Taking a closer look at the full costs of energy acquisition and dissipation
Opposition to energy policies often comes down to the cost, either to individual companies or to countries as a whole. Since this summary by RFF and NEFI deals with policy on the international level, the concerned parties are countries. Developing countries in particular are reluctant to sign on to policies that they feel might hamper their progress, since carbon emissions have been linked to growth in GDP. And speaking of GDP, even developed countries like the U.S. would rather not see this reduced due to energy policy (or for any reason). Fortunately, this summary shows that the most effective policies at reducing oil consumption and carbon emission are by no means the most expensive. And it helps to keep in mind that GDP is a highly flawed indicator of the overall quality of life in a country. It fails to account for factors like life expectancy and the overall health of the population and ecosystems, both of which are influenced by emissions. Global warming is the overarching issue, but when considering the merits of energy policy, emphasizing of the benefits to individual countries might help win them over. This could help counteract the Energy Paradox described in the article. It seems that the main market failure that causes the energy paradox is incomplete information. If countries understood more fully how certain energy conservation polices would benefit them in the long run, they might be more willing to make investments in this field. There really is no long term conflict of interest between countries in terms of energy policy when every party has complete information and understands the future benefits of their investment.
I thought it was really interesting that the most effective policies in reducing oil use and carbon emissions were not necessarily the most expensive policies. Some of the policies I found particularly intriguing were the transportation policies, especially the policy mandating the penetration of heavy-duty trucks fueled by liquefied natural gas (LNG) into the U.S. fleet. I think focusing on transportation is extremely important and a good idea, because about 70% of total oil consumption is due to transportation. So, if we could decrease oil consumption in transportation, we could significantly decrease total oil consumption. I thought the policy regarding LNG heavy-duty trucks was particularly interesting, because of its potential effectiveness and in reducing oil consumption, and relatively low welfare cost. These heavy-duty trucks are good targets for policy, because they travel so many miles in the U.S., and have low gas mileage. I think many people would agree with this, but the main issue for consumers with adopting this policy is the fact that LNG vehicles are much more expensive than the diesel or gasoline vehicles. I think one way to try to combat this is to educate people and try to give them perfect information. If people understand that although it might cost more to initially purchase these vehicles, using LNG trucks could reduce the cost per barrel of oil by about $14. If people can see the economic benefits over time, it may give them incentives to want to switch over for future success. One positive of this policy is the plan to penetrate the new LNG heavy-duty trucks over a 10-year period, with a 10% increase in these trucks per year. I think that by penetrating gradually over time, people and companies will be more receptive to the idea, because they can plan for these additional costs in the future. Legislation may even want to consider switching over to LNG trucks over the course of a longer period of time if it would mean that people would be more receptive to it and the policy could be adopted by legislation more quickly.
I thought the discussion of the Clean Energy Portfolio Standard-All as an alternative to cap-and-trade or a carbon tax is an interesting idea. CEPS-All mandates that fuels other than coal produce a certain quantity of power generated. It also accounts for CO2 emissions of these fuels. CEPS-All differs from other CEPS policies because it includes power generation of new and existing alternatives to coal. The paper notes that CEPS-All accomplishes the largest aggregate reduction in CO2 emissions of all individual portfolio standards at 7,632 mmtons. Although this reduction is only 62% of the CO2 emissions reductions achieved by cap-and-trade, it only covers electricity reduction and does little to address electricity demand. Efforts to mitigate or conserve electricity use combined with CEPS-All would likely result in even greater emissions reduction. The paper notes that one single policy option is unlikely to effectively reduce oil use and CO2 emissions. CEPS-All could be included in some of the crosscutting combination policies discussed. It could be incorporated into regulatory alternatives that combine LNG truck policy, building code requirements and Pavely CAFE policy. CEPS-All is also included as a potential component of a blended portfolio that combines phased oil tax, high feebate, hybrid subsidy, building code provisions, GHP subsidy and a modified LNG truck policy. The blended portfolio nearly achieved the CO2 emission reduction target, largely due to CEPS-All. CEPS-All is a promising policy option and alternative to cap-and-trade that is relatively cost-effective and achieves considerable reductions in CO2 emissions.
This paper focused on the many policies that could be implemented to lower carbon emissions and oil consumption. It addresses how market failures affect different strategies and which would be more resistant to these problems. By directly putting a price on emissions/oil consumption, such as a tax or mandate for LNG, the potential for excessive welfare costs can be mitigated. As the paper states, there is no “magic bullet” policy that will have the greatest impact on the two main categories. Therefore, a cross between two or more policies is necessary. These policies have to be implemented in a way that keeps welfare costs low. Of the combination policies that meet the target levels, Pure Pricing has the lowest PDV (present discounted value) cost. This combines the Phased Oil Tax with the Carbon Tax, both of which allow adaption and mitigation. The social and private costs can be equated with the least amount of damage to the firms as possible. The Phased Oil Tax is a gradual increase in price per gallon of oil that is revenue neutral. This allows the additional revenue to be funneled back either to people or programs that further promote carbon/oil use reductions. The Carbon Tax forces polluters to consider abatement to avoid higher costs. Again, the revenue can be distributed to reward those that meet emission standards (like a feebate) or to additional technological advances to make abatement more feasible.
