Sunday, October 30, 2016

The value of wetlands in Quebec: a comparison between contingent valuation and choice experiment

This study aims to evaluate the non-market values of ecosystem services generated by wetlands in southern Quebec. To accomplish this, we evaluated the value of wetland services related to (1) habitat for biodiversity, (2) flood control, (3) water quality and (4) climate regulation. Two non-market valuation methods are proposed, contingent valuation and choice experiment. Our study aims to measure both the population's willingness to pay (WTP) for wetland preservation and restoration and to understand which environmental attributes and socioeconomic characteristics motivate people's responses. We also compared the results of the two methods. Our conclusion suggests that the two methods provide statistically convergent WTP values, both in total value and in relative importance for different attributes involved. Our result also confirms the coefficient equivalence between the estimation models using the data from the two methods.
Wetlands are among the most important and productive natural systems on the planet. Canada hosts 25% of the planet’s wetlands (127 million hectares; Environnement Canada 2004). In urban areas, however, their extent has been reduced by 80% 98% over the last two centuries because of drainage, filling or direct destruction (Environment Canada 1991).....
This study evaluates the value of four services provided by wetlands ... via two non-market valuation methods, CV [Contingent Valuation] and CE [Choice Experiment].
In this study, we used two non-market valuation methods (CV and CE) to estimate the social benefit generated from improving wetlands in Quebec through preservation and restoration. Our results show that the WTP per year per household varies from $447 (CE) to $465 (CV), depending on methods. This mean WTP value can also be affected by respondents’ socioeconomic characteristic such as age (¡), income (C), education (C), gender (male > female), etc. Our conclusion suggests that the two methods provide statistically convergent WTP values, both in total value and in relative importance of different attributes involved. Using the method proposed by Swait and Louviere (1993), our result also confirms the coefficient equivalence between the estimation models using the data from the two methods. These conclusions suggest a fairly robust and consistent equivalence between CV and CE and provide an interesting contrast with the study of Christie and Azevedo (2009), which suggested that the WTP reported by repeated CV data to be lower than that reported by full-set CE data, but at the same time, it provided the evidence of coefficient equivalence between the two methods.
Laguna de Rocha in Buenos Aires.
We can also compare our WTP value to that reported by previous Canadian studies that evaluated the similar wetland-related ecological services. Pattison, Boxall, and Adamowicz (2011) based on a scenario aiming at restoring the wetlands in Manitoba to 100% of 1968 level, reported a range of $319- $375 for annual per household WTP which englobes five attributes: water quality, flood control, soil erosion, wildlife habitat, carbon capture and storage.13 Lantz et al. (2013), based on a scenario of over 40% increase in wetland area in southern Ontario, reported a WTP per year per household varying from $264 to $273 for the improvement of four attributes: water quality, flood control, wildlife habitat and carbon storage.

Finally, Dias (2011) reported a range of WTP varying between $240 and $375 per annual per household, but their study only considered three attributes, including riparian buffer width, wildlife habitat and water quality. Clearly, the composition of ecological service attributes proposed in our paper is very similar to that of Pattison, Boxall, and Adamowicz (2011), it is therefore logic to see our reported WTP per year per household to be closest to this study, with the WTP values reported by Pattison, Boxall, and Adamowicz (2011) falling well into the 95% confidence interval of our WTP estimate.

Multiplying the per household per year payment with the number of the household in Quebec (i.e. 3,325,584), we can obtain the total yearly value of the ES generated by the restored wetlands in Quebec as being equal to 1.49 1.55 billion dollars for 400,000 hectares or approximately $3,725- $3,866 per hectare per year. This result is comparable with values obtained through benefit transfer approaches for the wetlands in Quebec, such as Dupras, Alam, and Rev eret (2015), $5,284 -$5,463/ha/year for five ES,16 and Dupras and Alam (2015), $4593/ha/year for seven ES, both for the region of Montreal, or He et al. (2015), $4702 and $9080/ha/year for the average value of the wetland located in the drainage basins of Yamaska and Becancour rivers based on a metaanalysis and detailed geographical information.

Willingness to pay for ecosystem conservation in Alaska’s Tongass National Forest: a choice modeling study

Forest ecosystems contribute to human welfare in important ways, but because of the nonmarket nature of many of the goods and services produced, both markets and governments fail to optimize their production commensurate with their economic and ecological significance. Despite the recent proliferation of nonmarket environmental valuation in the literature, the incorporation of nonmarket values into public forest decision making has been limited by institutional and methodological barriers. To address this disconnect, we conducted a case study to quantify conservation values for the Tongass National Forest in a manner conducive for public forest planning. A choice experiment featuring proposed forest management alternatives with changes in critical attributes relative to their levels in the status quo was used to generate the requisite data. Econometric analysis suggests that Alaskans have strong preference for conservation management, including both preservation and ecological restoration, over status quo or exploitation management. However, there is significant heterogeneity among Alaskans in terms of bias toward the status quo depending on their socioeconomic characteristics, e.g., gender, age, place of residence, household income, whether or not they have dependent children. The findings of this study can be helpful to forest managers in the preparation of resource management plans consistent with maximization of total economic value of forest ecosystem services.
Discussion and Conclusions
The objective of this study was to use best practices for designing a choice experiment most applicable for forest planning and management to measure WTP for conservation programs on the Tongass. The mean WTP for 50% old-growth preservation (US$147 2012) is consistent with the mean preservation values found in a meta-analysis (Hjerpe et al. 2015) of global ecosystem conservation (US$131 2010). Estimation results based on random parameter logit show that household WTP varies depending on the attribute and specific level. However, there are important differences in how respondents value different levels of each attribute. In particular, the scope effect seems to hold for old-growth preservation and watershed restoration attributes (with the 100% level preferred more than 50% level), but does not for the second-growth forest restoration attribute. For this attribute the coefficient on 100% is much smaller than the corresponding coefficient on 50% level. This valuation pattern suggests that Alaskans hold significant values for nontimber outputs because the background information provided to them on old growth preservation explicitly stated that the benefits would be of nontimber type and would entail the loss of timbering jobs on these acres. Yet, the smaller program WTP for a 100% increase in all noncost attributes compared with a 50% means that Alaskans’ support for conservation has a threshold and is diminished past a certain point....
View overlooking green trees and water
by Evan E. Hjerpe 1 and Anwar Hussain 1 and2
1. Conservation Economics Institute
2. Forest Policy Center, Auburn University
Ecology and Society
Volume 21, Number 2; 2016; Article 8

Renewable energy and negative externalities: The effect of wind turbines on house prices

