Energy Systems and the Three Pillars of...

Energy Systems and the Three Pillars of Policy

• Structure of global energy use • Energy efficiency • … and clean energy generation sources • The Three Domains and Pillars of Policy• UK policy framework and progress

Michael GrubbProfessor of Energy and Climate Change

University College London

Nanjing University, July 2018

Neither security nor environment are easily ‘marketised’

Energy policy needs to address:

• Security• System resilience, over-concentration, geopolitical risk

• Access and Affordability• Fuel poverty, the disconnected, ‘industrial energy prices’

• Environment and sustainability • Air quality, climate change, mining and water

Prioritising one too much over the others generates instability Focus here particularly on electricity, increasingly important in other sectors (transport, buildings)A systems issue .. Requiring multiple policies

The ‘Energy Trilemma’..

Energy and emission flows within the fossil fuel system(a ‘simplified Sankey’ diagram)

Agriculture Landuse , other gases

Process emissio

ns

Emissions from

fuel extracti

on

Note: The next panel gives the numeric breakdown at each stage

5% Energy6% CO2

+Remaining 8% is unattributable

distribution losses

* Remaining 19% comes

from renewable sources

and nuclear

35% Energy30% CO2

Direct fuels: 28% Energy+

24% CO2

26 % Energy*42% CO2

+ methane leakage from mines

30 % Energy 36% Fossil fuel CO2

+ 4% Process CO2

Electricity:33 % Energy+

(on final output)41 % CO2

21 % Energy*20% CO2

+ CO2 from gas flaring+ methane leakage from distribution

30% Energy24% CO2

Refined fuels: 32% Energy+

35% CO2

34 % Energy*38% CO2

+ CO2 from flaring

All data from the International Energy

Agency, accessed through ESDS.

Numbers at each step in the Chart (fuel, channel, end-use) independently add to 100%.

50% by 2050

Global emissions reduction below 1990 level

1980

1990

2010

Combination needed for percentage emissions reductionPossible future paths

Historic average efficiency rate: 1.3%/yr

The energy challenge of decarbonisation > halving global CO2 emissions by mid Century and onwards to ‘net zero’

Global energy efficiency

Decarbonisation

A challenge of transformation

20% by 2030

Estimates of Global CO2 Mitigation Potential by 2030

Cost

$U

SD/t

onne

of C

O2e

(in

Mill

ions

)

Annual abatement in 2030 GtCO2e

Advanced Economies Emerging Asia Rest of the World

Smarter Choices

5 10 15 20 25

Choosing cleaner products and processes(Pillar II) Innovation and Infrastructure

(Pillar III)

Note. The Chart shows the “McKinsey curve” of estimated potential to cut global CO2 emissions by 2030, in terms of the cost of measures (vertical axis), and the scale of measures (horizontal axis). Only measures related to the energy sector are included. For details of some of the options represented by the individual bars see Chapter 4 (for the negative cost options), and Chapter 6 (for the central zone). See also notes 21-23.Source: Generated by the authors using source data from the McKinsey report, Parthways to a low carbon economy (2009).

The ‘cost curve’ indicating the ‘three realms of opportunity’


• Structure of global energy use • Energy efficiency • … and clean energy generation sources • The Three Domains and Pillars of Policy• Growth theory and macroeconomic linkages• Policy Integration




5

10

Annual abatement in 2030 GtCO2e

Cost

$U

SD/t

onne

of C

O2e

Evidence confirms efficiency potential across individuals and organisations

Zero carbon energy: Solar is the dominant global renewable energy resource Global Map of Solar Direct Normal Irradiation (kWh/m2/yr)Desert intensity 2-3 x mid-latitude (annual average)

Source: GEA, 2012: Global Energy Assessment - Toward a Sustainable Futurereproduced with permission from the International Institute for Applied Systems Analysis (IIASA)

Eg. 38 x 38 km - Area required to generate India’s electricity from solar sources (400 TWh) (15% conversion efficiency)

Driven mainly by public policy (internationally)

https://www.bloomberg.com/gadfly/articles/2016-11-23/solar-industry-makes-feast-of-price-famine http://reneweconomy.com.au/how-the-jaw-dropping-fall-in-solar-prices-will-change-energy-markets-55160/

http://www.bloomberg.com/features/2016-ev-oil-crisis/http://www.bloomberg.com/news/articles/2016-07-27/elon-musk-says-it-s-pencils-down-for-tesla-s-model-3

PV: New record installed power prices Chile = $30/MWh Masdar = $25/MWhAbu Dhabi = $24/MWh

Module costs: -29% in 2016 to $0.39/Watt

Huge fall in solar PV and battery costs

The wind resource is also huge – particularly in mid and high latitudes

Eg. wind energy is a huge resource for the UK, especially offshore

Source: Global Wind Energy Council

Capacity growth in wind and solar

Wind - global

PV - by region

Global cumulative installed PV capacity 2006–2016Over past ten years, x35; >35% avg annual growth

