On November 2 at the University of Hawaii, Program on Energy and Sustainable Development (PESD) Director Frank Wolak gave a special seminar "How Should the Public Utilities Commission Regulate Hawaiian Electric Company for Better Integration of Renewable Energy?" He summarized inefficiencies in Hawaii's electricity system and advocates a "cost based" market in which long-term competitive contracts for power would be used in conjunction with a regulated optimization model that would set real-time prices for buying and selling of electricity and grid services.
Read more (includes links to video of Professor Wolak's talk and slides)
Program on Energy and Sustainable Development (PESD) Director Frank Wolak, Associate DIrector Mark Thurber, and doctoral candidate Trevor Davis led an Electricity Market Simulation Workshop as part of the 2018 Western Electricity Market Forum September 20-21 in Boise, Idaho. The audience was comprised of regulators and regulatory staff as well as policy makers representing states from across the western U.S.
The workshop used the PESD-developed Energy Market Game to explore timely questions about how electricity markets with a high share of renewable resources might function. “The Energy Market Game allows people of diverse backgrounds to understand market dynamics,” Thurber explained. “It can help policy makers and regulators set up incentives for market participants which naturally align with desired outcomes.”
The PESD team ran games with two contrasting policy approaches aimed at ensuring resource adequacy, with workshop participants playing the role of generating companies (“gencos”). In a high-renewable world, the specific resource adequacy concern is that thermal power plants won’t run enough to be profitable, and gencos therefore won’t build or keep enough thermal power plants to back up renewables when wind and sun aren’t available.
In the first game scenario, capacity markets were used to spur gencos to build enough gas-fired power plants to meet demand. Capacity markets straight-out pay gencos for holding generation capacity. They are used in a number of real-world electricity markets, but the games suggested they may not result in the cheapest power for consumers.
PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario.
PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario. Photo Credit: Maury Galbraith, Western Energy Board
In the second game scenario, forward contracts for electricity created the incentive for gencos to build power plants. If a genco doesn’t produce enough electricity to cover its forward contract, it risks having to buy the shortfall out of the spot market at high prices. Forward contracts therefore encourage gencos not only to build adequate generation capacity, but also to bid that capacity into the market at competitive prices. As this second game scenario showed, that can mean cheaper power for consumers.
As an increasing number of California households install solar panels, the current approach to retail electricity pricing makes it harder for the state’s utilities to recover their costs. Unless policymakers change how they price grid-supplied electricity, a regulatory crisis where a declining number of less affluent customers will be asked to pay for a growing share of the costs is likely to occur.
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Stanford Institute for Economic Policy Research (SIEPR)
Politicians in a number of jurisdictions with cap-and-trade markets for greenhouse gas (GHG) emissions or carbon taxes have argued that the evidence is in and the conclusion is clear: Carbon pricing doesn’t work. A number of journalists and environmental groups have jumped on the bandwagon, amplifying a misguided message.
A better understanding of how markets and price mechanisms work might change their minds — and the conversation — on the benefits of carbon pricing.
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Stanford Institute for Economic Policy Research (SIEPR)
This report was produced for the Abe Fellows Global Forum 2017 symposiums on climate change, held in partnership with Stanford University's Walter H. Shorenstein Asia Pacific Research Center (Abe Global | Stanford, October 20, 2017) and the Asia Society Texas Center (Abe Global | Houston, October 18, 2017), respectively.
Energy-intensive production has been both a leading contributor to climate change as well as one of the keys to modern economic growth over the last several centuries. In the post-WWII era, the “economic miracles” of Asian growth—starting with Japan, and followed by South Korea, Taiwan, China, and now increasingly India—have lifted hundreds of millions of people out of poverty. At the same time, these “economic miracles” have created huge pollution problems which have adversely affected the health of millions of people while speeding up the effects of climate change.
Some early developers from this group—including Japan—have made efforts to clean up their air and water, created more energy efficient economies, lowered their carbon footprints and contributed to initiatives to slow global warming. The Fukushima nuclear power plant disaster forced Japan to take even more aggressive action to reduce energy consumption and lessen its impact on the global environment. In contrast, the United States, as a sizeable nation-state both in its geographic area and economy, is one of the world’s largest polluters and recently made recent headlines when it withdrew from the Paris Agreement negotiated at the 2015 United Nations Climate Change Conference (COP21).
Putting into place effective measures to curtail climate change while creating sustainable societies requires international cooperation. The series of extreme weather events in the US in 2017 are only some the most recent disasters to remind us of climate change’s threat to our economy, our society, and our individual daily lives.
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Abe Fellowship Program and Social Science Research Council
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Arimura, Toshi H, Buntrock, Dana, Knox-Hayes, Janelle, Lipscy, Phillip Y and Tanaka, Shinsuke
Policies that promote biofuels in major agricultural economies raise important questions for food prices and food security at local to global scales. Global biofuel output rose from 38 billion liters to 131 billion liters between 2005 and 2015, boosting the demand for annual- and perennial-crop feedstocks such as maize, sugar, soy, rapeseed, and palm oil. Although ethanol volume was three times that of biodiesel in 2015, the share of biodiesel in total biofuel output rose from 10% to almost 25% over the course of the decade (EIA, n.d.; REN21, 2016). Biodiesel production increased 700% between 2005 and 2015 and is expected to rise by another 35% by 2025 (OECD/FAO, 2014). In this paper, we examine the linkages between biodiesel, oil crop, and energy markets, and ask: What are the food security implications of biodiesel policies in major agricultural economies? How do governments adjust biodiesel policies in response to international commodity prices, trade opportunities, and their changing economic and environmental priorities?
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Global Food Security
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Rosamond L. Naylor
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The rise in global biodiesel production: Implications for food security
PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario.