Post on 15-Dec-2015
Energy Policy and Energy Efficiency
James Sweeney
Stanford University
Director, Precourt Institute for Energy Efficiency
Professor, Management Science and Engineering
• 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
Policy Drivers
Policy Pushes: U.S. and California
• Reducing greenhouse gas emissions• Mechanisms: Market based; Command and Control• Energy Efficiency: Automobile Fuel Economy• Alternative Fuels: Ethanol, Biodiesel
• Energy Infrastructure Investments• U.S. Oil Exploration • LNG terminals
• Energy Technology Development• “Green” -- Low greenhouse gas energy• Energy Efficient technologies
Background Energy Data
U.S. and California Energy Consumption, 2005
41%
23% 23%
8%
3% 3%
48%
9%
29%
5%
2%3% 4%
0.4% 0.2% 0.1%0%
10%
20%
30%
40%
50%
PetroleumProducts
Coal Natural Gas NuclearElectricPower
HydroelectricPower
Biomass GeothermalEnergy
Wind andSolar
Qu
adri
llio
n B
tu
All United StatesCalifornia (Source: Gene Berry)
U.S. and CA Energy Consumption, 2005
Petroleum
Natural Gas
Coal
Hydro-resource
Nuclear Fuel
Geothermal
Wind
Solar
Electricity Generation
End-Use Consumption Residential Industrial Commercial Transportation
0
5
10
15
20
25
30
35
Residential Commercial Industrial Transportation
Consuming Sector
Qu
ad
rill
ion
Btu
Electricity(Incl losses)Hydro, Solar,GeothermalBiomass
Coal
Natural Gas
Petroleum
U.S. Sectoral Energy Use: 2005
Energy Consumption Per 2000 Dollar of GDP
0
5
10
15
20
25
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
P
Th
ou
san
d B
TU
per
Do
llar
Source: EIA, Annual Energy Review
Energy Consumption Per 2000 Dollar of GDP
0
5
10
15
20
25
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
P
Th
ou
san
d B
TU
per
Do
llar
Pre-Energy-Crisis, Low
Prices
Energy-Crisis, High Prices
Low Prices Through
2003
Per Capita Energy Consumption
0
50
100
150
200
250
300
350
400
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
P
Mil
lio
n B
TU
per
Per
son
1974
Source: EIA, Annual Energy Review
US Per Capita Total Energy Use
Environmental
Fossil fuels account for• 98% of the US carbon dioxide net releases into the
atmosphere
• 82% of the releases of greenhouse gases, measured on a carbon equivalent basis.
United States Carbon Emissions: 2004
0
100
200
300
400
500
600
Residential Commercial Industrial Transportation ElectricityGeneration
Mill
ion
s o
f to
nn
es p
er y
ear
Car
bo
n e
qu
ival
ent
Natural Gas
Petroleum
Coal
LDVs
Trucks Buses
Air
U.S. CO2 Emissions by Sector and Fuels 2004
Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2006
Carbon Dioxide Releases: 2002 Actual, 2020 Projections
China
IndiaAfrica
Middle East
United States
Europe
Canada
Australia/ NZJapan Other Asia
Former Soviet Union
Source: International Energy Outlook 2005 (US Dept of Energy)
Security Issues
• Production of oil concentrated into unstable areas of the world
• Sudden supply reductions can sharply increase oil price
• Short run demand elasticity about - 0.1 to - 0.2
• Percentage price increase will be 5 to 10 times the percentage supply reduction
• Sudden oil price increases can lead to worldwide recession
• Petroleum revenues fund terrorist activities
Other OECD2%
Former USSR14%
Venezuela3%Indonesia1%
Nigeria3%
Algeria2%
UAE3%
Saudi Arabia11%
Qatar1%
Iraq2%
Libya2%
Kuwait3%
Iran5%
North Sea7%
Mexico5%
Canada4%
US11%
Other Non-OECD15%
China4%
OPEC NG Plnt Lqds3%
World Oil Supply, 2004, Total: 83 mmb/d
Ownership of oil industry
• The largest 13 firms – as measured by oil and gas reserves – are all owned by nations or are controlled by other nations
• Oil supply may be manipulated for political purposes by those nations controlling the reserves
Oil and Gas Reserves, Billion Barrels Oil EquivalentSaudi Aramco (Saudi Arabia) 302 ExxonMobil 23
National Iranian Oil Co 302 Pertamina (Indonesia) 22
