Energy Problems; Energy Policy; Energy Efficiency gy y

Classes without QuizzesClasses without Quizzes

J SJames SweeneyStanford University

Director, Precourt Institute for Energy EfficiencyProfessor, Management Science and Engineering

1

Three Public Policy Drivers for Energy Policy

• Environmental ProtectionGl b l Cli t Ch

Energy Policy

• Global Climate Change

• Securityy• Oil/International vulnerability• Vulnerability of infrastructure to terrorism, natural

disaster or human errordisaster, or human error

• Economics (Public policy and private sector issues)P i f l t i it li t l• Prices of electricity, gasoline, natural gas

• Price volatility: oil, natural gas, wholesale electricity• Management for energy efficiency can be very

2

profitable

Environmental

3

Fossil fuels account for• 98% of the US carbon dioxide net• 98% of the US carbon dioxide net

releases into the atmosphere

• 82% of the releases of greenhouse gases measured on a carbongases, measured on a carbon equivalent basis.

4

U.S. CO2 Emissions 2005

600

equi

vale

nt

Natural Gas

400

500

year

Car

bon Petroleum

Coal

Trucks

Air

300

tonn

es p

er y Trucks

Buses

100

200

Mill

ions

of t

LDVs

0

100

Residential Commercial Industrial Transportation Electricity

5

Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2007

Residential Commercial Industrial Transportation Electricity Generation

U.S. CO2 Emissions 2005

600

equi

vale

nt

Through ElectricityNatural Gas

400

500

ear

Car

bon

e

PetroleumCoal Air

300

400

onne

s pe

r ye Trucks Buses

200

Mill

ions

of t

o

DV

0

100M LDVs

6

Source: U.S. EPA Inventory of Greenhouse Gas Emissions, April 2007

Residential Commercial Industrial Transportation

Energy Security Issues

7

• Production of oil concentrated into unstable• Production of oil concentrated into unstable areas of the world

• Sudden supply reductions can sharply increaseSudden supply reductions can sharply increase oil price– