Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?

Transcription

1 Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost? US Greenhouse Gas Abatement Mapping Initiative National Academies Summit on America s Energy Future March 14, 2008

2 Project background Objective: Develop a comprehensive, objective, consistent fact base to inform economically sensible approaches for reducing U.S. greenhouse gas (GHG) emissions Analyzed 250+ opportunities to reduce US GHG emissions by 2030 Covered 7 sectors of the economy buildings, power, transportation, industrial, waste, agriculture and forestry Constructed detailed emissions reference case based on US government agencies (e.g., DOE, USDA, EPA) for emissions forecasts Conducted interviews with 100+ leading authorities and companies, and leveraged McKinsey subject matter experts around the globe Received guidance and support from top academics and corporate and environmental sponsors (DTE Energy, Environmental Defense, Honeywell, National Grid, NRDC, PG&E, Shell). The Conference Board is co-publishing and disseminating the report. 1

3 Government agencies forecast US emissions to rise 35% by 2030 Gigatons CO 2 e per year Projected GHG emissions Key growth drivers % Expansion of US economy and population Above-average growth in buildings and appliances Increased coal-fired power generation (without CCS) 2005 emissions Expected growth 2030 reference case Source: U.S. EIA Annual Energy Outlook (2007) Reference case," U.S. EPA; Pew Center On Global Climate Change; McKinsey analysis 2

4 3.0 to 4.5 gigatons of reduction potential available with concerted economy-wide action Cost $(2005 real) ton CO 2 e Increasing commitment and action Low-range case 1.3 gigatons Mid-range case 3.0 gigatons High-range case 4.5 gigatons Abatement implied by proposed legislation: gigatons Potential Gigatons CO 2 e/year * Based on bills introduced in Congress that address climate change and/or GHG emissions on an economy-wide basis and have quantifiable targets; targets calculated off the 2030 U.S. GHG emissions of 9.7 gigatons CO 2 e/year (reference case) Source: McKinsey analysis 3

5 GHG reduction opportunities widely distributed 2030 mid-range case Cost Real 2005 dollars per ton CO 2 e Residential electronics Fuel economy packages Light trucks Industrial process improvements Coal mining Methane mgmt Nuclear new-build 30 Residential 20 buildings - 10 Lighting Potential -30 Biomass Industry Gigatons/year -40 Industry power CCS new -50 Combined Cofiring builds on Manufacturing -60 heat and carbonintensive power -70 HFCs Car processes -80 mgmt hybridization Cellulosic Coal power -90 biofuels plants CCS new -100 builds with EOR -110 Commercial -120 electronics Conservation tillage Commercial buildings New shell improvements Low-, midpenetration onshore wind Active forest management Natural gas and petroleum systems mgmt Winter cover crops Reforestation Distributed solar PV Commercial buildings HVAC equipment efficiency Residential buildings HVAC equipment efficiency Abatement costs <$50/ton Coal-togas shift dispatch of existing plants Fuel economy packages Cars Afforestation of pastureland 4

6 Drivers of 2030 GHG abatement potential Coal with CCS Gigawatts Low-range case 22 Mid-range case x Abatement potential below $50/ton, gigatons High-range case Nuclear Gigawatts Renewables Gigawatts Wind 10 Solar < Cellulosic biofuels Billion gallons Light duty vehicle performance - mpg 25 mpg Efficient new residential lighting 8% 15% 70% 75%

7 Energy efficiency opportunity profile Cost Real 2005 dollars per ton CO 2 e Residential electronics Fuel economy packages Cars Fuel economy packages Light trucks Industrial steam improvements Residential buildings Shell retrofits Energy efficiency-related opportunities Significant capture Energy Independence and Security Act Commercial buildings HVAC equipment efficiency Residential buildings HVAC equipment efficiency 30 Residential 20 buildings - 10 Lighting Potential -30 Gigatons/year -40 Industry -50 Combined -60 heat and power Commercial buildings Combined heat & -100 power -110 Commercial -120 electronics Commercial buildings New shell improvements Commercial Super T8 lighting Power Conversion efficiency Residential water heaters 2030 MID-RANGE CASE Substantial energy efficiency opportunity (1.3 gigatons); primarily negative cost Included hard-wired EE only, excluded (for now) behavioral EE until proven sustainable Perishable (e.g., differential between new-build and retrofit costs up to $80 per ton) Known and challenging barriers (e.g., agency, payback, education) prevent capture 6

8 Energy efficiency has potential to offset majority of projected build through 2030 Terawatt-hours MID-RANGE CASE ,520 5,385 1,067 Net gain from energy efficiency +40% 3, , load Incremental load 2030 projected load Buildings and appliances Industry Transportation (plug-in hybrids) 2030 load Abatement categories Source: U.S. EIA Annual Energy Outlook (2007) Reference case; McKinsey analysis 7