Gazprom (Russia) 198 Lukoil (Russia) 21Iraqi National Oil Co 136 BP 19Qatar Petroleum 133 Pemex (Mexico) 19Kuwait Petroleum Co 109 PetroChina 19Petroleos de Venezuela 105 Shell 16Adnoc (Abu Dhabi) 80 Yukos (Russia) 13Nigerian Natnl Petroleum Co 41 Chevron 12
Sonatrach (Algeria) 38 Petrobras (Brazil) 12Libya NOC 31 Total (France) 11Rosneft (Russia) 28 Surgutneftgas (Russia) 9
Petronas (Malaysia) 26
State Owned/Controlling Interest. Private Sector Owned
Economic Issues
Crude Oil prices
• Crude Oil prices are currently high
• Prices on futures markets suggest that crude oil prices are most likely to further increase
• World demand continues to grow• Development of China and increase in the number of
passenger cars• India is likely to follow
• Expectation that conventional oil supply may peak soon
• Incentives for dominant suppliers to limit investment in new production capacity so as to keep prices
• Incentives for dominant suppliers to keep future prices uncertain so as to limit competitive investments
Crude Oil Futures Prices: As of Five Dates
$50
$52
$54
$56
$58
$60
$62
$64
$66
$68
$70
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Delivery Date
As of Oct 12As of Nov 12As of Jan 16As of Jan 19As of March 10
Price Risk
• Possible to estimate probability distribution of future oil prices by observing options based on the futures market
• Puts and calls are priced in the market
• Prices of puts and calls reflect the beliefs of market participants about price uncertainty
• Significant uncertainty in the near term
• Uncertainty increases over time
• Data quality
• Relatively good through 2007
• OK, but limited to December 2009
• Risk of either very low or very high prices
Oil Price Uncertainty December 2009 Delivery (data March 10, 2007)
0%
5%
10%
15%
20%
25%
30%
Below $35 $35 - $56 $56 - $68 $68 - $80 $80 - $100 Above $100
Pro
bab
ility
of
Pri
ce B
ein
g in
Ran
ge
Based on Calls
Based on Puts
Energy Efficiency:
Economically Efficient Reductions in Energy Use Intensity
Increased EconomicEfficiency
Decreased Energy Use
Reduced EconomicEfficiency
Increased Energy Use
Economically Efficient Energy Intensification
Energy Efficiency Improvement
Inefficient Energy Saving
Waste
Increased EconomicEfficiency
Decreased Energy Use
Rural ElectrificationGasoline
Price Controls
Compact Fluorescent Penetration
LED Traffic Lights
Energy Star Labeling
Gasoline Rationing
Promote Incan-descent Lighting
Congestion Pricing
Personal Computer Penetration
Optimized Building Construction
Overly Strict Building Standards
Pigouvian Energy Tax
Increased EconomicEfficiency
Decreased Energy Use
“Smart” Local Land Development
Tighter CAFE Standards
Many Rapid Transit Systems
Some Rapid Transit Systems
Restrict SUV Sales
Airline Deregulation
Energy Audits
Hybrid Gas-Electric Vehicles
Plasma TVs
Plug-In Hybrids (Now)
Plug-In Hybrids (Future)
LED General Lighting (Now)
LED General Lighting (Future)
Internet Growth
“Smart Buildings” Controls
Economic development
Some Sources of Efficiency Failures• Externalities of Energy Use
• Global Climate Change• Risks of Energy Price Shocks• Limitations on our Foreign Policy Options• Terms of Trade Impacts (Pecuniary “Externalities”)• Safety externality in autos
• Pricing Below Marginal Cost• Non-time-differentiated Electricity Pricing
• Information Asymmetry• Consumer Product Marketing• New Building Construction
• Incomplete Technology Options• Under-investment• Sub-optimal technology directions, due to externalities
• Non-Convexities • Learning By Doing Technology Spillovers• “Chicken and Egg” Problems
Per Capita Electricity Consumption
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1960 1965 1970 1975 1980 1985 1990 1995 2000
kWh/
pers
on
Source: http://www.eia.doe.gov/emeu/states/sep_use/total/csv/use_csv.html
