Wednesday, November 19, 2014

An Open Letter to Republican Politicians

Dear Republicans,

I am not going lie here: I am a liberal. I'm atheist, pro-abortion, pro-gay marriage, pro-socialized medicine, pro-gun control, etc. But I am no socialist, I recognize that markets are generally the best way of maximizing welfare. I don't like onerous regulations, pet-project spending, and needless giveaways, even to companies or causes that I support. I would be willing to cast aside my opinions on other issues if you will just do one thing: support a carbon tax. Nay, not just support it, make it the centerpiece of your campaign. I keep on hearing that there are Republicans out there who secretly believe that climate change is real. Go ahead, come out of the closet. I will support you and so will many other "liberal" environmentalists. We're not all preordained to believe that markets are inherently evil and that Wall Street is the devil incarnate. Listen to the companies you so champion and the economists that you employ. 

You all say that a carbon tax is a massive government intervention, but it's not. It can easily be revenue neutral (ie a per-capita dividend and/or lowering of other taxes), an approach supported by Al Gore and the burgeoning Citizen's Climate Lobby. I will fully support a carbon tax you propose that is coupled with the phasing out of all renewable energy subsidies and standards, all fuel economy standards, all efficiency mandates. The only caveat is that it must be a high and rising tax that will enable us to seriously put a dent in our carbon emissions. That is a tough sell, I know. But it is something that is supported by a great many of your own economists, and championed by former Bush and Romney advisory Greg Mankiw. A carbon tax is also supported by the late great Nobel-Prize winning University of Chicago economist Gary Becker. Multiple other highly important Republican advisers have championed the cause, from Bush Treasury Secretary Hank Paulson to Reagan Secretary of State George Shultz. Many of the businesses you purport to champion are fully embracing of the necessity of cutting CO2 emissions. They include some of the big businesses that you say you support: Monsanto, Exxon, BP, Shell, Coca Cola, Dupont, Nestle, Unilever, Microsoft, Duke Energy, and others have publicly stated multiple times that they support a revenue-neutral carbon tax. Do you really think that the largest energy, tech, chemical, and consumer service companies in the world want to implement a socialist, economically crippling policy?

Look, I am not going to pretend that it will be easy. A carbon tax will impose real costs on energy consumers and producers and may not grow GDP. But if you believe that climate change is real, it is worth it. You're right, coal is dying and the industry could undergo a slow demise with carbon pricing legislation.  If properly monitored, natural gas from fracking (well-regulated and monitored) has the potential in the midterm to slow the rise of CO2 emissions. And gas exports can help emerging economies in India, China, and Africa get access to electricity without destroying the air in all of their cities. Where renewables or nuclear energy are not economically viable, fossil fuels may still play a role with carbon sequestration. A carbon tax would level the playing field between all technologies instead of favoring solar, wind, and biofuels as is the case today. Essential to any carbon tax proposal would be the removal of all GHG policies currently in place, thus limiting the bureaucratic overreach of the EPA. If you actually are willing to negotiate, you could help lower corporate income taxes and labor-taxing revenue streams. You could help compensate and retrain working-class families in polluting industries who may lose their jobs. Obviously nothing will perfectly satisfy both sides, but there is a lot for you to gain on issues that Democrats would otherwise be unwilling to negotiate. 

You may have heard the news about the Climate March and thought that it was just an assortment of activists who want to impose a new socialist order. I assure you that not all of us think this. But when the only choices for environmentally conscious citizens are subsidies for renewables or a party that supports subsidizing coal, oil, logging, and gas with no regard to pollution, habitat, or climate change impacts, we don't really have much choice. But don't listen to me, listen to all of the employers and conservative economists who are otherwise your stalwart allies.

Naor Deleanu

Wednesday, April 16, 2014

The Follies of Zero Net Energy

Zero Net Energy is here! I lived in it last year in fact. Except it's not sustainable. Or really net-zero.

