The Special and Important Case of Electricity in Climate Change

I have recently hosted several guests in my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” with great expertise on the electricity sector.  And today, I’m continuing that with the most recent episode of the podcast.  This is appropriate because the electricity sector – in many countries – is both a major source of carbon dioxide (CO2) emissions, and is also a very important potential part of the “solution space,” due to the promise of increased electrification of the transportation and building sectors (accompanied by greater reliance on renewable sources of generation).

In the most recent episode, I engage in conversation with an economist who has spent close to four decades studying the electricity sector, making important contributions to the design of public policies, and one who also has great expertise in the broader realm of regulatory economics and industrial organization.  I’m referring to Severin Borenstein, who is Professor of the Graduate School at the Haas School of Business at the University of California, Berkeley, where he is the long-time Director of its highly-regarded Energy Institute.  The podcast is produced by the Harvard Environmental Economics Program.  You can listen to our complete conversation here.

As I noted above, Borenstein directs the Energy Institute at Haas.  In my view, its blog platform is among the most effective – and prolific – in energy policy circles. 

Our conversation begins with the fact that Severin has spent several decades studying the electricity power sector after having begun his career working on airline deregulation at the Civil Aeronautics Board (CAB) in the late 1970s.  It was a formative time in his career, he acknowledges, because of how immediately impactful that work was.

“During the time I was there, we basically instituted the process of deregulation which was a very complex process in terms of opening up entry of airlines to new routes, reducing and eliminating regulation of pricing, [and] figuring out how to set rules like denied-boarding compensation. So, there was just a huge amount of regulatory change going on, and with an economist [Fred Kahn] at the helm of the organization, a lot of that was based on economic reasoning. So, the economic group that I was in played a big role in it,” he says.   The Airline Deregulation Act of 1978 specified that the CAB would eventually be dissolved, which it was in 1985.

After teaching at the University of Michigan from 1983 to 1980, Severin returned to his native California to join the faculty at the University of California, Davis, at a time when the state was beginning to deregulate its electricity sector. In 1996, he moved to the Haas School of Business at the University of California, Berkeley, where he continued his work on electricity policy. Today, the state is a global leader in the clean energy transition, Borenstein argues, and should serve as an example for other regions that are lagging behind.

“Electrify everything really is the pathway to making huge gains on reducing greenhouse gas emissions, and that means a lot of renewables on the system. And that raises this challenge, which California is way ahead of almost anyone else in the world on, of keeping the system in balance when you have a lot of intermittent non-dispatchable generation,” he remarks. “You can … do it with batteries, but batteries are extremely expensive if you’re talking about long-term storage and having enough power to get through cold winters and so forth. You can do it with more trade with other areas that have different production patterns, and that’s great. We aren’t doing nearly enough of that.”

Borenstein also explains that the country would benefit tremendously from the placement of additional transmission lines that would facilitate the transfer of electricity from one region to others. He also notes the lack of public policies that would serve to reduce energy demand at peak times.

“We have not gone down the road very far at all of using demand response to help balance the system, and I think that’s just a huge waste,” he says. “There’s plenty of electricity demand that is absolutely critical, but there’s also plenty that’s not and if we can send the signals, now’s not the right time to charge your car, or it would be better if you could shift your electric dryer to later in the evening or middle of the day when we have plenty of solar, we could make this a lot easier. And no one that I’m aware of has gotten very far in doing that. And I think that’s a real disappointment and challenge.”

For this and much, much more, I encourage you to listen to this 51st episode of the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.


Reflecting on the Causes and Consequences of the Texas Energy Crisis

In mid-February of this year, a series of severe winter storms swept across the United States, due to the jet stream dipping particularly far south, stretching from Washington State to Texas, and running back north along the East Coast, allowing a polar vortex to bring exceptionally cold air across the country, and spawning multiple storms along the jet stream track.  This weather phenomenon resulted in record low temperatures throughout the state of Texas, with temperatures in Dallas, Austin and San Antonio falling below temperatures in Anchorage, Alaska!

