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Thinking About and Measuring Another Greenhouse Gas – Methane

In my podcast series of “conversations on policy and practice,” whenever we have talked about global climate change, the focus has been on one very important greenhouse gas – carbon dioxide (CO₂), linked primarily with the combustion of fossil fuels. And nearly all of my guests have been economists, political scientists, legal scholars, policy makers, or industry leaders. Only one guest has come from the academic world of the natural sciences, and that was early in 2020, when David Keith was with me. In my most recent podcast, I finally break the mold, by hosting Daniel Jacob, the Vasco McCoy Family Professor of Atmospheric Chemistry and Environmental Engineering at Harvard, a world leader in the development of powerful inverse methods to infer from satellite observations of atmospheric concentrations reliable estimates of emissions of another very important greenhouse gas – methane.

My conversation with Professor Jacob is featured in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program. Our complete conversation is here.

In the podcast, Daniel Jacob explains how we should think about the relative importance of methane, compared with carbon dioxide (CO₂), in regard to impacts on climate change. He also provides insight about: why there is great uncertainty regarding methane emissions; how technologies for detecting atmospheric concentrations of methane with satellites have been improving; and – importantly – how he and his research team use such satellite observations to infer spatially and temporally differentiated estimates of ground-based methane emissions.

Daniel explains that methane comes from a variety of sources: “There’s a natural source from wetlands. That’s about one third of the total source of methane right now. Two thirds are sources from human activity, and those sources include livestock, and in particular cattle, landfills, wastewater treatment plants, coal mines, oil and gas operations, and rice paddies.”

He goes on to explain that as a greenhouse gas, methane has impacts on climate similar to CO₂, but there are very significant differences between the two. First, methane is a vastly more potent greenhouse gas. Its global warming potential is about 30 times that of CO₂ over a 100-year period, and measured over a 20-year period that ratio grows to about 80 times the effect of a unit of CO₂. The reason for the difference when measuring impacts over varying time scales is the significant difference in the atmospheric residence times of the two gases.

“Methane has a 10-year lifetime in the atmosphere because it gets oxidized. CO₂ is more complicated, but you can think of it as having about a 200-year lifetime,” Jacob explains. “What that means is that methane is responsible more for near term climate change, but also it means that acting on methane can give us a short-term response to climate. So, if we are trying to address climate change over the next decade or two, methane is a very powerful lever.”

From my perspective, Daniel Jacob’s work with satellite observations of methane is extremely important, because under the terms of the Paris Climate Agreement there is a need to accurately assess the national greenhouse gas (GHG) inventories that are reported by individual countries. Accurate measurements are also necessary under the terms of the new Global Methane Pledge, in which 119 countries have agreed to cut global emissions by 30 percent by 2030. But there has been tremendous uncertainty regarding the quantity and location of emissions.

As I noted above, Professor Jacob and his Harvard team use satellite observations of methane concentrations in specific locations at particular points in time, combined with additional information, to infer statistically, geographically and temporally differentiated emissions patterns.

“One of the things we can do uniquely from satellites is to look at recent changes in emissions, because the emission inventories that are coming out of individual countries are based on statistics that will typically be two or three years old,” Professor Jacob remarks. “But if we’re going to try to change the emissions rapidly, and to verify those changes in emissions, the only way that I can think of is to do it from satellites.”

Jacob recognizes that his satellite observations research could have substantive impacts on climate policy in the years ahead: “What I would like to see is that we can contribute to continuous monitoring of emissions, to be able to detect changes in emissions, particularly if those are correctable, and point to the need for action. Say for example, if you have a flare that goes off, we should be able to see it from space, and then be able to take action on that.”

You can also see a brief video of Daniel Jacob talking about his research.

