Showing papers in "Economics of Energy and Environmental Policy in 2022"

Facilitating Transmission Expansion to Support Efficient Decarbonization of the Electricity Sector

Abstract: Many governments, electric utilities, and large electricity consumers have committed to deep decarbonization of the electricity sector by 2050 or earlier. Over at least the next 30 years, achieving decarbonization targets will require replacing most fossil-fueled generators with zero carbon wind and solar generation along with energy storage to manage intermittency and for balancing more broadly. The best wind and solar resources are located in geographic areas that are often far from the locations of the legacy stock of generating plants and their supporting transmission infrastructure. Many studies have found that achieving decarbonization targets in a cost-efficient manner will require significant investments in new intra-regional and inter-regional transmission capacity. However, there are numerous barriers to planning, building, compensating, and financing this transmission capacity. They go beyond “NIMBY” opposition. These barriers are identified and potential reforms to reducing them are discussed here. The focus is on the U.S. and Europe. Comparing and contrasting U.S. and European responses to similar challenges yields suggestions for institutional, regulatory, planning, compensation and cost allocation policies that can reduce the barriers to efficient expansion of transmission capacity.

Global Electrification of Light-duty Vehicles: Impacts of Economics and Climate Policy

Abstract: We explore potential impacts of global decarbonization on trends in light-duty vehicle (LDV) fleets from 2020-2050. Using an economy-wide multi-region multi-sector model, we project that the global EV fleet will grow from 5 million vehicles in 2018 to about 95–105 million EVs by 2030, and 585–823 million EVs by 2050. At this level of market penetration, EVs would constitute one-third to one-half of the overall LDV fleet by 2050 in different scenarios. China, USA, and Europe remain the largest markets in our study timeframe, but EVs are projected to grow in all regions reducing oil use and emissions. EVs play a role in reducing oil use, but a more substantial reduction in oil consumption comes from economy-wide carbon pricing. Absent more aggressive efforts to reduce carbon emissions, global oil consumption is not radically reduced in the next several decades because of increased demand from other sectors, such as for heavy-duty transport and non-fuel uses. Overall, we find that EVs, along with more efficient ICEVs, represent a viable opportunity among a set of options for reducing global carbon emissions at a

Cost Efficiency Evaluation of Thermal Power Plants in Bangladesh Using a Two-Stage DEA Model

Abstract: Electricity production in Bangladesh is based primarily on fossil fuels, which leads to one of the highest levels of subsidies in the world. These subsidies arise from the supply of subsidized fuels to the plants, but also to support plants which operate at a loss from selling electricity at a tariff lower than the cost of production. The cost of production depends on the fuel cost, the fixed costs and the variable O&M costs. The loss occurs more frequently in peaking power plants, which do not operate at high plant factors, but must be given capacity payments in order to compensate the plant owners for their capital investments. This inefficiency became particularly evident during the Covid 19 pandemic, where subsidy payments to the power sector broke all records, while electricity demand plummeted. Capacity payments for idle plants take up a third of the budget allocated to the entire power and energy sector. Bangladesh is planning to implement an energy transition plan, by cutting down inefficiency in the power sector, while increasing the share of renewable energy in electricity production. However, the cost of renewable electricity is not perceived to be competitive with the average cost of fossil fuel electricity, and this point is highlighted by the traditional fossil fuel industry to downplay the potential of renewable electricity solutions. In this research we aim to highlight how the average cost of fossil fuel electricity does not represent the wide variation in the profitability of individual fossil fuel plants, and that many such plants have generation costs that far exceed the current cost of solar PV even combined with storage. We take the annual generation and cost data of the thermal power plant fleet of Bangladesh, including 30 baseload plants and 91 peaking plants, for the financial year 2019-2020. Using a two stage approach of Data Envelopment Analysis and Tobit regression, the study aims to investigate and compare the pattern of cost efficiencies among the thermal power plants of Bangladesh, and identify the main causes of loss, which make subsidization necessary. It takes into account the three main cost components of plants, and analyzes which costs are responsible for the cost inefficincies.