West Village hasn't really achieved its goals (generating 87% of the energy it uses), but the numbers are worse than that really. Look at the model. Zero-net energy refers to the operating energy costs. That doesn't include the construction cost of utilities, homes, roads, solar panels, etc. The building costs are typically 7-9% of residential energy impacts, but I would guess that the number here is actually much higher. This is a new development that required new roads, a new bike bridge, and new utility poles, and it is designed to be more much more energy efficient than the typical new development. So that means we are at likely under 75% of total energy impacts covered by on-site generation. Even considering generation, the "net-zero" label is rather dubious. The model assumes only 50% occupancy in apartments for 1/6th of the year. The apartments are solely for students, so perhaps this is not unreasonable for purely accounting purposes. However, it's not like students are not going to use energy if they are away from home. Encouraging higher occupancy should be a goal, not an impediment of sustainable design.

First, let me dispel the myth that "zero-net energy" has any real economic or environmental meaning. Consider two scenarios

  1.  New solar powered zero-net energy house. I'm just going to throw a random number out there, but let's just say that it costs an additional $12,269 (this is from West Village). They don't include the cost of solar panels, but they estimate a 21,126 savings in energy use (including solar water heating).  This comes out to about $0.039/kwh (assuming 20 year service life and 3% discount rate as stated in energy modeling for West Village SFH in Davis). Not terrible, but something to consider for later: the "new" (actually 2008) building standard for California gives a usage of more than 31,000 kwh/household/year. This is actually much greater than the average household usage of 18,000 kwh. Keep that in mind for later discussion in a future blog post.
  2. Invest that money in energy efficiency upgrades for more homes. Estimates of energy-efficiency programs center on values of $0.03/kwh saved. Clearly, this is a better value than getting a super efficient house to that magical "net-zero." 
Obviously the second situation isn't net-zero. So what? It's a lot more important. We don't have unlimited resources, so we need to prioritize investments. Even the most enthusiastic supporters admit that there are some upgrades that are much more expensive (such as residential solar panels, not even mentioned as part of the economic analysis of energy savings for homes at West Village). And there is a point where energy-efficiency upgrades are not going to pay off. 

Let me add another point about "net-zero." Why the focus on "zero"? Why can't it be net positive energy? I think the focus on generating exactly as much energy as you consume has something to do with utility pricing (you can't get paid for using less energy), but if net-zero made actual economic sense, so would net-"negative" energy use in some circumstances. After all, the costs and benefits of energy efficiency and solar depend on local weather conditions (climate, humidity, sunlight, etc). 

I have another huge problem specifically with West Village, one that might easily be replicated in future ZNE developments. The reason why residents consumed far more energy than projected is not because of our laptops and iPhones: it's because electricity was free. None of that $100 million in development costs could have gone towards a real innovative energy pricing program, perhaps as a research project for a UC Davis economics professor who studies the subject? I've heard that utility regulation stops the developer from charging for energy consumption. That's a load of BS. Perhaps it hurts the economics, but I'm sure that $17 million in incentives plus full access to university-owned land. 

Some people may think that because all electricity is generated on-site, it doesn't matter how much energy is consumed. That is not true at all. The true environmental and social cost of energy is largely tied to the marginal cost of production. The residential solar provides a very small portion of electricity that is on the grid. If less energy is consumed, then there is more electricity available on the grid, meaning that fewer high-marginal cost power plants have to operate. The solar panels provide mostly the same benefit no matter where they are supplying energy. There are environmental benefits of both solar energy production and energy efficiency, but they are in no way related to one another. 

I hope that the future does not look like West Village. The apartments are unaffordable luxury (definitely not built for the middle class) and the complex is surrounded by a giant parking lot. It's already bad, but the rest of it is going to be even more unsustainable (see more in my next post). Zero net energy is generally a meaningless goal, and building everything as such would cost more than saving the same amount of energy through a combination of energy efficiency and innovative electricity pricing.