Costs of reducing carbon emissions in the U.S.: Some recent results

Environmental Energy Technologies

Costs of reducing carbon emissions in the U.S.: Some recent results

Jonathan Koomey, Ph.D.Lawrence Berkeley National Laboratory

[email protected], 510/486-5974, http://enduse.lbl.gov/To download the report discussed here, go to

http://www.ornl.gov/ORNL/Energy_Eff/CEF.htm

To download the talk: http://enduse.lbl.gov/shareddata/lewisandclarktalk.ppt

Presented in Portland, OR at Lewis and Clark College Fourth Annual Symposium on Environmental

Affairs

October 19, 2001Environmental Energy Technologies


SUMMARY OF TALK• Context on assessing GHG mitigation costs

• Background on Clean Energy Futures (CEF) study & methodology

• Energy and carbon results

• Economic results

• Conclusions


ECONOMICS OF CLIMATE CHANGE MITIGATION HOTLY DEBATED

• Many respected institutions on both sides of the heated discussion, BUT

• There is some common ground:– Some successful policies both save money

and reduce pollution– The real debate is over how many of such

policies actually exist and how successful they will be if scaled up.


THE ECONOMIST’S STATEMENT• On February 13, 1997, two thousand

economists, including 6 Nobel Laureates, declared: Economic studies have found that there are many

potential policies to reduce greenhouse-gas emissions for which the total benefits outweigh the total costs. For the United States in particular, sound economic analysis shows that there are policy options that would slow climate change without harming American living standards, and these measures may in fact improve U.S. productivity in the longer run.


AT THE CORE OF THE DEBATE• Are there $20 bills on the sidewalk?

– Most economists say no, on theoretical grounds, because someone would have picked them up already

– Some economists and most engineers, physicists, and business practitioners say yes, on empirical grounds (they see the opportunities with their own eyes).

– Ultimately an empirical question.


BACKGROUND• The previous “5-lab Study”:

Scenarios of U.S. Carbon Reductions (1997) was influential, but was criticized because it did not– explicitly identify technologies,

programs, and policies;– treat fuel price interactions; or– incorporate macroeconomic impacts of

an emissions trading system.

• CEF was undertaken to address these key criticisms.


BACKGROUND (Continued)• The Clean Energy Futures (CEF)

Study Initiated by the U.S. Department of Energy in Nov. 1998.

• Goal: to identify and analyze policies that promote efficient and clean energy technologies to reduce carbon emissions and improve oil security and air quality

• Published in Nov. 2000


LABORATORY TEAM LEADSStudy Design/Integration Marilyn Brown, ORNL Mark Levine, LBNL Walter Short, NREL

Buildings Jon Koomey, LBNL Andrew Nicholls, PNNL

Transportation David Greene, ORNL Steve Plotkin, ANL

Electricity Stan Hadley, ORNL Walter Short, NREL

ANL = Argonne National Laboratory (ANL)LBNL = Lawrence Berkeley National Laboratory (LBNL)NREL = National Renewable Energy Laboratory (NREL)ORNL = Oak Ridge National Laboratory (ORNL)PNNL = Pacific Northwest National Laboratory (PNNL)

NEMS Modeling/ Economic Integration Jon Koomey, LBNL Marilyn Brown, ORNL

Macro-Economic Modeling Alan Sanstad, LBNL Gale Boyd, ANLIndustry

Lynn Price, LBNL Ernst Worrell, LBNL


METHODOLOGY: DIFFERENT MODELING APPROACHES

• Top down/econometric

• Bottom-up/engineering-economic

• Hybrids (like CEF-NEMS)

N.B., All methods susceptible to the inappropriate use of historically-based parameters to model futures that are quite different from the business-as-usual case.


METHODOLOGY (CONTINUED)• Analyze and compile latest technology data by

sector and end-use.• Define scenarios in detail, relying on program

experience and judgment.• Change decision parameters and technology costs

in CEF-NEMS to reflect the scenarios.• Run the CEF-NEMS model and associated

spreadsheets to capture fuel-price feedbacks and direct cost impacts.

• Analyze second-order impacts of emissions trading using latest literature.


TWO SCENARIOS

(1) Moderate Scenario: relatively non-intrusive, no-regrets or low-cost policies.

– assumes some shift in political will & public opinion– excludes fiscal policies that involve taxing energy

(2) Advanced Scenario: more vigorous policies.– assumes a nationwide sense of urgency– includes a domestic carbon trading system with assumed

permit price of $50/tC.

Defined by policies that reflect increased levels of national commitment to energy and environmental goals.

The scenarios are not forecasts or recommendations; they are possible pathways to a cleaner energy future.


KEY POLICIES-ADVANCED SCENARIO*

Buildings Industry

–Efficiency standards for equipment–Voluntary labeling and deployment

programs

–Voluntary programs–Voluntary agreements withindividual industries and tradeassociations

Transportation Electric Utilities

–Voluntary fuel economy agreementswith auto manufacturers

–“Pay-at-the-pump” auto insurance

–Renewable energy portfolio standardsand production tax credits

–Electric industry restructuring

Cross-Sector Policies

– Doubled federal R&D –Domestic carbon trading system

*The scenarios are defined by approximately 50 policies. These 10 are the most important ones in the Advanced scenario. Each policy is specified in terms of magnitude and timing (e.g., “431 kWh/year dishwasher standard implemented in 2010”).


Enhanced R&D is estimated to improve technologies in all sectors. Buildings Industry

Heat Pump Water Heaters (HPWHs):

R&D reduces the cost of HPWHs by 50% in 2005,

relative to the BAU.

Iron and Steel Technologies:

Near net shape casting technologies save up to 4

MBtu/ton steel and reduce production costs

between $20 and $40/ton.

Small Metal Halide (Mini-HID) Lamps:

R&D produces a 20-Watt mini-HID with an

electronic ballast that has the same brightness as a

100-Watt incandescent lamp and an incremental

cost of $7.50, available in 2005.

Pulp and Paper Technologies:

R&D produces an efficient black liquor gasifier

integrated with a combined cycle with primary

energy savings of up to 5 MBtu/ton air-dried pulp.

Transportation Electric Generators

Direct Injection Diesel Engines:

R&D enables direct injection diesel engines to

meet EPA’s proposed Tier 2 NOx standards in

2004.

Natural Gas Combined Cycle:

R&D reduces capital costs from the BAU forecast

of $405/kW to $348/kW for the 5th of a kind plant;

carbon sequestration adds $4/MWh.

Hydrogen Fuel Cell Vehicles:

R&D drives down the cost of a hydrogen fuel cell

system from $4,400 more than a comparable

gasoline vehicle in 2005 to an increment of only

$1,540 in 2020.

Wind:

R&D reduces capital costs from $778/kW

throughout the period in the BAU down to

$611/kW in 2016; Fixed O&M costs decline from

$25.9/kW-yr throughout the period in the BAU

down to $16.4/kW-yr in 2020.


RESULTS: ENERGY USE

Efficiency RD&Dpolicies

70

80

90

100

110

120

130

1990 1995 2000 2005 2010 2015 2020

Moderate

Business-As-Usual

1997 Energy Consumption

Additional Policies

Advanced Scenario

(~20% reduction in 2020)

Energy Use (in

Quads)


RESULTS: ENERGY SOURCES


RESULTS: CARBON EMISSIONS

Need for R&D delays impacts on transportation, but by 2020 emission reductions are large.

Electric sector policies account for a third of the carbon reductions in the Advanced scenario.


Moderate Scenario Advanced Scenario

THE ECONOMICS: Energy bill savings exceed investment costs,

and the gap grows over time.


RESULTS: DIRECT COSTS IN 2010Moderate Scenario Advanced Scenario

Energy bill savings: +$55

Gross energy bill savings: $89Carbon permit costs: -$73= Net energy bill savings: +$16

Investment costs: -$11 Investment costs: -$30

Program costs: -$ 4 Program costs: -$12

Recycle of carbon permitrevenues to public: $ 0

Recycle of carbon permitrevenues to public: +$73

Net direct savings: $40 Net direct savings: +$48

(units: Billions US $/year) (units: Billions US $/year)


THE ECONOMICS• Based on data from EMF 16 and worst case

assumptions (no smart revenue recycling of advanced case carbon trading fees), indirect macroeconomic costs are in the same range as net direct benefits.

• Important transition impacts and dislocations could still be produced in the advanced case (e.g., reduced coal and railroad employment).

• “Green” industries could grow significantly (e.g., wind, agriculture, and energy efficiency).


CONCLUSIONS• Smart public policies can significantly reduce

not only carbon dioxide emissions, but also local air pollution, petroleum dependence, and inefficiencies in energy production and use.

• RD&D, voluntary programs, efficiency standards, and other non-price policies play a critical role in the realization of these scenarios.

• The overall economic benefits of these policies appear to be comparable to their overall costs.


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EXTRAS (JUST IN CASE)


If energy efficiency is such a good idea, why don’t people do it

anyway?Engineering-economic analysis Engineering-economic analysis

plus transaction costsResults with policy or program that reduces transaction costs

Source: Adapted from Katrin Ostertag Transaction costs of raising energy efficiency. Working paper, May 1999. Presented at the IEA International Workshop on Technologies to Reduce Greenhouse Gas Emissions: Engineering-Economic Analyses of Conserved Energy and Carbon. Washington, DC. 5-7 May 1999. This example assumes that the energy efficient technology delivers the exact same service as the standard technology.

