Energy Efficiency and Energy Policy James Sweeney Stanford University Director, Precourt Institute for Energy Efficiency Professor, Management Science and Engineering
Policy Drivers Environmental Protection Global Climate Change Security Oil/International vulnerability Vulnerability of infrastructure to terrorism, natural disaster, or human error Economics Prices of electricity, gasoline, natural gas Price volatility: oil, natural gas, wholesale electricity
45 U.S. Energy Usage: 2005, 2006 40 35 41 40 2005 2006 30 Quadrillio on Buts 25 20 15 23 23 23 22 10 8 8 5 0 2.9 2.7 2.9 3.0 0.3 0.07 0.26 0.3 0.07 0.18 Source: EIA, Annual Energy Review
Energy Efficiency Compared to CO 2 -Free Energy Supply A 10% reduction in all energy intensity implies that 8.5 quads of fossil fuels are not used, reducing CO 2 emissions by 8.5% A 25-fold increase in wind plus solar can displace about 8.5 quads of fossil fuels. A doubling of nuclear power can displace 8 quads of fossil fuels.
Environmental
Energy Related Activities Account For 85% of the releases of greenhouse gases, measured on a carbon equivalent basis. 98% of the US carbon dioxide net releases into the atmosphere 38% of methane 11% of nitrous oxide
U.S. CO 2 Emissions by Sector and Fuels 2005: 1,568 Tonnes Carbon (5,751 Tonnes CO 2 ) Millions of ton nnes per year Carbon equi valent 600 500 400 300 200 100 Natural Gas Petroleum Coal Air Trucks Buses LDVs 0 Residential Commercial Industrial Transportation Electricity Generation Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2007
U.S. CO 2 Emissions by Sector and Fuels 2005: 1,568 Tonnes Carbon (5,751 Tonnes CO 2 ) Carbon equi valent 600 500 Through Electricity Natural Gas Petroleum Coal Air Millions of ton nnes per year 400 300 200 100 Trucks Buses LDVs 0 Residential Commercial Industrial Transportation Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2007
US Primary Energy and Electricity Use by Sectors 45 40 35 drillion Bt tu Qua 30 25 20 15 10 5 Through Electricity: Res, Ind, Comm Primary: Res, Ind, Comm Transportation: Primary 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Energy Efficiency: Economically Efficient Reductions in Energy Use Intensity
Decreased Energy Use Reduced Economic Efficiency Increased Economic Efficiency Increased Energy Use
Decreased Energy Use Inefficient i Energy Energy Efficiency Saving Improvement Increased Economic Efficiency Waste Economically Efficient Energy Intensification
Some Sources of Efficiency Failures Externalities of Energy Use Global l Climate Change Risks of Energy Price Shocks Limitations on our Foreign Policy Options Terms of Trade Impacts (Pecuniary Externalities ) Automobile risk shifting by purchase of heavy vehicles Pricing Below Marginal Cost Non-time-differentiated Electricity Pricing Information Asymmetry/ Agency Problems Consumer Product Marketing New Building Construction Suboptimal Technology Options Incomplete capture of intellectual property Under-investment Sub-optimal technology directions, due to externalities Non-Convexities Learning By Doing Technology Spillovers Chicken and Egg Problems
Minimizing Economic Cost of Reducing CO 2 Multiple market failures imply multiple instruments are needed Best instruments depend on nature of failures Carbon dioxide externality Carbon tax or carbon cap and trade Information externalities Labeling, standards, regulations, disclosures Behavioral issues Education, marketing, cultural shift Risk shifting externalities t es Regulations, incentives R&D under-investment Incentives, government R&D, IP protection
Halt SUV Sales Gasoline Rationing Overly Strict Building Standards Decreased Energy Use Plug-In Hybrids (Now) LED Task Lighting (Now) Hybrid Gas- Electric Vehicles LED General Lighting (Future) Plug-In Hybrids (Future) Smart Regional Land Development Optimized Building Construction Old appliance replacement Behavioral Change: Program Thermostat Lights, Tire pressure Energy Audits LED Traffic Lights Compact Fluorescent Penetration Efficient AC-DC Converters Pigouvian Energy Tax Smart Buildings Controls Reformed CAFE Standards Energy Cost Labeling Congestion Pricing Many Rapid Transit Systems Incan- descent Lighting LED General Lighting (Now) Gasoline Price Controls Internet Growth Economic development High Definition TV Personal Computer Penetration Airline Deregulation Accessible Business Travel Increased Economic Efficiency Increased commercial space
