Alone in the Wilderness

I’ve been thinking a lot about risk tolerance and discount rates lately, and how they profoundly shape our perception of the economic costs associated with minimizing climate change.  Basically… if you’re willing to vary your preference for the present over the future or the level of uncertainty you’re willing to accept, then you can make mitigation cost whatever you want.  All else being equal, low discount rates and low risk tolerance make taking action cheap, while high discount rates and high risk tolerance make it expensive.

Unfortunately, we live in a society with high discount rates and high risk tolerance.  Or at least, that’s what you’d infer from our collective behavior.  It’s also what you’d gather from a lot of the rhetoric around climate action, and our obsession with trying to make it “economically efficient”, to the point of maybe not doing it at all.  Our risk tolerances and discount rates aren’t really objectively measurable.  They are fluid, and context sensitive.  The same person in different situations will not behave consistently.  Different people in the same situation may come to different conclusions.  How we deal with uncertainty and the value of the future is a personal as well as cultural decision.

For some reason, I find myself with a low pure time preference, and an aversion to many kinds of risk.  This is part of why I find our unwillingness to act on climate infuriating, and why I’m working on climate policy.  I got to wondering, how did I end up this way?  Why isn’t it more common?

Continue reading Alone in the Wilderness

In Good Company: A Look at Global Coal Reserve Revisions

In my last post, I recounted some of the indications that have surfaced over the last decade that US coal reserves might not be as large as we think.  The work done by the USGS assessing our reserves, and more recently comments from the coal industry themselves cast doubt on the common refrain that the US is “the Saudi Arabia of coal” and the idea that we have a couple of centuries worth of the fuel just laying around, waiting to be burned.  As it turns out, the US isn’t alone in having potentially unreliable reserve numbers.  Over the decades, many other major coal producing nations have also dramatically revised their reserve estimates.

Internationally the main reserve compilations are done by the UN’s World Energy Council (WEC) and to some degree also the German equivalent of the USGS, known as the BGR. Virtually all global (publicly viewable) statistics on fossil fuel reserves are traceable back to one of those two agencies. For instance, the coal reserve numbers in the International Energy Agency’s (IEA’s) 2011 World Energy Outlook came from the BGR; the numbers in BP’s most recent Statistical Review of Energy came from the WEC.

Of course, both the WEC and the BGR are largely dependent on numbers reported by national agencies (like the USGS, the EIA and the SEC in the case of the US), who compile data directly from state and regional geologic survey and mining agencies, fossil fuel consumers, producers, and the markets that they make up.

Looking back through the years at internationally reported coal reserve numbers, it’s surprisingly common to see big discontinuous revisions.  Below are a few examples from the WEC Resource Surveys going back to 1950, including some of the world’s largest supposed coal reserve holders.  In all cases, the magnitude of the large reserve revisions is much greater than annual coal production can explain.

Continue reading In Good Company: A Look at Global Coal Reserve Revisions

A Long Time Coming: Revising US Coal Reserves

In my previous post I highlighted the recent, quiet admission by the US EIA (in a fine-print footnote to Table 15 of their 2012 Annual Coal Report) that they do not know what fraction of our nation’s large store of coal resources might be economically accessible, and thus potentially classified as reserves.

CEA has long highlighted indications that a revision like this might be in the works, including in our most recent round of coal reports issued last fall (see: Warning: Faulty Reporting of US Coal Reserves).  But we’re not the only ones.  Plenty of other people have pointed out the same thing over the years.  Including…

Continue reading A Long Time Coming: Revising US Coal Reserves

US EIA on the Economics of Coal: No Comment

At the end of 2013, the US Energy Information Administration (EIA) acknowledged that it does not know whether the vast majority of US coal can be mined profitably.  If coal mining isn’t profitable, then barring some grand socialist enterprise the black stuff is probably going to stay in the ground where it belongs.

