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Energy Efficiency and Energy Energy Efficiency and Energy Policy
James SweeneyJames SweeneyStanford University
Director, Precourt Institute for Energy EfficiencyDirector, Precourt Institute for Energy EfficiencyProfessor, Management Science and Engineering
Policy Drivers
• Environmental Protection• Global Climate ChangeGlobal Climate Change
• Security• Oil/International vulnerability
Vulnerability of infrastructure to terrorism • Vulnerability of infrastructure to terrorism, natural disaster, or human error
• Economics• Prices of electricity, gasoline, natural gas• Price volatility: oil, natural gas, wholesale
electricityelectricity
41 40
45U.S. Energy Usage: 2005, 2006
35
40
2005 2006
23 2323 2225
30
on Buts
3 22
15
20
Quadrillio
8 8
2 9 3.0
10
15
2.7 2.9
0.3 0.07 0.18
2.9 3.0
0.3 0.07 0.26
0
5
Source: EIA, Annual Energy Review
Energy Efficiency Compared to CO Free Energy SupplyCO2-Free Energy Supply
• A 10% reduction in all energy intensity gy yimplies that 8.5 quads of fossil fuels are not used, reducing CO2 emissions by 8.5%
• A 25-fold increase in wind plus solar can displace about 8.5 quads of fossil fuels.p q
• 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 basismeasured 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. CO2 Emissions by Sector and Fuels 2005: 1,568 Tonnes Carbon (5,751 Tonnes CO2)
600vale
nt
500
r C
arbo
n eq
ui Natural GasPetroleumCoal Air
300
400
nnes
per
yea
r
Trucks Buses
200
Mill
ions
of t
on
LDVs
0
100
Residential Commercial Ind strial Transportation Electricit
M LDVs
Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2007
Residential Commercial Industrial Transportation Electricity Generation
U.S. CO2 Emissions by Sector and Fuels 2005: 1,568 Tonnes Carbon (5,751 Tonnes CO2)
600vale
nt
Through Electricity
500
Car
bon
equi Natural Gas
PetroleumCoal Air
300
400
nnes
per
yea
r
Trucks Buses
200
Mill
ions
of t
on
LDV
0
100M LDVs
Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2007
Residential Commercial Industrial Transportation
45
US Primary Energy and Electricity Use by Sectors
40
5
30
35
tu
20
25
drill
ion
Bt
15
20
Qua
5
10Through Electricity: Res, Ind, CommPrimary: Res, Ind, CommTransportation: Primary
01950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Transportation: Primary
Energy Efficiency:
Economically Efficient Reductions in Energy Use
IntensityIntensity
Decreased Energy Use
Increased E i
Reduced Economic Economic
EfficiencyEconomicEfficiency
Increased Energy Use
Decreased Energy Use
Energy EfficiencyI ffi i t E Energy Efficiency Improvement
Inefficient Energy Saving Increased
EconomicEconomicEfficiency
Economically EfficientEconomically Efficient Energy IntensificationWaste
Some Sources of Efficiency Failures• Externalities of Energy Use
Gl b l Cli t Ch• Global Climate Change• Risks of Energy Price Shocks• Limitations on our Foreign Policy Options• Terms of Trade Impacts (Pecuniary “Externalities”)• Terms of Trade Impacts (Pecuniary “Externalities”)• Automobile risk shifting by purchase of heavy vehicles
• Pricing Below Marginal Cost• Non-time-differentiated Electricity PricingNon time differentiated Electricity Pricing
• Information Asymmetry/ Agency Problems• Consumer Product Marketing• New Building Constructiong
• Suboptimal Technology Options• Incomplete capture of intellectual property• Under-investment• Sub-optimal technology directions, due to externalities
• Non-Convexities • Learning By Doing Technology Spillovers
“Chi k d E ” P bl• “Chicken and Egg” Problems
Minimizing Economic Cost of Reducing CO2
• Multiple market failures imply multiple instruments Multiple market failures imply multiple instruments are needed
• Best instruments depend on nature of failures– Carbon dioxide externality
• Carbon tax or carbon cap and tradeI f ti t liti– Information externalities
• Labeling, standards, regulations, disclosuresBehavioral issues– Behavioral issues
• Education, marketing, cultural shift– Risk shifting externalitiess s t g e te a t es
• Regulations, incentives– R&D under-investment
• Incentives, government R&D, IP protection
Decreased Energy Use“Smart” Regional Land
Energy AuditsPlug-In
Hybrids
LED General
“Smart Buildings” Controls
Compact
LED Traffic Lights
GasolineOptimized Building
gDevelopment
Reformed CAFE Standards
Halt SUV Sales