In many countries, wind turbines are constructed as part of a strategy to reduce dependence on fossil fuels. In this paper, we measure the external effect of wind turbines on the transaction prices of nearby houses. A unique Dutch house price dataset covering the period 1985–2011 is used, as well as the exact location of all wind turbines that were built in the Netherlands. Using a difference-in-differences methodology we find a 1.4% price decrease for houses within 2 km of a turbine. There is also evidence for anticipation effects a few years before placement of a turbine. The effect is larger for taller turbines and in urban areas. Especially the first turbine built close to a house has a negative effect on its price.
by Martijn I. Dröes 1, 2, 3, 4 and Hans R.A. Koster 2 and 4
Journal of Urban Economics via Elsevier Science Direct
Volume 96, November 2016, Pages 121–141
Keywords: Renewable energy; Wind turbines; Externalities; House prices

An externality of groundwater depletion: land subsidence and residential property prices in Phoenix, Arizona

One of the main physical effects of the depletion of aquifers is land subsidence – the lowering of the land-surface elevation as a result of groundwater overdraft. A second effect is the development of earth fissures as a result of the horizontal movement of sediments during subsidence. To determine the value of these effects we investigated the impact of land subsidence and earth fissures on residential property values in Maricopa County, Arizona. Using 82,716 arms-length property sales between 2004 and 2010, we estimated a fixed effects hedonic price model. We found that existing and future land subsidence, and earth fissures had a negative impact on the property values. The mean value of properties located in land subsidence features was lower than those located outside land subsidence features, and the disamenity associated with earth fissures was largest for properties located in land subsidence features.

Table 3 presents estimated percentage home value depreciation associated with (1) existing land subsidence only, (2) earth fissure only, and (3) a combination of earth fissure and existing land subsidence, and (4) future land subsidence only. The results show the value of residential properties in existing subsidence features in Maricopa County to be 9.86% lower than the value of properties outside existing land subsidence zone if no earth fissures are within 500 meters, 11.07% lower than the value of properties outside existing land subsidence features, if there is an earth fissure within 500 meters. Outside existing land subsidence features, the value of properties, is found to be 5.38% lower when there is an earth fissure within 500 meters, and 6.81% lower when properties are in future land subsidence zones. The reduction in the capitalised value of residential properties within existing land subsidence features was $24,570 and $27,646 for, respectively, properties beyond or within 500 meters of an earth fissure. The reduction in the capitalised value of properties outside existing land subsidence features was $18,329 and $19,399 for, respectively, properties within future land subsidence features, or within 500 meters of an earth fissure.
A first approximation of the capitalised value of the subsidence externality of groundwater extraction in the West valley is the mean reduction in house prices in the affected area multiplied by the number of housing units in that area. Using 2010 census data to identify the number of housing units in the West Valley subsidence feature, we estimate the capitalised value of the externality to be $4,327,586,4315 in 2010 dollars. Since the geographical scale of the West Valley subsidence feature is not constant, we can also get a first approximation of the change in the value of the subsidence externality, by investigating the change in the number of residential housing units affected by subsidence. Figure 5 maps the West Valley subsidence feature at intervals in the period 2004–2014. It shows the change in the area affected by subsidence over that period. Using census data to convert this to housing units, and the percentage change in mean property values between 2010 and 2014 to adjust the nominal value of the subsidence externality, a first approximation of the growth in the capitalised value of the externality in the West Valley subsidence features in this period is $875,912,355, the 2014 value of the aggregate externality being $5,203,498,786.

Measuring Welfare Losses from Urban Water Supply Disruptions

The paper evaluates welfare losses from urban water supply disruptions for a sample of 53 urban water utilities in California collectively providing service to over 20 million customers. The analysis accounts for the fact that most water utilities engage in a form of average cost pricing where volumetric rates are used to finance fixed expenses. We estimate utility-specific price elasticities for use in the welfare analysis, which are derived from a demand estimation based on a panel data set of 37 California water utilities. Welfare losses for an annual disruption range from an average of 1,458 per acre−foot of shortage to 3,426 per acre-foot of shortage for a 30% supply disruption. The results indicate a household-level willingness to pay to avoid an annual disruption of approximately 60–60–600 depending on the shortage size and location.
by Steven Buck, Maximilian Auffhammer, Stephen Hamilton, and David Sunding
Journal of the  Association of Environmental and Resource Economists via University of Chicago Press Journals
Volume 3, Number 3; September, 2016; Online: July 27, 2016
Keywords: California, Demand estimation, Residential water, Water shortage.

Saturday, October 29, 2016

The Effect of Natural Space on Nearby Property Prices: Accounting for Perceived Attractiveness

This paper estimates the effect of attractive natural space on Dutch residential property prices. We operationalize attractive natural spaces by combining land use data with unique data on the perceived attractiveness of natural spaces. In our main results, the effect of attractive natural space on property prices falls from 16.0% for properties within 0.5 km, to 1.6% for properties up to 7 km away. Our findings advance existing hedonic studies by verifying that economic benefits of living near natural space extend over a larger distance. This has important implications for public policy regarding investment in natural space near residential areas.
by Michiel N. Daams, Frans J. Sijtsma, and Arno J. van der Vlist
Land Economics via University of Wisconsin Press
Volume 92, Number 3; August 1, 2016; Pages 389-410

Environmental externalities of urban river pollution and restoration: A hedonic analysis in Guangzhou (China)

The degradation of urban river ecosystems presents a serious threat to sustainable urban development. Consequently, extensive efforts have been devoted to the ecological restoration of urban rivers worldwide. This study evaluates the environmental externalities associated with water pollution and river restoration in Guangzhou in southern China. A basic hedonic pricing model is applied to test hypotheses using a sample of 968 apartment transaction records during July-December 2013. Results show that river restoration could reverse negative externalities of polluted watercourses to positive externalities, especially for those apartments located on the 10th floor or lower. Water quality improvement from polluted non-recreational water (Grade V or worse) to non-body contact recreational water (Grade IV) could increase apartment values by 0.9%. River restoration (including river bank greening and water quality improvement) could increase property values by 4.61%, demonstrating a preference of Guangzhou residents for greening riverscapes. This study could hopefully provide a scientific basis for urban river governance for communities and decision-makers, and serve as a reference case to elucidate human preferences about river restoration in rapidly developing countries.
• Environmental externalities of river pollution and restoration were investigated.
• River restoration could reverse negative externalities to positive externalities.
• Environmental externalities were associated with property’s vertical dimension.
• The positive externalities of river restoration is attributed to riverine greening.

by Wendy Y. Chen 
Department of Geography, The University of Hong Kong, Pokfulam Road, Hong Kong
Landscape and Urban Planning
Volume 157; January, 2017, Pages 170–179; Available online 6 July 2016
Keywords: River pollution; Urban river restoration; Environmental externality; Hedonic pricing method; Guangzhou

Unconventional Shale Gas Development, Risk Perceptions, and Averting Behavior: Evidence from Bottled Water Purchases

Technological innovation has made extraction of natural gas from deep shale formations economically viable. While unconventional shale gas development is seen as an economic benefit, concerns have been raised about the environmental and health risks associated with the extraction process. We combine GIS data on unconventional shale gas development in Pennsylvania and Ohio with household data on bottled water purchases to assess the impact that perceived risks to drinking water from unconventional shale development have had on household well-being using a treatment effects design. In our preferred triple difference models with time-varying treatment effects, we find per household averting expenditure in 2010 ranges from $10.74 in our full sampl especification to $15.64 when omitting urban counties more likely to contain public water supplies. Converting the sample-average averting expenditure of $10.74 to an annual expenditure fort the entire affected population implies an averting expenditure in Pennsylvania shale counties exceeding $19 million for the year 2010.
water storage basin for fracking

by Douglas H. Wrenn, H. Allen Klaiber, and Edward C. Jaenicke
Journal of the Association of Environmental and Resource Economists via University of Chicago Press 
Volume 3, Number 4; December, 2016; Online: October 13, 2016
Keywords: Averting behavior, Hydraulic fracturing, Risk, Wate

Military Readiness and Environmental Protection through Cost-effective Land Conservation

Harboring a high density of threatened and endangered species on its bases leaves the U.S. Department of Defense (DoD) with a critical responsibility: establishing sound environmental policies while also continuing training and ensuring military readiness. This dual objective is the goal of the Readiness and Environmental Protection Integration program, a large conservation fund for military installations that is mandated to be cost-effective. Analyzing a unique DoD data set, we show that use of optimization models generates a 21% increase in military readiness and environmental protection or achieves the same benefits as benefit targeting at a cost saving of 37%. (JEL Q57, Q58)
Chris Potin, of Hattiesburg, Miss., finds a gopher tortoise that will be tagged as an endangered species, a way of preserving the natural and cultural resources that are used in assisting the military at Camp Shelby Joint Forces Training Center on Aug. 5, 2015. The environmental office staff at Camp Shelby works hard to ensure that all environmental requirements are being met and that the installation stays in compliance with permits. Mississippi National Guard photo by Sgt. DeUndra Brown, 102nd Public Affairs Detachment

by Kent D. Messer, Maik Kecinski, Zhou Liu, Mary A. Korch, and Thomas Bounds
Land Economics via the University of Wisconsin System
Volume 92, Number 3; August 1, 2016; Pages 433-449

Risk and Adaptation: Evidence from Global Hurricane Damages and Fatalities

We examine whether countries adapt to hurricanes. A spatially refined global tropical cyclone data set is created to test for adaptation. We find evidence of adaptation in most of the world by examining the effects of income, population density, and storm frequency on damage and fatalities. In contrast, there is no evidence of adaptation to damage in the United States, leading to a damage function which is 14 times higher than other developed (OECD) countries.
Over the last decade, the average annual global damage from tropical cyclones (hurricanes) has reached $26 billion dollars with 19,000 lives lost (Mendelsohn et al., 2012; CRED, 2012).1 These losses measure the remaining damage and fatalities given existing adaptation. But what would the damage and life lost have been if no adaptation had occurred? What evidence exists that there have been any adaptations? This paper seeks to quantify the answers to these questions from an empirical analysis of the damage and fatalities caused by individual tropical cyclones from around the world
For the empirical analysis, we build an original dataset of more than 1,400 storm landfalls around the Earth from 1960 to 2010. The cumulative damage from these storms totals almost $0.75 trillion and approximately 400,000 lives lost. We drop observations from before 1960 because global observations of earlier storms were more erratic and estimates of damage and lives lost were unreliable (HRD, 2014). Hsiang and Jina (2014) correctly note that 6,700 storms have been recorded by humans since 1950, but many of these storms do not make landfall and fewer still can be linked with direct economic damage or human fatalities. Thus, our dataset represents the full record of storms between 1960 and 2010 that can be matched with publicly available damages and fatalities.
We ... calculate what the American damage would be if we used the damage coefficients for the other-OECD regression. The damage per storm would fall from $2.0 billion to $166 million, over an order of magnitude drop.  The aggregate annual damage from tropical cyclones in the United States would fall from $15.3 to $1.2 billion. We also estimate the damage in the other-OECD countries if they had the damage function of the United States. The damage per storm in the other OECD countries would increase from $231 million per storm to $9.4 billion, a forty fold increase. There is no question that the United States is far more vulnerable to tropical cyclones than other similar countries, controlling for the frequency and intensity of storms and for income and population density....

New ULI Program Will Help Commercial Tenants Cut Energy Consumption and Lower Energy Costs

A program to help commercial building tenants cut energy consumption and lower energy costs was announced on October 26, 2016 by the Urban Land Institute (ULI). Called the Tenant Energy Optimization Program, it is a process that integrates energy efficiency into tenant space design and construction and delivers significant investment returns through energy conservation.

Tenant spaces generally account for more than half of a building’s total energy consumption, making the program essential to improving the environmental performance of buildings. The program connects tenants, building owners, real estate brokers, project managers, architects, and engineers to create energy-efficient workplaces using practices that are proven, replicable, measurable and scalable.

The program, initiated by ULI leader Anthony E. Malkin, ... originated as an effort to reduce tenant energy use in the Empire State Building as part of a major “greening” makeover of the iconic skyscraper. With Malkin’s support, ten tenants in the Empire State Building and in other locations adopted the process, including Shutterstock, Inc.; LinkedIn Corp.; Bloomberg LP; The Estee Lauder Companies; and Cushman and Wakefield, Inc. In the ten pilot projects, tenants have experienced energy savings of 30 percent to 50 percent; payback on their investment in as little as three to five years; and an average annual internal return rate of 25 percent.
“The program’s step-by-step process is an effective way for companies to cut their energy costs and boost their bottom line while achieving corporate goals related to sustainable, energy-efficient workplaces,” Malkin said. “It enhances their ability to attract, retain and motivate workers who are healthier, happier, and more productive.”

One advantage the program provides is scalability; whether a tenant is leasing 2,500 or 250,000 square feet, the process can help improve the space’s energy efficiency, and reduce operational costs and energy consumption to generate greater financial returns. Another advantage is replicability — tenants and service providers who have gone through the process are expanding it to other parts of their portfolio and introducing the process to others.

The process involves tenants working with service providers and building owners to select energy- efficient space and a set of energy performance measures to customize a plan that best meets their energy savings and budget goals.

