WRI Stories Feed: Fact sheet

Fact Sheet: The Power of Innovation: Meeting our Energy Challenges through Accelerated Innovation

Micah Ziegler — Mon, 14 Nov 2011 12:44:38 -0500

Innovation can close the gap between the low-carbon technologies of today and the low-cost, high performance technologies the world needs.

Download PDF (PDF, 920 Kb) (includes additional references)
More WRI Climate Fact Sheets
Read more on WRI Insights: Want Low-Cost Clean Energy? Bank on Innovation

This fact sheet is based on the WRI working paper Two Degrees of Innovation — How to Seize the Opportunities in Low-Carbon Power.

Download Fact Sheet (PDF, 920 Kb)

We are facing two urgent energy challenges. We need to maintain modern energy services and expand energy access to another 1.4 billion people.¹ We also need to mitigate further climate change by reducing greenhouse gas emissions, including carbon dioxide from fossil fuel burning.² Low-carbon technologies such as wind and solar power exist and have the technical capacity to meet global energy needs,³ but they are expensive compared to high-carbon alternatives and face performance challenges like requiring large quantities of water or land. They are new to the energy system and can create integration headaches. Innovation—improvements in cost and performance—will close the gap between the low-carbon technologies of today and the low-cost, high performance technologies the world needs.

These infographics demonstrate how innovations in solar photovoltaic (PV) and wind power over the past thirty years have dramatically improved performance and reduced cost, creating the technologies we recognize today. They also project the target costs that experts estimate are necessary to reach our energy goals, highlighting how much more we need to innovate.

For example, if we built the solar PV installations necessary by 2050 using technology from 1982, we would spend US$53.5 trillion (2010$). Building the same solar capacity with 2008 technology would only cost US$8.46 trillion. If we meet the cost goal set by the United States Department of Energy (DOE) Advanced Research Projects Agency-Energy (ARPA-E) we would spend just US$1.58 trillion. Similarly, between 1982 technology and ARPA-E’s goal technology, the total land area required for solar panels would drop by 64 percent.

Innovation is a powerful, cumulative process but it does not happen automatically in a highly regulated sector like electricity. It is critical that policymakers support innovators by building a robust, dynamic innovation ecosystem. This goes beyond investing in public research and development and creating markets through subsidies. It also includes building collaborative networks, creating stable regulatory environments, providing infrastructure, supporting innovators’ needs for finance, and building capacity in the workforce.

To achieve a 50 percent reduction in greenhouse gas emissions by 2050 (compared to 2005 levels) the International Energy Agency estimates that 3,155 GW of photovoltaic capacity will be required by 2050, enough to provide 11 percent of global electricity production. Over time, innovations have made reaching this target easier.⁴ Innovations like new materials and improved methods of production, including improvements through learning-by-doing and finding economies of scale, made solar photovoltaic cells significantly cheaper and more efficient between 1982 and 2008. While many factors—such as commodity prices—also impact costs, future innovations can continue to improve solar cells and push toward a competitive cost of equipment, estimated in U.S. electricity markets to be US$0.50/Wp by the U.S. Department of Energy.

To achieve a 50 percent reduction in greenhouse gas emissions by 2050 (compared to 2005 levels) the International Energy Agency estimates that 2,000 GW of installed wind capacity will be required by 2050, enough to provide 12 percent of global electricity production. Over time, innovations have made reaching this target easier.⁵ Between 1985 and 2010, innovations like new materials and improved methods of production, including improvements through learning-by-doing and finding economies of scale, made wind turbines more capable and their electricity cheaper. While many factors—such as commodity prices—also impact costs, future innovations can continue to improve wind turbines and farms and push toward a competitive position in electricity markets, estimated in U.S. electricity markets to be a levelized cost of electricity of US$.069/kWh by the American Wind Energy Association.

International Energy Agency, “Access to Electricity,” World Energy Outlook, 2010, http://www.worldenergyoutlook.org/electricity.asp. ↩
Intergovernmental Panel on Climate Change, Working Groups I, II and III, Climate Change 2007: Synthesis Report, IPCC Assessment Report (Valencia, Spain, 2007), http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr.pdf. ↩
Ottmar Edenhofer et al., IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation - Summary for Policymakers (Cambridge, United Kingdom and New York: Intergovernmental Panel on Climate Change, 2011), 7, http://srren.ipcc-wg3.de/report/IPCC_SRREN_SPM. ↩
These calculations focus on crystalline silicon photovoltaic technology only, assume photovoltaic cells operate at peak capacity, and only consider module cost. For simplicity, this excludes many other factors that can make solar photovoltaic installations more efficient and cheaper, such as careful siting, improved operations, and reduced maintenance costs. This analysis includes only the solar module cost and omits installation and maintenance costs. ↩
The graphic slightly understates the story; the difference in number of turbines needed is so large that it was necessary to round up to make the comparison visible at all. Each turbine in the graphic represents approximately 1 million turbines. The 50% reduction goal could be met by 1.25 million 1.6 MW turbines and 200,000 10 MW turbines. In addition, these calculations focus on horizontal-rotor, onshore wind turbines and treat the 2,000 GW target as “nameplate” capacity. The cost calculations use estimates of the levelized (or lifecycle) cost of energy (or electricity) and compute the cost of producing 5,200 TWh of wind energy, which is stipulated in the IEA Blue Scenario Wind Goal. ↩

For EPA Regulations, Cost Predictions Are Overstated

Ruth Greenspan Bell — Wed, 17 Nov 2010 15:25:44 -0500

Research shows that environmental regulations end up costing far less than both industry and the EPA predict.

Download as a Fact Sheet (PDF, 265 Kb)
More WRI Climate Fact Sheets

When EPA promulgates regulations, industry often expresses concern that the regulations will cause extreme economic hardship. Now this argument is being made regarding EPA regulation of carbon pollution using existing legal authorities like the Clean Air Act.

In fact, there is extensive literature showing that the costs of environmental regulations are more than offset by a broad range of economic, public health and jobs-related benefits. Additionally, initial cost estimates are consistently found to be exaggerated. Economists and researchers who have compared actual costs with initial projections report that regulations generally end up costing far less than the dire predictions from industry and even~~, as an RFF study shows~~ below cost projections by the Environmental Protection Agency.

EPA, Greenhouse Gases, and the U.S. Economy

As the U.S. Environmental Protection Agency uses its authority to limit greenhouse gases and other pollutants, members of Congress are wondering what these rules mean for the people and industries in their states. In this series, the non-partisan World Resources Institute examines pending actions and what they mean for the U.S. economy:

The latest effort to challenge EPA regulations is being led by the U.S. Chamber of Commerce who express “strong concerns about [their] significant negative impact…on jobs and local economies.” Industry claims extend well beyond regulation of greenhouse gases: two recent industry-backed studies (here and here) attempt to show that tougher EPA emissions rules for boilers and a more stringent nationwide ozone standard could put millions of U.S. workers out of their jobs and shrink the nation’s economy by upward of $1 trillion.

How do the benefits of environmental regulations stack up to the costs?

Though costs have always been highlighted by industry – and many policymakers – the fact is that public benefits associated with environmental regulations consistently outweigh the costs. For example, the White House Office of Management and Budget (OMB) recently released its thirteenth annual Report to Congress, detailing the estimated benefits and costs of federal regulations, finding that:

“The estimated annual benefits of major Federal regulations reviewed by OMB from October 1, 1999, to September 30, 2009, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $128 billion and $616 billion, while the estimated annual costs are in the aggregate between $43 billion and $55 billion.¹”

For clean air and water regulations promulgated by the U.S. Environmental Protection Agency over the same time period, the estimated aggregate annual costs range from $26 to $29 billion, while benefits range from $82 to $533 billion.

Does environmental regulation force U.S. firms to relocate elsewhere?

Few firms flee the United States to “pollution havens” in poor countries, despite industry’s frequent claims to the contrary. Economics for Equity and the Environment Network points out that:

“Environmental costs are generally below 2 percent of total business costs. Firms that do leave the U.S. generally do so in pursuit of lower labor and health-coverage costs, expenditures that form a much higher percentage of their total costs. Economists searching for evidence supporting widespread flight of polluting industries have not found significant effects.”