United States
California
Per Capita Electricity Consumption
Example: Lighting
Commercial Building Energy Uses
Source: 2006 Buildings Energy Data Book
Space Cooling
Lighting
Space Heating
Refrigeration
Water Heating
Ventilation
Electronics
Cooking
Other
Cooling Load Driven by Lighting(42% of Cooling Load)
Heating Assistance from Lighting(23% of Space Heating Load)
Lighting as Share of U.S. Electricity
• Lighting use– About 800 Terawatt hours (1012) per year
• Electricity Generation– 3815 Terawatt hours per year
• Lighting is 21% of all electricity use
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)
$0
$10
$20
$30
$40
$50
$60
$70
$80
Incand CFL LED
Cost of CapitalCost of MaintenanceElectricity Cost
Commercial 900 Lumen Lighting 20 year Lifecycle Cost (Now)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Incand CFL LED
Cost of CapitalCost of MaintenanceElectricity Cost
LEDs Efficacy Increases by 30% Per Year
0
20
40
60
80
100
120
140
160
1998 2000 2002 2004 2006 2008 2010 2012
Eff
ica
cy
/ L
um
en
per
Wat
t
2002 DOE Roadmap
LED - Standard Chip
LED - Power Chip
Residential 900 Lumen Lighting 20 year Lifecycle Cost (In 5 – 10 Years)
$0
$10
$20
$30
$40
$50
$60
$70
$80
Incand CFL LED
Cost of CapitalCost of MaintenanceElectricity Cost
Commercial 900 Lumen Lighting 20 year Lifecycle Cost (In 5 – 10 Years)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Incand CFL LED
Cost of CapitalCost of MaintenanceElectricity Cost
Energy Implications of 100% LEDs @ 120 Lm/wt System Efficacy
0
50
100
150
200
250
300
350
400
450
Commercial Residential Industrial Outdoor
TW
hr/
yr
Current Mix
All LED @ 120 lm/wt
Economy-Wide Impacts of All LED
• Lighting use: 21% of all electricity use– All LED saves about 60% of this electricity in long run:
• 13% of all electricity use – after all adjustments– Adjustment time:
• How long until LED system efficacy reaches 120 lm/wt? 5 years?
• 50% adoption: 15 years afterwards? – 50% adoption will save 6.5% of all electricity use
• Electricity impact: Perhaps 6.5% reduction in 20 years• Electricity cost impact
– Total cost of U.S. electricity• Retail: $300 Billion per year• Variable Costs: say $200 Billion per year
– 6.5% of $300 Billion dollars = $20 Billion per year– 6.5% of $200 Billion dollars = $13 Billion per year
Example: Fuel Economy of Light Duty Vehicles
Forces Shaping Energy Use• Transport Sector
– Chosen Level of Mobility• Income and Free-time Dependant• Urban/Suburban/rural land use patterns
– Modes of Transport (personal vehicle, airplane, bus, trains)• Value of Time• Costs of Alternatives (Influenced by oil price)• Availability of Alternatives
– Vehicle Characteristics• Performance• Size• Engine, Drive Train Technologies• Choices influenced by oil price
15
20
25
30
35
40
45
Subcompact Compact Midsize Large
Passenger Car Classes
Co
st E
ffec
tive
MP
G v
s B
ase
MP
G
3-Year
3-Year + Externality 14-Year
3-Year
3-Year + Externality
14-Year
3-Year
3-Year + Externality 14-Year
Estimated Cost-Minimizing MPG vs. CurrentPassenger Cars: NRC CAFE Study
15.00
20.00
25.00
30.00
35.00
SUV-Small SUV-Mid SUV-Large MiniVan Pick-up Large
Truck Car Classes
Co
st E
ffec
tive
MP
G v
s B
ase
MP
G
3-Year
3-Year + Externality
14-Year
3-Year
3-Year + Externality 14-Year
3-Year
3-Year + Externality 14-Year
Estimated Cost-Minimizing MPG vs. Current “Trucks”: NRC CAFE Study
Political
Change of Senate and House Majorities
• CO2 mitigation will be a major push– Senate Energy Committee leadership change
• Cap-and-Trade system for carbon management under debate– Study Group Developed– Group does not have rights to draft legislation
• More direct regulations are likely also
Supreme Court Decision on Carbon Dioxide
• Carbon Dioxide can be regulated under the Clean Air Act
• States can regulate carbon dioxide emissions