The process consists of ten steps that involve selecting a team and office space, setting energy performance goals, modeling energy reduction options, calculating projected financial returns, making final decisions about implementation, developing a post-occupancy plan, building out the space, executing the post-occupancy plan and communicating results.

Through measurement and verification, tenants are able to demonstrate energy and financial savings. This is reflected in the positive results already documented by the ten companies using the process:

  • Cushman & Wakefield, Inc., One World Trade Center, New York City – Over the term of Cushman and Wakefield’s ten-year lease, the process is projected to provide energy cost savings of nearly $88,000; a nearly 360-percent return on the investment (ROI); and an internal rate of return (IRR) of nearly 80 percent. The projected time to realize payback: Under two years.
  • Bloomberg LP, 120 Park Avenue, New York City – Ten-year lease; energy cost savings of nearly $174,000, a 140-percent ROI; and an IRR nearly 45 percent. Time to payback: Under three years.
  • The Estee Lauder Companies, 110 East 59th Street, New York City — Six-year lease; energy costs savings of nearly $16,000; a 42-percent ROI; and an IRR of more than 19 percent. Time to payback: Under four years.
  • COTY, Inc., Empire State Building – Seventeen-year lease; energy costs savings of more than $716,000; a nearly 330-percent ROI; and an IRR of 44 percent. Time to payback: Under three years.
  • Global Brands Group Holding Ltd., Empire State Building – Fifteen-year lease; energy cost savings of more than $438,000; a 126-percent ROI; and an IRR of nearly 21 percent. Time to payback: Under five years.
  • LinkedIn Corp., Empire State Building – Ten-year lease; energy costs savings of more than $153,000; a 23-percent ROI; and an IRR of more than 10 percent. Time to payback: Under six-and-a-half years.
  • New York State Energy Research and Development Authority, 1359 Broadway, New York City – Fourteen-year lease; energy cost savings of more than $188,000; 179-percent ROI; and an IRR of nearly 31 percent. Time to payback: less than four years.
  • Reed Smith LLP, Three Logan Square, Philadelphia — Sixteen-year lease; energy costs savings of more than $1.1 million; 410-percent ROI; and an IRR of 57 percent. Time to payback: just over two years.
  • Shutterstock, Inc., Empire State Building – Eleven-year lease; energy costs savings of nearly $370,000; a 40-percent ROI; and an annualized IRR of nearly 13 percent. Time to payback: about six years.
  • TPG Architecture LLP, 31 Penn Plaza, New York City — Eleven-year lease; energy cost savings of nearly $275,400; a 162-percent ROI; and an IRR of nearly 34 percent. Time to payback: just over three years.

Amenity or hazard? The effects of landslide hazard on property value in Woomyeon Nature Park area, Korea

A nature park in an urban area, which generally includes environmentally valuable natural landscape such as forests, mountains, rivers, and beaches, provides valuable benefits for the public such as recreational opportunities and an aesthetic landscape. However, residents near nature parks could be more vulnerable to natural disasters like floods, tsunamis, and landslides. In order to understand the trade-off between the amenity and hazard effects of nature parks, this study explores the case of the Woomyeon Nature Park (WNP) in Seoul, Korea, which experienced a catastrophic landslide disaster in 2011. The hazard and amenity effects of the WNP before and after a landslide event are analyzed using a difference-in-difference approach with a random coefficient model. The results show that the amenity effect of the WNP has continued after the landslide disaster in apartment complexes near the WNP, but its housing market premiums have fallen by up to 11.3% since the event due to the risk of landslide. The existence of the WNP hazard effect underlines the importance of disaster prevention efforts in urban open space design and management.
Parts of Mt. Umyeon in Seocho in Seoul are washed by torrential rains on Tuesday and Wednesday.
• In Korea, a mountain-type urban nature park increases nearby housing values as a place for leisure and recreation.
• Landslide hazard started to have a negative effect on housing values after the massive landslide event in Woomyeon Nature Park.
• A trade-off between the amenity and hazard effects of urban open spaces exists.
• Disaster prevention efforts in urban open spaces should be combined with landscape and urban planning.

by Jeongseob Kim 1,  (Assistant professor), Junsung Park 1,  (Graduate Student), D.K. Yoon 2, (Associate professor) and Gi-Hyoug Cho 1,  (Assistant professor)
1. School of Urban and Environmental Engineering, Ulsan National Institute of Science and Technology, Ulsan, Republic of Korea
2. Department of Urban Planning and Engineering, Yonsei University, Seoul, Republic of Korea
Received 5 August 2015, Revised 21 July 2016, Accepted 24 July 2016, Available online 28 September 2016
Landscape and Urban Planning via Elsevier Science Direct
Volume 157; January 2017, Pages 523–531
Keywords: Landslide hazard; Amenity; Urban nature park; Property value; Hedonic price model

Friday, October 28, 2016

Urban sprawl costs the American economy more than $1 trillion annually. Smart growth policies may be the answer

The rapid urbanization of populations across the world has led to the growth of urban sprawl, which has in turn had many negative social and economic impacts. In new research in partnership with LSE Cities, Todd Litman, investigates the problems of urban sprawl and explores potential solutions. He finds that this sprawl costs the American economy more than $1 trillion every year, and argues that this may be reduced by encouraging market-based reforms to encourage smart growth strategies.

Humanity is currently engaged in a unique and important event: global urbanization. Between 1950 and 2050 the human population will approximately quadruple and shift from 80 percent rural to nearly 80 percent urban. Most of this growth is occurring in developing countries. The United Nations projects there will be approximately 2.2 billion new urban residents in developing countries between 2015 and 2050. How these cities grow has huge economic, social and environmental impacts. With proper policies we can leave a legacy of truly sustainable development for future generations.

A new report, Analysis of Public Policies that Unintentionally Encourage and Subsidize Sprawl, written by the Victoria Transport Policy Institute, in partnership with LSE (London School of Economics) Cities Program, for the New Climate Economy, provides practical guidance for creating cities that are healthy, wealthy and wise, that is, attractive and healthy places to live, economically successful, socially vibrant and equitable. It analyzes the costs and benefits of various development patterns and discusses ways to optimize urban expansion, densities, housing mix, and transportation policies for various types of cities.