Hybrids (Now)
Plug-In
Lighting (Future)
Controls
LED Task Compact Fluorescent Penetration Energy
Cost Labeling
Gasoline Rationing
gConstruction
Overly Strict Building
Efficient AC-DC Converters
Plug-In Hybrids (Future)
Lighting (Now)
Old appliance replacement
Congestion Pricing
Building Standards
Pigouvian Energy Tax
ConvertersHybrid Gas-Electric Vehicles
Behavioral Change:Program ThermostatLights, Tire pressure
Personal Computer Penetration
Increased EconomicEfficiencyMany Rapid
Transit S t
LED General
Internet Growth
Increased commercial space
Incan-descent
SystemsAirline Deregulation
High Definition
Lighting (Now)
Economic development
Gasoline Price Controls
descent Lighting
High Definition TV Accessible
Business Travel
CAFE Standards
Actual (2001) vs DPV Cost Minimizing Fuel Economy – Without Hybrids – NRC CAFE Study
MPG Gallons Per 100 Miles
DPV Cost DPV Cost Optimal %Type 2001
DPV Cost Minimizing 2001
DPV Cost Minimizing
Optimal % 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%
Mi i 22 00 30 00 4 55 3 33 27%Minivan 22.00 30.00 4.55 3.33 27%
Large Pickup 18.00 27.00 5.56 3.70 33%
45
Estimated Cost-Minimizing MPG vs. CurrentPassenger Cars: NRC CAFE Study
40
3-Year + Externality 14-Year
35
Bas
e M
PG
3-Year3-Year + Externality
14-Year
3-Year +
30
ve M
PG v
s
3-Year
3-Year
3-Year + Externality 14-Year
25
Cos
t Effe
cti
20
C
15Subcompact Compact Midsize Large
Passenger Car Classes
Estimated Cost-Minimizing MPG vs. Current: “Trucks”
35.00
3-Year + Externalit 14-Year
30.00
Bas
e M
PG 3-Year
3-Year +
3-Year + Externality 14-Year
25.00ve M
PG v
s
3-Year
Externality 14-Year
3-Year
20 00Cos
t Effe
cti
20.00C
15.00SUV-Small SUV-Mid SUV-Large MiniVan Pick-up Large
Truck Car Classes
Truck Standard Before Recent Changes
Car Standard
Restructuring of CAFERestructuring of CAFE
• Tradable Fuel Economic Credits• Attribute-Based Targets
Tradable Fuel Economy Credits• Government sets target fuel economy• 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
b ti t t t i f l beating targets, to increase fuel economy
• Incentives available for new entrants to the industry
• Flexibility to meet consumer preferencesy p
• Limit costs if standards turn out to be more difficult to meet than expecteddifficult to meet than expected
• Will reveal information about costs of fuel economy improvementsimprovements
• Keep aggressive fuel economy goalsfrom creating irreparable harmfrom creating irreparable harm
Attribute Based TargetsC t Att ib t B d St d d• Current Attribute Based Standards:
Vehicle is a Car or a TruckHeavy Vehicles Not Regulatedy g
• Large Incentive to Design Vehicle to be a TruckE g : PT CruiserE.g.: PT Cruiser
• Better Approach: Make Targets Continuous with Meaningful VariablesMeaningful Variables
E.g.: Gross Vehicle Weight or Footprint
• Target Rule May or May Not Provide Incentives To Change Meaningful Variables
Truck Standard Before RecentBefore Recent Changes
Car StandardStandard
35mpg
Possible Integrated Targets
C
AB
Possible Integrated Targets
C
AB
18
Gasoline (Or Equivalent) Use: Light Duty Vehicles
16
18
12
14
Per
Day
8
10
of B
arre
ls P
4
6
Mill
ions
35 MPG Standard
0
2
35 G Sta da d
No CAFE Changes
02005 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)
$70
$80 Cost of CapitalCost of MaintenanceElectricity Cost
$50
$60
Electricity Cost
$40
$50
$20
$30
$10
$20
$0Incand CFL LED
Commercial 900 Lumen Lighting 20 year Lifecycle Cost (Now)
$450
$500
$350
$400 Cost of CapitalCost of Maintenance
$250
$300 Electricity Cost
$150
$200
$50
$100
$0Incand CFL LED
LEDs Efficacy Increases by 30% Per Year
140
1602002 DOE Roadmap
LED Standard Chip
100
120
er W
att LED - Standard Chip
LED - Power Chip
80
100
Lum
en p
e
40
60
ffic
acy
/ L
20
40
Ef
01998 2000 2002 2004 2006 2008 2010 2012
Residential 900 Lumen Lighting 20 year Lifecycle Cost (In 5 – 10 Years)
$70
$80
$60
$70
Cost of CapitalCost of Maintenance
$40
$50Cost of MaintenanceElectricity Cost
$20
$30
$
$10
$20
$0Incand CFL LED
Commercial 900 Lumen Lighting 20 year Lifecycle Cost (In 5 – 10 Years)
$450
$500
$350
$400 Cost of CapitalCost of Maintenance
$250
$300 Electricity Cost
$150
$200
$50
$100
$0Incand CFL LED
Energy Implications of 100% LEDs @ 120 Lm/wt System Efficacy
400
450
Current Mix
300
350
400 Current MixAll LED @ 120 lm/wt
200
250
300
Whr
/yr
150
200TW
50
100
0Commercial Residential Industrial Outdoor