Assessing Virginia's Carbon Reduction Policy Options

Public Comment by Stanford University graduate and law students pursuant to Executive Order 57: Development of Carbon Reduction Strategies for Electric Power Generating Facilities.

April 24, 2017

Comment submitted by:

Brittany Gibbons, MS '17

Alison Gocke, JD/MS '17

Patricia Levi, PhD '20

Kelley Luyken, MS '17

Lauren Tarpey, JD/MS '17

The following comment is an excerpt from our Executive Summary of our Public Comment to the E.O. 57 Work Group process. Due to the word limit constaints on this public comment, we were not able to submit all of our findings. We are happy to provide additional information into our research and our model assumptions as needed; feel free to contact us at the email address provided pursuant to this Comment.

Pursuant to Executive Order 57, the Secretary of Natural Resources and the Work Group participants are tasked with "study[ing] and recommend[ing] methods to reduce carbon emissions from electric power generation facilities."[1] Several such methods have been proposed and discussed since the Work Group's inception in August 2016, including:

1. Establishing a market-based regulation of carbon emissions similar to a cap-and-trade scheme, as suggested by the Warrenton Climate Change Group, the Virginia Chapter of the Sierra Club, and the Southern Environmental Law Center, among other stakeholders;
2. Increasing Virginia's energy efficiency targets, as suggested by the Business Council for Sustainable Energy, the Virginia League of Conservation Voters, the American Council for an Energy Efficient Economy, and Appalachian Voices, among other stakeholders;
3. Increasing Virginia's renewable energy portfolio, as suggested by the Advanced Energy Economy, the Virginia Chapter of the Sierra Club, National Green Fuels, and Ceres, among other stakeholders; and
4. Reducing the local health impacts of in-state energy generation, as suggested by the American Lung Association, the Virginia Environmental Justice Collaborative, the Faith Alliance of Climate Solutions, and the Virginia Poverty Law Center, among other stakeholders.

Participants also proposed some combination of these policies in order to achieve carbon emissions reductions in Virginia.

The purpose of this Comment is to assess the economic and health impacts of these policy proposals; to evaluate their feasibility in achieving E.O. 57's overall goal of reducing carbon emissions; and to suggest a favored policy option(s) to the E.O. 57 Work Group.

In order to satisfy this goal, we built an economic optimization model of Virginia's electricity sector. The model determines the least-cost generation capacity investment for the electricity sector, and simulates a full year of operation. We populated the model with detailed data on the electricity generators available to Virginia, real historical demand data, and information on renewable resource availability. The model represents Virginia at a high level of fidelity, and has a simplified representation of out-of-state generation resources.

We discovered several trends in our results that we believe should influence the Work Group's decision-making. First, we found that if the Work Group elects to adopt a market-based cap-and-trade system, it will have to also adopt a mechanism for enforcing such a cap on electricity generated out-of-state and then imported into Virginia; otherwise, the benefits of capping carbon emissions within the state are almost entirely overrun by pollution generated out-of-state.

Second, we found that using complementary policies like energy efficiency and renewable energy portfolio standards can reduce the costs of implementing a carbon cap and help insulate Virginia from fluctuating fossil fuel prices, which make up a significant portion of total system costs. These policies also reduce the effects of emissions leakage resulting from imported electricity.

Third, we found that energy efficiency or renewable energy targets implemented on their own—without a simultaneous carbon cap—are less effective at reducing negative local health impacts than a carbon cap. In our model, this occurred because there are certain coal-fired power plants within Virginia that can operate more cheaply than natural gas plants if natural gas prices increase as projected over the next fifteen years. Under those conditions, reducing electricity demand or building up in-state renewable energy generation does not force a substantial reduction in coal generation, which means that the negative health effects of coal co-pollutants remain. In order to reduce the health impacts of electricity generation in Virginia—a cost that is significantly born by minority and low-income communities—the state must regulate carbon emissions as well.

Finally, we found that if Virginia employs the suite of complementary policies discussed above at only slightly less stringent levels (e.g., a 30% cap as opposed to a 50% cap), the state can achieve significant carbon emissions reductions at a total system cost less than the costs produced under our "business-as-usual" scenario.

Of course, each of these findings should be read with the caveat that they are subject to the assumptions and constraints of our model. A detailed explanation of those assumptions is provided in the Appendices. We caution that our model is best for examining trends and insights, not for precise numbers; the model is not intended to be an exact replica of Virginia's current or future electricity system, just a sufficiently accurate one to observe useful trends. Nonetheless, we do believe that the trends we discovered are valuable, and should be taken into account as the Work Group compiles its recommendations.

Based on our model, we believe that Virginia can achieve deep carbon emissions reductions at a total system cost only slightly higher than a "business-a-usual" scenario by adopting a 50% cap on carbon emissions (which is also enforced against utilities importing electricity from out-of-state); a 20% Renewable Portfolio Standard; and a modest energy efficiency goal of 1.5% annual savings by 2025. This suite of policy options keeps costs relatively low, reduces Virginia's susceptibility to fluctuating fuel prices, builds up Virginia's renewable energy economy, and produces health savings for local Virginians, all while achieving significant reductions in electricity-sector carbon emissions.

The remainder of this Comment is contained within a Comment submitted to the E.O. 57 Work Group because of the word limit here.