Is environmental regulation a job killer?

Independent researchers who have examined this question say no.

First, looking only at job losses inevitably ignores a larger truth: environmental spending creates jobs that offset losses. Compared to overall spending in the economy, on a per dollar basis, spending on environmental protection and clean-up employs more than twice as many workers in construction (11 percent versus 4 percent) and 25 percent more in manufacturing (20 percent versus 16 percent). Plant closings and layoffs in response to environmental regulation are very rare, affecting only 1/10th of 1 percent of all layoffs nationwide. Over that same 1990-1997 period, 10 million U.S. workers were laid off for non-environmental reasons.²

A case in point: opposing the 1990 Clean Air Act amendments, a study sponsored by the U.S. Business Roundtable expressed “little doubt that a minimum of 200,000 (plus) jobs will be quickly lost, with plants closing in dozens of states. This number could easily exceed one million jobs – and even two millions jobs – at the more extreme assumptions about residual risk.” In fact, in the eight year period following the 1990 Clean Air Act amendments, less than 7,000 total jobs were lost across the entire United States as a direct consequence of the Clean Air Act, and, as noted above, many more jobs were created.

Resources for the Future studied four heavily regulated industries (steel, petroleum, plastics, and pulp and paper) to conclude that the data does not support claims that environmental spending significantly reduces employment in heavily polluting industries.

Most studies examine macro level (i.e., economy-wide) impacts. But what about local impacts?

Berman and Bui tested whether regulation of air pollution in manufacturing plants in the South Coast Los Angeles region reduced employment. In this highly polluted manufacturing area of Los Angeles, they concluded that the most stringent episode of increased industrial air quality regulation did not have a large effect on manufacturing employment. And, they found evidence that increased air quality regulation increased oil refinery productivity. Among their conclusions:

The data clearly ruled out conclusions that these regulations caused large job losses. Admittedly, the regulations did impose costs on regulated plants, but they had little effect on employment. Some contemporary critics misleadingly discuss job losses that resulted from declining military spending, but this was unrelated to environmental regulations.
No plants were shut down by environmental regulations, nor were new startups dissuaded by environmental regulations, as measured in the Census of Manufactures.
The oil industry in the South Coast did not shed any more or less jobs relative to similar facilities in Texas and Louisiana that were not subject to the same level of regulation. Regulated plants actually increased their energy productivity through technological changes, including cogeneration of electricity using waste gases.

Berman and Bui concluded: “This study carefully documents an important case in which [industry cost] projections grossly exaggerated the costs of regulation.”

Are the government’s own estimates of job losses reliable?

For decades, OMB has required EPA to estimate the costs and benefits of proposed regulation (Executive Order 12291). Experts compared EPA’s pre-regulatory cost estimates of the economic burden with what actually happened (including reduced productivity and lost jobs) when the regulations went into effect. Their conclusion? Even EPA’s (and other agencies’) own pre-regulatory estimates of economic burden are overly pessimistic of the total costs. Often, this is because they underestimate the potential that technological change, including innovation and commercialization, minimizes pollution abatement costs.

Why do even EPA’s numbers overestimate the costs of regulation?

There are many reasons why EPA overestimates costs. Here are a few:

Economists do not own crystal balls to project technological innovation. In the acid rain (SO2) program (the model for climate change cap-and-trade proposals), scrubbing turned out to be more efficient and more reliable than expected. Pre-regulation, analysts assumed that scrubbers operate at 85 percent reliability and remove 80 to 85 percent of the sulfur. In fact, scrubbers typically run in excess of 95 percent reliability, removing 95 percent. The original estimate of opportunities to blend low and high sulfur coal in older boilers was a 5/95 mixture. In fact, industry was able to achieve a much more efficient 40/60 mixture.
Industry often finds creative ways to meet standards at lower compliance costs, that aren’t anticipated in EPA’s pre-regulation estimates. For example, about two million tons of SO2 reductions came from railroad deregulation that allowed industry access to low-sulfur, western coal. After OSHA set air lead standards, industry complied by putting workers into protective gear to reduce their lead exposure, rather than changing the ambient air conditions; the levels of air lead in plants remained high for years.
Government estimates sometimes calculate the maximum cost to industry rather than the mean – in other words, the worst rather than the average impact. Why? One reason is that the agency’s inventory of installed pollution control equipment may be out-of-date. It may not include the most recent pollution control investments, thereby overestimating the quantity of emissions reductions required to meet a particular goal.
Industry is frequently the source of EPA’s cost estimates because industry has direct access to the most relevant cost information. Though most regulated industries have an interest in over-estimating costs, Agency officials must either refute or accept their estimates at face value; skepticism or mere suspicion of industry numbers is not a legally defensible reason to disregard them during the rulemaking process. Asked “what will it cost?” a firm’s analyst may provide an “off-the shelf” compliance technology, when in fact a more considered approach would reveal that substantial cost savings can be achieved through innovation, for example. Sometimes, EPA has no choice but to ask outside contractors who hire industry experts to develop cost estimates, leaving the agency cost estimates subject to the same biases as those of industry.

The Office of Technology Assessment reached similar conclusions in a 1995 study (one of the last they issued before being eliminated) of occupational health and safety regulation. OTA found that pre-regulatory cost estimates systemically under-predicted innovative responses and over-predicted impacts.

In conclusion, independent experts have demonstrated why initial claims about costs and job losses related to EPA action under the Clean Air Act should not be taken at face value.

The author is a former EPA attorney, with 17 years of experience implementing several environmental laws managed by EPA.

The OMB report goes on to note that “These ranges reflect uncertainty in the benefits and costs of each rule at the time that it was evaluated.” ↩
Eban Goodstein, The Trade-off Myth: Fact and Fiction About Jobs and the Environment (Island Press 1999) ↩

EPA, The Clean Air Act, and U.S. Manufacturing

James Bradbury — Wed, 10 Nov 2010 16:24:16 -0500

The Clean Air Act would spur energy efficiency upgrades, boosting competitiveness for many U.S. manufacturers.

Download as a Fact Sheet (PDF, 386 Kb)
More WRI Climate Fact Sheets

Members of U.S. Congress committed to helping U.S. industry save energy and become more globally competitive should think twice about undercutting existing federal laws that have the potential to spur efficiency upgrades at domestic manufacturing facilities. As we await final details of new regulations designed to reduce greenhouse gas (GHG) emissions from major U.S. sources, despite criticism from industry representatives, it should be recognized that the appropriate and expected implementation of these rules will have the practical, lasting effect of achieving fuel savings and competitive advancements for affected U.S. manufacturers.

EPA, Greenhouse Gases, and the U.S. Economy

Before Congress takes any steps to limit Clean Air Act authorities to reduce U.S. GHG emissions, the following considerations should be kept in mind:

Pending Clean Air Act (CAA) regulations of GHG emissions will take effect gradually, initially affecting only a small number of U.S. manufacturing facilities. Beginning in 2011, this will only require permits from new facilities or those undergoing major modifications, affecting fewer than 15% of all large stationary sources annually. Rules that affect existing facilities would likely not take effect until 2016 or later, giving industry and implementing state agencies ample time to prepare.
New GHG rules would drive investment into more energy efficient technologies – leading to significant energy savings for businesses. Energy efficiency opportunities are available today for achieving up to 40% energy savings across a broad range of manufacturing processes. For refineries, glass and many other manufacturers, investments in efficiency technologies would offset most if not all current environmental costs combined.
For more than 80% of U.S. manufacturers, the annual cost of all current environmental controls is less than 1 percent of their value of product shipments. Provisions of the CAA that EPA will use to regulate GHG emissions from industry requires that they take into account the economic impact of imposing new environmental costs on each sector. Historically, regular shifts in currency exchange rates and natural gas market prices are far greater and more uncertain than environmental compliance costs, having a greater impact in international trade flows and industrial competitiveness.

