Climate:

WRI's Steer says 2014 critical in shaping future of utility business model

What are the key energy and environment stories to watch in 2014? During today's OnPoint, Andrew Steer, president and CEO at the World Resources Institute, explains why he believes this year will be critical in shaping the future of utilities in the United States, as well as moving forward on an international agreement on emissions. He also discusses the global impact of China's efforts to reduce pollution.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint, I'm Monica Trauzzi. Joining me today is Dr. Andrew Steer, president and CEO of the World Resources Institute. Andrew, thank you so much for coming back on the show.

Andrew Steer: Thank you.

Monica Trauzzi: Andrew, U.S. EPA has published in the Federal Register its reproposed new source performance standards for power plants. You think a key issue to watch this year is the impact of these standards on the power sector. How critical is 2014 in shaping the future of utilities' business models?

Andrew Steer: I think it's very critical, not only because the ones that were put in the Register this morning for the new power plants, but also for the ones that will be announced in early June on existing power plants. So the question is, what will this do to the U.S. power sector? How strong will they be? We've done a lot of analysis on that.

We think that the standards that will come out in June could result in a 30 percent reduction in greenhouse gases from the electricity generating sector by 2020. This would make a very important contribution towards achieving President Obama's and the government's goal of an overall 17 percent reduction in greenhouse gases. But it is important that they're strong and they're implemented.

Some people sort of say, "My goodness me, to reduce greenhouse gases, that's between 2011 and 2020 by 30 percent, this is going to cost a huge amount." It turns out, actually, that's not the case. It turns out that it's quite doable. One of the reasons is sort of the age profile of the power sector in this country. The Union of Concerned Scientists just came out recently with a report that showed that about 45 percent of the electricity generating sector in this country from coal is increasingly obsolete, with an average age of about 43 years.

Now, just for the health of the economy, as well as the health of the environment, it's actually sensitive to move rapidly. So it turns out that this sector, which accounts for about a third of all greenhouse gases from the U.S. economy, is absolutely pivotal to getting to the right place. And of course 2014 is also important because you're having down in Mississippi the Kemper power plant being built, which is carbon capture and storage. So over the last two years, 95 coal-powered plants have been closed down out of about just over a thousand. So there's that direction anyway, and this is going to nudge them in a healthy direction.

Monica Trauzzi: But the coal industry continues to be a big part of the U.S. economy, so by implementing sweeping regulations such as these, in particular on the existing source standards, we don't yet know what those will look like, but it's possible that they'll include carbon capture and storage as an element. Can the industry keep up with that?

Andrew Steer: Well, look, it's true that coal exports from the United States have been doing very well, so in terms of global warming overall, not using it at home and sending it abroad doesn't solve the problem. Obviously, there needs to be a phasing out over time of coal. I mean, the plain fact of the matter is that all of the arithmetic says, from the leading scientists in the world, that of all the known reserves, we have to leave almost two-thirds of them in the ground. That's just the brutal arithmetic, unfortunately.

Monica Trauzzi: So then why do we need CCS if you're contending that it's on its way out?

Andrew Steer: CCS would enable us to take it out of the ground, burn it, enjoy the electricity, and put the carbon back in the ground. And that's why this year is actually very important for CCS. I mean, in the world today there are only about 20 large-scale CCS programs under implementation or just coming on stream. There's another 20 in the pipeline. This one in Mississippi in the United States is a very important one. And whether or not the tone when it opens is, "My goodness, we figured out how to do it, this really is the future," or whether the tone is, "My goodness, this was very complicated and very expensive, I can't see this happening very many times in the future," that tone is very, very important.

Monica Trauzzi: So in the broader context of the global discussion on energy and emissions, what impact do EPA's regulations have on the discussion?

Andrew Steer: Oh, I think EPA has a very central role to play, and the Supreme Court has legitimized that indeed.

Monica Trauzzi: But how are other countries looking at these actions?

Andrew Steer: Oh, I think other countries are warmly welcoming these regulations and warmly welcomed the announcement by President Obama last June the 25th, and you could see that in the global negotiations that we had in Warsaw last month. I mean, a very different atmosphere. And the United States was able to say, "Come on, guys, let's raise the level of ambition." We're actually showing how we can do it, even without congressional support. It turns out you can do it and it makes sense.

And also coming along this year are a couple of very, very important sort of pieces of analysis. The project called "Risky Business" that Tom Steyer is leading together with Mayor Bloomberg and Hank Paulson overseeing this project on how risky it is for the United States to proceed economically down this path where we aren't really taking climate change very seriously? And the answer is, it's too risky for the economy, it really is. Bad economics and bad business to leave in limbo the signals that we're giving to major investors, because they don't know if there's going to be a price on carbon down the road. And the economic world, the economic analysis, are spending a lot of time on this, and really concluding that it's smart to give a clear road map.

Monica Trauzzi: A lot of debate on the economics of energy and emissions. I want to talk about China for a moment. How serious are they about reducing pollution?

Andrew Steer: Well, I think 2013 was the year of pollution in China. I mean, in Beijing, 186 days of the year were dangerously high pollution. We have staff in China, about 40 of them, virtually everyone when they get up in the morning, they press their smartphone and they see what the pollution level is, and according to what it is they'll put a face mask on to go to work or they won't.

If you look at the most popular social media site in China, two years ago there were like 300 references to what's called PM 2.5, which is a type of pollution. Last year, 3 million references to this very specific type of pollution. So citizens are very concerned, and as a result, last year, because of recognition that this is bad for the economy of China, the Chinese economy allocated $277 billion for cleanup. They prosecuted mayors that weren't keeping within guidelines. They banned coal plants in the three biggest cities. They put on tighter regulations.

And this last year they also, which will be completed this year, they're going ahead with cap and trade in five cities and two provinces to go nationwide by 2015. These are serious measures. And in 2013, half of all the new electricity generated in China was from renewable sources. So on the one hand, they're still consuming half of all the coal in the world; on the other hand, they're now each year producing half of the new electricity through renewables. So it's a good news/bad news story.

Monica Trauzzi: Let's broaden this globally. You mentioned the meeting in Warsaw that took place in November. Following that meeting, you and Secretary Ban said that he believes the progress made there was an important steppingstone towards a universal legal agreement in 2015. What does the road map look like to a final agreement?

Andrew Steer: Well, he has called a meeting this year in September where all the heads of government, heads of state in the world, and major business leaders will be invited to really talk through at a higher level. And that's not to do the negotiations, there are negotiators who do that, but really to ask as leaders of the world how serious we want to be on this.

And part of the idea there is to demonstrate the link to the economy. It turns out there are huge opportunities that are win-win. Energy efficiency alone will get you almost a third of what you need to do. But think, for example, of the fact that there are 2 billion hectares in the world that are totally degraded. They're not good for the economy, the forests are being cut down, start regreening those, and you start seeing -- look at the cities of the world, this decade 750 million people will be added to the cities of the world. How those cities are built, if they're built like New York City, we'll be in very good shape. If they're built like some other cities we can think of in this country, we'll be in very bad shape, because the different in carbon emissions are huge.

And so the idea of this summit would be not to negotiate the political agreement, but rather to say, "What do we understand about the link between the economy and climate?" We're heavily involved in a major project called the International Commission on the Economy and Climate. President Calderón of Mexico is chairing that, bringing some of the best economists of the world, saying, "Could we get from here to where we need to be without it hurting your economy? On the contrary, helping your economy."

Monica Trauzzi: All right, a lot to watch this year. Thank you so much for coming on the show.

Andrew Steer: Thanks very much, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.