The McIlvaine Company

Best way to set cap for greenhouse gases in electricity generation


Source: The McIlvaine Company

As the greenhouse gas cap is reduced, the cost per ton removed will rise steeply.  It is, therefore, critical to set the cap precisely.  The variety of benefits from greenhouse gas reduction can all be normalized and quantified.  This will lead to better decision-making relative to the cap level according to a new study by the McIlvaine Company.

It is likely that a cap will be placed on individual power plant CO2 emissions in the U.S. in the next few years.  There will be extensive debate as to where to set the cap initially and how much reduction to require over time.  Greater reductions will have both a greater cost and a greater value to society.  However, the costs will not be linear.  A 20 percent reduction by 2020 can be obtained at a very low cost (less than $0.002/kWh).  The next 20 percent could cost 10 times more per ton than the first 20 percent.  The following 20 percent could cost 50 times as much ($0.1/kWh).  These rapidly escalating costs make it imperative to determine the cost/benefit relationship of each ton removed and then set the cap accordingly.

The costs can be quantified conventionally.  A bigger challenge is to quantify the benefits. McIlvaine Company in its Power Plant Air Quality Decisions provides a holistic approach for normalizing and indexing a wide range of burdens and benefits.

Benefits can range from protecting island nations from inundation to insuring the survival of rare species of animals.  Benefits can be short-term, e.g. reduction in drought or hurricanes, or long-term such as avoidance of some cataclysmic event 50 years from now.

Potential negative impacts are also diverse.  Nuclear power introduces risks from radiation leaks, proliferation and waste disposal.  Biomass combustion requires use of land resources as do wind and solar (transmission lines).

The holistic approach starts with the obvious fact that any decision requires normalizing all the diverse impacts to choose the best alternative.  Unfortunately, the normalizing may be done emotionally and give disportionate weight to certain impacts.   Fortunately, there has been a great deal of effort undertaken to rationally normalize impacts of possible actions to society and ecology and measure the incremental costs.  These efforts have been described under titles such as 'Sustainability, Eco Efficiency, SEEbalance, Environmental Burden, Life Cycle Cost Analysis and Disability Adjusted Life Years (DALY)'.

Any impact can be normalized compared to hours of DALY.  A beach house owner on Cape Cod will suffer some discomfort when his horizon view is made less beautiful by offshore wind turbines.  Does this compare with the equivalent of a fractional percent disability or is it more?  The dislocation of people from a Pacific Island diminishes their quality of life.  If this is a temporary readjustment, then the years of partial disablement can be quantified.

There is more difficulty in quantifying potential cataclysmic events.  There are two new tools needed to achieve this.  One is Important Event Odds.  What are the odds that there would be abrupt climate change and sea level rises measured in meters?  The odds of this occurring have to be calculated and the impacts determined in terms of DALY equivalents.

Nuclear proliferation could also have a cataclysmic result.  So the odds of this potential important event also need to be determined.  Scientists now believe the risk of a large meteor impacting the earth and causing global cooling is much higher than previously thought due to new impact sites discovered in the ocean.  The odds for this potential event must be calculated similarly.

A second tool is the present discounted value.  A life saved 50 years from now from heat stroke does not have the same present value of a life saved from freezing in the winter of 2010.

When all the impacts are normalized and the cost determined, there is a resultant cost per burden unit reduction.  This cost will be very low for the first 20 percent.  As a result, it may very well compare favorably to other uses of funds such as healthcare for the uninsured.  However, as the unit costs start to rise, it will be increasingly difficult to justify the expenditures compared to alternative societal initiatives.

The resolution of an argument starts with identifying the differing assumptions.  Without a holistic approach there will be no clarity as to differences and a lesser chance of making the right selection.  The carbon cap determination will have major impacts on the U.S economy and the decision should be made with the full benefit of the right tools.

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