Energy and Environmental Policies: Taking Aim at Fossil Fuels. Mary Novak Managing Director, Energy Services

Transcription

1 Energy and Environmental Policies: Taking Aim at Fossil Fuels Mary Novak Managing Director, Energy Services

2 Major Policy Drivers 1. Energy Policies Energy Security Reduce dependency on petroleum-based energy sources Diversify energy sources 2. Environmental Policies Reduce criteria emissions at local, urban, metropolitan, and national levels Reduce greenhouse gas emissions 30 years of policies have aimed at achieving these goals Copyright 2008 Global Insight, Inc. 2

3 Recently Enacted Legislation States took the lead to push for greater gains Demand management Renewable power mandates Renewable fuel incentives/mandates Energy Policy Act of 2005 (EPAct05) Renewable fuels mandate Efficiency standards Incentives for construction and operation of new nuclear capacity Energy Independence and Security Act of 2007 (EISA07) Increased renewable fuels mandate New vehicle efficiency standards Increased efficiency standards (particularly lighting) Copyright 2008 Global Insight, Inc. 3

4 Impact of Legislation (Index, 2005=1.0) Carbon Emissions Growth Slows to a Crawl Despite Energy Growth Primary Energy Demand Carbon Emissions Copyright 2008 Global Insight, Inc. 4

5 Moving Forward Current policies are forecast to achieve a dramatic reversal in fossil fuel demand and emission growth. Policy-makers are under pressure to reduce GHG emissions, not just hold them steady. Current policies were principally aimed at improving energy security. New policies, now under development and scheduled for debate, are aimed at reducing GHG. Copyright 2008 Global Insight, Inc. 5

6 Policies Under Consideration Economy-wide cap & trade systems Limited allocation of allowances Transitioning to full auction Recycling of revenues through government agencies and programs Mandates Targeting specific sectors and fuels Incentive packages Government sponsored research and development Sector-specific cap & trade systems Targeting specific emission sources Cap & trade system provides incentives Revenue recycling is restricted to intra-sector Hybrid bills Mandates, incentives, R&D Limited cap & trade Revenue recycling is restricted to intra-sector Copyright 2008 Global Insight, Inc. 6

7 Economy-wide Cap & Trade Economy-wide cap & trade systems have been at the forefront of recent policy debate. Pros: Establish meaningful reductions in GHG Provides mechanism to capture all low-hanging fruit Provides financial incentive for development and rapid uptake of new technology Cons: Marginal price of emission reduction will be paid by all consumers on all energy purchases (expect high energy prices) No level playing field current mandates (based on energy security) will create non-economic winners and losers Banking on a technological fix that might not arrive in time Recycling of revenues equivalent to tax reform Will financial market players be the ultimate winners? WTI rose $30 in 30 days with no change in fundamentals What could happen with allowance trading? Copyright 2008 Global Insight, Inc. 7

8 Reducing GHG Do We Need Legislation? In an era of extraordinary high energy prices, do we need legislation or will markets do the job? Pre-Kyoto analyses said: Emission allowances will need to rise to $ /ton of carbon = $50 60/ton of carbon dioxide, which is approximately equal to: $24 30/barrel of crude oil $3 4/mcf of natural gas $ /ton of coal But, the underlying real prices levels were only: $30 35/barrel of crude oil $2 3/mcf for natural gas $20 25/ton of coal Today s prices are equal to or higher than the sum of the above Could today s energy prices, in concert with current legislation, be sufficient to set the United States on a more energy efficient path, obviating the need for legislation to control GHG? Copyright 2008 Global Insight, Inc. 8

9 Thank you! Mary Novak Managing Director, Energy Services