Policy Research Project: PA 682A

Course Information:
Section Title: Texas Energy Policy
Instructor: David Eaton
Course: P A 682A - Policy Research Project
Unique Number: 63934
Day & Time: Tuesdays, 6:00 PM - 9:00 PM
Room: SRH 3.109
Waitlist Contact: Lori O'Neal, 512-232-4012, oneal@mail.utexas.edu
Notes: Same as GEO 391-55282
For More Information: http://www.utexas.edu/lbj/advising/view_course.php?cid=194

Course Description:
This course will address two energy policy issues: carbon trading in Texas and distributed energy in Texas. Those components are listed below.

Focus A: Developing a Carbon Trading System for Texas

Texas has a significant potential to develop systems to reuse waste carbon dioxide as an input for enhanced petroleum recovery. One element of such systems would be development of a carbon trading system for Texas which could provide economic incentives for those who capture and/or reuse carbon dioxide gas. There may be market methods that facilitate Texas to lower greenhouse gas emissions while simultaneously enhancing the state’s economic performance.

Texas leads the nation in energy production and also in its consumption, which puts it in first place in the production of carbon dioxide. Texas has long been a leader in the enhanced recovery of oil through the use of carbon dioxide flooding. Most of the CO2 produced in Texas is not being used constructively, but is being emitted into the atmosphere where it acts as a greenhouse gas. With the price of oil and gas heading for record levels and concern for greenhouse gas issues, the opportunity exists to dramatically increase oil production in Texas using waste CO2 gas and pump huge amounts of money into the Texas economy. However, the cost of capturing and purifying the CO2 from industrial sources and power plants is too high now and likely will be for the foreseeable future to support a business. An additional source of revenue or incentives is needed to simultaneously allow Texas companies to make a profit while harvesting CO2 to reduce air discharges, and re-using CO2 in petroleum recovery.

One option for providing an economic incentive to reduce CO2 emissions is a “cap and trade” emissions trading system. This combines a government-set cap on emissions with market-based solutions for reducing emissions—with a real value of CO2 as a driver. This type of system has been used effectively since 1995 to cost-effectively reduce SO2 emissions (US Acid Rain Program) and since 1999 to reduce NOx emission on a regional basis in the US. As of January 2005 it is also the system that Europe (via the EU Emissions Trading System) is using to reduce their CO2 emissions in line with their Kyoto commitments. While US federal activity for CO2 emissions trading is limited, there are active state programs such as the Regional Greenhouse Gas Initiative involving nine Northeast states (RGGI) and California (in development).

The purpose of this section of the course is to develop a system or policies for Texas that would be good for the economy as well as the environment. A key goal will be to identify ways to create value for the CO2 without burdensome regulatory requirements that could render the system self-defeating.

Focus B: Distributed Power Generation

Many researchers have identified the benefits of distributed electrical generation (DG). Generating electricity close to where it’s needed, through a variety of technologies such as combined heat and power (or solar photovoltaic or wind) has environmental, societal and economic benefits in addition to increasing electricity reliability and security.

The US Department of Energy (DOE) has recognized the benefits of DG. The DOE Energy Efficiency and Renewable Energy Program has the goal of increasing the supply and use of clean energy resources and improving the reliability of the nation’s energy systems. A specific goal of the program is to increase the amount of the nation’s distributed power to 20 percent of new electricity capacity. This distributed capacity will reduce the investment need to transmit and distribute energy by increasing on-site power generation capacity.

One key to DG success is showing that there are financial incentives for increasing DG capacity for all players: generators, distributors and users. If clear financial incentives to DG are not identified, it will be more difficult to achieve the DOE’s stated goals to increase DG capacity. This is especially true for states like Texas with competitive electricity markets, as profitability and regulatory barriers are key factors when installing new generation capacity. For competitive markets, it is important to highlight areas (niches) where distributed generation makes sense in the short term. A second key is identifying and addressing technical and regulatory barriers to DG, both on a national and state-by-state level. A through and systematic analysis of regulatory and financial barriers in every state would reduce uncertainties and may help to promote investments in DG.

This project will conduct a thorough investigation of distributed generation under competitive situations. It will identify and examine barriers to distributed generations such as regulatory, environmental and technical issues. It will develop a comprehensive and systematic state-by-state look at regulations regarding distributed energy, with CHP as the case study. The class will seek to use real financial data from the Texas Public Utility Commission (PUC) to look at the prospects for DG and CHP in Texas, a state with competitive electric structure. One of the products will be a book of “best management practices” or strategies for DG. The book will describe barriers to DG and propose how to best handle them.