Standard

Technology

Energy

Efficient

Technology

Costs

Direct

Costs

Standard

Technology

Energy

Efficient

Technology

Costs

Direct

Costs

Transaction

Costs

Standard

Technology

Energy

Efficient

Technology

Costs

Direct

Costs

Transaction

Costs

Program

Costs


Market Imperfections: Efficient Magnetic Ballast Market Shares

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

CA stds

NY stds

MA/CT stds

FL stds

US stds

Major ballastmanufacturer's estimate

of share in 1980Major ballast

manufacturer's estimateof share in 1988


Market Imperfections: Real IRRs for Efficient Magnetic BallastsBased on market data in the US commercial sector (circa 1989)

0%

50%

100%

150%

200%

250%

High usage Average usage Low usage

F40 ballastsF96 ballasts


Standby power for TVs

0%

5%

10%

15%

20%

Standby Power (W)

0 5 10 15 25

Energy Star Limit(3 Watts)

33% 67%

N=365

20

Source: Karen Rosen, LBNL, May 1999, [email protected]

Sh

are

of

un

its

mea

sure

d


Buildings

Carbon Emission Reductions, Advanced Scenario, 2020

All other

41%

Lighting28%

Office equipment11%

Space heating

4%

Space cooling

7%

Ventilation

4%

Refrigeration3% Water

heating2%

• Voluntary programs and equipment standards are the key policy mechanisms in this sector.

• Many small end-uses (“other”) are large contributors to total carbon savings. Lighting is also important.

Residential Commercial


Industry• Key Policies: Voluntary programs (technology

demonstrations, energy audits, financial incentives), voluntary agreements between government and industry, and doubling cost-shared federal R&D.

• Key Crosscutting Technologies: Combined heat and power, preventive maintenance, pollution prevention, waste recycling, process control, stream distribution, motor and drive system improvements.

• Numerous subsector-specific technologies play a role.


Industry• Cement, iron & steel, and other energy-intensive

industries save the most energy.

• Pulp and paper industry reduces its carbon emissions by 41% in the Advanced scenario.


Industry: Combined Heat and Power

• BAU New Capacity: 4 GW by 2010 9 GW by 2020

• Advanced Scenario New Capacity: 29 GW by 2010 76 GW by 2020

• In 2020, this saves: 2.4 quads of energy 40 MtC of emissions


TransportationKEY POLICIES:

• Doubling cost-shared federal R&D is critical to achieving a greater degree of technological success

• Voluntary commitments by vehicle manufacturers to fuel economy goals

• Pay-at-the-pump insurance fees

• Domestic carbon trading system


Transportation TechnologiesTurbo-charged direct injection (TDI) diesels and hydrogen fuel cell vehicles play a major role by 2020.

Sales of New Vehicles

(in 1,000s)


Transportation Efficiency TechnologiesPassenger Car MPG Improvements (Advanced Scenario)

Gasoline Engine Technology Only, Year 2020 (28.6 to 44.1 MPG, or 8.2 to 5.3 l/100 km)


Electricity

• Key Policies: domestic carbon trading system, restructuring of the electricity industry, production tax credit for non-hydro renewable energy, and R&D.

• Key Technologies: natural gas combined cycle plants, wind power, nuclear relicensing, biomass, and geothermal.


Total Generation by Fuel (TWh)Business As Usual

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 1998 2001 2004 2007 2010 2013 2016 2019

TWh

Other

Geothermal

Biomass

Wind

Hydro

Nuclear Power

Natural Gas

Petroleum

Coal

Advanced Scenario

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 1998 2001 2004 2007 2010 2013 2016 2019

TWh

Other

Geothermal

Biomass

Wind

Hydro

Nuclear Power

Natural Gas

Petroleum

Coal


Non-Hydro Renewable Electric Generation in the Advanced Scenario (TWh)


Industrial Sector Voluntary Agreements by Companies

Company Sector Focus of Agreement Target/Period

British Petroleum Oil GHG Emissions 10% below 1990 in 2010

BHPSteel, Mining, OilGas GHG Emissions Hold 2000 emissions to 1995 level

Conoco Oil Energy15% improvement in energy useper pound of product between1990 and 2000

Dow Chemicals Energy20% reduction in energy use perpound of product by 2005

DuPontPetroleum Refining,Chemicals GHG Emissions 40% below 1990 levels by 2000

Royal Dutch Shell Oil, Chemicals GHG Emissions 10% below 1990 levels by 2002

Costs of reducing carbon emissions in the U.S.: Some recent results

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