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Metering Carbon Not Kilowatts

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Climate change is clearly affecting industry, and industry must do what it can to help reduce the impact of carbon from energy resources. In some areas, such as the State of New York, utilities have policy and law driving them toward reduced greenhouse gas emissions.

Regardless of the driver, this transition is difficult for an industry that has been focused for more than a century on safety, reliability and affordability. In particular, reliability and affordability are key contributors to the carbon footprint of the industry. Utilities are focused on building or buying the most cost-effective and reliable sources of electricity through protracted and data-intensive planning processes that result in decisions that affect a company or region for decades. The mandate for these companies has been to make sure that there is power when the customer flips the switch, and companies are rewarded and compensated for making wise long-term investments in generation and transmission infrastructure.

But what if incentives were changed for utilities? What if utilities were focused on reducing the carbon footprint? And what if utilities could change customer behaviour to reduce that carbon footprint?

Most economist state that the best way to get customers to behave in a way that responds to carbon costs is by including those costs in the price of electricity. The problem is that customers don’t think about electricity as carbon emitting; in fact, they don’t think much about electricity at all, unless the power goes out. Instead they think about the things they do with electricity: heat or cool their homes, cook, wash clothes, and use electronics.

So how do you change the paradigm that has been in place for more than a century? Doing so requires a bold change that enables focus on carbon created, not electricity consumed. A change such as metering carbon rather than kilowatts.

In this new paradigm, utilities charge customers for access to the electricity, which includes both the capacity to generate and deliver electricity. Utilities then meter the carbon the customer consumes depending on the customer’s choice of generation source. Local and carbon-free generation resources are charged the lowest costs while reliance on bulk power from carbon-emitting generation located hundreds of miles away is charged at the highest rate. Such a model balances customer choice with a market price for carbon that doesn’t need to be set by an act of law.

Customers are given the choice of the source of generation, and are charged by when they use generation, to determine the carbon footprint of the kilowatts they consume. Customers get a bill each month or information through other channels that informs them of their carbon footprint and provides ideas about the right ways to reduce that carbon, not electricity, consumption. This approach makes carbon consumption the driver. For example, a customer who consumes electricity in a region with surplus solar energy could have a negative carbon footprint because their use eliminates the need for a ramping resource.

Metering carbon also make resources, such as storage and energy efficiency, more affordable. Like the customer consuming electricity in a region with surplus solar energy, a battery can store this power and be used to meet demand in hours when the sun does not shine. However, it can also be used to meet the generation ramp that must respond to changing net load. Batteries can charge during the downward ramp, slowing the slope and allowing for response by renewables and other carbon-free resources. Similarly, batteries can discharge during the evening ramp up, again slowing the need for carbon-emitting resources, which are generally more responsive, to meet the ramp.

Currently, few utilities quantify the marginal cost of ramping up or down, in part because it is so difficult to quantify in a standardized and generally accepted manner. Even fewer agree on the cost of carbon and what should be included in carbon metering costs. But by changing the focus to carbon reduction, these costs don’t need to be known, only the amount of carbon that is being emitted needs to be measured.

Further, metering carbon and not kilowatts eliminates the need for complex and controversial carbon taxes, cap-and-trade schemes, and other ways of pricing carbon. In other words, the objective of each utility is to plan, price, and operate with the goal of minimizing carbon and bridging market costs with the costs and benefits of the technologies and investments used to reduce carbon. The key to doing so is a subscription or other form of fixed pricing that allows the utility to recover fixed costs and long-term capacity costs while sending variable signals to customers based on the carbon that results from their consumption.

Sacramento Municipal Power Authority is leading the way by introducing a change in the way it evaluates energy efficiency programs. The organization has proposed the goal of energy efficiency to minimize carbon emissions and, in fact, optimize carbon reduction. This approach supports California policy to leverage electrification to reduce carbon. Again, by focusing on carbon reduction as a goal, the actual quantification of the externalities of carbon is moot and programs are enabled to be evaluated and compared based on progress toward that goal.

Finally, metering carbon not kilowatts promotes electrification. As customers become aware of their carbon footprints, the benefits of electrification become more obvious and less reliant on traditional economics. After all, who can put a price on the environment?

Margot Everett's picture

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Guidehouse
Guidehouse is a leading global provider of consulting services to the public and commercial markets with broad capabilities in management, technology, and risk consulting.

Discussions

Matt Chester's picture
Matt Chester on Feb 4, 2020 2:40 pm GMT

This is a really interesting idea, Margot-- I love it. If the metering of carbon was made visible and clear to customers and they saw how their actions could impact their footprint (not to mention their bills), I could see a lot of behaviors shifting a lot faster than they otherwise would have. 

Obviously this would be a pretty significant paradigm shift-- do you think this is something that could go from concept to practice in reasonable time, or would the institutional inertia be too high and we'd have to settle for half measures? 

Bob Meinetz's picture
Bob Meinetz on Feb 4, 2020 4:53 pm GMT

"Local and carbon-free generation resources are charged the lowest costs while reliance on bulk power from carbon-emitting generation located hundreds of miles away is charged at the highest rate. Such a model balances customer choice with a market price for carbon that doesn’t need to be set by an act of law."

I'm not understanding your paradigm, Margot. What, but for an act of law, would force local and carbon-free resources to have lower prices than carbon-emitting generation from hundreds of miles away?

Vu Nguyen's picture
Vu Nguyen on Mar 5, 2020 4:43 pm GMT

I'm an (renewable) energy guy that has been learning a lot about sustainability and carbon management. Higher education and corporates are already operating as if carbon is the new currency. Traditional utilities are also measuring emissions with a desire to convert to 100% clean energy. The thesis Margo presents is an important matter to all ESG driven stakeholders.

Matt Chester's picture
Matt Chester on Mar 5, 2020 5:14 pm GMT

Traditional utilities are also measuring emissions with a desire to convert to 100% clean energy. 

Are they desiring that conversion, or are they seeing that the wind is blowing in that direction and they'll be forced to one way or another? In the end, the actions would be identical, though, so I'm not sure the motivation matters in the end!

GEORGE WAYNE's picture
GEORGE WAYNE on Mar 5, 2020 5:07 pm GMT

Transparency, creates better incentive structures, creates better market signals to the consumers, which can create the desired result.  So yes, I generally agree with you Margot.  Moreover, the century long narrative of delivering energy safely, reliably, and affordably in whatever form still holds true, now and into the future.  However the emphasis being placed on those three facets may have shifted slightly whereas the goal of delivering energy safely now has the presumption of environmentally safe was well.

However, I still prefer the structure of a universal carbon tax of some sort, rather than a patch work of different utility and municipal structures across the landscape that could lead to more confusion for the consumer which might lead to unintended consequences.  Ride hailing is a perfect example of this, leading to more congestion and increasing emissions relative to what it was supposed to displace!

Matt Chester's picture
Matt Chester on Mar 5, 2020 5:16 pm GMT

However, I still prefer the structure of a universal carbon tax of some sort, rather than a patch work of different utility and municipal structures across the landscape that could lead to more confusion for the consumer which might lead to unintended consequences. 

Not just confusion for the consumer, but outright gaming of the system by large enough actors who can afford to do so

Subramanian. Varadaraj's picture
Subramanian. Varadaraj on Mar 18, 2020 4:31 am GMT

Interesting article. But difficult to quantify the amount of CO2 with respect to the KWh of energy produced. A wishful thinking and paradigm shift in the energy generation.

 

Matt Chester's picture
Matt Chester on Mar 18, 2020 11:42 am GMT

Difficult, maybe, but certainly not impossible! Big ideas are what we need these days

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