California’s AB 32
• Market based instruments• Allowed but not required• May face opposition from legislature
• Development of Cap-and-Trade system• Under way through Cal EPA and CARB
• Executive Order on Carbon content of fuels• Average Content• Including hydrogen and electricity• Trading system• To be designed
Other California Rules
• Autos: Pavley Bill
• CO2 limits on average of new vehicles
• Under court challenge• But Supreme Court decision should help greatly
• Utility regulation
• Renewable Portfolio Standard
• Responsibility for CO2 content of electricity, where ever the electricity generated
• Other regulations
• Buildings standards
• Plug load standards
Political Bottom Line
• Many changes to be expected
• Regulations still be developed
• High payoff for getting involved in the process
• Many groups are involved; interests vary across groups
• Personal involvement can make great difference
Policy Agenda
Bottom Line• Increases of economic efficiency can be
accomplished through decreases of energy use – energy efficiency improvements
– In principle, based on understanding of market failures
– In practice, based on observations of options and human choices
– In practice, based on technology and systems innovation
• The potential, I believe, is large for improvements in energy efficiency
Get Prices Right
• Oil– The world oil price is passed through to the
economy– International security externality not included– CO2 externality not included– Other travel externalities not included
• Congestion• Highway/Road mortality/injury• Criteria pollutants
– Thus price we pay for gasoline is too low
Get Prices Right
• US oil price should include an international security externality premium/tax/fee– Gasoline tax
– Higher CAFE standards on light duty vehicles
• Prices for oil substitutes should not be kept artificially high– Import tax on ethanol -- $.54 per gallon --
should be eliminated
Get Prices Right
• CO2 – Need US national carbon dioxide cap-and-trade
system• The United States could implement a cap and trade
system even if we do not ratify Kyoto protocol
– System can be implemented• The nations that have ratified the Kyoto protocol
now are operating such a system• Currently states are beginning to implement such
systems, but a national system would be preferable• We have experience in cap-and-trade
– Acid Rain SOx trading– RECLAIM program for criteria pollutants– Chicago Climate Exchange
Encourage Technology Development
• President Bush state of the Union speech– Call for more research and development– Primarily supply technologies
• Equally important – if not more important – energy efficiency technologies– Rapid change possible through more efficient vehicles
• Hybrid electric vehicles• Plug-in hybrids• Electric vehicles• Longer run: Possibly hydrogen vehicles
– Buildings:• Lighting: light emitting diodes• Building design, technologies, operating processes
Encourage Technology Development
• Governmental R&D– Federal
– States (California Public Interest Energy Research Program)
• R&D incentives– In energy bill
• Technology competitions• Green labeling
Encourage Entrepreneurial Efforts
• May look like no policy at all. • Encourage technical and market experimentations
– Some will ultimately make it big; others will not. – But the genius of Silicon Valley involves
entrepreneurial efforts, risk-taking, pioneering efforts. – Some of these will be failures, some successes. – Successes will live on, grow to become the household
names. • will spawn more entrepreneurial challenges • The failures will typically lead to different attempts,
some successes, some failures. – Ahead of time impossible to know which will disappear
and which will be the next Google. – Lighting, vehicles are poised for fundamental change.