Like Alli, I found that the most intriguing part of the paper was the section that concentrated on the most fossil fuel-intensive sector: transportation. However, what I found was most shocking were the results of subsidies and policies that focused on hybrid vehicles. I was quite disappointed to learn from this paper that hybrid subsidies showed barely any progress in reducing the use of oil. In the chart provided in the article about “Effectiveness (in 2030) and Cost-Effectiveness (2010-2030) in Reducing Oil Consumption”, hybrid subsidies ranked #27 out of the 30 oil consumption-reducing policies, and showed results only about a 1/10 higher than 0.0 oil reduction. Because the study shows that regardless of the subsidies, more people will begin to buy hybrid vehicles despite incentive policies, the funds that go to hybrid subsidies should be given to a different portion of the transportation sector, perhaps to LNG vehicles.
This executive summary was especially interesting because it focused on how government policies will help lower CO2 emissions and US oil use. While it is good to discuss the different options to accomplish the goal if the government will not realistically sign on, it seems almost irrelevant to discuss it. The study uses cross cutting to combine many different policy options. This makes sense to me but does it decrease the probability of the government approving them because it’s a combination and thus it could be harder to come to a consensus? Because the government should represent the opinion of the people, the energy paradox is an incredibly important issue. If the population of the US does not see the benefits of investing in something with no payoff in the short term the government is unlikely to accomplish passing environmentally protective policies. This is where education can play a very important role. Around 50% of the population does not believe in anthropogenic climate change. The whole population needs to be aware of the costs and the reality of climate change. If this is not accomplished the discount rate for these policies will probably be overvalued thus causing an undervaluation of the benefits.
What I found the most interesting, particularly in light of the incident in Japan, is looking into the potential role for nuclear power. While there are obvious carbon advantages, there are still many uncertainties involved. The article says that using loan guarantees to spur new nuclear plant construction appears to be a low cost way to reduce emissions; however, this does not consider the substantial economic and technical difficulties and unsolved waste management problems that still remain. The cost of constructing and maintaining commercial nuclear power plants climbed so steeply between 1980 and 2000 that investment capital has been scarce and costly. Major reasons for cost escalations are concerns about public safety and environmental protection. The time required to secure the governmental licenses that ensure a facility will meet safety and environmental standards has lengthened. There are costs imposed during plant construction through regularly ratcheting (making new safety modifications or other changes during construction). Additional costs can be imposed through litigation involving environmental groups and others challening aspects of plant design and safety. These costs, obviously reduce the market competitiveness of nuclear-generated electricity compared to fossil-fuel-burning plants. There are also still technical problems including deficiencies in the basic design and operation of plants and reported incompetence in plant management. These problenms have worked against the industry politically.
While pricing policies do seem to be the most effective in encouraging conservation and mitigating CO2 levels, I thought it was smart for the authors to look at alternatives. Improving CAFE standards and introducing feebates could have similar effects as the various pricing policies. Just as Katie, I found the Clean Energy Portfolio Standard-All to be really interesting and appealing as one of these alternatives. As we look into future options for energy sources, diversification is extremely important to focus on. The CEPS-All would require a certain amount of power to be derived from non-coal generated energy. Especially with recent disasters, it sounds like creating a wide-ranging portfolio of clean energy options, that are becoming more efficient, would be the smartest way to address increasing demands. According to researchers, it would be relatively low in cost, at about $15 per ton of CO2 reduced, and would have the greatest decrease in aggregate CO2 reductions of the individual portfolio standard policies. If the CEPS-All was used in conjunction with other pricing and regulatory options in order to decrease oil use, it could be very effective in meeting our goals for CO2 emission levels and demand for oil.
I found Table 2 to be very informative. I really didn’t know there were so many different ways to achieve the same economic and environmental goals. I thought the crosscutting policies were the most interesting because they take into account that one policy alone will probably not be able to fully achieve the desired outcome. Out of the different crosscutting policies I thought that the “pure pricing + EE measures” sounded interesting. This one seemed to combine the most different policies and covered both gasoline output and building standards. This widespread approach would be more efficient than simply focusing on one aspect alone. This policy was also the only one to meet both C02 and oil standards. While it is more expensive than alternatives, the increased building standards would ensure that new residential structures, that are built to last for long periods of time, are initially efficiently designed. This would reduce costs in other long-term renovations. Like the paper says, one solution is not enough, and though they acknowledge there may be other options, a combination is the best possible solution.
Though the article outlines a handful of interesting, and viable policy options aimed at reducing oil consumption and CO2 emissions, I was most interested in the pricing policy angle. I fully believe that the most efficient way to slow oil consumption is to increase cost and utilize market forces. In this scenario, a number of positive consequences will likely result from the decision to do so. First, quite simply, individuals will consume less oil at the higher price point. Second, if this high price point is maintained, firms will invest more heavily in R&D. Consumption will decrease and alternative energy substitutes will necessarily surface. However, in this framework it is essential to maintain the high price point because if prices only stay high for a limited time then drop, consumers will revert to their former consumption habits and gains will be erased.On another note, I thought the discussion of taxing all oil consumption (not just gasoline consumption) was very interesting. I had never really thought about the fact that the current tax structure “overlooks more than half of the oil market.” I understand that oil taxes are politically unfavorable, but the current structure does not make sense. Oil must be taxed across the board if the goal is to reduce overall consumption. While such a policy would certainly be unfavorable in the beginning, it would be a great step in the right direction.
There is only a small section in this paper discussing the possible role of nuclear power in reducing carbon emissions. The author writes, "We know there are carbon advantages to nuclear power, but no one knows yet whether a streamlined approval system, new technologies, and investor confidence will combine to win rapid approvals and relatively quick operational status for the many planned plants." They suggest the use of loan guarantees as an efficient and low cost way to incentivize the construction of new nuclear facilities. If the required return on equity is lowered 14% there is an average cost of about 40 cents per ton of CO2 reduction. While this is a low cost strategy for carbon reduction, it does not account for the potential problems with nuclear power. An efficient solution has yet to be found for the permanent disposal of nuclear waste, and the construction of plants can be a matter of great debate. Due to fears of a meltdown or radiation leakage from the plant, however unlikely these events may be, people fight the construction of nuclear power plants in their vicinity. The recent events in Japan have led to protests in Germany, France and the US against the use of nuclear power. Despite safety guidelines and procedures in place, the situation in Japan is still precarious, and so consumers become nervous about the technology. Nuclear power may reduce carbon emissions but like any power source it comes with a new set of costs and benefits which must be considered.
When reading about policy-making in regards to environmental change and efficiency it is regularly noted that policy pluralism is the only way to achieve our fossil fuel and CO2 reduction goals. Most environmentalists and economists alike would agree that simply implementing one policy, such as more efficient building standards, increased transportation efficiency, or gasoline taxes is not enough to accomplish the large emission reduction goals necessary to reduce or even maintain current carbon ppm in the atmosphere. However, this article approaches the issue of policy pluralism in a different and, in my opinion, useful way by also addressing which policy combinations, by being either insignificant or overlapping are actually ineffective and should be avoided. It advises against using a "buckshot approach...in which several uncoordinated policies are implemented that may cancel out any intended benefits or even make things worse"- a common problem in environmental decision making in my opinion. I find it interesting that this article reminds us that although policy pluralism is indeed important, it must be coordinated and thoroughly examined so as not to be a waste of time, resources, and energy due to overlap and benefit cancelations. After warning of this threatening inefficiency, the article then goes on to outline some cross-cutting policies- explaining why some will be more effective than others. This is an important process that is essential to policy-making decisions because it will prevent us from wasting our resources on less effective policies by allowing direct comparisons between combination policies. For example when comparing the Regulatory Alternative combination to the Blended Portfolio option, it became clear that the Regulatory Alternative combination, although it would still produce some result, would be vastly less effective.
As the paper mentions, cross-cutting policies seem to be the most effective at hitting the target market for oil consumption reduction or CO2 emission reduction (or both if using the Blended Portfolio policy). The Blended Portfolio policy I found the most interesting as it seems like the best option for this country at the current time, as it takes into account political feasibility (regulator policies like a modified LNG Truck policy) and pricing policies like the Phased Oil Tax. The Blended Portfolio gets very close to hitting the target CO2 reduction point but surpasses the oil consumption target reduction point by a high amount. The Clean Oil Portfolio Standard - All, which would be included in the Blended Portfolio is highly effective in how its cost are very low at $15 per ton of CO2, as well as having the highest aggregate reduction of CO2 7,632 mmtons of the individual portfolio standard policies. Although this only covers electricity generation, and not electricity demand, other policies if combined in the Blended Portfolio can tackle other issues. If all are at a low cost that will lead to high reductions in CO2 emissions and oil consumption, there will be no need for a cap-and-trade policy, which this paper argues is inefficient and costly.
I definitely agree with some of the people who have already commented. Transportation seems to be the biggest problem for excess oil consumption and one of the main factors contributing to CO2 emissions. Based on this report, the LNG truck policy is the most effective in reducing oil consumption, so I think that this should be implemented as soon as possible. The costs associated with this policy aren’t as high as some of the others, so it could be a very efficient and cost-effective strategy. It seems that the biggest problem with LNG trucks is that there aren’t enough fueling stations. But if this policy was mandated by federal or state governments, the infrastructure would probably appear pretty quickly. I also like the idea of the phased oil tax and the feebate system. I think that this would definitely provide consumers with an incentive to buy smaller and more efficient cars. There would be no need for the hybrid subsidies then, which don’t seem to be effective anyway. If the CAFÉ standards are increased along with these other transportation policies, oil consumption and CO2 emissions will probably decrease dramatically. Hopefully the politicians are reading this article and will begin implementing some of these policies soon.
