As the world faces the intensifying effects of climate change, the role of infrastructure investment and innovation in building resilience has never been more critical. On November 13th, 2024, the Institute for Environmental and Social Sustainability (IESS) hosted a focused workshop that brought together experts from diverse sectors to explore solutions to this urgent challenge. Held at the Kelley School of Business, the event featured discussions on decarbonization strategies, alternative energy sources, utility transformation, and the intersection of market dynamics and renewable energy integration.
The full program of the event can be found at this link.
Frameworks and Policies for Decarbonization
The morning session kicked off with a focus on decarbonization frameworks and policies, which are at the heart of the global effort to reduce carbon emissions. Heavy industries, often responsible for significant emissions, are key targets for policy intervention. Experts emphasized the importance of institutional frameworks and public policies in steering these industries towards cleaner, more sustainable practices. With the evolving social cost of carbon, the need for strategic investments in renewable energy was also highlighted, positioning it as a crucial driver of climate resilience.
• Anees Azzouni explored the challenges of decarbonizing heavy industries, emphasizing their significant energy use, high emissions, outdated processes, and the costs of transitioning to cleaner technologies. He highlighted the role of public policy in influencing industrial decarbonization, discussing the intersections of climate, industrial, and trade policies, as well as regulatory and corporate frameworks. Key obstacles include weak institutional frameworks, conflicting policy objectives, and hesitant adoption of new technologies by industries. The discussion underscored the need for cohesive strategies, stronger corporate commitments, and targeted policies to effectively align industrial efforts with global climate goals.
• Tom Palley explored the implications of the social cost of carbon (SCC) on renewable energy investments and policy. SCC, representing the economic damages of emitting one ton of CO₂, is challenging to estimate due to wide-ranging and uncertain forecasts. By modeling SCC’s evolution stochastically, his research examines how utilities adjust renewable energy investments under different scenarios and how policymakers might influence learning about SCC over time. The study underscored the role of SCC in shaping regulations and utility planning, despite the absence of a federal carbon tax.
Alternative Energy Sources in Transition
As the energy sector grapples with its transition away from fossil fuels, exploring untapped sources of alternative energy becomes essential. Wood fiber, an American energy resource often overlooked, was presented as a potential contributor to the renewable energy mix. Additionally, renewable natural gas (RNG) emerged as a key player in this transition, showcasing its ability to reduce emissions and provide reliable energy.
• Tim Gawne discussed challenges and opportunities in utilizing timber residuals for biofuels and biomass energy, driven by an oversupply of timber in the U.S. Southeast. While projects like biofuel and wood pellet production show potential, high costs, regulatory hurdles, and competition with cheaper energy sources, like natural gas, pose significant challenges. He highlighted the need for government policies, carbon capture technologies, and holistic industry collaboration to address sustainability and resource management, emphasizing the economic and environmental complexities of transitioning to biomass as an energy solution.
• Anita Doyle discussed renewable natural gas (RNG) as a sustainable energy solution derived from organic waste, such as landfills and wastewater treatment plants. Highlighting its environmental benefits, the presentation emphasized RNG’s ability to capture methane emissions and its versatile applications in transportation, industry, and electricity generation. Despite its higher costs compared to fossil natural gas, demand for RNG is growing due to ESG commitments, government incentives, and its compatibility with existing infrastructure. The speaker underscored RNG’s role in the energy transition while acknowledging challenges like scalability, economics, and regulatory support.
Utility Transformation and Community Development
The transformation of electric utilities was another central theme of the workshop. With the rapid evolution of technology and energy needs, utilities must adapt to innovate while ensuring they support community development. Discussions on how companies like Whirlpool and Habitat for Humanity are partnering to address housing and energy needs in local communities underscored the importance of such collaborations in building resilient, sustainable systems that meet both environmental and social goals.
• Ed Coleman shared insights from his involvement in the energy sector, particularly the electric utility industry’s transition to net zero. He highlighted the industry’s focus on safety, reliability, customer affordability, and clean energy. Utilities have reduced carbon emissions by 41% since 2005, driven by ESG goals, investor demands, and regulatory shifts, but face challenges like demand growth, aging infrastructure, and transmission hurdles. Innovation in energy generation, grid modernization, financing stranded assets, and balancing local versus large-scale energy solutions are critical to achieving net zero by 2050, all while navigating political and social complexities.
Ed Coleman speaks on electric utility transformation and innovation
• Wendi Goodlett, Rosa Skinner, and Beat Stocker highlighted Whirlpool Corporation’s impactful partnership with Habitat for Humanity over the past many years, emphasizing their joint commitment to sustainability, affordable housing, and energy efficiency. The “BuildBetter with Whirlpool” program has focused on creating climate-resilient and energy-efficient homes, addressing global challenges like rising energy costs and environmental impacts while contributing to UN Sustainable Development Goals (SDGs) 7 (Affordable and Clean Energy) and 11 (Sustainable Cities and Communities).
Energy Challenges and Transition
The afternoon sessions delved into the specific energy challenges faced by states like Indiana, with a focus on how emerging electricity issues could shape the future of energy transition. Experts discussed the timing of this transition, stressing that the question is not if but when energy systems must change to address climate impacts.
• Sunil Maheshwari shared insights into the energy industry and the challenges of forecasting electricity demand in Indiana. Reflecting on their extensive career in energy utilities, wholesale trading, and retail electricity markets, they emphasized the importance of accurate demand forecasts for effective resource planning, particularly in the context of data center growth and increasing electrification. They highlighted the role of econometric models, evolving industry trends, and the regulatory complexities utilities face, such as balancing customer affordability with infrastructure investment. They also discussed broader industry issues, including hedging practices, carbon regulation impacts, and the dynamic nature of energy markets, encouraging students to develop strong quantitative skills to address future energy challenges effectively.
• Stephanie Wang presents her research on energy transition from a temporal perspective, focusing on how firms manage the shift toward renewable energy. She discusses two papers: the first examines firms’ energy transition patterns using a framework that looks at strategic purpose and scope. The second paper explores how firms deal with regulatory uncertainty through time-calibrated responses, emphasizing the role of time in shaping compliance. Wang concludes by highlighting the importance of aligning managerial attention with transition goals.
Global Investment, Pollution, and Climate Uncertainty
The complexities of global investment, pollution, and the uncertainties surrounding climate change were also examined. The intersection of multinational investments, environmental pollution, and the race to innovate in the face of extreme weather events presented a multifaceted view of how global forces influence local and regional energy transitions.
• Juan Bu presents a study on the impact of environmental pollution on multinational firms’ foreign investment. The paper challenges the “race to the bottom” theory, suggesting that pollution havens may incur significant reputational and operational risks, leading firms to reduce investments in these countries. Bu introduces the concept of “pollution cost,” consisting of reputational and operational risks, and examines how firms’ environmental capabilities and transgressions affect their investment decisions. The study finds that firms with higher environmental capabilities are more likely to scale back investments in polluted countries, reflecting growing concerns over sustainability.
• Sumudu Watugala presents research on how extreme weather events, particularly hurricanes, influence uncertainty and firm returns. She explores the impact of extreme weather on firm-level uncertainty, specifically using changes in stock option prices around US hurricanes to measure uncertainty. The study finds that extreme weather leads to substantial uncertainty, with option prices increasing by 20%, and that uncertainty remains high for up to three months. Additionally, the paper shows that investors underreact to the uncertainty caused by these events, leading to pricing inefficiencies that are corrected after major incidents like Hurricane Sandy.
Market Dynamics and Renewable Integration
The final session explored the dynamics between competitive markets, capital investment, and the integration of renewable energy. Discussions focused on the role of renewable, flexible, and storage capacities, raising important questions about their compatibility and the challenges involved in optimizing these resources to ensure reliable and sustainable energy systems.
• Madeline Yozwiak’s research explores the impact of market structure on electricity generation investment in the US, particularly in the context of competitive reforms. She finds that deregulation leads to a substantial reduction in capital investment in fossil power plants, without negatively affecting operational efficiency, suggesting that prior investments were likely excessive. The study highlights that the decrease in investment could lead to cost savings for consumers. Maddy also suggests that similar effects could occur with future renewable energy investments, pointing out that deregulation may play a role in reducing infrastructure costs during the transition to clean energy.
• Owen Wu’s research explores how utilities should balance investments in battery storage, solar energy, and dispatchable generation (like natural gas). Using optimal control theory, the study evaluates when to charge or discharge batteries to maximize cost efficiency. The results show that solar and batteries can either complement or substitute each other, depending on the availability of renewable energy. For instance, excess solar energy can be stored in batteries for later use, while in cases of insufficient renewable generation, batteries might use natural gas. The research highlights the complex interplay between these resources and suggests that optimizing their use can inform investment decisions for utilities transitioning to cleaner energy.
Conclusion: A Call to Action
The workshop underscored the critical need for collaboration across sectors—government, business, and communities—to drive meaningful progress in addressing climate change. From innovative energy solutions to market transformations, the discussions highlighted the importance of infrastructure investment and forward-thinking policies in shaping a resilient future for all. It is clear that as the challenges of climate change grow, so must our commitment to finding innovative, sustainable solutions that can withstand the test of time.
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