Sprawl refers to dispersed, automobile-oriented, urban fringe development, and is the opposite of “smart growth.” These differ in many ways, as summarized in Table 1.
Litman Table 1

Sprawl has two primary impacts: it increases per capita land consumption, which displaces other land uses, and it increases the distances between activities, which increases per capita infrastructure requirements and the distances service providers, people and businesses must travel to reach destinations. These primary impacts have various economic costs including reduced agricultural productivity, environmental degradation, increased costs of providing utilities and government services, reduced accessibility and economic opportunity for non-drivers, and increased transport costs including vehicle expenses, travel time, congestion delays, accidents and pollution emissions.
Previous studies have quantified and monetized (measured in monetary units) many of these impacts, but ours is the most comprehensive effort to date to integrate them all into one analysis framework. We divided U.S. cities into quintiles (fifths), from smartest growth to most sprawled, and then estimated the additional costs of more sprawled development. For example, our analysis indicates that by increasing the distances between homes, businesses, services and jobs, sprawl raises the cost of providing infrastructure and public services by 10-40 percent. Using real world data about these costs, we calculate that the most sprawled quintile cities spend on average $750 annually per capita on public infrastructure, 50 percent more than the $500 in the smartest growth quintile cities. Similarly, sprawl typically increases per capita automobile ownership and use by 20-50 percent, and reduces walking, cycling and public transit use by 40-80 percent, compared with smart growth communities. The increased automobile travel increases direct transportation costs to users, such as vehicle and fuel expenditures, and external costs, such as the costs of building and maintaining roads and parking facilities, congestion, accident risk and pollution emissions. Figure 3 illustrates estimates of these costs.

Figure 3 – Estimated urban automobile costs
Litman Fig 3
Smart growth communities tend to have far lower traffic fatality rates than sprawled communities, providing huge savings and benefits. By increasing walking, smart growth also tends to increase public fitness and health, which significantly reduces healthcare costs associated with physical inactivity and obesity.

Notes on the Economics of Energy Storage

The increasing importance of intermittent renewable energy sources suggests a growing importance for energy storage as a way of smoothing the variable output. In this paper I investigate factors affecting the amount of energy storage needed, including the degree of intermittency and the correlations between wind and solar power outputs at different locations.

This paper has explored some basic issues in the economics of energy storage. There are two different functions that storage has to perform: one is to shift solar power produced in the daytime to the night, assuming that there are not sufficient other sources of power available at night. The second is to smooth out fluctuations in the output of renewable energy.

It might be possible to design a system in which either or both of these functions are redundant. There could be sufficient carbon-free generating sources to meet demand out of daytime hours - nuclear, geothermal, hydro and others - in which case no time-shifting of solar power would be needed.
Construction of the Salt Tanks which provide efficient thermal energy storage[63] so that output can be provided after the sun goes down, and output can be scheduled to meet demand requirements.[64] The 280 MW Solana Generating Station is designed to provide six hours of energy storage. This allows the plant to generate about 38 percent of its rated capacity over the course of a year
These same sources could also be used to smooth the output of a stochastic renewable source. But it could also be possible to avoid the need for storage to smooth output by spatial diversification of renewable energy sources, so lowering the correlation between different sources, and by building large amounts of capacity. And in both cases the need for storage could be further reduced by demand management, giving consumers incentives to reduce demand on the grid at times of shortage and to shift loads to times of surplus.  Consumers have many ways of storing energy at their disposal - they can store hot or cold water in tanks, make ice when power is available and use it to cool air when it is not, and store energy in batteries, in particular in the batteries of electric vehicles. Denholm and Margolis (2016) consider this last option in detail.

The bottom line is that the question we are focussing on - how much energy storage would be needed if an economy such as that of the US were to move to much heavier dependence on renewable energy, as is implied by the goal of substantial reduction of greenhouse gas emissions - is probably not well-posed. As de Sisternes et al. (2016) note, “In general, while energy storage appears essential to enable decarbonization strategies dependent on very high shares of wind and solar energy, storage is not a requisite if a diverse mix of flexible, low-carbon power sources is employed, including flexible nuclear power.” There are some routes to low GHG emissions that travel via extensive use of storage, and others that make little if any use of these technologies and use other ways of managing intermittent power supplies. Which is best seems to be a matter of costs. If storage costs continue to fall, storage will feature prominently in the ultimate solution: otherwise we will work with a range of alternatives.

In my earlier paper Heal (2016) I assumed that the ability to store about two days of energy consumption would be needed in a world with 66% renewable energy, divided equally between wind and solar PV. Where does this discussion leave that assumption? It is convenient to discuss solar and wind separately. One third of total consumption would come from solar PV, and several studies (for example Denholm and Margolis (2016)) suggest that this level of solar penetration could be accommodated without storage: that it could all be used during the day. If we were to seek to shift some of this to other times of day, we would probably want to shift less than one half of solar output, which is less than one sixth of daily consumption.

The output from the one third of capacity that is wind could be smoothed by spatial diversification, as analyzed in section 4.1 above, but not completely, and at the cost of improving the connectivity of the grid (in my earlier paper I included the cost of an increase in miles of high voltage lines by 25%). We could adopt the approach of overbuilding wind capacity to reduce the probability of a power shortage to some acceptable level, combining this with demand management to cope with the low-probability eventualities. The illustrative calculations in section 4.1 suggest that in this case we might need to install six times the demand we want to meet, which would mean doubling the amount of wind capacity in my earlier paper. This would increase cost by $0.78 trillion.  As I noted in my earlier paper, a battery large enough to store one day’s output from a wind turbine would cost twice as much as the turbine itself. It follows the extra capacity, with possible curtailment in the event of strong and persistent winds, is probably less costly than storage. In the earlier paper I allowed between $2.2 and $5.1 trillion for storage capacity, and for less than the lower limit here we could both build extra wind capacity for smoothing and construct some storage. The bottom line is that the storage figures I used in Heal (2016) are probably too high: less than one day of storage capacity might be adequate.  

by Geoffrey Heal
National Bureau of Economic Research (NBER)
NBER Working Paper No. 22752; Issued in October 2016

The Value of Energy Efficiency and the Role of Expected Heating Costs

The German Energy Savings Act (Energieeinsparverordnung) requires sellers on the housing market to provide detailed information on expected yearly energy consumption per square meter. This paper uses variation in local fuel prices and climate, fuel types, and building ages to analyze the relationship between expected energy cost savings from energy efficient building structure and house prices in a data set of listing prices from all regions of Germany. Results suggest that agents are aware of the investment dimension of energy efficiency improvements, but not all important aspects are taken into account.
logPi = Xib + ft + yd + k + d ×EPSi + hi
Pi is the price per square metre of house i, 
EPSi is its energy performance score, and Xi is a vector of housing characteristics, including heating type (base category: gas heating). 
ft and yd are time and district fixed effects. 