Prosumer Empowerment through Community Power Purchase Agreements: A Market Design for Swarm Grids

Abstract: Between 2010 and 2019, the population without access to electricity decreased from 1.2 billion to 759 million. Electricity access can be provided in two ways: either through top-down, centralized electrification via national grid extension or bottom-up, decentralized through decentralized renewable energy solutions (DREs), that is, standalone solar systems, mini grids, and swarm grids. The IEA estimates that the number of people connected to DREs between 2010 and 2019 more than doubled, reaching 11 million people, while GOGLA et al. calculate that by 2019, 105 million people had access to off-grid solar systems (lanterns and solar home systems). To achieve the United Nation’s Sustainable Development Goal 7 in a bottom-up dominated approach, Tilleard et al. estimate that in Africa alone, by 2030, more than 290 million people could be connected to mini grids (this translates to more than 4,000 mini grids). DREs represent the most economically viable option for servicing the part of the population that is too remote or for which the national grid extension is too expensive. Advancing the top-down electrification process, countries of the Global South, with support of international aid and development funding, are accelerating their national grid expansion. As the national grid reaches their customers, the private sector (DRE companies) is put at danger of having to either relocate their assets or abandon them. At the same time, the DRE end-user, reached by the national grid, faces several challenges due to being exposed to a double infrastructure. The challenges can be of technical and financial nature caused by assets that are becoming abundant or need additional equipment to be suitable for national grid and DREs.

Fossil Natural Gas Exit – A New Narrative for the European Energy Transformation Towards Decarbonization

Abstract: The electricity sector is in an unprecedented time of transition. The industry is in the process of adjusting from traditional fossil-fuel to renewable generation, from large-scale to distributed g ...

Conceptual and Institutional Prerequisites for Guiding Equitable Progress Towards Universal Rural Electrification

Abstract: Rural electrification is a means to improving the socio-economic conditions and living standards of those living in rural areas. Yet, as global rural electrification efforts accelerate under the Sustainable Development Goals 7 (SDG 7), most policies and programs continue to solely target and be evaluated on extending connections, with mixed results. Despite increasing efforts to improve access to modern energy services in rural areas, progress is lagging and, in some cases, falling behind population growth. In fact, recent research suggests that even while new connections maybe provided, household access to essential energy services will still be very unequal even by 2030 without additional efforts. The few studies that have assessed recent cross country and within country variation in rural electrification performance using econometric techniques find this is linked with political systems, indicators such as corruption and government effectiveness and the institutional environment. As we approach the 2030 mark set under the UN SDGs, the IEA continues to project a severe deficit under the current policy scenario. More work must be done to understand drivers of rural electrification successes and transfer these lessons to countries where the deficit prevails despite ongoing efforts. Conceptual developments in energy access and energy poverty measurement encourage us to look beyond connection-based indicators towards improvement across distinct multi-dimensional supply attributes linked with energy services. Indeed, past work has shown that connection-based indicators fail to capture inequities in supply reliability, affordability and use. Moreover, there is very little precedent for linking rural electrification efforts with wider socio-economic and environmental impacts that ultimately justify the implementation of these policies. This is not limited to academic discourse, rather, the SDG 7.1 target itself speaks to the provision of reliable and affordable access to modern energy services for all. Further work is necessary to understand the limitations of connections-focused programs and suggest ways forward.

A Global South Perspective on Stranded Regions: Insights from the Decline of Coal Mining in Cesar, Colombia

Abstract: The sharp decline in fossil fuel demand related to the Covid-19 pandemic put in evidence some of the impacts that can be created by the energy transition. By putting into conversation the literature on economic decline in extractive regions and debates on stranded fossil fuel assets, this paper presents the case of the region of Cesar, Colombia, which in 2020 experienced a 33% decline in coal production and an unexpected idling of some of its largest coal mines. We identify various economic impacts for workers, communities, and local governments caused by the structural crisis faced by this activity. Eight challenges identified can be of relevance to other coal-dependent regions in the Global South. We argue that in such regions, many of the impacts recognized by the literature on the Global North are exacerbated. More importantly, additional challenges of a decline in coal pro-duction, particularly the precariousness of local economies based on high levels of informal and low value-added activities, the role of coal companies in social spending, and limited available data and institutional capacity, increase the risk of coal regions becoming stranded.