For all this and much more, I hope you will listen to my compete conversation with Daniel Jacob, which is the 39^th episode in the Environmental Insights series, with future episodes scheduled to drop each month. You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
Spencer Dale, BP Group Chief Economist.
Richard Revesz, professor at the NYU School of Law.
Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
Gernot Wagner, Clinical Associate Professor at New York University.
John Holdren, Research Professor, Harvard Kennedy School.
Larry Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University.
Suzi Kerr, Chief Economist, Environmental Defense Fund.
Sheila Olmstead, Professor of Public Affairs, LBJ School of Public Affairs, University of Texas, Austin.
Robert Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance, MIT Sloan School of Management.
Gilbert Metcalf, Professor of Economics, Tufts University.
Navroz Dubash, Professor, Centre for Policy Research, New Delhi.
Paul Joskow, Elizabeth and James Killian Professor of Economics emeritus, MIT.
Maureen Cropper, Distinguished University Professor, University of Maryland.
Orley Ashenfelter, the Joseph Douglas Green 1895 Professor of Economics, Princeton University.
Jonathan Wiener, the William and Thomas Perkins Professor of Law, Duke Law School.
Lori Bennear, the Juli Plant Grainger Associate Professor of Energy Economics and Policy, Nicholas School of the Environment, Duke University.
Daniel Yergin, founder of Cambridge Energy Research Associates, and now Vice Chair of S&P Global.
Jeffrey Holmstead, who leads the Environmental Strategies Group at Bracewell in Washington, DC.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

A Golden Opportunity to Please Conservatives and Liberals Alike

The U.S. Environmental Protection Agency (EPA) has a golden opportunity to opt for a smart, low-cost approach to fulfilling its mandate under a Supreme Court decision to reduce carbon dioxide (CO₂) and other greenhouse gas (GHG) emissions linked with global climate change.

Such an approach would provide maximum compliance flexibility to private industry while meeting mandated emission reduction targets, would achieve these goals at the lowest possible cost, would work through the market rather than against it, would be consistent with the Obama Administration’s pragmatic approach to environmental regulation, and ought to receive broad political support, including from conservatives, who presumably want to minimize the cost burden of any policy on businesses and consumers.

Background and Context

By now, it is well known that the 2007 U.S. Supreme Court (5-4) decision in Massachusetts v. EPA found that EPA has the authority to regulate GHGs under the existing provisions of the Clean Air Act (CAA). This, combined with EPA’s “endangerment finding” in 2009 that GHGs threaten public health and the environment, led first in January, 2011, to new motor vehicle fuel efficiency standards, and soon will lead to regulations affecting new and modified stationary sources of emissions (under Section 111b of the CAA) via so-called New Source Performance Standards, and regulations for existing stationary sources (under Section 111d).

In quantitative terms, this last set of regulations – for existing stationary sources – will be key, and by far the most important affected sector will be electricity generation, which accounts for fully 40 percent of U.S. CO₂ emissions (and a third of national GHG emissions). Within this sector, coal-fired power plants will be the most drastically affected.

EPA could, in principle, promulgate a regulatory approach that incorporates compliance flexibility, such as through various types of credit, offset, or cap-and-trade mechanisms. It could do this, but may it do so under the legal authority of the Clean Air Act?

Call the Lawyers!

Over the past year, there has been a considerable amount of discussion and no small degree of hand-wringing over whether the relevant parts of the Clean Air Act authorize the use of such flexibility mechanisms. In the midst of this, a new report from Resources for the Future by Gregory Wannier (Columbia Law School) and others makes a compelling, but nuanced case in the affirmative. (See “Prevailing Academic View on Compliance Flexibility under §111 of the Clean Air Act”).

Their conclusion, in a nutshell: “EPA has the tools under §111 of the CAA to implement relatively flexible and efficient GHG regulation. The agency could use a range of compliance flexibility options itself, or facilitate state implementation plans that adopt such measures at the state or regional level.” Included are the market-based, economic-incentive instruments mentioned above.

We should take note, by the way, that Section 111d gives states considerable latitude when choosing their actions to follow EPA guidelines, an approach that is consistent with conservatives’ promotion of the primacy of state authorities in tailoring rules for individual state-by-state circumstances.