The context for this debate also matters. The National Academy of Sciences recently concluded that climate change brings with it very real and growing risks to public health and the environment; it is imperative that meaningful actions to reduce GHG emissions not be delayed. CAA authorities currently represent the most important tool at the U.S. government’s disposal to begin taking action to protect the climate.

How Would Clean Air Act Regulations of GHG Emissions Affect U.S. Manufacturers?

Current limits on both the availability of end-of-stack control technologies (e.g., carbon capture and sequestration) and EPA’s Clean Air Act authorities mean that new regulations will most likely have the practical effect of spurring investments into energy efficiency and entail only minor impacts on U.S. manufacturers.

The first set of GHG regulations will only apply to a small set of new and significantly modified manufacturing facilities. The new permitting rules will require Best Available Control Technologies (BACT) only for new facilities and major modifications to existing plants. With the Tailoring Rule, EPA estimates that fewer than 15% of all major U.S. sources of GHG emissions from the manufacturing and electricity sectors will need to address GHG emissions through the Prevention of Significant Deterioration (PSD) permitting process, annually.¹ Unless major modifications are planned, the initial set of rules - scheduled to take effect in 2011 – will not affect existing manufacturing facilities. Since commercial-scale end-of-smokestack retrofit technologies are not yet available for capturing and permanently storing carbon emissions, it is very unlikely that BACT standards will do any more than require new and modified facilities to use off-the-shelf energy efficient equipment, such as boilers, when seeking pre-construction permits.

Currently, the actual costs to most U.S. manufacturers from today’s environmental regulations² are very low (see Figure 1), providing a good indication of the scale of the costs that EPA might impose through future rules. EPA regulation of existing facilities is likely to come through Section 111(d) of the Clean Air Act (New Source Performance Standards, or NSPS), which is not likely to take effect prior to 2016. When setting standards in this way (and also when setting BACT), EPA is required to take into account the cost of complying with such standards, including the effect that such costs would have on the economic viability of impacted sectors.

New Regulations Will Drive Significant, Achievable Energy Efficiency Upgrades

The energy efficiency upgrades that are most likely to be required by BACT are likely to significantly reduce energy costs for affected U.S. manufacturing facilities. Capital investments to increase energy productivity can improve competitiveness and create a range of other positive, cascading economic and employment effects, benefitting suppliers as well as the workers who install, operate and maintain new equipment.

Energy efficiency upgrades are likely to significantly reduce energy costs for affected U.S. manufacturing facilities.

So, how much energy efficiency potential is available to U.S. industries? A host of studies (summarized here),³ have found that the use of best practices (i.e., technologies available today) could achieve up to 40 percent total energy savings across a broad range of manufacturing processes.⁴ Research on this subject has generally been focused on the energy-intensive sectors that are relatively more exposed to risks from international competition⁵ and volatile fossil fuel prices, which means that they also stand to benefit the most from energy efficiency investments.

To illustrate these benefits for two specific sectors:

By upgrading to current best practices the flat glass manufacturing and oil refining sectors could reduce their total energy usage by 28% and 38%, respectively. For the flat glass sector, these investments would translate into a reduction in energy costs equal to 2.7% of the sector’s “value of product shipments” (i.e., the net selling value of manufactured goods).⁶
For petroleum refineries, the result would be an energy cost reduction that is equal to 0.7% of the sector’s value of product shipments.⁷ This finding is consistent with the outcome of stringent local environmental regulations that affected refineries in the Los Angeles Basin during the period between 1987 and 1992, leading to a sharp rise in productivity at the affected facilities at a time when productivity dropped in other U.S. regions.⁸

If energy efficiency investments are so valuable, why aren’t they more broadly adopted? Even for energy intensive manufacturers, a range of market conditions and technical barriers can prevent firms from investing in equipment upgrades that improve efficiency – like combined heat and power technologies. Emissions performance standards, like NSPS, can and should be designed to reward efficiency investments,⁹ as an appropriate complement to other low-cost emissions reduction policies (as discussed above, spurring efficiency investments is expected to be a primary objective for EPA with respect to pending GHG regulations). Ultimately, a range of policy options may be used to increase access to financing, provide technical assistance and establish a regulatory environment that will increase the likelihood that these capital-intensive investments in energy productivity deliver higher returns over shorter time periods.

The Cost of Environmental Compliance and Industrial Competitiveness

For the average U.S. manufacturing facility, total environmental costs amount to less than half of one percent of the total value of product shipments.

Americans have enjoyed improved air and water quality in the decades following 1970, when Congress began enacting the major pollution control laws. During that same time period, the U.S. national GDP first doubled, and then tripled.¹⁰ Furthermore, experience has shown that the benefits associated with clean air and water regulations have exceeded the costs. Nevertheless, there is a perennial (though exaggerated¹¹) concern that domestic environmental regulations could result in the off-shoring of jobs, less competitive manufacturing industries and harm to the U.S. economy.¹²

Figure 1: Relative Annual Costs and Expenditures for U.S. Manufacturing (2005)

What do U.S. environmental costs look like today? According to results from the most recent U.S. Census Bureau’s 2005 Pollution Abatement Costs and Expenditures (PACE) Survey, for the average U.S. manufacturing facility, total environmental costs amount to less than half of one percent of the total value of product shipments (see Figure 1). Compare this with total costs of materials, labor and energy, each of which represent roughly 54%, 16% and 2% of the average manufacturer’s total value of product shipments, respectively.¹³

Even for the 10 industries with the highest total pollution abatement costs, the total cost of all such regulations averages roughly 3% of the sector’s value of product shipments, which is not insignificant but also still well below the average cost of labor (16%), energy (9%), and other major annual costs for these sectors. Figure 1 directly compares the relative significance of primary annual costs and expenditures for all manufacturing (left) versus the 10 manufacturing sectors with the highest pollution abatement costs (right). Not surprisingly, the sectors that are most pollution-intensive are typically also the most energy intensive; which means they have the most to gain by maximizing their energy productivity.

However, the 10 most heavily regulated sectors are very unusual, as illustrated by Figure 2; for more than 82% of surveyed sectors¹⁴ the total cost of environmental laws is less than 1% of their total value of product shipments. With the appropriate policy instruments, it is clear (as illustrated in the previous section) that in most cases those costs could be more than offset by savings achieved through energy efficiency upgrades using technologies available today.

Figure 2: For U.S. Manufacturers, Relative Cost of Environmental Regulations

Some factors with a much greater influence on international trade flows and the relative competitiveness of U.S. manufacturing include currency exchange rates with U.S. trading partners and natural gas prices. Historically, periodic shifts and variations in the relative value of the U.S. dollar and market prices for natural gas impose much higher costs and investment uncertainties for manufacturers than domestic environmental compliance costs, even for the most heavily regulated sectors.¹⁵

Conclusion: Modest Costs, Significant Benefits

As U.S. manufacturers look for ways to cut costs without cutting jobs, protect the climate and improve public health for workers and nearby communities, investments into energy efficiency upgrades remain a promising option. Members of Congress committed to helping industry realize these energy savings as a means to advancing the competitiveness of U.S. manufacturers should not seek to limit CAA authorities that would spur efficiency investments. Instead, their focus should be on advancing legislation that will help remove technical and financial barriers to investments in these much needed facility upgrades.

The decision before Congress is made much easier when the salient facts are considered. In fact, the total cost of current environmental regulations is relatively small, proving that significant environmental and public health gains can be achieved at modest costs to affected industries and with significant net benefits to the country. Also, pending EPA regulations on GHG emissions will initially only require permits from a small minority of U.S. manufacturing facilities and require that the cost of compliance and the economic impacts of those costs be taken into account.

Ultimately, this decision is between preserving the status quo at an uncertain cost to future generations or accepting policies that will spur domestic capital investments in U.S. manufacturing, and in doing so, deliver energy savings to U.S. businesses and begin to protect the environment from dangerous warming pollution.

This includes only 8% of large stationary sources that would not have otherwise been subject to PSD, absent new GHG regulations. These numbers are estimated by comparing the sum total of all large stationary sources covered by the mandatory GHG reporting rule (i.e., 10,857 facilities with GHG emissions greater than 25,000 metric tons CO2e per year) with EPA’s estimate that only 1,600 PSD permitting actions will need to address GHG emissions per year; 900 of those actions will be triggered by GHG emissions alone. ↩
Throughout this piece, “environmental regulations” encompasses all mandatory federal and state rules governing clean air, clean water and waste disposal. ↩
From the U.S. Department of Energy, this includes comprehensive reports as well as a series of energy bandwidth studies for the following sectors: pulp and paper; chemical; glass; mining; refining; and iron and steel. Reports have also been conducted by the National Academy of Sciences and by industry trade associations (e.g., a 2005 American Iron and Steel Institute report that sets an industry-wide goal to achieve a 39% reduction in energy-use per ton of steel production by 2025). ↩
According to the DOE energy bandwidth studies, these savings could double with greater advances in manufacturing process technology research and development. ↩
U.S. Congress, Office of Technology Assessment, Trade and Environment: Conflicts and Opportunities, OTA-BP-ITE-94 (Washington, DC: U.S. Government Printing Office, May 1992). ↩
In total, flat glass manufacturing has energy expenditures roughly equal to 16% of the sector’s value of product shipments and the energy bandwidth study focused on melting process technologies, which account for roughly 60% of the sector’s total energy use. ↩
In total, energy expenditures from petroleum refineries are roughly equal to 2.5% of the sector’s value of product shipments the energy bandwidth study focused on technologies that account for roughly 70% of total energy use. ↩
Berman, E., and L.T. Bui, 2001, Environmental Regulation and productivity: Evidence from Oil Refineries,” The Review of Economics and Statistics, 83(3), pp. 498–510. ↩
For example, output-based emissions performance standards that account for both thermal and electricity production, appropriately reward the use of more efficient combined heat and power technologies. ↩
In terms of “real” GDP, or “chained 2005 dollars.” http://www.bea.gov/national/index.htm#gdp ↩
Goodstein, E., 1999, “The Trade-Off Myth, Fact and Fiction about Jobs and the Environment,” Island Press. ↩
U.S. Senate Committee on Environment and Public Works (2010) “EPA’s Anti-Industrial Policy: Threatening Jobs and America’s Manufacturing Base.” Minority Staff Report. ↩
Sources: U.S. Census Bureau, 2005 PACE; U.S. Census Bureau, 2005 ASM. ↩
Only considered manufacturing sectors for which 2005 data are available from both the ASM and the PACE datasets (n=241). ↩
U.S. Congress, Office of Technology Assessment, Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities, OTAITE- 586 (Washington, DC: U.S. Government Printing Office, January 1994). ↩

What Are Limits on EPA? Clean Air Act Holds Answers

Franz Litz — Mon, 08 Nov 2010 12:42:59 -0500

Given the built-in limitations on EPA authority contained in the Clean Air Act, fears of agency “overreach” are misplaced.

Download as a Fact Sheet (PDF, 64 Kb)
More WRI Climate Fact Sheets

With climate change legislation stalled in the U.S. Congress, all eyes have turned to the U.S. Environmental Protection Agency for emissions reductions. According to our recent report, Reducing Greenhouse Gas Emissions Using Existing Federal Authorities and State Action EPA can make significant progress to reduce emissions through implementation of measures under the existing Clean Air Act. Yet the prospect of EPA action has caused some in Congress and industry to express fears that EPA will go too far by imposing unreasonable regulations to reduce greenhouse gas emissions. Given the built-in limitations on EPA authority contained in the Clean Air Act, these fears are misplaced.

EPA, Greenhouse Gases, and the U.S. Economy

Laws Require EPA To Act Reasonably

EPA has no more regulatory authority than Congress has granted it. Congress created the Environmental Protection Agency and legislated the Clean Air Act. Congress has amended the Act multiple times over its 40-year history. In the Clean Air Act, Congress established limitations on EPA’s regulatory power, requiring it to consider the cost of regulation and its other impacts. Federal courts have, in turn, applied the Constitution to impose a standard of reasonableness on EPA. In other words, EPA is required by law to be reasonable and to act within the bounds Congress established.

Examples of Already Built-in Constraints on EPA: BACT and NSPS

Best Available Control Technology (BACT): The Clean Air Act is replete with restraints on EPA authority. Take, for instance, the permitting requirements that will go into effect on new and modified large power plants and industrial facilities at the start of 2011. The Clean Air Act requires that these new and modified facilities install the Best Available Control Technology (BACT) to control greenhouse gas emissions. In determining what constitutes BACT for a specific facility, the law requires EPA or the delegated state permitting authority to take into account “energy, environmental and economic impacts and other costs.” EPA is expected to release a guidance document detailing how this BACT determination will be made for greenhouse gas emissions. In general, though, BACT determinations could require that a plant maximize its carbon efficiency (e.g., by installing a more efficient turbine) or install a control technology. If the sponsor of a proposed facility believes that the permitting authority has failed to reasonably account for these costs, then the sponsor may appeal the permitting decision and ultimately seek judicial review.

New Source Performance Standards (NSPS): The other provision of the Clean Air Act EPA is expected to rely on to reduce greenhouse gas emissions from large power plants and industrial facilities (section 111 of the Act) likewise constrains EPA’s regulatory power. Under section 111, EPA establishes New Source Performance Standards for new facilities within specified categories of emission sources such as refineries, cement kilns and power plants. The NSPS requirements must be set based on the “best system of emission reduction” that has been adequately demonstrated in practice, and EPA must “take into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements.” Under subsection (d) of section 111, states regulate existing sources of greenhouse gas emissions, and in so doing they must consider cost, non-air-quality health and environmental impact and energy requirements, as well as the remaining useful life of the existing power plant or industrial source. The current regulation of landfills under section 111 provides an example of how section 111 would work: large landfills must ensure that air emissions of a variety of organic compounds are limited in order to protect public health and prevent fire and explosions. This is typically done through capture and destruction of those compounds.

Federal Court Oversight

Aside from the restraints imposed on EPA by the statutory language of the Clean Air Act, federal courts will review EPA regulatory actions to ensure that the Agency has not exceeded its statutory authority and has not acted arbitrarily or capriciously. Federal courts serve as a check to the Administration’s authority by ensuring that the EPA does not act unreasonably. This reflects the legal reality that EPA has no greater authority than the law vests in the Agency. And while the courts will generally defer to the Agency’s reasonable interpretation of the Clean Air Act, they have also set aside Agency rules when they were found to extend beyond the statutory boundaries established by Congress.

Congress has prescribed specific limitations on EPA’s authority, and the courts exist to ensure that EPA acts within the boundaries of the law. These limitations on EPA should give policymakers confidence that EPA will, and must, act within its boundaries to protect human health and the environment.

The Tailoring Rule: The Role of Practical Constraints

In addition to the legal constraints on EPA contained in the Clean Air Act and enforced by the federal courts, significant practical constraints operate to ensure that EPA acts reasonably. The recently issued “Tailoring Rule” illustrates the role of practical constraints. EPA decided that it would be unworkable to apply the Clean Air Act to all facilities that could be covered under the law by pre-construction permitting requirements. Citing “administrative necessity,” EPA issued the tailoring rule to limit what facilities will be covered to only very large greenhouse gas emitters such as new and modified power plants and industrial facilities. Thus, practical constraints led to more reasonable action by EPA, and small businesses, like the proverbial “Mom & Pop grocery”, remain unaffected by the regulations.

Given the constraints on EPA’s authority already built into the Clean Air Act, the role of the courts to ensure that EPA operates within these constraints, based on previous experience of regulations, and the practical realities of regulating greenhouse gases, we can expect EPA to proceed in a reasonable fashion.

Fact Sheet: Policy Design for Maximizing U.S. Wind Energy Jobs

Lutz Weischer — Wed, 15 Sep 2010 15:43:59 -0400

The United States could become a leader in wind energy jobs with the right policies in place.