9 Incremental capital investment in midrange case Real 2005 $ billions, cumulative through 2030; options <$50/ton CO 2 e Power 560 MID-RANGE CASE Capital flows due to energy efficiency Transportation 370 Industry infrastructure 100 Agriculture and forestry 80 Buildings and appliances 160 Industry energy efficiency 90 above reference case Avoided investment in power generation due to energy efficiency Incremental net capital above reference case * Including Waste industry Source: McKinsey analysis Total investment 300 1,060 1,360 8

10 Energy Efficiency: How easy to achieve??? SELECTED EXCERPTS Without a forceful and coordinated set of actions, it is unlikely that even the most economically beneficial options would materialize at the magnitude and costs estimated here. Unlocking the negative cost options would require overcoming persistent barriers to market efficiency such as mismatches between who pays the cost of an option and who gains the benefit... Given consumers historically inelastic response to variations in energy prices, motivating end users to act based on price signals alone would likely require price stimuli well beyond what may be politically feasible. Further, simply imposing carbon caps on point-source emitters might provide the incentive but not the means to extract the energy efficiency potential that is distributed across millions of energy users. Put simply, the potential for energy efficiency is real and large, but without a change in policy or approach, this potential will remain out of reach.. But this does not mean it will not happen 9

11 Low-carbon technology and infrastructure opportunities Cost Real 2005 dollars per ton CO 2 e Potential -30 Coal power Industry Gigatons/year -40 plants CCS CCS new -50 rebuilds with builds on -60 EOR carbonintensive Car Cellulosic Coal power processes hybridization biofuels plants CCS new -90 builds with EOR Coal-togas shift -120 dispatch of existing plants -230 Commercial LED lighting Light trucks Plug-in hypbridization Nuclear newbuild Distributed solar PV Coal power plants CCS new builds Many high-potential technology options where current costs and/or business risks slow adoption Support required for Research, development and deployment Debottlenecking of business and regulatory processes 2030 MID-RANGE CASE Technology-linked opportunities Coal power plants CCS rebuilds 10

12 Potential changes in composition of U.S. power generation Terawatt-hours, Percent Other Renewables Nuclear Gas Coal with CCS Conventional coal 100% = 3,865 3% 8% 20% 17% 0% 52% 5,385 1% 9% 17% 13% 0% 60% 4,115 2% 23% 24% 9% 9% 33% MID-RANGE CASE % Energy efficiency reduction reference case * Includes oil, geothermal, municipal solid waste, and pumped storage Source: U.S. EIA Annual Energy Outlook (2007) Reference case, McKinsey analysis 2030 with abatement 11

13 Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost? US Greenhouse Gas Abatement Mapping Initiative National Academies Summit on America s Energy Future March 14, 2008

14 APPENDIX 13

15 Five clusters offer significant potential Gigatons CO 2 e, options less than $50 per ton CO 2 e Mid-range case High-range case Range of proposed reductions Projected emissions Buildings & appliances Transportation Industry Carbon sinks Power Emissions after abatement 14

16 Many negative-cost options in buildings and appliances Options less than $50/ton CO 2 e Average cost $(2005 real)/ton CO 2 e Potential Megatons CO 2 e Description MID-RANGE CASE 2030 Lighting Substitution of advanced lighting technologies Electronic equipment Greater in-use efficiency and reduced stand-by losses HVAC equipment More efficient equipment for initial installation and retrofits Performance tuning for existing systems Combined heat and power Increased use with office buildings >100,000 sq. ft, hospitals and universities Building shell Improved new-build shells and retrofits from better insulation, air tightening, reflective roof coatings Residential water heaters Improved efficiency units and switch to alternative fuel/ technologies Other Source: McKinsey analysis 70 Building controls Residential and commercial appliances Commercial water heaters 15

17 Vehicle fuel economy and lower-carbon fuels crucial for transportation Options less than $50/ton CO 2 e Average cost $(2005 real)/ton CO2e Potential Megatons CO 2 e Description MID-RANGE CASE 2030 Cellulosic biofuels Commercialization with various feedstocks and conversion processes Fuel economy cars Fuel economy light trucks Various technology upgrades to improve fuel efficiency Greater use of alternative propulsion systems (diesel) Fuel economy medium / heavy trucks Technology upgrades to improve fuel efficiency Light-duty plug-in hybrids Plug-in capability in addition to basic hybridization Other Source: McKinsey analysis 25 Hybridization of medium and heavy trucks Aircraft fuel efficiency from design and operations Reduced leakage from air conditioning systems 16

18 Options in industrial and waste sectors highly fragmented Options less than $50/ton CO 2 e Average cost $(2005 real)/ton CO2e Potential Megatons CO 2 e Description MID-RANGE CASE 2030 Recovery / destruction of non-co 2 GHGs Methane in mining, fossil-fuel systems, waste HFCs/PFCs in manufacturing N 2 O in chemical processes Carbon capture and storage Carbon-intensive processes like coal-to-liquids Co-generation sites with CCS new-builds Combined heat and power For primary metals, food, refining, chemicals, pulp and paper processes Medium and large turbine applications (>5 MW) Energy efficiency Process and product innovations Other Measures on fired and steam systems, process controls, energy recovery, maintenance Electric motor upgrades and specific system improvements Greater use of advanced processes, recycling and product recovery, product reformulation and commercial use of emerging technologies Composting Capping and restoration layers in land fills Small-scale electric generation projects Source: McKinsey analysis 17

