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Cost Implications of GHG Regulation in Hawai‘i

The State of Hawai‘i and the U.S. are developing greenhouse gas (GHG) emissions reduction regulations in parallel. The State requires that economy-wide GHG emissions be reduced to 1990 levels by the year 2020 and the U.S. Environmental Protection Agency is developing new source performance standards (NSPS) for new electricity generation units. The State Department of Health has proposed rules that would reduce existing large emitting electricity generating units by 16% from 2010 levels. The NSPS proposes GHG concentration limits for new electricity units.

We use a comprehensive model of Hawai‘i’s electricity sector to study the potential cost and GHG impacts of State and Federal GHG regulations. Given uncertainty about the final form and implementation of these regulations, we adopt a series of scenarios that bracket the range of possible outcomes. First we consider the State’s GHG cap (for existing units) and NSPS (for new units) being implemented at the facility level. Next, we consider the implications of allowing for partnering to meet the State GHG cap and the NSPS at a system-wide level. We also consider the case where the State GHG cap is extended to apply to both existing and new units. The current proposed State GHG rules exclude biogenic sources of emissions. We address the impacts of this decision through sensitivity analysis and explore the impact of GHG policy on new coal-fired units.

We find that regulating GHGs at the facility level leads to greater reductions in GHG emissions but at higher cost. Over the 30-year period that we study, when biogenic sources of emissions are ignored, facility level implementation of policy will add $3 billion to the cost of electricity generation at an average cost of $180/ton of GHG abatement. If biogenic sources of emissions are included within the accounting framework, abatement costs rise to $340/ton.

Overall, we find that the high cost of Hawai‘i’s current electricity generation provides a strong incentive to move towards less costly alternatives – in this consideration, primarily wind and rooftop PV. This leads to a reduction in GHG emissions. However, this finding would not hold if fuel prices were substantively lower than current levels, either from falling prices or fuel-switching to lower cost products. Regardless, the qualitative implications about the optimal structure of GHG policy are robust to changing assumptions about fuel prices. Implementing GHG policy at the facility level leads to relatively higher levels of GHG emissions reductions, though at substantially higher cost. If a greater level of GHG emissions reduction is desired, the least cost policy is to lower the level of the GHG cap while still allowing for the greatest flexibility in achieving targets.

WORKING PAPER


PURPA and the Impact of Existing Avoided Cost Contracts on Hawai'i’s Electricity Sector

The United States has been trying to reduce its dependence on imported fossil fuel since the 1970s. Domestic fossil fuel supply initially peaked in 1970, and the oil crises of 1973 and 1979 accelerated domestic policy and investments to develop renewable sources of energy (Joskow, 1997). One such policy—passed in 1978 by the U.S. Congress—was the Public Utility Regulatory Policies Act (PURPA).

In this policy brief, we identify the existing PURPA-based contracts in Hawai'i and use a Hawai'i-specific electric sector generation planning model, The Hawai'i Electricity Model (HELM), to estimate the impact that PURPA contracts have on both total system cost and the mix of generation technologies. We study a variety of scenarios under the maintained assumption that the state will achieve the Hawai'i Renewable Portfolio Standard, which requires that 40% of electricity sales are generated using renewable sources by the year 2030.

UHERO PROJECT REPORT


A Policy Analysis of Hawaii's Solar Tax Credit Incentive

This study uses Hawaii as an illustrative case study in state level tax credits for PV. We examine the role of Hawaii’s tax credit policy in PV deployment, including distributional and tax payer impacts. Hawaii is interesting because its electricity rates are nearly four times the national average as well as has a 35% tax credit for PV, capped at $5,000 per system. We find that PV is an excellent investment for Hawaii’s homeowners, even without the state tax credit. For the typical household, the internal rate of return with the state tax credit is about 14% and, without it, 10%. Moreover, the vast majority of installations are demanded by households with the median income and higher. We estimate that single-family homeowner’s in Hawaii may demand as much as 1,100 MW of PV. There are, however, significant grid constraints. Policy currently limits PV generation to no more than 15% of peak load for any given circuit, or approximately 3% of aggregate electricity demand. Tax credits are therefore not likely to increase the overall deployment of PV, but rather spread the cost of installation from homeowners to taxpayers and accelerate the rate at which Hawaii reaches grid restrictions.

 Published version:  Coffman, Makena, Sherilyn Wee, Carl Bonham, and Germaine Salim. "A Policy Analysis of Hawaii's Solar Tax Credit." Renewable Energy 85 (2016): 1036-043. Web.


Market, Welfare And Land-Use Implications of Lignocellulosic Bioethanol In Hawaii

This article examines land-use, market and welfare implications of lignocellulosic bioethanol production in Hawaiʻi to satisfy 10% and 20% of the State’s gasoline demand in line with the State’s ethanol blending mandate and Alternative Fuels Standard (AFS). A static computable general equilibrium (CGE) model is used to evaluate four alternative support mechanisms for bioethanol. Namely: i) a federal blending tax credit, ii) a long-term purchase contract, iii) a state production subsidy financed by a lump-sum tax and iv) a state production subsidy financed by an ad valorem gasoline tax. We find that because Hawaii-produced bioethanol is relatively costly, all scenarios are welfare reducing for Hawaii residents: estimated between -0.14% and -0.32%. Unsurprisingly, Hawaii’s economy and its residents fair best under the federal blending tax credit scenario, with a positive impact to gross state product of $49 million. Otherwise, impacts to gross state product are negative (up to -$63 million). We additionally find that Hawaii based bioethanol is not likely to offer substantial greenhouse gas emissions savings in comparison to imported biofuel, and as such the policy cost per tonne of emissions displaced ranges between $130 to $2,100/tonne of CO2e. The policies serve to increase the value of agricultural lands, where we estimate that the value of pasture land could increase as much as 150% in the 20% AFS scenario.