Residential Welfare-Loss from Electricity Supply Interruptions in South Africa: Cost-Benefit Analysis of Distributed Energy Resource Subsidy Programs

Abstract: Sub-Saharan Africa has one of the highest population growth projections among major global regions but one of the lowest electrification rates. Only 47% of households access electricity, while the population is expected to double to 2.2 billion within 30 years. Without improvements, this would leave over 1 billion people in the region without electricity. Those countries that do have well-developed electrical grids still often face a second major obstacle: grid reliability. South Africa provides grid electricity to over 90% of residents, but—like many of its regional neighbors—suffers chronic electricity shortages. While households have access, they must live around shortages, which occur regularly and can last for hours. The costs of adjusting can be substantial, especially for low-income households that depend on electricity. Reliable electricity maintains good air quality, helps improve literacy rates, increases free time for household members to devote to leisure and productive activities, and prevents emergency expenditures during a shortage, among many other benefits. With each hour of outage, these benefits slip away. Distributed energy resources, or DERs, (e.g., solar panels and batteries) offer households a solution by providing off-grid electricity resources to temporarily bridge the gap in electricity supply during a grid shortage. Off-grid electricity resources have already grown rapidly as a cost-effective solution to electricity access and reliability in the Sub-Saharan region, and more growth is needed to help keep supply at pace with future population growth. More research is needed to understand the benefits of off-grid technologies and how to deploy them to households in an affordable and scalable way.

From Negative to Positive Carbon Pricing in Mexico

Abstract: Over the course of a decade, Mexico transitioned from a peak of 1.8% of GDP given as fuel subsidies in 2008 to generating positive fuel tax revenues equivalent to 1.6% of its GDP in 2018. In this paper, we analyze Mexico’s carbon pricing experience and its effects on the country’s carbon emissions. The policy changes that were embedded in its mid 2010s energy and fiscal reforms have been described as containing “valuable lessons for other emerging countries wishing to carry out a broad-based reform of the energy sector” (OECD 2017; OECD/IEA 2021). Yet, scholarly work on Mexico’s experience with graduality, fiscal innovation, and market structural changes in the transition from negative to positive carbon pricing, is scarce, especially the one linking it to their effects on reducing greenhouse gas emissions and advancing its Climate Change goals and commitments. This paper seeks to find out what are precisely those lessons that can help other countries overcome their fuel subsidy challenges, using politically feasible and resilient strategies, and then transition to a robust positive carbon pricing policy that supports a decoupling of GHG emissions from economic growth. This paper contributes to the literature in three ways: First, it describes a subsidy reform that was followed by a strong positive carbon pricing in an emerging economy in Latin America. Given that the success of reforms elsewhere has been mixed (Clements, et al. 2019), Mexico stands out as a relevant example of how to circumvent its challenges (OECD 2017; OECD/IEA 2021). Second, uses an institutional economics lens to analyzes the features that are thought to have made the Mexican strategy successful; among them are its graduality, its ability to generate a long-term price signal, and its capacity to weave the momentum of the final stage of its subsidy phase-out into the strategy for structural change that made explicit and implicit carbon taxing a resilient element of Mexico’s fiscal and environmental policy. Finally, this paper searches for the evidence of the outcomes of this transition. The substantial and sustained price increase experienced over the period analyzed was, theoretically, enough to alter significatively the carbon intensity of the Mexican economy through changes in its consumption of gasoline and diesel, and that needed to be documented.

Mexico's Energy Prospects: Gains from Renewable Sources Over A Fossil Fuel-Dominated Environment

Abstract: Following the energy reform in December 2013, Mexico set its priorities by pushing a more competitive electricity market and pursuing specific greenhouse gases emissions and renewable penetration goals. However, with the arrival of the new administration to the federal government on December 1, 2018, the a-priori promising future of a cleaner environment in Mexico has been seriously compromised. Specifically, the current administration aims to increase revenue from the national power company and gain control of the electricity market at the expense of consumer welfare and the environment. In the mediumand long-term (that is, within the next 10 to 30 years), however, renewable energies should become competitive and marketable energy sources due to significant technological advancements, including battery storage infrastructure. Because of this, it is interesting to analyze, and to quantify as much as possible, the potential benefits of an energy system based primarily on renewable energy compared to another scenario dominated by fossil fuels. Therefore, our analysis uses a baseline scenario that follows the energy policy agenda of the current administration which is popularly known as the “Fourth Transformation” or “4T”. Throughout the paper, we contrast the 4T scenario to an alternative “green scenario”. Based on our model, we can deduce the implications of changes in energy supply and demand on the rest of the economy, such as impacts on economic activity, air pollution, and, more generally, economic welfare.