Global cumulative installed wind capacity 2001–2016Over past ten years, x5; >15% avg annual growth

Cf: Total Chinese generating capacity (mostly coal and hydro): 1500GW

Wind & solar costs now comparable to conventional energy sources

- .. Learning also documented across a wide range of other supply and demand-side technologies including w.r.t. energy efficiency

PE Fig. 2 -3 b Resource trade-offs with the other two domains

Three Domains – an Economic Interpretation

Res

ourc

e U

se /

Ener

gy &

Em

issi

ons

Economic Output / Consumption

“Business as usual”

innovation

e.g. Accelerated, low carbon / resource-

efficient innovation

e.g. Purely carbon-

price-driven innovation

3rd Domain

1. Real-world individual and organisational decision-making

“Transforming” behaviour

“Optimising”behaviour

1st Domain“Satisficing”

behaviour

2nd Domain

3. Innovation & evolution of

complex systems

H

M

L

H Highest relevanceM Medium relevanceL Lowest relevance

Satisfice

Transform

Optimise

Domain Standards & Engagement

Markets & Prices

Strategic Investment

‘Smarter’individual & corporate choices

Cleaner products & processes

Innovation & infrastructure

1 2 3

L/M

H

L/M

L

M

H

Policy pillars

We need multiple policy instruments

Risk conception / Domain

Dominant scale Decision

frameworkField of theory

Mitigation economic

process

Realm of opportunity

Pillar of policy/

response

Ignore / Satisfice

Short term / local Indifferent or

disempoweredBehavioural & Organisational

Move closer to the ‘best

practice frontier’’

‘Smarter choices’

Standards and

engagement

(Pillar I)

Compensate/Optimise

Medium term / regional

Costs / impacts are tangible

and significant

Neoclassical & welfare

economics

Make best trade-offs along the frontier

Substitute cleaner

production & products

Markets and pricing

(Pillar II)

Secure/ Transform

Long term / global

Transformational risks and opportunities

Evolutionary & Institutional

Evolve the frontier

Innovation & infrastructure

Strategic investment

(Pillar III)

Planetary Economics Chapter 2 “The Three Domains”, Figure 2‑ 6 Alignments within each domain

A key to Planetary Economics – and politics – lies in the potential to align different levels of risk conception with the different pillars of response- A strategic risk issue like climate change aligns particularly with transformation

Global energy costs Annual

global emissions

Time‘Green’ futures

•Integrated high-innovation system•Biomass and electricity in transport•Low-carbon, ‘smart electricity’•High capital costs….•……but low operating costs

‘Brown’ futures• Continued dependence on fossil fuels• Unconventional and synthetic oil in transport• Low capital costs…•…but high operating costs and a host of environmental issues beyond carbon

Clustering of ‘low cost’ energy futures around higher and lower emissions, rather than in the middle, reflects

divergent responses to depletion of ‘easy oil’

We are here

Planetary Economics Chapter 10, “Transforming systems”, Figure 10-6: Two kinds of energy future – the carbon divide

“No wind favours those who don't know where they are going” - Lucius Annaeus Seneca

Need to steer not marginal+ but structural and systemic change

A sense of direction ….


• Structure of global energy use • Energy efficiency • … and clean energy generation sources • The Three Domains and Pillars of Policy• UK policy framework and progress




2008 UK Climate Change Act- UK commitment to 80% reductions GHG emissions by 2050 (from 1990)

2006 emissions

International aviation & shipping*

UK non-CO2 GHGsOther CO2

Industry (heat & industrial processes)

Residential & Commercial heat

Domestic transport

Electricity Generation

* bunker fuels basis

2050 objective

159 Mt CO2e

695 Mt CO2e

77% cut (= 80% vs. 1990)

Emission reductions by sector

Source: Committee for Climate Change, 2017 Report to Parliament – Meeting Carbon Budgets: Closing the policy gap (2017); BEIS, Provisional GHG statistics for 2016 (2017); BEIS, Final GHG statistics for 1990-2015 (2017).

Transforming (3rd Domain)

Innovation & evolution of complex systems

Satisficing (1st Domain)

Diverse individual and organisational decision-making

Optimising (2nd Domain)

Idealised / ‘representative’ optimising behaviour

Economic Output / ConsumptionBehavioural and

organisational economicsNeoclassical and welfare

economicsEvolutionary and

institutional economics

Typical social and organisational scale

Typical timescale

Reso

urce

use

/ E

nerg

y &

Em

issi

ons

To summarise the broad economic framework ..

For a problem which spans:- the inattentive decision-making of

seven billion energy consumers- major markets in electricity, energy-

intensive industry, etc- The long-term transformation of

vast and complex infrastructure-based techno-economic systems

And in which historical gap between economic advice (price & markets) and effective policy (energy efficiency and technology / renewables etc)

Energy Systems and the Three Pillars of...

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