The log price is the dependent variable, and the EPS coefficient is negative and highly significant. It implies a reduction of the price by approx. 0.11% as EPS increases by 1% (at sample mean). In column (2), the dependent variable is the price per square metre. The EPS effect is slightly smaller (-0.07% at sample mean) and model fit is somewhat worse.... A jump from an A-rated building (30

The overall picture is reasonable. Higher quality, younger, detached houses on larger lots are offered at a higher price per square metre.
Taken as a whole, the results suggest that, in parts, energy efficiency is taken into account in an economically meaningful way by sellers of residential houses in Germany. However, potential cost savings are not always and everywhere calculated correctly, providing support for the idea of “rational inattention” (Sallee, 2013). Variation in local gas prices or climate did not influence the value of EPS (Section 6.1). Additionally, the were no significant differences in the value of EPS across heating fuel type, even though the price of electricity was at least three times the price of gas in the past 24 years. Given the large potential savings in Taken as a whole, the results suggest that, in parts, energy efficiency is taken into account in an economically meaningful way by sellers of residential houses in Germany. However, potential cost savings are not always and everywhere calculated correctly, providing support for the idea of “rational inattention” (Sallee, 2013). Variation in local gas prices or climate did not influence the value of EPS.... Additionally, there were no significant differences in the value of EPS across heating fuel type, even though the price of electricity was at least three times the price of gas in the past 24 years. Given the large potential savings in this case, this latter result cannot be explained by rational inattention alone.

One important finding of this paper is that building age alters the value of EPS considerably. Earlier papers have estimated one single coefficient for samples that typically include buildings of all vintages and heating fuel types – although some have looked at sub-samples of different house types (Fuerst et al., 2015; Hyland et al., 2013). Consider the coefficient of eps × avg. gas price in column (1) of Table 5, indicating that a one Euro increase in expected yearly heating costs per square metre decreases listing prices by approx. 23 Euro=m2. At sample means, a change from an A-rated building (30 ≤ EPS < 50) to an E-rated building (160 ≤ EPS < 200) increases expected heating costs by approximately 9:09 Euro/[m2 · a]. The decrease in prices amounts to 208:98 Euro, or 10:2% of the sample mean. This is very close to the values reported in other studies, e.g. 9:3% in Hyland et al. (2013) or 10:2% in Brounen and Kok (2011). Note that both studies use a selection model because EPS is not reported in all observations. The suspected upward bias of EPS in OLS estimation does not seem to be large.

Cost-Effectiveness and Incidence of Renewable Energy Promotion in Germany

Over the last decade Germany has boosted renewable energy in power production by means of passive subsidies. The flip side are very high electricity prices which raises concerns that the transition cost towards a renewable energy system will be mainly borne by poor households. In this paper, we combine computable general equilibrium and microsimulation analysis to investigate the cost-effectiveness and incidence of Germany’s renewable energy promotion. We find that the regressive effects of renewable energy promotion could be attenuated by alternative subsidy financing mechanisms which achieve the same level of electricity generation from renewable energy sources.
We have coupled a microsimulation model that employs the Almost Ideal Demand System (aids) for representing household demand with a computable general equilibrium (CGE) model to investigate the cost-effectiveness and incidence of renewable energy promotion policies in Germany.

Our simulation analysis indicates substantial scope for improving on the cost-effectiveness of Germany’s policy regulation. While phasing out exemptions from the reallocation charge (RAC) would reduce the economy-wide costs of the German EEG by around 5 percent, replacing the RAC by increased value-added taxes would cut the EEG’s efficiency cost by more than two thirds. Making the fit uniform across promoted technologies, surprisingly, does not have the expected beneficial effects in the context of a RAC. This is due to increasing inefficiency of rising rac rates under such scenarios.

From a distributional perspective, replacing the RAC by higher value added taxes also turns out to be attractive since the poorest households benefit. The Atkinson index (a measure of social welfare that includes inequality across the nation) also points to a vat based subsidy financing as the most favourable policy design among those investigated in this paper.

by Christoph Boehringer 1, Florian Landis 2 and Miguel Angel Tovar Reaños
1. University of Oldenburg
2. Centre for European Economic Research (ZEW)
ZenTra Working Paper in Transnational Studies No. 66/2016; September 2016
Keywords: renewable energy policy, feed-in tariffs, CGE, microsimulation
via SSRN:

Policy Monitor—Green Buildings: Economics and Policies

This article presents an overview of green building economics and policies through a survey of theoretical and empirical evidence concerning green building practices. We define green building policy as policies that affect the entire life of the building, from design and construction to operation and deconstruction. We examine the economics of green buildings in the United States, with particular emphasis on market failures in the building sector such as information problems and externalities. We also discuss how policy instruments are used to address these market failures. We present original data on the types and potential impacts of these policy instruments in the United States, along with a brief review of international green building programs. We conclude by describing challenges for the empirical study of green buildings and priorities for future research and policy in this area.
A number of studies have found empirical evidence of financial benefits for building owners. For example, Eichholtz, Kok, and Yonder (2012) find that real estate investment trusts (REITs) that have a larger percentage of LEED-certified properties in the portfolio have a higher value and lower price volatility than REITs with a lower percentage of LEED-certified properties. Deng and Wu (2013) find that Green Mark–certified properties in Singapore command a 9.9 percent premium in the resale market, but that initial transactions command a premium of only 4.4 percent, suggesting that green certification may reduce information asymmetries in the resale market. Chegut, Eichholtz, and Kok (2014) show that buildings in the United Kingdom that are certified according to the BRE Environmental Assessment Method rent for longer contracts and at a 28 percent rental premium. They also find that green certification provides a higher premium for rental properties than for properties that are for sale, highlighting the role of certification in reducing information asymmetries and providing a low-cost way for prospective tenants to judge the overall quality of a property.
Interestingly, the financial value of green buildings does not appear to be limited to operational costs. Eichholtz, Kok, and Quigley (2013) find a premium for the sustainability certification, in addition to energy use certifications. Similarly, Reichardt (2014) finds that the price premium for LEED buildings exceeds the value of its lower operating expenses, suggesting a premium for “sustainability” or market advantages that goes beyond reduced operating expenses. Note that Chegut, Eichholtz, and Kok (2014) find that market premiums on green building certification deteriorate as more nearby buildings certify, indicating that late adopters will gain less premium for certification.
by Daniel C. Matisoff*, Douglas S. Noonan† and Mallory E. Flowers‡
*Associate Professor, School of Public Policy, Georgia Institute of Technology, 685 Cherry Street NW, Atlanta, GA 30332; Telephone: 404-385-2623; Fax: 404-385-0504; e-mail:
†Professor, School of Public and Environmental Affairs, Indiana University Purdue University–Indianapolis, 801 West Michigan Street, BS 4037, Indianapolis, IN 46202; Telephone: 317-278-2448; Fax: 317-274-7860; e-mail:
‡Doctoral Student, School of Public Policy, Georgia Institute of Technology, 685 Cherry Street NW, Atlanta, GA 30332; Telephone: 404-385-3082; Fax: 404-385-0504; e-mail:
Review of Environmental Economics and  Policy
Volume 10, Issue 2; Summer, 2016; pages 329-346.
First published online: August 23, 2016