Download PDF (PDF, 122 Kb)
(includes footnotes & references)
More WRI Climate Fact Sheets

Job creation potential for the wind sector in the United States

Wind power is a nascent industry in the United States, but has the potential to spur job creation. Several studies show that wind power creates more jobs than power generation from fossil fuels. The nature of wind power is more labor-intensive than traditional energy, and it creates jobs in both manufacturing and skilled scientific, engineering, and service roles. However, compared to other large regional markets for wind, the United States has yet to reach its full job creation potential in the wind industry.

Download Fact Sheet (PDF, 122 Kb)

As wind installations are expected to grow in the United States, jobs are likely to follow. Many of those jobs will have to be located close to installation sites, including project development and planning, construction and installation, and operations and maintenance jobs. Additionally, research by the World Resources Institute (WRI) and the Peterson Institute for International Economics (PIIE) has found that most of the manufacturing jobs will be local too.

In a globalized wind industry, local demand still means local jobs

Stable and predictable demand for wind power results in domestic jobs. Wind power companies tend to set up regional production hubs and create jobs in each of the major markets – the United States, Europe, China, and India – in order to supply those markets locally. WRI and PIIE research found that global wind turbine makers prefer to invest locally because it is a smart economic decision. The nature of wind turbines – bulky and hard-to-transport – makes shipping expensive, for one example.

Average Total Employment for Different Energy Technologies

Producing turbines overseas and importing them only makes sense if companies do not want to invest in permanent manufacturing facilities in a given market because the support policies are too unstable. But when countries have stable support policies in place, the bulk of the equipment is produced domestically. Since the United States currently does not have the capacity to produce all parts necessary for wind turbines domestically, companies will also need to source some parts globally. Additionally, global trade provides added fl exibility to overcome supply constraints and to meet deadlines. However, with the right policies in place, more manufacturing capacity would be developed in the United States and the share of domestic components in wind turbines would continue to increase.

Maximizing wind energy job growth in the United States

Job growth in the wind industry is driven by wind power demand. The countries that lead in wind energy jobs are those that offer a stable and predictable framework for investment in wind power generation. The countries leading development of wind energy use a range of support policies to help speed up deployment and drive technological innovation and cost reductions, including feed-in-tariffs and renewable energy standards. Additionally, a price on carbon would send investors a long-term market signal and allow wind power to become competitive with fossil fuels, increasing the overall demand for turbines and equipment and thus the number of jobs. These policy tools create a legal framework that guarantees predictable returns to wind energy investors, but do not provide a direct government subsidy. In contrast, in the United States, federal support for the wind industry has been through the production tax credit (PTC), subject to periodic renewal. In years where the PTC expired, new wind investments collapsed. Large wind markets with stable long-term financial support in the forms of a feed-in tariff, such as Germany and Spain, have seen more constant market expansions and job creation. Net Annual Installed Wind Power Capacity in the United States, 1998–2009

Recent developments in the United States confirm the importance of policy support. The wind industry has experienced a period of rapid growth recently, as state-level support programs have grown and Congress renewed the production tax credit from 2005 on. In 2008 alone, 55 new facilities producing wind turbines and components opened. All of the 11 leading global wind turbine manufacturers that sell a significant number of turbines in the United States now also operate production facilities in the country or plan to begin operating in 2010. The domestic content of turbines installed in the United States has risen from an average of less than 20 percent in the period 2001–2006 to over 50 percent in 2008. A continued policy commitment to wind power is essential to sustain this trend.

To maximize wind energy job growth in the United States, Congress should:

Develop a strong renewable energy standard, creating predictable demand for wind power which will attract manufacturing and jobs.
Pass a comprehensive climate and energy bill that sets a price on carbon, making wind power competitive with fossil fuel energy and providing wind power investors with the clear long-term market signal they need.

For more on the wind industry, please see Kirkegaard, Jacob F., T. Hanemann, and L. Weischer. 2009. It Should Be a Breeze: Harnessing Open Trade and Investment Flows in the Wind Energy Industry. Peterson Institute for International Economics and World Resources Institute Working Paper.

Fact Sheet: Are You Ready for the Lacey Act?

Tue, 22 Dec 2009 11:58:43 -0500

What is the Lacey Act and how can companies comply? This fact sheet provides answers to frequently asked questions.

Download Fact Sheet:
English | Chinese | Español | Português

On November 17, 2009, U.S. federal agents raided Gibson Guitar Corp.’s Nashville, Tennessee manufacturing facility. The raid was part of an investigation into the illegal trade of a rare wood species allegedly used in some of Gibson’s renowned musical instruments. According to press reports, agents seized wood, guitars, and documents in the first known enforcement action under the recently amended Lacey Act. Widely covered in the media, the raid is a wake-up call to all businesses that are part of forest product supply chains that they need to heed the Lacey Act. What is the Lacey Act? What risks do buyers, traders, and sellers of wood, paper, and other forest products face if they violate it? What can companies do to avoid becoming the subject of a Lacey Act investigation? This fact sheet provides some answers to these and related questions.

1. What is the U.S. Lacey Act and why is it important?

On May 22, 2008, the U.S. Congress passed a groundbreaking law banning commerce in illegally sourced plants and their products—including timber, wood, and paper products. The new law is an amendment to the Lacey Act of 1900, named after the congressman who first championed it. While the Lacey Act has long been one of the most powerful tools for U.S. agencies fighting wildlife crime, its potential to combat illegal logging remained untapped. Now the Lacey Act sets a precedent for the global trade in plants and plant products, acknowledging and supporting the efforts of other countries to govern their own natural resources and putting in place powerful incentives for companies trading in these commodities to do the same.

2. What does the law do to address illegal logging?

To address illegal logging and other illegal plant trade, the amended Lacey Act does three main things:

Prohibits all trade in plants and plant products—including furniture, paper, and lumber—that are illegally sourced from any U.S. state or foreign country;
Requires importers to declare the country of origin of harvest and species name of all plants contained in their products (a provision that is currently being phased in); and
Establishes penalties for violations of the law, including forfeiture of goods and vessels, fines, and jail time.

3. When does the amended Lacey Act go into effect?

The amended Lacey Act has been in effect since May 22, 2008. Companies or persons caught with illegally sourced wood or plant products can now be prosecuted and have their goods confiscated. The declaration requirement of the Lacey Act is being phased in by product type. Throughout this phase-in process, enforcement of the act’s prohibition on trade in illegally sourced plant and plant products is already in effect for all types of products, whether or not they are on the phase-in schedule.

4. What is “illegal” under the amended Lacey Act?

There are two components to a violation of the Lacey Act. First, a plant must be taken, harvested, possessed, transported, sold, or exported in violation of a relevant underlying law in any foreign country or the United States. This constitutes an illegally sourced plant. Second, a person or company must trade this illegally sourced plant in U.S. interstate or foreign commerce—in the act’s words, one must “import, export, transport, sell, receive, acquire, or purchase.” It is only this second transaction that triggers a violation of the Lacey Act. The Lacey Act does not impose U.S. law on other countries. “Illegally sourced” is defined by the content of a sovereign nation’s own laws. The law applies equally to plants taken, harvested, transported, or exported in violation of the relevant laws of any U.S. state, territory, or tribal government, as well.

5. What are some examples of an amended Lacey Act violation?

Examples of Lacey Act violations include, but are not limited to:

A company in the United States imports a shipment of wood fl ooring from country X made from timber that had been harvested without valid permits in country Y;
A company in the United States purchases paper made from pulp sourced via illegal logging practices in country Y;
An exporter purposefully mislabels a shipment to the United States as a less valuable species in order to avoid higher tariffs; and
A veneer importer does not identify the correct country (or potential countries) of harvest origin for the species used.

6. How pervasive is illegal logging?

Illegal logging occurs in all regions of the world. Examples include timber theft; logging in a national park or protected area; logging CITES-listed species (Convention on International Trade in Endangered Species) without a permit; failure to pay taxes or tariffs on a shipment of logs; and taking logs without proper authorization. The extent of illegal logging varies dramatically by exporting country and species; in some countries, it is as high as 60–80 percent of harvested wood. An estimated 10 percent of annual wood imports into the United States is of illegal origin.