19 Significant potential at moderate cost in terrestrial carbon sinks Options less than $50/ton CO 2 e Average cost $(2005 real)/ton CO2e Potential Megatons CO 2 e Description MID-RANGE CASE 2030 Afforestation pastureland New trees primarily on marginal or idle land where erosion is high and/or productivity is low Forest management Active thinning, stand improvement Passive restricted grazing, natural regeneration Restoration of degraded forests Afforestation cropland New trees primarily on marginal or idle land where erosion is high and/or productivity is low Conservation tillage Planting crops amid previous crop s residue, e.g., using ridge tillage and no-till farming Winter cover crops Planting harvested cropland with grass or legume cover crop during winter Other <5 Elimination of summer fallow Source: McKinsey analysis 18

20 Large but higher-cost potential in electric power generation Options less than $50/ton CO 2 e Average cost $(2005 real)/ton CO2e Potential Megatons CO 2 e Description MID-RANGE CASE 2030 Carbon capture and storage Rebuilds of pulverized coal plants with CCS, plus CCS new builds Includes injection to enhance oil recovery Wind Class 5-7 on-shore winds with economic grid integration costs Nuclear 9 70 Nuclear power plant new-builds Up-rates for existing nuclear plants Reactivations Conversion efficiency Improved heat rates of base-load pulverized coal power plants Solar PV Residential and commercial distributed power generation with solar photovoltaics Other Source: McKinsey analysis 210 Low-class on-shore and offshore wind (90 MT) Concentrating solar power (50) Biomass co-firing (50) Geothermal power (10) Small hydroelectric power (10) 19

21 Geographic differences in abatement cost Cost Real 2005 dollars per ton CO2e 150 MID-RANGE CASE Northeast 330 megatons West 600 megatons Midwest 890 megatons South 1,130 megatons Pacific WEST U.S. CENSUS REGIONS Mountain West North Central MIDWEST East North Central NORTHEAST Middle Atlantic New England ,000 1,200 Source: McKinsey analysis West South Central East South Central SOUTH South Atlantic Abatement potential Megatons CO 2 e 20

22 Geographic differences in abatement potential, emissions, population and GDP 2030 Percent 100%= Northeast MID-RANGE CASE 2030 Midwest South West Abatement potential Gigatons CO 2 e/year U.S. GHG emissions Gigatons CO 2 e/year U.S. population Millions Real GDP $ Trillions Source: U.S. EIA Annual Energy Outlook (2007) Reference case, U.S. EPA; USDA; McKinsey analysis 21

23 Geographic differences in abatement potential by sector Percent, Megatons CO 2 e/year MID-RANGE CASE %= Agriculture and forestry Transport Industry and waste , Buildings and appliances Power West Midwest South Northeast Source: McKinsey analysis 22

24 Abatement curve: why do costs change over time? Cost curve: overview of key methodological components Total costs to society Abatement costs on the cost curve reflect the summation of incremental costs from a total societal view vs. any single entity or decision maker. 7% normalized discount rate (primarily to put consumer choices on par with business choices) Removed distortionary margins and short-term price fly-ups Taxes/subsidies/tariffs removed Capital levelized over lifetime of an asset (even if multiple owners) Cost of abatement Real 2005 dollars per ton CO 2 e Abatement potential Gigatons CO 2 e /year Abatement costs change over time because: Innovation and cost compression (e.g. solar PV, cellulosic biofuels, plug-in hybrids) Costs of reference technologies change over time (e.g. SCPC goes from $1,800 to $1,300/KW in real 2005 dollars between 2005 and 2030) Variable cost change over time (e.g. price of natural gas) Reference plant changes from a new-build to an existing baseload plant Additional infrastructure may be required to handle increased volume of a new carbon abating technology (above certain threshold) Source: team analysis 23

25 Carbon sink and other industrial/ power potential Cost Real 2005 dollars per ton CO 2 e Industrial process improvements Methane Coal flaring mining Methane mgmt Low-, mid-, high=penetration onshore wind Geothermal Afforestation - Cropland 2030 MID-RANGE CASE Carbon sink/offset Coal-to-gas shift dispatch of existing plants Active forest 30 management Potential -30 Biomass Gigatons/year -40 Manufacturing Natural Cofiring power -50 Landfill Winter -60 HFCs gas and gas cover crops -70 mgmt petroleum recovery systems -80 Conservation mgmt Reforestation -90 tillage -100 Afforestation of pastureland Carbon sinks (e.g., forestry, land-use) are 16% of total abatement potential Impermanence is key issue; monitoring and verification processes critical Additional options in industrial (e.g., methane, HFC, PFC management; landfill, mining and transport gas recovery) and power (e.g., wind, geothermal, biomass, small hydro) Other Industrial and power options 24