Now, for Some Economics

Even if the EPA has the legal authority to adopt a progressive, market-based approach to fulfilling this regulatory mandate, would it really make sense to do this? That is, what would be the consequences of adopting a flexible approach, compared with a conventional, inflexible regulatory scheme? Key issues include the implications for environmental performance, aggregate social cost, and consumer impacts via electricity prices.

Another new study, this one by Dallas Burtraw, Anthony Paul, and Matt Woerman (all at RFF), provides the analysis that is needed, using RFF’s well-regarded Haiku model of the U.S. electricity market, to examine the effect of alternative CAA policies on investment and operation of the nation’s electricity system over a 25-year time horizon in 21 interlinked regions. (See: “Retail Electricity Price Savings from Compliance Flexibility in GHG Standards for Stationary Sources”)

Four scenarios which would achieve the same environmental benefits are examined:

(1) a conventional approach in which the operating efficiency of individual coal-fired power plants would be regulated (labeled an “inflexible performance standard”).

(2) a “flexible performance standard,” under which plants that exceeded the standard could transfer a credit (in exchange for payment) to plants that found it more difficult to achieve the standard. The researchers call these “generation efficiency credit offsets.”

(3) cap-and-trade with auctioned CO₂ emission allowances, where the revenue generated for government simply displaces the need for other revenue sources on a one-for-one basis (that is, there is no assumption of a double-dividend through increased efficiency of the tax code).

(4) cap-and-trade with free allocation of allowances to Local Distribution Companies (LDCs), which are regulated and hence assumed to pass the benefits of the free allocation on to consumers.

The results are striking. In terms of aggregate social costs, the inflexible standard would bring with it total costs of about $5 billion per year, whereas – at the other extreme – cap-and-trade with free allocation would involve total costs of only $500 million annually, a 90 percent cost savings!

If – despite its legal authority – EPA believes it is politically unable to adopt a cap-and-trade approach (because of last year’s successful tarnishing of that phrase by Congressional conservatives), then it could opt for a second-best approach, the “flexible-performance standard,” above, which would involve total annual costs of about $1.4 billion, still a 70 percent cost savings compared with the conventional, inflexible standard.

Of course, political consideration of such policy alternatives is more frequently driven by estimates of consumer impacts than by overall social costs (which include consumer costs, industry costs, and costs to government). Here, the analysis is also striking. Consumer costs – due to higher electricity prices – under the inflexible standard would increase by 7 percent, while consumer costs under the flexible performance standard would increase by less than 2 percent. With the cap-and-trade regime with free allowances, consumer costs would actually fall by nearly 1 percent, due to lower electricity prices. [For complete numerical results with all of the scenarios, see the RFF discussion paper.]

The Bottom Line

Clearly, much is to be gained – and virtually nothing lost – by adopting a more flexible approach to meeting a court-ordered mandate that, one way or another, will have a regulation promulgated and eventually finalized. It would be foolish to turn away from a potential 90 percent cost savings for the country’s economy, particularly when the same approach yields lower electricity prices for consumers. All this, while meeting national obligations to reduce greenhouse gas emissions.

It’s too soon to forget that a year ago the Senate abandoned its attempt to pass climate legislation that would limit CO₂ emissions. In the process, conservative Republicans dubbed cap-and-trade “cap-and-tax.’’ But, as I’ve said before, regardless of what they think about climate change, conservatives should resist demonizing market-based approaches to environmental protection and reverting to pre-1980s thinking that saddled business and consumers with needless costs.

Market-based approaches to environmental protection should be lauded, not condemned, by political leaders, no matter what their party affiliation. Otherwise, there will be severe and perverse long-term consequences for the economy, for business, and for consumers.

Eyes on the Prize: Federal Climate Policy Should Preempt State and Regional Initiatives

In just a few days, Senators John Kerry, Lindsey Graham, and Joe Lieberman will release their much-anticipated proposal for comprehensive climate and energy legislation – the best remaining shot at forging a bipartisan consensus on this issue in 2010. Their proposal has many strengths, but there’s an issue brewing that could undermine its effectiveness and drive up its costs. I wrote about this in a Boston Globe op-ed on Earth Day, April 22^nd (the original version of which can be downloaded here).

Government officials from California, New England, New York, and other northeastern states are vociferously lobbying in Washington to retain their existing state and regional systems for reducing greenhouse gas emissions, even after a new federal system comes into force. That would be a mistake – and a potentially expensive one for residents of those states, who could wind up subsidizing the rest of the country. The Senate should do as the House did in its climate legislation: preempt state and regional climate policies. There’s no risk, because if Federal legislation is not enacted, preemption will not take effect.

The regional systems – including the Regional Greenhouse Gas Initiative (RGGI) in the Northeast and Assembly Bill 32 in California – seek to limit carbon dioxide emissions from power plants and other sources, mainly by making emissions more costly for firms and individuals. These systems were explicitly developed because the federal government was not moving fast enough.

But times have changed. Like the House climate legislation passed last June, the new Senate bill will feature at its heart an economy-wide carbon-pricing scheme to reduce carbon dioxide emissions, including a cap-and-trade system (under a different name) for the electricity and industrial sectors. (In a departure from the House version, it may have a carbon fee for transportation fuels.)

Though the Congress has a history of allowing states to act more aggressively on environmental protection, this tradition makes no sense when it comes to climate change policy. For other, localized environmental problems, California or Massachusetts may wish to incur the costs of achieving cleaner air or water within their borders than required by a national threshold. But with climate change, it is impossible for regions, states, or localities to achieve greater protection for their jurisdictions through more ambitious actions.

This is because of the nature of the climate change problem. Greenhouse gases, including carbon dioxide, uniformly mix in the atmosphere – a unit of carbon dioxide emitted in California contributes just as much to the problem as carbon dioxide emitted in Tennessee. The overall magnitude of damages – and their location – are completely unaffected by the location of emissions. This means that for any individual jurisdiction, the benefits of action will inevitably be less than the costs. (This is the same reason why U.S. federal action on climate change should occur at the same time as other countries take actions to reduce their emissions).

If federal climate policy comes into force, the more stringent California policy will accomplish no additional reductions in greenhouse gases, but simply increase the state’s costs and subsidize other parts of the country. This is because under a nationwide cap-and-trade system, any additional emission reductions achieved in California will be offset by fewer reductions in other states.

A national cap-and-trade system – which is needed to address emissions meaningfully and cost-effectively – will undo the effects of a more stringent cap within any state or group of states. RGGI, which covers only electricity generation and which will be less stringent than the Federal policy, will be irrelevant once the federal system comes into force.

In principle, a new federal policy could allow states to opt out if they implement a program at least as stringent. But why should states want to opt out? High-cost states will be better off joining the national system to lower their costs. And states that can reduce emissions more cheaply will be net sellers of Federal allowances.

Is there any possible role for state and local policies? Yes. Price signals provided by a national cap-and-trade system are necessary to meaningfully address climate change at sensible cost, but such price signals are not sufficient. Other market failures call for supplementary policies. Take, for example, the principal-agent problem through which despite higher energy prices, both landlords and tenants lack incentives to make economically-efficient energy-conservation investments, such as installing thermal insulation. This problem can be handled by state and local authorities through regionally-differentiated building codes and zoning.

But for the core of climate policy – which is carbon pricing – the simplest, cleanest, and best way to avoid unnecessary costs and unnecessary actions is for existing state systems to become part of the federal system. Political leaders from across the country – including the Northeast and California – would do well to follow the progressive lead of Massachusetts Governor Deval Patrick and Secretary of Energy and Environmental Affairs Ian Bowles, who have played key roles in the design and implementation of RGGI, and yet have also publicly supported its preemption by a meaningful national program.

California’s leaders and those in the Northeast may take great pride in their state and regional climate policies, but if they accomplish their frequently-stated goal – helping to bring about the enactment of a meaningful national climate policy – they will better serve their states and the country by declaring victory and getting out of the way.