Beyond the Wish: Scaling Up Energy Efficiency


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As part of its series of discussions on energy and national security, the Center for Strategic and International Studies held a panel discussion on the role of energy efficiency in climate legislation. Joe Loper, Senior Vice President for Policy and Research at the Alliance to Save Energy, led off the discussion with an overview of the opportunities and challenges of using energy efficiency to reduce the cost of compliance with federal climate legislation.

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  • Beyond the Wish: Scaling Up Energy Efficiency

    1. 1. Beyond the Wish: Scaling Up Energy Efficiency Joe Loper Alliance to Save Energy October 22, 2008
    2. 2. What is the Alliance? <ul><li>Mission: The Alliance to Save Energy promotes energy efficiency worldwide to achieve a healthier economy, a cleaner environment, and greater energy security </li></ul><ul><li>Chaired by Senator Mark Pryor (D-AR) and James Rogers (CEO, Duke Energy) with strong bipartisan congressional, corporate & public interest leadership. </li></ul>
    3. 3. What is the Alliance? <ul><li>NGO coalition of 150+ prominent business, government, environmental and consumer leaders. </li></ul><ul><li>Conduct policy, education, research, technology deployment, market transformation and communication initiatives. </li></ul><ul><li>Headquartered in Washington, D.C. with operations in Eastern Europe, South Africa, Mexico, India and several states in the U.S. </li></ul>
    4. 4. EE Benefits <ul><li>Concerned about climate, national security, energy security, high energy prices, other environmental Issues? </li></ul><ul><li>EE is often cheapest, cleanest, easiest way to achieve </li></ul><ul><ul><li>Cost of measures can be low </li></ul></ul><ul><ul><li>No nuclear waste </li></ul></ul><ul><ul><li>Less CO2 </li></ul></ul><ul><ul><li>No battleships required </li></ul></ul>
    5. 5. Everyone’s talking about energy efficiency <ul><li>Secretary Bodman </li></ul><ul><ul><li>&quot;The biggest source of immediately available 'new' energy is the energy that we waste every day.&quot; </li></ul></ul><ul><li>National Petroleum Council (“Hard Truths”) </li></ul><ul><ul><li>- ”The study demonstrates that energy efficiency is a very near-term energy resource, and tapping it is essential to national energy strategy.” (Dan Yergin, Vice Chair of Study) </li></ul></ul><ul><li>Jim Rogers (CEO, Duke Energy) </li></ul><ul><ul><li>Energy efficiency is “the fifth fuel” </li></ul></ul><ul><li>Tom Kuhn (President, EEI) </li></ul><ul><ul><li>Energy efficiency is “the first fuel” </li></ul></ul>
    6. 7. Huge EE Potential Remains Energy Efficiency Potential 40% Adapted from McKinsey Analysis
    7. 8. We need all we can get McKinsey mid-range reductions (2030) McKinsey high-range reductions (2030) Adapted from WRI Analysis
    8. 9. EE potential is uncertain <ul><li>Depends </li></ul><ul><ul><li>Discount rates </li></ul></ul><ul><ul><li>Economic growth </li></ul></ul><ul><ul><li>Energy prices </li></ul></ul><ul><ul><li>Capital turnover </li></ul></ul><ul><ul><li>Technology development </li></ul></ul><ul><ul><li>Policy </li></ul></ul><ul><ul><li>Market barriers </li></ul></ul>Note: Supply potential is uncertain too
    9. 10. Latest Potential Study (Draft)
    10. 11. Market Barriers <ul><li>Cause economically inefficient underinvestment in EE </li></ul><ul><li>#1 Externality costs </li></ul><ul><ul><li>Costs -- Climate, national security risks, risk of nuclear waste/meltdown, acid rain, local health </li></ul></ul><ul><li>#2 Split incentives </li></ul><ul><ul><li>Tenant-landlord </li></ul></ul><ul><ul><li>Builder-buyer </li></ul></ul>
    11. 12. Market Barriers (Cont’d) <ul><li>#3 Energy Subsidies </li></ul><ul><ul><li>$16 billion according to EIA </li></ul></ul><ul><li>#4 Lack of information </li></ul><ul><ul><ul><li>Know what – Lack of awareness </li></ul></ul></ul><ul><ul><ul><li>Know-how -- EE can be complicated </li></ul></ul></ul><ul><li>#5 Bounded Rationality </li></ul><ul><li>Others </li></ul><ul><ul><ul><li>Lock-in (light fixtures, big cars?) </li></ul></ul></ul><ul><ul><ul><li>First cost, lack of financing </li></ul></ul></ul>