Attention to Distribution in U.S. Regulatory Analyses

Before promulgating a major environmental, health, or safety regulation, U.S. government agencies are generally expected to analyze the distribution of its impacts as well as its total costs and benefits. We review several regulatory analyses to determine whether this expectation is being met. We find that agencies’ analyses provide little information on distributional impacts. Often they note only that the regulation will not adversely affect the health of children, minorities, or low-income groups. This lack of attention to distribution may be philosophical, with regulators believing they should choose the option that maximizes net benefits as long as the health of these groups is not harmed. It may also be motivated by pragmatic reasons, including concerns about political and legal implications; an assumption that distributional impacts are small; or data, time, and resource constraints. We argue that this focus on the possibility of health-related losses, and the lack of analysis of the full distribution of both benefits and costs, is problematic. However, the feasibility and desirability of more extensive and rigorous distributional analysis remains unclear. Further research is needed to increase our understanding of the distribution of both costs and benefits and to determine whether the benefits of requiring routine provision of such information would outweigh the costs entailed.
by Lisa A. Robinson*, James K. Hammitt† and Richard J. Zeckhauser‡
Review of Environmental Economics and Policy via Oxford Journals
Volume 10, Issue 2; Summer, 2016; Pages 308-328.

Collaboration Aims to Increase Sales of Energy-Efficient Products

The U.S. Environmental Protection Agency announced an innovative pilot program with Energy Star partners to encourage the sale of more efficient products for the home. The Energy Star Retail Products Platform seeks to establish a consistent model for utilities to incentivize retailers to sell and consumers to purchase more energy-efficient products.
Appliances and other miscellaneous household electronics contribute an estimated 15-20 percent of residential energy use. Energy efficiency programs run by utilities and other organizations have traditionally offered consumer rebates to incentivize the purchase of more Energy Star-certified options. With the success of these programs, the per-unit energy savings opportunity has decreased, so utilities and retailers have explored new approaches to further incentivize the purchase of energy-efficient products. The ESRPP provides financial incentives directly from utilities to retailers to sell the most energy-efficient products to their customers. The ESRPP is designed to capture remaining, hard-to-reach energy savings and promises increasing energy savings and reduced costs over time.

A nationwide collaboration, the ESRPP gives retailers, utilities, manufacturers and other participants a more efficient platform to deliver Energy Star products. The ESRPP allows these partners to leverage each other’s resources and shared objectives, avoid duplication of effort and redundancy across neighboring service territories, and streamline operations. A typical household equipped with Energy Star certified products can reduce emissions by about 72,000 pounds of CO2 and save about $8,200 on utility bills over the life of the products. ESRPP offers EPA and its partners a systematic and cost-effective way to continuously expand the sale and use of Energy Star certified products to deliver lasting economic and environmental benefits to the consumer.

In this first pilot year, nine program sponsors representing 12 states and almost 15 percent of the U.S. are participating in the ESRPP. Energy Star certified models in five product categories are being promoted by program sponsor-labeled signage in almost 700 stores. By the end of 2017, the program is expected to expand to serve approximately 30 percent of the U.S. population through increased program sponsor and retailer participation. In the future, the ESRPP is expected to offer a gateway for energy efficiency programs to capture energy savings in the growing "miscellaneous/plug load" product categories at a significantly lower cost than current programs incur. Currently, each year, utilities and others invest more than $7.6 billion on energy efficiency programs, saving nearly 25,850 MWh of electricity. These savings prevent an estimated two million metric tons of annual greenhouse gas emissions and are equivalent to the electricity used by more than 290,000 homes.

Energy Star is the simple choice for energy efficiency. For nearly 25 years, people across America have looked to EPA’s Energy Star program for guidance on how to save energy, save money, and protect the environment. Behind each blue label is a product, building, or home that is independently certified to use less energy and cause fewer of the emissions that contribute to climate change. Today, Energy Star is the most widely recognized symbol for energy efficiency in the world. Since 1992, Energy Star has helped families and businesses save $362 billion on utility bills, while reducing greenhouse gas emissions by more than 2.4 billion metric tons.

U.S. Environmental Protection Agency
Press Release dated October 24, 2016

Wednesday, October 26, 2016

Reinvigorating Ohio’s Clean Energy Standards Could Save $5B by 2030

Ohio policymakers are at a crossroads. They can create jobs, grow the economy, cut pollution, and save customers money by rebuilding the state’s renewable and energy efficiency policies, or they can continue to let Ohio fall behind in the clean energy economy.

A little background: In 2014, the Ohio Legislature placed a two-year freeze on the state’s energy efficiency and renewable energy standards as a result of political pressure from Ohio’s largest power company, FirstEnergy, among others. The standards required electric utilities to generate 12.5 percent of electricity sales from renewable sources, as well as reduce energy consumption 22 percent by 2025 through efficiency programs. Since the freeze, Ohio has lost millions of dollars in energy investment and jobs, and lags behind nearly every other state in percentage of renewable energy generated.

Now that the two years are almost up, it’s time for Ohio to decide how to move forward – if at all – on its clean energy standards. Fortunately, according to a new report from Environmental Defense Fund and The Nature Conservancy, there are at least three achievable routes to reinstate the renewable and efficiency standards – each of which would provide substantial economic and health benefits to the state at a value of $3 to $5 billion by 2030.
To evaluate the most financially beneficial mix of clean energy resources, the report, Grounds for Optimism: Options for Empowering Ohio’s Energy Market, produced three forecasts of the state’s electricity market. The scenarios include an Accelerated Efficiency case, an Intermediate Pathway that provides a balanced mix of renewables and efficiency, and an Expanded Renewables case. These scenarios are compared against a baseline that models an extended freeze of Ohio’s renewable and energy-efficiency standards.

All three scenarios are based on clear trends and achievable targets within the state’s growing clean energy industry. Furthermore, each would enable Ohio to meet the goals of the Clean Power Plan, the nation’s first-ever limit on carbon pollution from power plants.