            In Texas, this led both to dramatic increases in electricity demand for heating, and – at the same time – drastic reductions in electricity supply, as natural gas, nuclear, and wind generating facilities faced a variety of restrictions.  This severe supply-demand imbalance on the Texas electricity grid resulted in what has already come to be called the “Texas energy crisis of 2021,” which according to my most recent podcast guest, William Hogan, was of “unprecedented” scale, scope, and duration.

            William Hogan is the Raymond Plank Research Professor of Global Energy Policy at the Harvard Kennedy School, where he directs research in the Harvard Electricity Policy Group.  You can hear our complete conversation in the Podcast here.

In these podcasts – “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program – I talk with well-informed people from academia, government, industry, and NGOs.  Bill Hogan surely belongs in this group, as one of the world’s leading authorities on electricity markets, the founding director of Stanford University’s Energy Modeling Forum, and the founding Research Director of the Harvard Electricity Policy Group.

Among the questions I discuss with Bill Hogan in the podcast are these: 

  • There have been previous electricity grid problems and blackouts – in Texas, California, New York – as well as in other parts of the world.  What made this one so different?
  • What were the the supply-side causes, including for generation from natural gas, nuclear, and renewables?  What about the fact that Texas has its own grid, with limited interconnections?  Was that a major problem?
  • On the demand side, if the state’s high reliance on electric heating was part of the problem, what does that say, if anything, about the fact that California and other jurisdictions seem to be moving toward prohibit natural gas connections for new home construction, because of climate change concerns?
  • Was the nature of the Texas electricity market and its regulation (or lack thereof) a significant factor in the crisis?
  • What about the consequences of the Texas crisis, such as the incredibly high electricity prices faced by some of those who were fortunate enough not to lose their power? 

As I noted above, the Texas energy crisis unfolded when a convergence of winter storms produced record-cold temperatures across much of the central part of the United States, reaching as far south as the Lone Star State. The sustained cold caused significant damage to energy infrastructure in Texas, knocking down transmission lines, freezing natural gas pipelines and pumps, severely pinching supplies, and creating blackouts throughout much of the state.  At the same time, the exceptionally cold weather resulted in spiking demand, as electric heating was cranked up by consumers. Hogan describes the scale, scope, and duration of the crisis as “unprecedented,” characterizing it as a one-in-one-hundred-year event.

“It’s a very tragic situation. Terrible. And when you’re dealing with systems like this, you can plan for some things. And then, when you get outside the envelope, you’re in trouble,” he says.

In our conversation, Bill describes how this situation resulted in a severe energy supply/demand imbalance during which hundreds of thousands of homes and businesses were left without power for days, and some of those who remained on the grid were at risk of receiving extremely high electricity bills (because they had previously opted for contracts which passed on wholesale costs plus a relatively small monthly charge).

Some observers have pointed fingers at Texas’ relatively less regulated energy market as the culprit for the crisis that unfolded, but Professor Hogan largely disagrees.

“One of the claims that has been very popular in certain press articles is that Texas has a free market in electricity. And you can’t have a free market in electricity because of problems like this. And that’s a mischaracterization of what has happened in Texas,” he says. “There are differences in the level of choice. But there are also reliability conditions, operating reserves that are imposed, transmission constraints that you have to respect. So, it’s a complicated mix of engineering and economics. And you have more choice, perhaps, in Texas than you have elsewhere. But I think it’s a mistake to characterize it as just having no regulation.”

Hogan agrees that the Texas energy grid is not equipped to withstand such pronounced and sustained cold snaps as the one in February, but he argues that the state’s electricity market design, which is highly responsive to typical changes in supply and demand conditions under normal circumstances, is one that is admired and hence being replicated in other parts of the country.

“You see evidence in the Western energy imbalance market that’s expanding rapidly because of the pressure coming from renewables. And you see the Southeast electricity and energy market proposed a couple of weeks ago, which is trying to accelerate the amount of trading and the amount of market operations. All of these things are moving in the direction of the Texas energy market,” he says. In general, Hogan concludes, the Texas electricity market design isn’t “as broken as people have claimed.”

My complete conversation with Professor Hogan is the 21st episode in the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.