CAFE Standards
Actual (2001) vs DPV Cost Minimizing Fuel Economy Without Hybrids NRC CAFE Study MPG Gallons Per 100 Miles Type 2001 DPV Cost DPV Cost Optimal % Minimizing 2001 Minimizing Reduction Subcompact 31.00 36.00 3.23 2.78 14% Compact 28.00 33.00 3.57 3.03 15% Mid Size 25.00 30.10 4.00 3.32 17% Large 21.00 29.00 4.76 3.45 28% SUV Small 25.10 32.50 3.98 3.08 23% SUV Mid 21.00 28.00 4.76 3.57 25% SUV Large 17.50 25.00 5.71 4.00 30% Minivani 22.00 30.0000 4.55 3.3333 27% Large Pickup 18.00 27.00 5.56 3.70 33%
Estimated Cost-Minimizing MPG vs. Current Passenger Cars: NRC CAFE Study 45 40 3-Year + Externality 14-Year ve MPG vs Base MPG 35 30 3-Year 3-Year 3-Year + Externality 14-Year 3-Year 3-Year + Externality 14-Year Cost Effecti 25 20 15 Subcompact Compact Midsize Large Passenger Car Classes
Estimated Cost-Minimizing MPG vs. Current: Trucks 35.00 3-Year + Externalit 14-Year ve MPG vs Base MPG 30.00 25.00 3-Year 3-Year 3-Year + Externality 14-Year 3-Year 3-Year + Externality 14-Year Cost Effecti 20.0000 15.00 SUV-Small SUV-Mid SUV-Large MiniVan Pick-up Large Truck Car Classes
Truck Standard Before Recent Changes Car Standard
Restructuring of CAFE Tradable Fuel Economic Credits Attribute-Based Targets
Tradable Fuel Economy Credits Government sets target fuel economy Should vary with weight or footprint of vehicles Manufacturers must meet average target fuel economy or acquire enough credits Credits can be purchased from other manufacturers or from government Excess credits can be sold if manufacturer exceeds average fuel economy targets. Government sales of credits at a legislated price would set a cap on price of credits.
Advantages: Tradable Fuel Economy Credits Incentives for all manufacturers, including those beating targets, t to increase fuel economy Incentives available for new entrants to the industry Flexibility to meet consumer preferences Limit costs if standards turn out to be more difficult to meet than expected Will reveal information about costs of fuel economy improvements Keep aggressive fuel economy goals from creating irreparable harm
Attribute Based Targets Current Attribute t Based Standards: d Vehicle is a Car or a Truck Heavy Vehicles Not Regulated Large Incentive to Design Vehicle to be a Truck E.g.: PT Cruiser Better Approach: Make Targets Continuous with Meaningful Variables E.g.: Gross Vehicle Weight or Footprint Target Rule May or May Not Provide Incentives To Change Meaningful Variables
Truck Standard Before Recent Changes Car Standard 35mpg
Possible Integrated Targets C A B
Possible Integrated Targets C A B
18 Gasoline (Or Equivalent) Use: Light Duty Vehicles 16 14 of Barrels Per Day Millions 12 10 8 6 4 2 35 MPG Standard d No CAFE Changes 0 2005 2010 2015 2020 2025 2030 2035 2040
Example: Lighting
From U.S. Lighting Market Characterization, prepared for DOE EERE by Navigant Consulting, 2002
From U.S. Lighting Market Characterization, prepared for DOE EERE by Navigant Consulting, 2002
Residential 900 Lumen Lighting 20 year Lifecycle Cost (Now) $80 Cost of Capital $70 Cost of Maintenance Electricity Cost $60 $50 $40 $30 $20 $10 $0 Incand CFL LED
Commercial 900 Lumen Lighting 20 year Lifecycle Cost (Now) $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Cost of Capital Cost of Maintenance Electricity Cost Incand CFL LED
ficacy / Lumen pe er Watt Ef LEDs Efficacy Increases by 30% Per Year 160 140 120 100 80 60 40 20 2002 DOE Roadmap LED - Standard Chip LED - Power Chip 0 1998 2000 2002 2004 2006 2008 2010 2012
Residential 900 Lumen Lighting 20 year Lifecycle Cost (In 5 10 Years) $80 $70 $60 $50 Cost of Capital Cost of Maintenance Electricity Cost $40 $30 $20 $10 $0 Incand CFL LED
Commercial 900 Lumen Lighting 20 year Lifecycle Cost (In 5 10 Years) $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Cost of Capital Cost of Maintenance Electricity Cost Incand CFL LED
Energy Implications of 100% LEDs @ 120 Lm/wt System Efficacy 450 400 Current Mix 350 All LED @ 120 lm/wt 300 TW Whr/yr 250 200 150 100 50 0 Commercial Residential Industrial Outdoor