The forecasts show the renewable energy and energy efficiency industries in Ohio are expected to:
  • Create between 82,300 and 136,000 new jobs in Ohio, with the wind industry serving as one of the largest contributors.
  • Enhance Ohio’s GDP by $6.7 billion to $10.7 billion by 2030,
  • Provide between $28.8 million and $50.9 million in savings for Ohio electricity customers by 2030, and
  • Provide between $3 and $5 billion in net benefits by 2030.
Moreover, how we generate electricity significantly impacts public health. Currently, “Ohio’s coal-heavy generating fleet creates billions in public health costs that are borne by citizens,” according to the report. By increasing renewable energy and efficiency, Ohioans would avoid asthma attacks, heart attacks, pulmonary issues, and other illnesses that would otherwise occur under the baseline. And public health benefits grow over time: The value would exceed $1 billion every year from 2030 onward in all three scenarios.
Ohio Governor John Kasich recently attended The Texas Tribune festival, where he was asked about his stance on the Buckeye State’s clean energy standards. Although he feels the original policies were overly ambitious, he was very clear on his message to the Ohio legislature, stating, “If you try to kill the standards […], I’ll veto the bill and we’ll go to the higher standards. I’m committed to it.”

In other words, Governor Kasich is determined to see Ohio thaw the freeze and begin to rebuild its clean energy prowess.

If the legislature is wondering how to go about doing so, this new report from The Nature Conservancy and Environmental Defense Fund can serve as a roadmap to getting the Buckeye State back on track. It clearly lays out three paths for creating jobs and growing the state’s economy, while lowering electricity bills and healthcare costs for Ohioans in the long run. The analysis offers flexibility and an array of options, all of which are far superior to letting the freeze stand, or replacing the standards with a toothless goal. The clean energy choices are there – take your pick, Ohio.

Download the full report here and the factsheet here.
Environmental Defense Fund (EDF)
October 24, 2016

The Fiscal Cost of Hurricanes: Disaster Aid Versus Social Insurance

Little is known about the fiscal costs of natural disasters, especially regarding social safety nets that do not specifically target extreme weather events. This paper shows that US hurricanes lead to substantial increases in non-disaster government transfers, such as unemployment insurance and public medical payments, in affected counties in the decade after a hurricane. The present value of this increase significantly exceeds that of direct disaster aid. This implies, among other things, that the fiscal costs of natural disasters have been significantly underestimated and that victims in developed countries are better insured against them than previously thought.
[The study] estimates that on average, $780-$1,150 of non-disaster government payments are awarded to victims of hurricanes in the ten years after an event, in addition to $155-$160 of disaster-related aid. Deryugina also finds that non-disaster payments increase by 1.3 to 3.9 percent after a hurricane (relative to a mean of $4,700 per person) and continue to increase post-hurricane.

In the study, Deryugina uses a differences-in-differences framework to compare US counties that experienced hurricanes between 1979 and 2002 with unaffected neighboring counties for ten years before and after each hurricane. Government payments were categorized as following: medical spending (excluding Medicare), disability insurance (SSDI), Social Security, and Medicare, with all four categories experiencing increased payments in the years following a hurricane. Medicare and other medical spending experienced the largest relative increases; increases in SSDI and Social Security spending were marginally significant, with effects becoming statistically insignificant two and seven and a half years post-hurricane. Government payments increased as hurricane intensity increased, with Category 3 and above hurricanes garnering the largest payments. However, statistically significant increases in government payments were also observed after weaker Category 1 and 2 hurricanes.
Considering that $19 billion was spent on hurricane-related disaster aid and $67.7 billion on other disasters through formal federal disaster declarations between 1979 and 2002, this omission is significant. Budgeting for disaster aid and recovery should reflect these increased costs. 

by Tatyana Deryugina
National Bureau of Economic Research (NBER)
NBER Working Paper No. 22272; Issued in May 2016
Hannah Bent" The Financial Impact of Natural Disasters: Beyond Disaster Aid" October 12, 2016 Chicago Policy Review

Tuesday, October 25, 2016

IEA raises its five-year renewable growth forecast as 2015 marks record year

The International Energy Agency said today that it was significantly increasing its five-year growth forecast for renewables thanks to strong policy support in key countries and sharp cost reductions. Renewables have surpassed coal last year to become the largest source of installed power capacity in the world.

The latest edition of the IEA’s Medium-Term Renewable Market Report now sees renewables growing 13% more between 2015 and 2021 than it did in last year’s forecast, due mostly to stronger policy backing in the United States, China, India and Mexico. Over the forecast period, costs are expected to drop by a quarter in solar PV and 15 percent for onshore wind.

Last year marked a turning point for renewables. Led by wind and solar, renewables represented more than half the new power capacity around the world, reaching a record 153 Gigawatt (GW), 15% more than the previous year. Most of these gains were driven by record-level wind additions of 66 GW and solar PV additions of 49 GW.  

About half a million solar panels were installed every day around the world last year. In China, which accounted for about half the wind additions and 40% of all renewable capacity increases, two wind turbines were installed every hour in 2015.
“We are witnessing a transformation of global power markets led by renewables and, as is the case with other fields, the center of gravity for renewable growth is moving to emerging markets,” said Dr Fatih Birol, the IEA’s executive director.

‌‌There are many factors behind this remarkable achievement: more competition, enhanced policy support in key markets, and technology improvements. While climate change mitigation is a powerful driver for renewables, it is not the only one. In many countries, cutting deadly air pollution and diversifying energy supplies to improve energy security play an equally strong role in growing low-carbon energy sources, especially in emerging Asia.

Over the next five years, renewables will remain the fastest-growing source of electricity generation, with their share growing to 28% in 2021 from 23% in 2015.

Renewables are expected to cover more than 60% of the increase in world electricity generation over the medium term, rapidly closing the gap with coal. Generation from renewables is expected to exceed 7600 TWh by 2021 -- equivalent to the total electricity generation of the United States and the European Union put together today.

But while 2015 was an exceptional year, there are still grounds for caution. Policy uncertainty persists in too many countries, slowing down the pace of investments. Rapid progress in variable renewables such as wind and solar PV is also exacerbating system integration issues in a number of markets; and the cost of financing remains a barrier in many developing countries. And finally, progress in renewable growth in the heat and transport sectors remains slow and needs significantly stronger policy efforts.

The IEA also sees a two-speed world for renewable electricity over the next five years. While Asia takes the lead in renewable growth, this only covers a portion of the region’s fast-paced rise in electricity demand. China alone is responsible for 40% of global renewable power growth, but that represents only half of the country’s electricity demand increase.

This is in sharp contrast with the European Union, Japan and the United States where additional renewable generation will outpace electricity demand growth between 2015 and 2021.

The IEA report identifies a number of policy and market frameworks that would boost renewable capacity growth by almost 30% in the next five years, leading to an annual market of around 200 GW by 2020. This accelerated growth would put the world on a firmer path to meeting long-term climate goals.

“I am pleased to see that last year was one of records for renewables and that our projections for growth over the next five years are more optimistic,” said Dr. Birol. “However, even these higher expectations remain modest compared with the huge untapped potential of renewables. The IEA will be working with governments around the world to maximize the deployment of renewables in coming years.”

International Energy Agency
October 25, 2016