Tuesday, October 23, 2012

Spatial and Temporal Heterogeneity of Marginal Emissions: Implications for Electric Cars and Other Electricity-Shifting Policies

In this paper, we develop a methodology for estimating marginal emissions of electricity demand that vary by location and time of day across the United States. The approach takes account of the generation mix within interconnected electricity markets and shifting load profiles throughout the day. Using data available for 2007 through 2009, with a focus on carbon dioxide (CO2), we find substantial variation among locations and times of day. Marginal emission rates are more than three times as large in the upper Midwest compared to the western United States, and within regions, rates for some hours of the day are more than twice those for others. We apply our results to an evaluation of plug-in electric vehicles (PEVs). The CO2 emissions per mile from driving PEVs are less than those from driving a hybrid car in the western United States and Texas. In the upper Midwest, however, charging during the recommended hours at night implies that PEVs generate more emissions per mile than the average car currently on the road. Underlying many of our results is a fundamental tension between electricity load management and environmental goals: the hours when electricity is the least expensive to produce tend to be the hours with the greatest emissions. In addition to PEVs, we show how our estimates are useful for evaluating the heterogeneous effects of other policies and initiatives, such as distributed solar, energy efficiency, and real-time pricing.
The environmental and economic implications of reducing electricity demand—from PEVs as well as solar installations—depends on where and when the shifts occur. In the case of photovoltaics, the timing of these reductions will follow the trajectory of the sun, ramping up in the morning, peaking by mid-afternoon, and tapering off in the evening. Thus, the benefits of distributed solar deployment will depend importantly on the marginal emissions and costs of electricity generation in the relevant electricity market during daylight hours, and our methodological approach is well suited for quantifying these effects.

Consider a simple, illustrative example of a residential solar system that homogeneously produces 1 kWh of electricity for consumption from 7 AM to 7 PM. Using the hourly coefficients from Table 2, we can readily estimate the reduction in CO2 emissions that would occur because of displaced electricity demand in various parts of the country. By simply summing coefficients over the relevant hours, we find, for example, that the solar installation would avert 9.8 lbs of CO2/day for a household in the WECC, while the comparable number is 14.7 lbs of CO2/day for the Eastern interconnection. Scaling emissions to the annual level, this yields 3,359 and 5,347 lbs for the two regions, respectively.25 While in both regions the solar generated electricity occurs during hours when marginal emissions are relatively low, the differences indicate that the environmental benefits of distributed solar (assuming comparable generation) are significantly higher in the East, where the marginal emissions are greater from electricity on the grid. Monetizing these benefits, using the social cost of carbon estimate of $21 per metric ton (discussed previously), we value the emission reductions at $34 and $51 per year in the WECC and Eastern interconnections, respectively. These benefits are, however, lower than the additional benefits of avoided generation costs, which can be derived in similar fashion using the hourly marginal generation costs in Appendix Table 3. Interestingly, the cost savings in the Eastern interconnection are also larger than those in the WECC, with magnitudes of $251 versus $227 per household per year.
Policies that seek to promote energy efficiency in residential and commercial buildings are playing an increasingly important role in the portfolio of initiatives designed to address energy and climate challenges. The methodology and estimates in this paper can further the understanding of the heterogeneous benefits that arise from such policies. Unlike the charging of PEVs and solar power, investments in energy-efficiency affect energy consumption patterns over the course of an entire day. Let us assume for simplicity that investments in efficiency reduce household electricity consumption by a homogenous 10 percent throughout all hours of the day and night.28 It follows that for the average residential home in the United States, which consumes approximately 30 kWh/day, the savings would be a 0.125 kW reduction in electricity consumption each hour. Using our estimates of the hourly marginal benefits in terms of reduced CO2 emissions and avoided generation costs, we can see how the benefits differ by region. Under the admittedly strong assumption about homogeneity of energy savings across varied climates, we see that efficiency investments again have greater benefits in the East. In the WECC the stylized investment in energy efficiency reduces CO2 emissions by 2.4 lbs per household per day (880 lbs per year, valued at $8.38), while the same investment for a residence in the Eastern interconnection reduces emissions 3.9 lbs per household per day (1,408 lbs per year, valued at $13.42). Note that the environmental return is more than 50 percent greater in the East. The two regions are, however, more similar with respect to the avoided generation costs, with an annual estimated savings of $52.10 for the WECC and $55.28 for the East.

While a complete analysis of real-time pricing is beyond the scope of our paper, we illustrate the core tradeoffs with another simple comparison between the WECC and Eastern interconnections. Consider a simple scenario in which real-time pricing moves 1 kWh of a household’s electricity demand from 6 PM to 4 AM. That is, the pricing is such that demand moves from one of the peak hours with the highest generation costs to one of the off-peak hours with the lowest generation costs. Using our estimates in Appendix Table 3, we find that the cost savings per household on an annual basis would be $5.68 for the WECC and $9.97 in the East. But along with these changes in generation costs are changes in CO2 emissions. For the WECC, emissions remain virtually unchanged, increasing 3.65 lbs/year, valued at 3.5 cents; whereas, for the East, emissions increase more substantially by 105.85 lbs/year, valued at approximately 1 dollar.
by Joshua S. Graff Zivin, Matthew Kotchen and Erin T. Mansur
National Bureau of Economic Research (NBER) www.NBER,org
NBER Working Paper No. 18462; Issued in October 2012

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