7. What are the penalties under the amended Lacey Act?

Lacey Act civil and criminal penalties vary according to how much the company or individual knew about the crime, as well as the value of the good or shipment in question. Figure 1 describes the general categories and potential penalties.

8. What can a company do to comply with the amended Lacey Act?

It is each company’s responsibility to exercise “due care” and understand the origin of its forest products, keeping in mind that a Lacey violation can occur at almost any point in a forest product supply chain. To help improve compliance, a company could:

Ask its suppliers questions, such as: What are your supply chains? Can you trace them all the way back to the forest? What is the degree of illegal activity in that forest or region? Do you have proper documentation?
Institute internal policies and procedures to track forest products. Available options may include barcode or other tracing systems, legality verification, third-party certification, stepwise programs offered by various organizations, or other public-private partnership models designed to help companies manage procurement of forest products.
Use a robust risk management system to assess risk of illegality. Exercise extra care when procuring forest products from regions with known or suspected high rates of illegal logging. The Lacey Act is a fact-based rather than a document-based statute. If imported products turn out to be of illegal origin de facto, this fact will override any statement or document to the contrary. Illegal products are often accompanied by forged documents. Therefore, evaluating your suppliers and developing trust in them and the forest products they provide is as important as obtaining physical papers. Means of evaluation can include:
Conducting independent research on suppliers via on-line sources and your business contacts;
Establishing long-term relationships rather than buying on spot markets;
Consistently questioning your suppliers about the origin of their products and documenting their answers; and
Making supplier and forest site visits if possible.

9. Does certification mean that a forest product is exempt or already in compliance with the amended Lacey Act?

Third-party sustainable forestry certification and legality verification systems are very good approaches for demonstrating “due care.” They help demonstrate to both governments and customers that you have taken proactive steps to eliminate illegal wood or plant material from your supply chain. However, certification and verification are not required by the Lacey Act, do not serve as “get-out-of-jail free” cards, and do not relieve importers of the requirement to submit appropriate import declaration information to APHIS (Animal and Plant Health Inspection Service of USDA) or U.S. Customs and Border Patrol.

10. Of what value is the scientific name (genus and species) of plant products in the declaration requirement?

Scientific names of plant species are a means of obtaining precise information about the forest product being purchased. Relying on common species names is imprecise, as a single species may have a wide variety of commercial or country-specific common names. Conversely, many distinct species may share the same common name. Buyers who do not know the scientific name cannot be sure whether or not they are violating CITES or other laws that protect endangered species.

11. Is the best strategy simply to stop sourcing from high risk countries?

Not necessarily. Examples of good and bad logging practices exist in every country. Certain high-value species and countries with long track records of illegal logging clearly warrant particular vigilance, but that means “do your homework,” not necessarily “stay away.” Businesses with good practices in such countries should be rewarded. The U.S. government will not be creating an official list of “high-risk” countries. No matter from which country you source, including the United States or Canada, you should know as much as possible about the wood material’s origin.

12. Where can I learn more?

For more information, visit www.eia-global.org/lacey or www.sustainableforestprods.org. Or contact:

Anne Middleton, Forest Campaign Outreach Coordinator, Environmental Investigation Agency, anne@eia-international.org, +1 202 483 6621
Adam Grant, Senior Associate, World Resources Institute, adam.grant@wri.org, +1 202 729 7623

Download Fact Sheet: English | Chinese | Español | Português

Fact Sheet: How Nutrient Trading Can Help Restore the Chesapeake Bay

Cy Jones — Mon, 14 Dec 2009 10:42:53 -0500

A new Fact Sheet on nutrient trading in the Chesapeake Bay region covers issues such as potential costs and revenues, and how farmers and other stakeholders can benefit.

Note: This fact sheet has been updated as a working paper, available here.

Congress is considering proposals to revise and strengthen the Clean Water Act for the Chesapeake Bay region and improve the health of the region’s streams, rivers, and wetlands. Senator Cardin’s and Representative Cummings’s proposed legislation, The Chesapeake Clean Water and Ecosystem Restoration Act of 2009, provides significant new resources and tools to help restore the Bay. Water quality trading for nutrients, or “nutrient trading”, is one such tool. It could make it possible to achieve Bay restoration goals faster and at lower cost. It also could create an additional source of revenue for farmers.

Download the PDF (PDF, 331 Kb)

Fact Sheet: Stacking Payments for Ecosystem Services

Nicholas Bianco — Thu, 12 Nov 2009 09:29:42 -0500

Payments for ecosystem services are becoming an increasingly important part of the U.S. business and regulatory landscape. As programs that provide payments for ecosystem services grow, policy makers will need to determine how these various payments should interact with each other.

Download PDF (PDF, 160 Kb)
(includes footnotes & references)
More WRI Climate Factsheets
More resources on Ecosystem Services

Introduction

Payments for ecosystem services are becoming an increasingly important part of the U.S. business and regulatory landscape. Used properly, these payments can efficiently mitigate greenhouse gases, filter pollution from runoff, protect wildlife habitat, and prevent soil erosion. Recognizing this, the American Clean Energy Security Act establishes a cap-and-trade program that allows firms to “offset” their greenhouse gas emissions through practices that reduce or sequester greenhouse gas emissions elsewhere. Some state governments are also expanding water quality trading programs that allow facilities that discharge water pollutants to avoid expensive facility upgrades by, for example, paying farmers to improve land management practices. There are also long-standing federal programs that pay farmers and forest landowners for providing a range of ecosystem services, such as protection of wildlife habitat and prevention of erosion.

As programs that provide payments for ecosystem services grow, policy makers will need to determine how these various payments should interact with each other. This interaction presents an opportunity to expand the suite of services for which an ecosystem is managed. However, it also creates the risk that multiple payments will be made for the same ecosystem services, possibly reducing the efficiency of payments or diminishing the environmental benefits they were intended to provide. This factsheet offers an initial review of these risks and opportunities. It is part of a larger effort by WRI to develop a comprehensive framework for stacking payments for ecosystem services.

For complete text, Download the PDF (PDF, 160 Kb)

Fact Sheet: Energy and Climate Policy Action in China (Update)

Deborah Seligsohn — Thu, 05 Nov 2009 00:00:00 -0500

China’s recent statements and policy initiatives demonstrate growing concerns about energy security, pollution and the ability to sustain long-term economic strategies for reducing poverty.

Note:: this fact sheet is an update of previous posts here and here.

Download PDF (PDF, 242 Kb)
(includes footnotes & references)
WRI & climate policy in China
More resources on China

China’s per-capita GDP is less than one-tenth of U.S. levels, and about half of its 1.3 billion people earn less than $2 per day. Indeed, China confronts a challenge no other large, emerging economy has ever faced: fostering rapid economic growth while at the same time limiting harmful emissions.

Recent Actions By Chinese Officials

On August 27th, 2009, China’s top legislative chamber adopted a resolution calling for active engagement in global climate negotiations, and new domestic initiatives to “make carbon reduction a new source of economic growth.” The Standing Committee of the 11th National People’s Congress also endorsed new policies and rules designed to drive down China’s energy use and emissions. It also called for improving China’s capacity to deal with “climate disasters.”
On June 5th, 2009, China’s highest council announced that the government would step up efforts to shut down old, inefficient power plants and factories, and increase spending on renewables and efficiency. Premier Wen Jiabo presided over the State Council Meeting on Climate Change, Energy Saving and Emissions Reduction, which also backed increased incentives for consumers to buy energy-saving appliances, and new rules that would drive up costs for “energy wasting” companies.

China’s Evolving Targets

To meet these challenges, China has adopted a range of new energy policies, rules and targets. Many of these initiatives are linked to goals outlined in China’s “National Climate Change Programme,” approved by the State Council in June 2007. Indications are that China may meet or exceed many of its goals, and has even raised its original targets in some areas. The government is also currently developing new energy and climate goals for its 12th Five Year Plan. The next five year plan, to begin in 2011, is expected to build on a suite of existing policies, which include:

Reducing overall national energy intensity by 20% by 2010

Implementing a 2005 policy, China reduced its energy used per unit of GDP by 1.8% in 2006, 4% in 2007, and 4.6% in 2008. In the first half of 2009, China reduced energy intensity by 3.35%; at that pace, China would achieve the goal set in 2005. Analysts estimate that reaching the goal will prevent the equivalent of 1.5 billion tons of carbon dioxide (CO2) from reaching the atmosphere, compared to “business as usual.” Initiatives to spur efficiency have included:

Making large enterprises more efficient. The Top 1000 Energy-Consuming Enterprises Program sets energy-saving targets for China’s largest industries. The program was responsible for an impressive two-thirds of China’s energy efficiency gains in 2006 and half of the gains in 2007. The program is on track to reach its goal for 2010.
Building better coal-fired power plants. As of 2008, all coal-fired power plants built in China must use state-of-the-art commercially available technology, or better. As a result, most of the world’s cleanest and most efficient coal-fired power plants are now located in China—and the average efficiency of its entire coal-fired power plant fleet is now better than that of U.S. plants.
Closing wasteful facilities. China is on track to close far more inefficient factories, power plants, and industrial facilities than originally called for by the 11th Five Year Plan, adopted in 2006. To date, it has closed inefficient plants that once produced 60.6 million tons of iron, 43.5 million tons of steel, 140 million tons of cement, and 64.5 million tons of coke. It has also shuttered nearly 7,500 small power plants. The policy of replacing these inefficient power plants alone could prevent 12.4 billion tons of CO2 emissions.
Raising taxes on petroleum. In January 2009, China increased the tax on gasoline from 11 cents per gallon to 55 cents per gallon and the tax on diesel rose from 6 cents per gallon to 44 cents per gallon.
Spurring local government action. Since April 2008, China has required all local governments to increase urban energy efficiency in buildings and public transportation to meet energy intensity goals. The central government now audits local government plans, and the increased local attention has helped accelerate energy efficiency improvements.
Helping consumers buy “green” home appliances. In May 2009, China’s National Development and Reform Commission and the Ministry of Finance started the “Conservation Products Beneficial to Consumers Project.” It provides consumers with subsidies that range from $44 to $125 to buy energy-efficient air-conditioners, refrigerators, television sets, washing machines and motors. The subsidies are expected to generate $60 billion to $75 billion in sales, and save 75 billion kilowatt hours of power.

Expanding the use of renewable energy

By 2020, China has committed to using energy technologies that don’t burn fossil fuels – including hydro, wind, solar and biomass and nuclear – to generate at least 15% of its total energy. In particular, China aims to promote renewable energy by:

Rapidly expanding windpower. China is now the world’s fastest-growing installer of wind turbines, and in 2008 it set a goal of increasing wind power generation capacity to 100 GW by 2020. In 2008, China installed 6.3 GW of new wind power, with total installed capacity reaching 12.2 GW. To provide an incentive for wind power operators, some utilities pay fixed rates for new power—called “feed-in tariffs”—that are higher than those paid for electricity from coal.x
Growing its solar industry. Although most of the photovoltaic (PV) panels produced in China to date have been exported—China is the world’s largest PV producer—the government has announced increased spending on R&D and subsidies for installing PV systems in order to foster a domestic market for making solar electricity.xiv Under the “Golden Sun” program announced in July 2009, for instance, the government will provide up to 70% of the cost of installing PV generation and transmission systems for projects selected by provincial governments. By 2020, some analysts estimate that China’s installed solar capacity could range from 1.8GW to 10GW, depending on policy decisions, although some believe 20GW is feasible.
Diversifying domestic energy sources. The public and private sectors are increasingly using waste gases captured from facilities such as dumps, manure pits and coal mines to make heat and electricity for household use. More than 50 cities, for instance, run waste-to-energy or district heating plants. By 2030, China’s aims to convert 30% of its total municipal waste into energy.
Expanding capacity for biomass. By 2010, China wants biomass – from crop plants to wood chips – to provide about 1% of its total energy. Biomass can be burned directly for heat, converted to a gas (“biogas”), or converted to liquid fuels (such as ethanol). The government is promoting biomass with direct subsidies, and also provides financial incentives for generating electricity from biomass by paying generous fixed fees for biomass power.xviii By 2010, China plans to use biomass to produce 5.5 million kilowatt hours of electricity; 2 million tons of liquid fuels; 19 billion cubic meters of biogas, and 1 million tons of fuel pellets.

Conclusion: China’s Development Challenge

Although China is now the world’s largest annual emitter of greenhouse gases, China’s per capita emissions are just one-fifth of those of the United States (see chart). So, as China pursues economic development levels on par with the United States, it will be critical to de-link its economic growth from greenhouse gas emissions. This “decarbonization” of China’s economy is beginning with the policy steps it is taking today. To stabilize global greenhouse levels, however, the United States and China must together move beyond their reliance on fossil fuels, to cleaner and more secure sources of energy.

Per Capita CO2 Emissions For Select Major Emitters, 2007 and 2030 (Projected)

In a recent series of high-profile statements, China’s leaders have indicated that confronting climate change and improving energy efficiency are becoming central goals of China’s domestic and foreign policies:

After a cabinet meeting on August 12th, 2009, Premier Wen Jiabao warned that global warming threatened China’s environmental and economic health. He said, “Controlling greenhouse gas emissions and adapting to climate change,” would become “an important basis for setting the medium and long-term development strategies and plans of government at every level.”

The stated intention to continue policies that foster the “decarbonization” of China’s economy received a spotlight in the first-ever speech by a Chinese president to the United Nations General Assembly on September 23rd, 2009. President Hu Jintao said China will reduce its carbon intensity by “a notable margin” by 2020 and confirmed that China will ratchet up national targets for producing renewable energy. President Hu’s speech included a commitment to take “determined and practical steps” and “forceful measures” to integrate climate goals into China’s economic development policies, a strong indication that national-level attention and action will be sustained.

WRI & Climate Policy in China

The World Resources Institute (WRI) is drawing upon the Institute’s technical expertise, research and analytical tools, and history of effective private sector collaboration to support Chinese policy-makers, businesses, and researchers in reaching their climate and energy goals.

Relevant WRI programs and projects include:

A joint research program in Beijing with the Tsinghua University Low Carbon Energy Laboratory with major projects focused on carbon capture and storage, and elements of a potential international agreement, including both measuring and reporting issues and technology.
In June 2009, WRI established ChinaFAQs, the Network for Climate and Energy, to develop better information tools for policymakers in the United States to understand China’s climate and energy policies and data.
The GHG Protocol Initiative is a partnership of businesses, NGOs, governments and academics convened by WRI and WBCSD. The GHG Protocol Corporate Accounting and Reporting Standard has emerged as the pre-eminent international standard for preparing a corporate-wide GHG emissions inventory. Last year the protocol team began developing GHG standards and programs in China focused on the country’s most energy intensive sectors–power, cement, steel and petroleum.
The Green Power Market Development Group is working with Jiangsu Province to promote the domestic renewable market and led off with a program on promoting solar power in Nanjing in April 2009.
WRI’s New Ventures China project promotes sustainable growth by accelerating the transfer of capital to small and medium enterprises (SMEs) that deliver social and environmental benefits. Since 2004, NV China has mentored 40 companies that have since received a combined total of $70 million in equity and debt financing.

Fact Sheet: Energy and Climate Policy Action in China (Update)

Deborah Seligsohn — Wed, 10 Jun 2009 00:00:00 -0400

An aggressive energy intensity target and a national renewable energy standard highlight a suite of Chinese policies that will slow greenhouse gas emissions growth.

Note: this fact sheet has been updated. Click here for the latest version.

