreement are not legally binding—primarily because the U.S. Senate would almost certainly have rejected a legally binding commitment—the Paris Agreement signifies the start of a global transition away from fossil fuels and towards sustainable, renewable energy sources.

Many believe that the Paris Agreement will help usher in a new era of sustainable investment, in which investors will begin to shy away from risky investments in fossil fuel assets and invest capital in renewable energy.  As quoted in the Guardian, the International Investors Group on Climate Change stated: “Investors across Europe will now have the confidence to do much more to address the risks arising from high carbon assets and to seek opportunities linked to the low carbon transition already transforming the world’s energy system and infrastructure.”

There are two overarching reasons why the Paris Agreement should precipitate investment in renewable energy. First, by establishing the goal of attaining global carbon neutrality by 2050, the agreement serves to delineate the long-term risks associated with fossil fuel investments and establishes a more clearly defined timeline for the clean energy transition. Second, the agreement reduces the uncertainty associated with renewable energy investments by ensuring that demand for renewables will steadily increase over the coming decades.

In reality, the market transition from fossil fuels to renewables has been growing for some time. In the United States, coal stocks continue to decline in value as coal companies post substantial economic losses and confront increasingly stringent environmental regulations. Two major coal companies have made the headlines in recent days. Last week, the New York Stock Exchange threatened to delist Arch Coal due to its sub-par economic performance. Earlier this week, Peabody Coal submitted a filing to the Securities and Exchange Commission that fails to list climate change or greenhouse gas regulations as potential risks to the company’s investors.

Arch Coal May Get Booted from Wall Street

Last week, the New York Stock Exchange (NYSE) threatened to kick Arch Coal out of the Wall Street exchange after the company’s market value dropped below $50 million for 30 consecutive days, while shareholders have owned less than $50 million of the coal company’s stock. Because these conditions violate the NYSE’s listing requirements, Arch has 45 days to submit a plan to the exchange demonstrating how the company can re-achieve compliance with NYSE’s listing requirements within 18 months.

Arch Coal’s stock values have plummeted dramatically in recent years. According to ClimateWire, Arch’s stock fell from $350 per share in December 2010 to $1.03 a share on December 10, 2015. The company posted $2 billion in loses in the third quarter of 2015.

Arch isn’t the only coal company facing dire economic conditions. Alpha Natural Resources, Patriot Coal, and Walter Energy all filed for Chapter 11 bankruptcy protection in 2015.

Peabody Coal Fails to Disclose Vulnerability to Climate Change-Related Risks

In 2013, New York’s Attorney General, Eric Schneiderman, launched an investigation into Peabody Coal regarding the company’s failure to disclose climate change-related risks to investors. The investigation concerned Peabody’s annual filings with the Securities and Exchange Commission (SEC) in 2011, 2012, 2013, and 2014, in which the company asserted that it was not possible for it to “reasonably predict the impact” that future laws and regulations addressing climate change or greenhouse gas emissions would have on Peabody.

According to the New York Attorney General’s investigation, while Peabody’s SEC disclosures denied its ability to value climate change-related risks, the company’s internal market projections concluded that aggressive greenhouse gas regulations for existing power plants would reduce coal values by 33% to 38% in 2025, and a $20 per ton carbon tax would reduce coal demand by 38% to 53% below 2013 levels by 2020.

On November 8, 2015, Peabody Coal entered into an agreement with the New York Attorney General in which the company agreed that “any future SEC filings, or any future communications with shareholders, the financial industry, investors, the general public, and others” will not assert that it cannot reasonably predict the impacts that future climate policies would have on Peabody. The company also agreed that these communications would not contain any disclosures that were “inconsistent” with international findings that climate regulation could significantly impact demand for coal. 

Peabody filed a prospectus with the SEC on December 14, 2015, announcing its plans to sell $1 billion in stock. As reported by E&E News, while this prospectus listed a number of “risk factors” that may impact investments, it does not mention climate change, global warming, greenhouse gases, or carbon emissions. Meanwhile, following the finalization of the Paris Agreement, the value of Peabody Coal’s stock dropped by 13%.

The Paris Agreement may not have precipitated the shift away from coal-fired power, but the international climate deal will almost certainly help to expedite the transition to renewable energy. Investors should read the writing on the wall and begin to revise their portfolios accordingly. Those who don’t may eventually see their assets go up in smoke.