Adopt Sector-Specific policies• Autos
– Higher CAFE standards
– Restructure CAFE standards with marketable efficiency credits
– Labeling using common metrics people ($ per year?)
• Electricity
– Renewable Portfolio Standards; Carbon Dioxide Adders
• Buildings
– Building Efficiency Standards
• Appliances
– Appliance efficiency standards; Energy Star labeling
Precourt Institute for Energy Efficiency
Precourt Institute• A research and analysis institute at Stanford
• Established in October 2006
• Initial funding: $30 million pledge by Jay Precourt
• Mission
– To improve opportunities for and implementation of energy efficient technologies, systems, and practices, with an emphasis on economically attractive deployment
– Focus on the demand side of energy markets
• Energy efficiency
– Economically efficient reductions in energy use (or energy intensity)
• Directed by James Sweeney
PIEE Advisory Council• George Shultz, Council Chair, Thomas W. and Susan B. Ford
Distinguished Fellow: Hoover Institution • Jay Precourt, Council Vice Chair, Chair and CEO, Hermes
Consolidated• John Boesel, President and CEO: WestStart-CALSTART • Joseph Desmond, Former Chair, California Energy Commission• TJ Glauthier, TJG Energy Associates, LLC • Agatha Precourt, Consumer Marketing/Brand Management
Consultant • Debra Reed, President and Chief Executive Officer, San Diego
Gas & Electric and Southern California Gas Co. • Burton Richter, Director Emeritus, Stanford Linear Accelerator
Center; Nobel Laureate, Physics • Ben Schwegler, Vice President / Chief Scientist: Walt Disney
Imagineering • Byron Sher, Former California State Senator • Erik Straser, Partner: Mohr, Davidow Ventures • Bill Valentine, Chairman of the Board: HOK • Ward Woods, Retired President and CEO of Bessemer Securities• Jane Woodward, CEO: Mineral Acquisition Partners
Intended Activities• Deepening theoretically-based and empirically-based
understanding of the forces shaping energy use;• Developing innovative approaches for understanding
the decision-making environment in corporations, public organizations and households that determine the deployment and use of energy efficient technologies and practices;
• Undertaking physical and engineering research designed to create or improve energy efficient technologies and systems;
• Designing and analyzing policies or other practices to enhance economically attractive deployment, for example, by overcoming market and policy barriers;
• Engaging students and faculty in research and education associated with energy efficiency;
• Working with affiliates and other organizations outside of Stanford to improve deployment of energy efficient technologies, systems, and practices.
Research Projects Now Underway: Faculty/Student Teams
• Frank Wolak– “Designing Mechanisms to Involve Final Demand in
Wholesale Electricity Markets”• John Haymaker
– “An Occupancy Model for Energy Efficient Design”• Larry Goulder
– “Policies to Improve Automobile Efficiency/ US Climate Change Policy”
• Hamid Aghajan/Stephen Boyd/Andrea Goldsmith – “Wireless Sensor Networks Technology for Smart
Buildings”• Jim Sweeney:
– “Assessment of Solid State Lighting”– “Hydrogen-fueled Internal Combustion Vehicles:
Economic Assessment”
Research Projects Now Underway: Faculty/Student Teams
• Pedram Mokrian (PhD Candidate)– Assessing the Value of Demand Side Resources
• Kenny Gillingham (PhD Candidate, EPA STAR support)– Behavioral responses to Corporate Average Fuel
Economy Increases
• Jiyong Eom (PhD Candidate)– Game theoretical model of utility supplied energy
efficiency measures• John Weyant/ Jim Sweeney
– Energy Efficiency session for Snowmass Workshop on Integrated Assessment of Global Climate Change
• Holmes Hummel (Postdoc)– Incorporation of Energy Efficiency into Long-Run Energy
Systems Model