Throughout the RFF executive summary, policy effects on oil reduction and CO2 emissions reduction are each estimated. It seems unreasonable to me that oil reduction receives equal consideration as total CO2 emissions, when oil is only one piece of the problem. There is no doubt that oil use needs to be reduced due to its major contribution total emissions but any policy that focuses solely on oil reductions will not provide an overall solution to the problem. On the other hand, any adopted policy or set of policies will probably need to include oil specific regulation because our oil use is going to be one of the hardest trends to break because it has the fewest alternatives.The simplest and most efficient way to reduce both oil use and emissions is pure pricing. In the report this is described as a carbon tax combined with an oil tax. Each policy on its own are among the best options for reducing carbon and oil respectively. When combined they even further reduce each. The Pure Pricing and Pure Pricing+ EE were the only crosscutting policy combinations that surpassed the carbon reductions target. The Pure Pricing policy managed to do this while still being the second cheapest option explored. The simplicity of this policy may be its downfall. it is directly making the resources we want to use less of more expensive. It is directly internalizing the externalities. The other policies explored are more indirect and my seem less costly at first glance by the general public but many other options are more expensive and less effective. Pure Pricing is simple and completely comprehensive. If gas prices go up people will naturally start conserving and switching to more emissions friendly alternatives and trucking companies will naturally begin to shift toward Natural Gas. Innovations will be adopted in every energy and transportations sector. This is much more efficient and effective than forcing and regulating the adoption of alternatives in only a few areas.
Like others have mentioned above, some of the most effective at reducing CO2 and/or Oil Consumption are by no means the most costly, but rather tend to be less costly than most of the less effective policies. Furthermore, in the Cross-cutting policy combination section, we find that Casey was indeed telling us the truth in that putting a price on oil/carbon/externalities leads to an efficient outcome at a low price (which by these estimates, pure pricing happens to be the least costly proposed combination, Graph on Pg. 22). What I found even more intriguing was the fact that by adding on an additional policy aimed at increasing Energy Efficiency, the cost increased by nearly 40% increase in the cost with a far less increase in benefits of the policy. To me, this clearly illustrates the importance for policy makers to make wise decisions in which combinations of energy policies they implement; with great concern for the effectiveness and costs.
Along with Alli and Emmi I found the cost-effectiveness vs. oil and CO2 graphs to be very informative. It was exciting to to learn that some of the most effective policies are also inexpensive which makes them more likely to be implemented. I like the idea of combining policies such as LNG heavy duty trucks with a phased in oil tax or carbon tax to have an over all effect. A tax on carbon or oil changes people's behavior over time at a relatively low cost. A tax is also beneficial because it targets all uses of oil and carbon so the economy sees a reduction on emissions on the whole rather than in a specific sector. Another important point on tax is that if a tex were to be implemented it would be important to impose it on oil rather than gas, creating a broader net to catch all polluters. Transportation is the largest sector of oil consumption, therefore it should be readily address. in a combination policy with the Tax LNG heavy duty trucks seem to have the most impact at the lowest cost. I was surprised CAFE standards and hybrid vehicles had not had a bigger impact. I would still encourage options for hybrid vehicles to be phased in but I believe relying on new LNG heavy duty trucks is the best direct and immediate policy for reducing oil consumption.
Figures 1 and 2 show that the transportation sector accounts for a large majority of oil consumption and greenhouse gas emissions. This being said, transportation is definitely a sector that should receive the most attention in terms of new energy policies. The transportation sector makes up for the most GHG emissions and is constantly growing with population and economic growth. In the summary of results the writers point out that a combination of policies is more effective at reducing oil use and CO2 emissions than a single policy instrument. A combination of pricing policies such as those found in the Pricing and EE Measure combination policy is seems to be the most effective approach. The Phased Oil Tax will slowly add on taxes to all oil products providing incentives to reduce oil use and find alternatives. The combination of Phased Oil Tax and Pavley CAFE standards will help greatly reduce the transportation sector's oil use. I believe these pricing policies combined with the carbon tax and new construction building codes will be the most effective combination policies reducing oil use and CO2 emmissions.
I was very interested by the overall impact of transportation in terms of oil consumed and greenhouse gases released. If transportation is responsible for about 28% of the greenhouse gases being released, it is certainly one of the major areas in which we need to focus efforts of policy change. I think curriee13 was onto something when she spoke about the hybrid subsidy. I was also very surprised to see the low impact that a hybrid subsidy would have in terms of oil and CO2 reductions. If the funds that went to the hybrid subsidies did go to Liquefied Natural Gas (LNG) trucks, this would likely have a much larger impact. Figure 3 depicts how LNG trucks actually surpass the oil target at a much lower cost/barrel reduced than a hybrid subsidy. This option may seem great at first; however, LNG trucks have one of the highest cost/ton reductions in CO2 as shown in Figure 4. Another problem would arise in the creation of the infrastructure. Fueling stations would take time to build and spread around the nation but once implemented, the trucks would have a tremendous impact on the reduction of oil use in the transportation sector. This method of reducing oil consumption is definitely worthy of more investigation to determine if it would truly have the desired effect. In the end, the blended portfolio seems to be the pest option presented. The combination of the phased oil tax, high feebate, hybrid subsidy, building code provisions, GHP subsidy and CEPS-All in conjunction with a LNG truck policy surpasses the oil target and nearly reaches the CO2 target. In addition, the building code provisions deal with the energy consumption levels of residences and other structures requiring electricity, comprising nearly 40% of greenhouse gases emissions today. The blended portfolio essentially attacks the issues of oil and carbon reductions from multiple different angles, which is essential if we are to reach the desired oil and CO2 target levels.