Download PDF (192 Kb)
(includes footnotes & references)
WRI & climate policy in China
More resources on China

In a development little noticed by many in the international community, China is putting numerous domestic energy policies and programs in place that will result in significant progress toward reducing its greenhouse gas output from a business-as-usual scenario.

China’s Major Energy Policies

Chinese decision-makers have set aggressive domestic energy targets in a suite of domestic policies even as China continues to seek rapid growth to raise the standard of living to escape its relative poverty (China’s GDP per capita is less than one tenth of the U.S. GDP per capita). Unveiled in June 2007, “China’s National Climate Change Programme” linked its energy policies as key elements of China’s climate change mitigation efforts. This policy has been strengthened and complemented with additional initiatives, including a set of industry, transportation and construction energy conservation policies announced by Premier Wen Jiabao in January 2009. Premier Wen has also announced that China will be adding greenhouse gas goals in its 12th Five Year Plan, to begin in 2011, although no details are available yet. To date, China has:

Adopted a 20% Reduction in National Energy Intensity By 2010

China has reduced national energy intensity (energy use per unit GDP) in each of the past three years: by 1.6% in 2006, 3.7% in 2007 and 4.59% in 2008.

Implemented energy efficiency programs. The Top 1000 Energy-Consuming Enterprises Program sets energy-saving targets for China’s 1000 highest energy-consuming enterprises, and was responsible for an impressive two-thirds of China’s energy efficiency gains in 2006 and half of these gains in 2007.5 The program was on target for its first year, and is on track to reach its five-year goal in 2010.
Raised taxes on petroleum. In January 2009, China increased the tax on gasoline from 11 cents per gallon to 55 cents per gallon and the tax on diesel rose from 6 cents per gallon to 44 cents per gallon.
Adopted new rural vehicle fuel economy standards. On-road, off-road, and farm vehicles in rural areas are now covered by Chinese fuel efficiency regulations, which currently cover urban vehicles and average 34 mpg. Including these additional vehicle categories more than doubles the number of vehicles covered by the fuel economy standard.
Put China’s energy conservation law into effect. Implemented on April 1, 2008, all local governments are required to increase urban energy efficiency in buildings and public transportation to meet the 20% energy intensity goal. Local government plans are now audited by the central government. With increased local attention to this goal, energy efficiency improvements have been accelerating since 2006.
Required green government procurement. In April 2009, China’s highest government body, the State Council, mandated that governments at all levels buy more eco-friendly products, evaluated on the basis of energy consumption, noise, pollution emissions, product design, use of recycled materials and minimization of hazardous materials.
Announced a new program in May 2009 to provide subsides to promote green home appliances. China’s National Development and Reform Commission will give subsidies that range from $44 to $125 for energy efficient air-conditioners, refrigerators, television sets, washing machines and motors. Cost reductions are expected to generate $60 billion to $75 billion of consumption demand and save 75 billion kwh of power.

Passed a National Renewable Energy Standard of 15% by 2020

Set two wind power goals in 2005—5 GW by 2010 and 30 GW by 2020. In 2008, China increased the 2020 goal to 100 GW. China has consistently outpaced these goals: in 2008, China installed 7.19 GW of new wind power; with total installed capacity reaching 13.2 GW.
Grew its solar industry. China produced 44% of the global supply of solar photovoltaic (PV) panels in 2008 up from 35% in 2007, and 20% in 2006. Although most of the solar PV produced in China to date has been exported, a newly enacted subsidy of approximately $2.80 per watt of installed power is evidence of the Chinese government’s commitment to developing a domestic solar market. China already accounts for 70% of both global production and use of solar hot water heating systems.15
Diversified domestic energy sources. Sources such as organic and municipal waste and methane gas captured from coal mining are playing increasingly important roles in energy production in both the public and private sectors. In 2007, the national government added a 4 cent feed-in tariff to encourage biomass use in power production with a goal of reaching 30 GW of biomass-to-power by 2030. This is in addition to the use of biomass directly in industrial boilers, which is already in place in 1600 factories. Moreover, over 50 Chinese cities run waste-to-energy power or district heating plants. China’s national goal is to process 30% of total municipal waste into energy by 2030.
Implemented coalbed and coalmine methane extraction projects. China currently has implemented more than 60 coalmine methane extraction projects, including the world’s largest coalbed methane to electricity project in Shanxi province. The Ministry of Environmental Protection recognizes the value of coalmine and coalbed methane to provide energy and to reduce methane emissions. The International Energy Agency projects a 40% growth in coalmine and coalbed methane utilization in China this year; this will result in China achieving an absolute decrease in coal-related methane emissions for the first time. China expects this figure to double again by 2010, resulting in 80% of the resource being captured.

Promoted Infrastructure for Green Development

One-third of China’s stimulus package is focused on infrastructure that will promote energy efficiency.

The major elements of the stimulus package are:

$90 billion in rail construction in 2009. This new investment comes after considerable upgrades over the last ten years, including an upgrade that increased rail shipping capacity by 18% in 2007.19 In addition, public transportation in at least 15 major cities is being significantly improved. For example, Beijing added three new subway lines, a light-rail connecting downtown and the airport, and bus rapid transit.
$160 billion over two years for electric grid construction. This will enable more use of renewable energy and reduce grid transmission losses, increasing efficiency.
Made new buildings more energy efficient through clearer regulations and increasing enforcement. According to recent government statistics, 97% of new buildings in urban areas meet efficiency codes at the design stage and 71% at the construction stage, up respectively from 17% and 1% in 2006.
Established a pilot program in 13 cities to subsidize the purchase of hybrids, all electric and hydrogen vehicles for urban government vehicle fleets. Subsidies for small vehicles range from $570 (for a simple hybrid) to $35,000 (for a full fuel cell vehicle). Subsidies for large vehicles (such as public buses or sanitation trucks) range from $7,000 to $85,000.
Set goals for energy efficient lighting. The National Development and Reform Commission and Ministry of Finance have set a goal for China to use an additional 150 million energy efficient lights (e.g., compact fluorescents) by 2010. The Ministry of Finance provides a subsidy that reduces the wholesale cost of these lights by 33% and the retail cost by 50%. In many areas, citizens pay only 10% of the cost because local governments offer an additional subsidy of 40%.

Conclusion: China’s Development Challenge

While China and the United States today emit approximately the same amount of greenhouse gases, it is worth noting that China’s per capita emissions are only one-fi fth of those of the United States.

As China and the Chinese people aspire to economic development levels on par with the United States, it will be critical to de-link economic growth with greenhouse gas emissions. The decarbonization of China’s economy is beginning with the steps taken in policy today. The United States and China together must move beyond conventional coal to meet economic aspirations and develop global greenhouse gas stabilization goals.

WRI and Climate Policy in China

The World Resources Institute (WRI) is drawing upon the institute’s technical expertise, research, analytical tools and history of effective private sector convening to help the Chinese government succeed in meeting its energy and climate goals.

Relevant WRI programs and projects include:

A joint research program in Beijing with the Tsinghua University Low Carbon Energy Laboratory with major projects focused on carbon capture and storage, and elements of a potential international agreement, including both measuring and reporting issues and technology.
In May 2009, WRI established the China Climate and Energy Information Network with the support of the Energy Foundation, to develop better information tools for policymakers in the United States to understand China’s climate and energy policies and data.
The GHG Protocol Initiative is a partnership of businesses, NGOs, governments and academics convened by WRI and World Business Council on Sustainable Development. The GHG Protocol Corporate Accounting and Reporting Standard has emerged as the pre-eminent international standard for preparing a corporate-wide GHG emissions inventory. Last year the protocol team began developing GHG standards and programs in China focused on the country’s most energy intensive sectors—power, cement, steel and petroleum.
The Green Power Market Development Group is working with Jiangsu Province to promote the domestic renewable market and led off with a program on promoting solar power in Nanjing in April 2009.
WRI’s [New Ventures China](http://www.newventures. org) project promotes sustainable growth by accelerating the transfer of capital to small and medium enterprises that deliver social and environmental benefi ts. Since 2004, NV China has mentored 40 companies that have since received a combined total of $70 million in equity and debt financing.