You might think this kind of revision would have warranted a press release, but the EIA’s change of heart was buried in a fine-print footnote to Table 15 of their 2012 Annual Coal Report, which tallies up all the coal resources and reserves in the US, state by state.  The new footnote says:

EIA’s estimated recoverable reserves include the coal in the demonstrated reserve base considered recoverable after excluding coal estimated to be unavailable due to land use restrictions, and after applying assumed mining recovery rates. This estimate does not include any specific economic feasibility criteria. [emphasis added]

This stands in contrast to the footnotes for the same table in their 2011 Annual Coal Report, and many prior years:

EIA’s estimated recoverable reserves include the coal in the demonstrated reserve base considered recoverable after excluding coal estimated to be unavailable due to land use restrictions or currently economically unattractive for mining, and after applying assumed mining recovery rates. [emphasis added]

Continue reading US EIA on the Economics of Coal: No Comment

Colorado Wildfire Climate Change Fail

The past couple of years have been rough on Colorado, in terms of climate change related disasters.  First a couple of record setting wildfire years, and then floods of “biblical” proportions.  At a gut level we know we have to respond, but our public discourse is having trouble addressing the root cause directly.  Instead we’re dancing around the issue, and failing to either adapt adequately to our new reality or to mitigate further climate change.

Adaptation?

Bills related to both the wildfires and last fall’s floods have been wending their way through our state legislature, and last week legislators and the governor held a press conference to highlight some of them, and a lot of the resulting commentary seemed to focus on the safety and well being of the firefighters and other emergency services workers that risk their lives on our behalf.  Largely absent from the discussion were the strong measures that the Governor’s wildfire task force put forward in the fall. They included:

  • Creating a wildfire risk map, and rating all properties on a scale of 1 to 10,  requiring that risk designation to be disclosed before any property sale, and making it available to insurance companies for use in setting their rates.
  • Charging those living in the “wildland urban interface” a fee based on their risk exposure, that would be used to defer some of the additional public costs incurred in protecting their private property.
  • Creating fire-resistant building codes for high risk areas, affecting both the materials used in construction, and requirements for defensible space around buildings.

Make no mistake: these are climate change adaptation measures, and Colorado has rejected them.

Colorado Waldo Canyon Fire [Image 19 of 24]

As the Denver Post reported in September: developers didn’t like the idea of increased construction costs; the real-estate industry didn’t like the idea of making a lucrative market much less attractive; homeowners in high risk areas certainly didn’t like the idea of paying for the risks they’ve taken on, or making those risks transparent to potential buyers of their property.

Would the discussion be any different if people understood that the wildfire frequency and intensity is likely to just keep increasing as climate change marches on?  This is about as close as the article from September gets to mentioning climate change:

Colorado terrain ravaged by wildfire has quadrupled from 200,000 acres in the 1990s to nearly 900,000 acres in the 2000s.  “Scientists tell us this pattern isn’t going to change,” Hickenlooper said.

Why is the “pattern” there in the first place?  What kind of scientists was the Governor was talking to?  None of the press articles linked to from this post mention climate change even once, despite universally pointing out the trend.  For example: As Colorado wildfires continue to worsen, only moderate laws proposed.  And why are they worsening?  No comment.  Even the wildfire task force’s report mentions climate change only once in 80 pages.

https://www.flickr.com/photos/usdagov/8637927246/

The only big risk factor we’ve talked about directly is where we choose to build our homes.  This is an important discussion too.  The overall wildfire risk — at least to human lives and property — is something like:

(human risk) = (area burned) x (pop. density in high risk areas)

Climate change will in large part determine how much of our state burns each year, but we have a choice about how many people and how much property to put in areas subject to burning.  Reducing our exposure to the increasing wildfire risk is an adaptation to climate change — an alteration of our behavior, in light of the expected risks going forward.  For the moment at least, we seem unwilling to listen to the warnings.

But hey, at least the state had a conversation, and decided not to do anything.

Cause and Effect

So what are the causes?  According to the US Forest Service, the enormous bark beetle kill is due in part to warmer winters, resulting from climate change.  These forests filled with dead trees are warm and dry for longer each year, lengthening the western US fire season by about 2 months.  So it’s perhaps unsurprising that the number of large wild fires per year has already increased from 140 in the 1980s, to 250 in the first decade of the 2000s.  This infographic from the Union of Concerned Scientists is a good cartoon summary:

(see this paper for the references behind the infographic)

The third panel is probably the scariest for Colorado.  The dark red swath covering most of the western half of the state means that we expect more than six times as much land to burn each year in the near future, with just 1°C (1.8°F) of additional warming — and as Kevin Anderson and many others have pointed out, it is virtually certain that we will see another 1°C of warming… if not 3°C, or even more.

So our elected representatives are right to be concerned about increased risk from wildfires, and about the safety of the firefighters who try to protect us from those fires.  But we’re still missing the point:  We control our exposure to risk locally, and we control the magnitude of that risk globally.

Mitigation?

Policies aimed at avoiding or reducing climate change (like putting a price on carbon) are mitigation efforts.   We’re not talking about them much, even in the context of an obviously climate mediated risk like wildfires.  This is bad.  If we can’t have a conversation about what’s increasing the wildfire risks, how can we hope to respond appropriately?  Is our refusal to respond to change related to our refusal to accept the cause of the change?  Or is it more a kind of landscape amnesia — an inability to even see the change?  Are we going to forget what normal fire seasons looked like, in the same way that we’ve started to forget what a normal winter feels like:

Cold

Double Climate #Fail

Right now we’re managing to fail doubly with respect to climate change.  We are both unwilling to adapt to the foreseeable risks, and unwilling to even mention that these risks are linked to our greenhouse gas emissions, let alone talk about what we might do to mitigate those emissions and the risks that they create.

If we really care about our firefighters, if we really are intent on avoiding ever more costly and tragic conflagrations in our state, we need to both adapt and mitigate.  We need to start building for a warmer world now, and we need to stop warming the world as quickly as possible.

If you agree, look up the contact information for your Colorado state legislators and let them know.

Now We’re Hedging With Wind

Price is not the only economic variable to consider in deciding what kind of generation a utility should build.  Different kinds of power have different risks associated with them.  This is important even if we set aside for the moment the climate risk associated with fossil fuels (e.g. the risk that Miami is going to sink beneath the waves forever within the lifetime of some people now reading this).  It’s true even if we ignore the public health consequences of extracting and burning coal and natural gas.  As former Colorado PUC chair Ron Binz has pointed out, risk should be an important variable in our planning decisions even within a purely financial, capitalistic framing of the utility resource planning process.

Utility financial risk comes largely from future fuel price uncertainty.  Most utility resource planning decisions are made on the basis of expected future prices, without too much thought given to how well constrained those prices are.  This is problematic, because building a new power plant is a long-term commitment to buying fuel, and while the guaranteed profits from building the plant go to the utility, the fuel bill goes to the customers.  There’s a split incentive between a utility making a long-term commitment to buying fuel, and the customers that end up actually paying for it.  Most PUCs also seem to assume that utility customers are pretty risk-tolerant — that we don’t have much desire to insulate ourselves from future fuel price fluctuations.  It’s not clear to me how they justify this assumption.

What would happen if we forced the utilities to internalize fuel price risks?  The textbook approach to managing financial risk from variable commodity prices is hedging, often with futures contracts (for an intro to futures check out this series on Khan Academy), but they only work as long as there are parties willing to take both sides of the bet.  In theory producers want to protect themselves from falling prices, and consumers want to protect themselves from rising prices.  Mark Bolinger at Lawrence Berkeley National Labs took a look at all this in a paper I just came across, entitled Wind Power as a Cost-effective Long-term Hedge Against Natural Gas Prices.  He found that more than a couple of years into the future and the liquidity of the natural gas futures market dries up.  In theory you could hedge 10 years out on the NYMEX exchange, but basically nobody does.  Even at 2 years it’s slim!

Average Volume and Open Interest in NYMEX Gas Futures Contracts

Continue reading Now We’re Hedging With Wind

Kevin Anderson and Getting to 2°C

Reading the the Copenhagen accords of 2009, it would seem that virtually the entire world has signed up to stabilize greenhouse gas concentrations in the atmosphere at levels that will keep warming below 2°C, consistent with the scientific understanding of the climate system, and on an equitable basis globally.  Unfortunately, virtually nobody is considering policies that actually lead to that outcome.  Among others, the International Energy Agency (IEA) notes that our current emissions trajectory is consistent with 6°C of warming by the end of the century, which is considered by many to be inconsistent with an organized global civilization.  In fact, even if we implemented all the “reasonable” policies we’ve talked about so far (which we’re not doing) the outcome looks a lot more like 4°C than 2°C.