Despite the political difficulty in passing Pure Pricing legislation, "Toward a New National Energy Policy: Assessing the Options," illustrates that Pure Pricing policy has the greatest reduction in C02 emissions and oil consumption at the lowest price. Pure Pricing with Energy Efficiency Policy has 19 percent greater oil reductions and 3 percent more C02 emission reduction, however, the price of Pure Pricing with Energy Efficiency is 35 percent more. Thus, the combination of Policy involving a Phased Oil Tax and Carbon Tax is substantially the most cost effective and is able to reach global emission levels for 2030 provided by RFF. Individually, the Phased Oil Tax proves very cost effective and productive in reducing oil consumption, whereas the Carbon Tax is very cost effective and productive in reducing C02 emissions. RFF examines each policy individually and ultimately shows in the paper how combining certain policies as shown in the Pure Pricing option can significantly reduce costs without sacrificing effectiveness, by exceeding RFF's benchmarks in both C02 emissions reduction and Oil Consumption reductions.
Gasoline Taxes are one of the most viable options for energy policy reformation because lump sums are returned directly to the individual, which makes the tax revenue neutral. Although a gasoline tax may be frowned upon by the general public, it will improve the likelihood of alternative energy breakthroughs and freedom from the grasp of oil rich economies in the future. Of the gasoline tax options, I believe the Phased Oil Tax is preferable to the Immediate Oil Tax because it is less drastic in the short term and may be more widely accepted by the general public. I feel that the hybrid subsidy would also address the major problem of CO2 emissions from automobiles. I do think, however, that the $3,000 subsidy per .01 gallons is unrealistic and way too expensive for the government to actually implement. The hybrid subsidy may become even more attractive to consumers if the Phased Oil Tax were also enacted. Ultimately, providing incentives for automobile manufacturers and drivers to cut down on their use of gasoline is the best way to address the issue of greenhouse gas emissions from the burning of fossil fuels.
Gasoline Taxes are one of the most viable options for energy policy reformation because lump sums are returned directly to the individual, which makes the tax revenue neutral. Although a gasoline tax may be frowned upon by the general public, it will improve the likelihood of alternative energy breakthroughs and freedom from the grasp of oil rich economies in the future. Of the gasoline tax options, I believe the Phased Oil Tax is preferable to the Immediate Oil Tax because it is less drastic in the short term and may be more widely accepted by the general public.I feel that the hybrid subsidy would also address the major problem of CO2 emissions from automobiles. I do think, however, that the $3,000 subsidy per .01 gallons is unrealistic and way too expensive for the government to actually implement. The hybrid subsidy may become even more attractive to consumers if the Phased Oil Tax were also enacted. Ultimately, providing incentives for automobile manufacturers and drivers to cut down on their use of gasoline is the best way to address the issue of greenhouse gas emissions from the burning of fossil fuels.
Since cap and trade seems to be policymakers' most loved model, I'll focus on that. The other RFF paper had a discussion of a cap-and-trade with a "safety valve." The safety valve becomes a kind of tax on energy use above the cap. One problem with cap-and-trade that I see is the public education component. Few people have any conception of how many pound of carbon they emit, or the marginal amount of any action. I have no idea how much carbon was emitted in order to charge the laptop I am using right now to type this. If I had to buy a "safety valve" permit to keep using carbon, I have no idea what size permit I should buy. What's my share of the cap?
I think the RFF make an interesting point about the LNG trucks – that increasing, from 2011 and onwards, the fleet of heavy duty trucks that run on LNG will even overshoot the oil-reduction target. I wonder though, about a few things that the authors bring up but don’t treat. Now, given the virtue of this type of paper it is hardly a surprise that they do not delve into great detail, so they are less of a critique and more of concern for the policy. Clearly, re-fueling infrastructure is the biggest barrier to this goal, since it takes particular facilities to put the LNG fuel onto the trucks. Since we are talking of new purchases – on trucks that last for more than a decade at least – 10 of new purchases are not a whole lot of trucks. These trucks would have to operate on particular routes where the fueling infrastructure is available, and they will not operate elsewhere. Without government subsidies (or “guidance”), how do we expect the infrastructure to develop along the changing buying trend? Also, would this also not lead to more of a “switch” scenario rather than the “dial” scenario the authors suggest? In other words, will it be perfectly gradual or should we expect to see some point at which the trend takes off? Should we assume that the buyers are no aware of the changing trend completely and therefore continue to buy diesel trucks when the refueling of diesel must be expiring, giving the LNG take-over of the market. As much as LNG-stations spread, as much must truck diesel-stations disappear, eventually? Put in another way, is it possible that we should be more optimistic about this forecast than the authors lead on? Is their caution warranted, or perhaps conservative by virtue of wanting effect in the policy environment? I am really curious to see where this policy might go.
The main focus of this article is coming up with a U.S. energy policy that will reduce both our dependence on foreign oil and reduce our CO2 emissions. The article seems to overlook the fact that the atmospheric CO2 level is a global problem, and our policy should really entail some sort of multinational cooperation to reduce CO2 emissions. As Daniel Schrag points out, even if the U.S. were to cut its CO2 emissions to zero, it would have little impact on atmospheric CO2 levels. So even the most effective policy options proposed in this paper in reducing CO2 emissions, such as cap and trade with no offsets or a carbon tax with RPS, would not have a significant impact on atmospheric CO2 levels. That being said, the U.S. is a global leader and must lead the way in reducing emissions so that countries like China and India may follow. It is essential, however, that other countries do follow because we otherwise put ourselves at an economic disadvantage because even the most inexpensive reduction policies do have a cost associated with them. A Renewable Portfolio Standard, for example, would be a relatively inexpensive policy option in reducing emissions. But this still puts the U.S. at a disadvantage if we are the only country to accept such a policy because our manufacturers are then forced to take on the costs of finding and implementing an alternative source of energy that may be more expensive to use than oil.
This article presents so much information on the cost-effectiveness of different policies and combinations that I find it aggravating that federal policy makers cannot pick one of the top scenarios and go with it. My favorite policy is a carbon tax, and this article helped me expand my views and realize there are other effective policies. The article states that a cap and trade or carbon tax policy are most effective at reducing energy-related domestic needs over the 20 year period, but that a viable alternative is a broad-based clean energy portfolio standard (CEPS) as long as it has a credit trading provision in place. I like the carbon tax so long as it offsets another tax because it will require less work than credit trading and be better understood by the public. Also, this paper indicates that the crosscutting policy of Energy Efficiency and pricing is the only combination that meets and exceeds carbon emission reduction goals. The carbon tax fits nicely into this crosscutting policy and would be easy to implement. I enjoyed how the article elaborates on ineffective policies as well such as policies promoting hybrids and hybrid/electric cars. I feel as though nuclear power may qualify for this category, not because of its energy efficiency and lack of carbon emissions, but because the American public has been spooked too many times, beginning with 3-mile Island, then Chernobyl, and now Fukushima. The U.S. didn't invest in the nuclear infrastructure in the past, and with the knowledge of clean and renewable energy out there it seems as though they are more viable and better alternative to nuclear. Carbon Tax in a crosscutting policy: Energy Efficiency and Pricing!
Before reading this paper I had never considered the idea of LNG trucks replacing the current diesel trucks. This policy is projected to be effective in reducing oil consumption. Transportation accounts for roughly 70 percent of the oil used in America. These trucks do a large portion of that driving and these trucks have terribly low gas mileage. With LNG these trucks will greatly reduce the consumption on oil. This would be good for America because we have large reserves of natural gas in Oklahoma and the surrounding states, making it possible for America to be less dependent on energy imports. The only downside with LNG trucks is the infrastructure that would need to be put into place before these trucks could have a significant impact. Gas stations would have to be converted to be able to accommodate the LNG. The initial cost are very large to do this and the American people would see no gains from it for several years, with the cost cutting going on in Congress right now it is hard to see them approving to spend the billions of dollars needed to put in the necessary infrastructure. Hopefully before too long Americans will see the benefits of LNG trucks and will be willing to put down the money for a better future.
The policy I found most intriguing, and in my opinion is the best idea was the oil tax combined with the reduction in income taxes. the article projects this to be one of the cheapest and most effective policies in terms of reducing dependence on foreign oil and reducing CO2 output. By taxing oil and not just gasoline the entire market is taxed including industry, but by reducing income taxes people are incited to drive less and work more. This goes into the double - dip we discussed in class earlier this term in which there is greater potential for innovations that will benefit society (clean energies) and people do not have to sacrifice anything or change their behavior if they do not want to. I think this policy option is actually politically feasible, but I may just be having an optimistic moment. I think taxing carbon in general would do a better job in terms of creating incentives for clean energy development and aiding the environment, but taxing oil could be a solid stepping stone in getting to a carbon tax. My only worry in taxing solely petroleum is that instead of turning to renewable energy and truly clean alternatives the market will shift towards using other fossil fuels such as coal which are just as bad if not worse for the environment. In the long run a tax on carbon is where this policy would lead, and probably where policy needs to go if sustainability is at all a public concern. Even with the risk this policy would create higher demand for alternative fossil fuels instead or renewable fuels and presumably other risks such as lost GDP, I would be willing to roll the dice and choose the devil we don't know over the one we do.
I think the most important thing, for me, to consider in the policy is the distributional effects. Ignorant politicians and media asside, we all realize that anthropogenic climate change exhists and a policy is needed to mitigate the soon to be disasterous effects. The policy is a failure if it doesn't improve the standard of living from the status quo (living with the climate warming). This papers, all the others, and standard economic thought agree that the price of energy will rise with whatever CO2-reducing policy is implemented. This price increase is more harsh on lower-income households as energy expenditure is a greater piece of their budget. This is where I feel the corrective tax reductions have a potential to help people, an why a tax is far more beneficial than a cap-and-trade system. The tax revenue that comes in offsets the income tax of lower income taxpayers. Whether this offset is in the form of higher tax bracket barriers or a higher minimum income level for paying income tax at all, I don't know, but I'm not sure it really makes a difference. The policy to save the earth from CO2 emissions must not be detrimental and "poverty-increasing." We can all agree that the policy has to make economic sense, but it must also make equity and ethical sense.
