1. Hal T. Nelson--hal@pdx.edu1 Interactions between Carbon Regulation & Renewable Energy Policies  Thoughtpiece: The CATF is in a position to consider program linkages between climate policies and renewables policies  My research examines these interactions over a wide range of policy and market conditions: Stringency of the RPS & CO2 cap Efficiency opportunities, fossil fuel prices, load growth Linking the power sector with other sectors through trading  The goal is to view the supply curve for CO2 reductions as a dynamic process rather than as a snapshot in time Has important implications for program design for Oregon process I will use some of my UK modeling results for illustration

2. Hal T. Nelson--hal@pdx.edu2 Two New Programs for the UK Power Sector 1.Energy Policy The UK Renewables Obligation (2001) 15.4% renewables by 2015 based on estimated load  Can UK deploy the required amount? Compliance can be met through:  Delivering certified renewables  £31/MWh ($50) buyout price Revenues from buyout circulated back to renewables suppliers  Called “Smearback”  To increase incentives for renewables deployment

3. Hal T. Nelson--hal@pdx.edu3 Two New Programs for the UK Power Sector 2. Environmental Policy EU Emissions Trading Scheme (2005) Cap & Trade System (smokestack) limits CO2 from the power sector to 130 million tons (MT) in first phase of the scheme (2005-2007) In 2005, the UK power sector emitted 36.5 MT more CO2 than it was allocated 99.6% compliance rate Penalties for noncompliance: €40/ton (~$50) in first phase €100/ton (~$120) in second phase

4. Hal T. Nelson--hal@pdx.edu4 Relationship between Efficiency and the RPS and CO2 cap  Efficiency is key to low cost CO2 mitigation and renewables Quantity Per unit cost of last unit of renewables under each scenario Onshore v. offshore wind?

5. Hal T. Nelson--hal@pdx.edu5 RPS Impacts and Design  Leads to lower thermal wholesale prices Average thermal prices decline ~5%  Lower wholesale price offsets higher consumer prices Costs of renewables higher than fossil fuels—passed along to consumer The design of the Obligation keeps costs high Aggressive deployment target and buyout “smearback”  UK government estimates price increases ~6% from the program

6. Hal T. Nelson--hal@pdx.edu6 The Effects of CO2 prices on Renewables Obligation Certificates 2020£0EUA£5EUA£10EUA£15EUA£20EUA Renewables Deployment 4.3%8.8%8.9%12.8%19.1% ROC Marginal Value / MWh £15.50£13.00£10.50£8.00£5.50

7. Hal T. Nelson--hal@pdx.edu7 Summary of Findings Low Gas PricesHigh Gas Prices Weak ETS  Aggressive efficiency programs needed for cost effective compliance with RPS  RPS required to install more than modest amounts of renewables  RPS and ETS compliment each other  More coal generation expected  RPS required only to the extent that coal/gas use is limited by the ETS Strong ETS  Fuel switching from coal to gas  Low cost CO 2 cap possible  RPS required to drop CO 2 intensities below the levels of combined cycle gas plants  Trading (offsets) can dilute renewables installation  Best opportunity for clean coal technologies such as IGCC  Large endogenous efficiency potentials  Significant renewables will be added as part of the least cost solution  RPS is redundant to the ETS

8. Hal T. Nelson--hal@pdx.edu8 Take Aways  Each program might have different objectives but climate policies are broader in scope and need to maximize efficiency uptake in order to minimize the cost of both programs  Interactions between the two programs need to be addressed in the design phase If the CO2 cap is strict enough, then compliance with the RPS needs to be flexible  RPS compliments CO2 cap: When the cap is weak (above CCGT intensity levels) Regulated actors can meet their cap through trading When fuel switching from coal to gas is the least cost option