Yet almost nobody is willing to either give up on 2°C publicly, or — maybe more constructively — start a serious discussion about what scientifically grounded, equitable policies that are actually likely to result in less than 2°C of warming look like.  Almost nobody, but not quite.

For the last several years Kevin Anderson and Alice Bows of the Tyndall Center for Climate Research in the UK have been trying to publicize this massive disconnect, and get policymakers and the public to acknowledge that in reality there are only radical futures to choose from — either a radical alteration of the climate, or the radical emissions reductions required to avoid it.  There is no status quo option.  Anderson and Bows are critical of both the scientific establishment for playing down this disconnect, and leaders for refusing to acknowledge in public what some of them understand very well in private.

This conversation isn’t going to go away any time soon.  Some selections:

Here’s an hour-long invited talk by Anderson at the Cabot Institute from 2012:

Continue reading Kevin Anderson and Getting to 2°C

Exploring a Carbon Price for Colorado

In May of 2013 I gave a talk at Clean Energy Action’s Global Warming Solutions Speaker Series in Boulder, on how we might structure a carbon pricing scheme in Colorado. You can also download a PDF of the slides and watch an edited version of that presentation via YouTube:

The short policy overview:

  • We should begin levying a modest carbon tax, in the range of $5 to $25/ton of CO2e.
  • The tax must be applied to the fossil fuels used in electricity generation (coal and natural gas). Ideally it should also be applied to gasoline, diesel, natural gas used outside the power sector, and fugitive methane emissions from the oil and gas industry, but those are less important for the moment.
  • New electricity generation resources must be allowed to compete economically with the operation of existing carbon-intensive facilities, and fuel costs must not be blindly passed through to consumers without either rigorous regulatory oversight, or utilities sharing fuel price risk.
  • Carbon tax revenues should be spent on emissions mitigation, providing reliable, low-cost financing for energy efficiency measures and a standard-offer contract with modest performance-based returns for new renewable generation.
  • Over time the carbon price should be increased and applied uniformly across all segments of the economy, with the eventual integration of  consumption based emissions footprinting for imported goods.

But wait… I can hear you saying, I thought James Hansen and others  were rallying support for a revenue neutral carbon tax proposal?  Even the arch-conservative American Enterprise Institute was looking into it, weren’t they?

A carbon price alone is not enough to get the job done — there are other pieces of our energy markets that also have to be fixed to get us to carbon zero.

Continue reading Exploring a Carbon Price for Colorado

A Carbon Price for Colorado

In May of 2013 I gave a talk at Clean Energy Action’s Global Warming Solutions Speaker Series in Boulder, on how we might structure a carbon pricing scheme in Colorado.  You can also download a PDF of the slides and watch an edited version of that presentation via YouTube:

What follows is a more structured written exploration of the same ideas.

Continue reading A Carbon Price for Colorado

Warning: Faulty Reporting on US Coal Supplies

PEAK COAL REPORT: U.S. COAL “RESERVES” ARE INCORRECTLY CALCULATED, SUPPOSED 200-YEAR SUPPLY COULD RUN OUT IN 20 YEARS OR LESS

Federal Estimates Overstate Reserves by Including Coal That Cannot Be Mined Profitably; Production Already Down in All Major Coal Mining States… And Utility Consumers Are Facing  Rising Energy Bill Prices.

Listen to Streaming Audio of the October 30 Hastings Group Media Teleconference

Download our newest reports in PDF form:

WASHINGTON, D.C. – October 30, 2013 – America does not have 200 years in coal “reserves” since  much of the coal that is now left in the ground cannot be mined profitably, according to a major new report  from the Boulder, CO-based nonprofit Clean Energy Action (CEA). The CEA analysis shows that the U.S. appears to have reached its “peak coal” point in 2008 and now faces a rocky future over the next 10-20 years of rising coal production costs, potentially more bankruptcies among coal mining companies, and higher fuel bills for utility consumers.

Continue reading Warning: Faulty Reporting on US Coal Supplies