I feel that first of all it was refreshing to read an article that began to lay out the specifics of policies we have talked about mainly in theory. It is an appropriate time in the course as we have surveyed the economic models and discussed the theory. The next step is to discuss policies that can ultimately be put in place and be effective. I learned much more about the details of specific policies, which I had not been exposed to in previous classes. It gave the policies "cap and trade" and "taxing" a more in depth meaning to me.The specific policy section that stuck out to me was the several crosscutting policies that were discussed. We had not touched too much on which specific policies would work well in conjunction with one another. I always knew that it was not so simple as to just choose a policy. But the synergy of several policies is probably the best method to reduce emissions efficiently at the lowest cost. Before finishing the article I anticipated that the best hybrid policy would be the Tax and Energy Efficiency provisions. Pricing should use market forces to work, and the EE measures create a set of standards as well. Pricing is very important because it directly reduces energy use. I feel that in policy making efforts that produce direct results, rather than indirect, end up being the most effective. I did end up being somewhat right in that it was very cost effective and pretty efficient in terms of reductions. The best hybrid policy actually ended up being the Blended Portfolio policy which reduced oil use almost double the target. This strategy combines both pricing and regulation. This crosscutting policy combines the Phased Oil Tax and the LNG Truck Mandate, which increases the amount of trucks that must run on natural gas. The issue here is that this policy is very costly. When conducting a study it is important to find the policy with the most favorable results, but we also must keep in mind the overall cost of that policy.
I really enjoyed reading such a thorough, straightforward assessment. I have probably been over influenced by our last discussion on how taxes are "better" than a cap in regards to the fact that the country manages to keep the revenue and that a tax would automatically reduce the quantity of CO2 emitted with time, as innovation takes place and shifts the MAC curve downwards. This means that my favorite policy would have to be Pure Pricing. In my opinion, it is the choice that provides the best bang for the buck if you consider how relatively cheap it is and how it is able to tackle both CO2 emissions and oil demand at the same time.The first thing I found quite intriguing was that estimated costs for all policies were much less costly than what we usually see in the media and politics realms. I guess that many Americans would be willing to pay $48 to $117 per year if they knew what is at stake.As others have mentioned, the most intriguing policy has got to be the one about LNG Heavy Duty Trucks. Even though it is ingenious, I would have to say this is probably the least likely policy to happen in the short and long run due to a couple of factors. First, investments in infrastructure take a long time and require considerable amounts of money that could be invested elsewhere in the economy. For this particular case, I guess most people would simply be unwilling to bare the cost. Second, it is not very clear if subsidies would be able to make firms change their behavior at the margin - as we would expect to see if there were a price on carbon, for example.The most intriguing part of this policy is its estimated cost/barrel reduced: less than $15. It seems so inexpensive once one imagines the practical needs of such a policy. Regular heavy-duty trucks must be spectacularly inefficient (and they really must travel a lot).
I thought that this executive summary was a thorough synopsis of the many possibilities that exist to mitigate our energy crisis. In particular, I thought the analysis on crosscutting policies was very insightful. Before reading this paper, I always assumed that a blend of different policy prescriptions–not merely focusing on one (ie. Gas tax)––was the key to addressing energy and climate change. This paper explicates, however, that is this is not always the case. It emphasizes that policymakers cannot value a crosscutting/blended simply using a “sum-of-the-parts” valuation method. Combinations often result in redundancies and other inefficiencies. The paper states the “costs of policy combinations can exceed that summed over their individual policies by over $70 billion.” However, despite the potential inefficiencies associated with some combinations, the paper does conclude that with the correct policy blend, oil use and GHG emissions are reduced more than a single policy instrument.
Although stricter transportation policy in the heavy trucking industry reduced carbon emission the most, I feel it is also the one of the more expensive in that the trucking industry is heavily involved in all aspect of life, especially food and other produces. With the more expensive trucking/transportation, food, and all other transported good, prices are bond to increase. Although it is important to include the externality in the pricing to reduce emissions, but this policy would indirectly misplace the emission costs on the consumer. The higher grocery cost will have the greatest impact on the lower-income family and the middle-income, but the largest producers and possibly the heaviest emission producers, the companies and factories, are not affected directly. Maybe in the long run, there will be protests again the higher cost, but having consumer bearing the cost of emission reduction does not seem very sustainable. However, rebates or subsidies could lessen the effect, but that just further complicates the issue. Nonetheless, having more efficient trucks is definitely an important issue, the policy makers just need to be weary of other implications of the policy, besides carbon reduction, and who the end bearer of the cost are.
The RFF NEFI study focused on two dimensions: reduction of carbon emission and reduction in oil use. The study showed that carbon pricing policies, combined with other stringent energy efficiency standards and price-based tax on exhaustible energy, have the largest impact in reaching the global carbon emission standards. These empirical evidence further support the price-based solution as a politically feasible and economically efficient solution to compete with cap and trade. In addition, it is interesting to see that some of the economic models that we used in class are actually found in empirical evidence, such as how better hybrid energy efficiency solution makes travel less costly and leads to the same carbon emission level, allowing CAFE standards to be more relaxed. Last but not least, the particular policy option of converting diesel trucks to liquified natural gas trucks via command and control method actually produced substantial results according to this research. It can be said with certainty that a combination of CC and economic incentive are among the most feasible solution that we have in our policy tool box to address the urgent climate problem.