WORKING PAPER


Economic Impacts of Inter-Island Energy in Hawaii

This study assesses the economic and greenhouse gas emissions impacts of a proposed 400MW wind farm in Hawaii. Due to its island setting, this project is a hybrid between an onshore and offshore wind development. The turbines are planned for the island(s) of Lanai and, potentially, Molokai. The project includes building an undersea cable to bring the power to the population center of Oahu. It is motivated by 1) Hawaii’s high electricity rates, which are nearly three times the national average, and 2) its Renewable Portfolio Standard mandating that 40% of electricity sales be met through renewable sources by the year 2030.

We use an economy-wide computable general equilibrium model of Hawaii’s economy coupled with a detailed dynamic optimization model for the electric sector. We find that the 400MW wind project competes with imported biofuel as a least-cost means of meeting the RPS mandate. As such, the wind project serves as a “hedge” against potentially rising and volatile fuel prices, including biofuel. Though its net positive macroeconomic impacts are small, the estimated reduction by 9 million metric tons of CO2 emissions makes the project a cost-effective approach to GHG reduction. Moreover, variability in imported fuel costs are found to be a much more dominant factor in determining cost-effectiveness than potential cost overruns in the wind project’s construction

 

Please contact Makena Coffman at makenaka@hawaii.edu for the full study.

 


Tax Credit Incentives for Residential Solar Photovoltaic in Hawai‘i

Solar photovoltaic (PV) tax credits are at the center of a public debate in Hawai‘i. The controversy stems largely from unforeseen budgetary impacts, driven in part by the difference between the legislative intent and implementation of the PV tax credits. HRS 235-12.5 allows individual and corporate taxpayers to claim a 35% tax credit against Hawaii state individual or corporate net income tax for eligible renewable energy technology, including PV. The policy imposes a $5,000 cap per system, and excess credit amounts can be carried forward to future tax years. Because the law did not clearly define what constitutes a system or restrict the number of systems per roof, homeowners have claimed tax credits for multiple systems on a single property. In an attempt to address this issue, in November 2012, temporary administrative rules define a PV system as an installation with output capacity of at least 5 kW for a single-family residential property. The new rule does not constrain the total number of systems per roof, but rather defines system size and permits tax credits for no more than one sub-5 kW system. In other words, it is possible to install multiple 5 kW systems and claim credits capped at $5,000 for each system. There is an additional 30% tax credit for PV capital costs at the federal level. There is no cap for the federal tax credit and excess credits can be rolled over to subsequent years.

UHERO BRIEF


Statewide Economy and Electricity-Sector Models for Assessment of Hawai‘i Energy Policies

This paper uses both a "top-down" and "bottom-up" economic model to asses the cost and greenhouse implications of various energy and environmental alternatives. The Hawai‘i Computable Generable Equilibrium Model (H-CGE) is a “top-down,” economy-wide model that captures the interaction between both producers and consumers, including full price effects between sectors. The Hawai‘i Electricity Model (HELM) is a “bottom-up” representation of Hawai‘i’s electricity sector.  The dynamic optimization model solves for the least-cost mix of generation subject to satisfying demand, regulatory requirements, and system constraints.  The models are fully integrated in respect to the electricity sector, where overall economic conditions determine electricity demand and, subsequently, the type of electricity generation has economic impact.

UHERO Brief


An Assessment Of Greenhouse Gas Emissions-Weighted Clean Energy Standards

Published in the journal Energy Policy, this paper quantifies the relative cost-savings of utilizing a greenhouse gas emissions-weighted Clean Energy Standard (CES) in comparison to a Renewable Portfolio Standard (RPS). Using a bottom-up electricity sector model for Hawaii, this paper demonstrates that a policy that gives “clean energy” credit to electricity technologies based on their cardinal ranking of lifecycle GHG emissions, normalizing the highest-emitting unit to zero credit, can reduce the costs of emissions abatement by up to 90% in comparison to a typical RPS. A GHG emissions-weighted CES provides incentive to not only pursue renewable sources of electricity, but also promotes fuel-switching among fossil fuels and improved generation efficiencies at fossil-fired units. CES is found to be particularly cost-effective when projected fossil fuel prices are relatively low.

 

UHERO has developed a two-page Policy Brief on this paper. The full publication can be found at http://www.sciencedirect.com/science/article/pii/S0301421512000961


The Value of a Wave: An Analysis of the Mavericks Region Half Moon Bay, California

This study was commissioned by the Save the Waves Coalition to determine the value of the Mavericks surf area to the local community and beyond. 

working paper


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