    12. 13. Job #1: Get prices right <ul><li>Cap or tax </li></ul><ul><li>Cap and trade dominates discussion </li></ul><ul><ul><li>Cap (beyond BAU) reduces emissions </li></ul></ul><ul><ul><li>Trading reduces overall costs of compliance </li></ul></ul><ul><li>Elements to watch – stringency </li></ul><ul><ul><li>Cap, scope, cost-containment elements </li></ul></ul><ul><li>Elements to watch – cost containment </li></ul><ul><ul><li>Lower cost -- Safety valves, offsets </li></ul></ul><ul><ul><li>Higher cost – Muting of certain price signals through allocations </li></ul></ul>
    13. 14. Role of EE in Cap n Trade <ul><li>EE is one of many abatement options </li></ul><ul><li>If excluded, forcing EE can reduce costs of overall compliance </li></ul><ul><ul><li>If “cheaper” than next best option </li></ul></ul><ul><ul><li>Doesn’t need to be “negative cost” </li></ul></ul><ul><ul><li>Same as other “excluded” (underinvested) options </li></ul></ul><ul><li>Note: Forcing EE does not reduce emissions </li></ul><ul><li>EE can be excluded due to </li></ul><ul><ul><li>Policy elements – e.g., free allowances to regulated entities </li></ul></ul><ul><ul><li>Market barriers </li></ul></ul>
    14. 15. Many “Non-Price” Barriers Uncertain costs? Small savings Lock-in SPLIT INCENTIVES Bounded Rationality Choices Information Energy Subsidies Externalities
    15. 16. Caution …. <ul><li>Barriers may reveal preferences or costs </li></ul><ul><li>Barriers difficult to quantify </li></ul><ul><li>Some non-price barriers addressed by carbon price </li></ul><ul><li>Fixing barriers is not free – count as cost </li></ul><ul><ul><ul><li>Job story good, but challenging too </li></ul></ul></ul><ul><li>Overall cost of abatement could be higher </li></ul><ul><ul><ul><li>If fix barriers that don’t exist </li></ul></ul></ul><ul><li>Political viability of cap a consideration </li></ul><ul><ul><ul><li>Less allowance value for other interests </li></ul></ul></ul><ul><ul><ul><li>Basic argument for cap and trade undermined </li></ul></ul></ul>
    16. 17. Address non-price barriers <ul><li>Not all barriers must/can be conquered </li></ul><ul><ul><li>Still better off than we were </li></ul></ul><ul><li>If ignored, cost of overall abatement will be higher! </li></ul><ul><li>Different barriers require different approaches </li></ul><ul><ul><li>McKinsey, et al pursuing </li></ul></ul>
    17. 18. EE Policies in Brief <ul><li>Carbon Price </li></ul><ul><ul><li>Addresses service demand (e.g., VMT, home size) and appropriate application (e.g., HVAC sizing) </li></ul></ul><ul><li>Vehicle, Equipment, Appliance Standards </li></ul><ul><ul><li>Addresses lack of information, split incentives, bounded rationality </li></ul></ul><ul><li>Building Codes </li></ul><ul><ul><li>Addresses lack of information, split incentives </li></ul></ul><ul><li>Labeling </li></ul><ul><ul><li>Addresses lack of information, split incentives </li></ul></ul><ul><ul><li>Addresses bounded rationality could go up or down </li></ul></ul>
    18. 19. EE Policies in Brief (cont’d) <ul><li>Tax Incentives </li></ul><ul><ul><li>Address lack of information </li></ul></ul><ul><li>Energy Efficiency Resource Standard </li></ul><ul><ul><li>Utilities may be best able to address “local” barriers </li></ul></ul><ul><li>Labor Force Education & Training </li></ul><ul><ul><li>Needed to respond to policies </li></ul></ul><ul><li>R&D Investment </li></ul><ul><ul><li>Because we still need game changers </li></ul></ul>
    19. 20. Recap <ul><li>A lot of EE potential – We decide potential </li></ul><ul><li>EE is often cheapest, cleanest, easiest </li></ul><ul><li>But….EE is not free </li></ul><ul><ul><li>Ability to get people to implement is TBD </li></ul></ul><ul><li>Strong and smart policy will be the key </li></ul><ul><ul><li>Learn by doing everything NOW </li></ul></ul>
    20. 21. Prospects for Cap and Trade <ul><li>Economy in recession </li></ul><ul><li>But…oil prices down too </li></ul><ul><li>Political stars aligned? </li></ul><ul><ul><li>Lieberman-Warner </li></ul></ul><ul><ul><li>Boucher-Dingell </li></ul></ul><ul><ul><li>McCain and Obama </li></ul></ul><ul><li>Biggest economic challenge is uncertainty </li></ul><ul><ul><li>Indecision on climate adds to uncertainty </li></ul></ul><ul><li>Nobody benefits from stand-off </li></ul>
    21. 22. <ul><li>Comments? Suggestions? </li></ul><ul><li>Joe Loper </li></ul><ul><li>202-530-2223 </li></ul><ul><li>[email_address] </li></ul><ul><li> </li></ul>