I think one of the most interesting policy options discussed is a mandate or subsidy for LNG trucks. President Obama stated yesterday he would like to cut foreign oil imports by 1/3 over the next 10 years in an effort to reduce our dependency on foreign oil. He also looks to expand the use of natural gas and biofuels and to create more stringent fuel efficiency standards. Since transportation policies provide the greatest oil reductions, natural gas could be a viable option. As stated in the paper, developing LNG truck fleets would be effective in reducing oil use and has a relatively low welfare cost associated with it. Switching to an LNG truck fleet would also reduce CO2 emissions by 1,821 million metric tons between now and 2030. Although other policies would provide greater emissions reductions, including LNG mandates could be implemented in combination with other policies to reduce oil consumption and emissions.It is also noted that there is a lack of infrastructure for natural gas. It makes the decision to switch over to natural gas more difficult when there is currently no easy way for truck drivers to refuel. Before any mandates can be issued, there needs to be some development of natural gas infrastructure that is comparable to what we have for gas or diesel fuel.
The idea of LNG heavy-duty trucks is truly an intriguing one. I had no idea of the impact it could have on reducing oil dependency. Also, because of the lower emissions from natural gas, the CO2 levels would fall tremendously as well. The obvious hurdles that prevent LNG heavy-duty transportation include the lack of an infrastructure for distribution, and the highly combustible nature of LNG. These are relatively small hurdles compared to some of the issues that prevent other effective measures. At first, the cost of goods would sky rocket, but once it became a solid policy, and through technological advances, prices would stabilize. The costs would never reach the pre-LNG trucking levels, but the change in cost would reflect the internalization of the former externality of diesel trucking.
One of the policies examined that I found most interesting in this RFF “summary” (even though I don’t necessarily agree with increased use of nuclear power) is the idea to use loan guarantees to spur new nuclear plant construction. It involves very low cost s and does not really seem to have any disturbing effects on the consumer’s energy consumption. However, the magnitude of reduction of the late of return that a loan guarantee induces, is important, in order to reduce CO2 emissions substantially. For instance, the authors’s results suggest that by reducing the required return on equity to potential investors to 11% vs. 14% would respectively result in a 958 mmtons and a 2,643 mmtons reduction in CO2, with the former result being rather insignificant compared to the latter. (p.17f.) However, one needs to bear in mind that it is difficult to control investment decisions and in times of recessions, even the seemingly most appealing rates of return to equity might not spur investment after all. This might be particularly problematic in face of the nuclear disaster in Japan. Judging from the overall results, encouraging (or mandating?) the deployment of hybrid and plug-in hybrid light-duty vehicles leads to the largest oil reduction (p.9) and even though this policy sounds rather costly, if it is phased in gradually, it should be feasible even in the US. China, for example, has started incentivising and mandating fuelling by LNG (i.e. for all the big cities’ taxis, I don’t know exactly about heavy-duty trucks, but it wouldn’t surprise me). However, clearly, implementation of any policy in the US almost always involves a lot more transactions costs than implementation in China, which might affect the attractiveness of certain policies in both countries differently. Overall, what I found most fascinating or very well thought-through is the fact that the authors run all analyses of policies with three cases of market failure. This is amazing because particularly when dealing with policies for CO2 and oil use reduction, the impact of market failures are key in any policy decision. Results vary significantly applying the different levels of market failures to the same policy examined. Moreover, the degrees of market failure partly explain the “energy paradox” and the inertia in people when it comes to act against climate change. According to the author, due to the existence of substantial market failures (i.e. asymmetric information) consumer behaviour reflects a discount rate that is much higher than market interest rates and hence diminishes the true value of future benefits (p.9).
Carbon emissions and oil consumption dependence are two of the most important issues that we have to confront in today’s world, and this paper studies how to combat both of those problems using policies and technology that could be implemented today or in the not-too-distant future. From the data that the paper presents, one can assume that few policies can tackle both issues particularly well, so a “cross-cutting” technique of policy implementation needs to be employed.One of the most interesting ideas and one of the big surprises for me in this paper was the proposed introduction of Liquefied Natural Gas (LNG) Trucks into the transportation sector. Surprisingly, the authors find a relatively low welfare cost for the infrastructure introduction and manufacturing of these vehicles and high reductions in oil usage and average reduction in carbon emissions. With a combination of related policies, we could reach our goals with low welfare costs to society. Another interesting conclusion is that pricing policies still seem to be the relatively most effective methods of reduction in either category, with Cap & Trade and oil taxes making great strides both in oil and carbon reduction.It honestly seems as if we just need to make a move on the policy front and see where it takes us. It’s impossible to know exactly what the massive uncertainty about energy policy is doing to our economy, but taking a first step could honestly open up many doors to innovative solutions and economic growth that we have yet to discover.
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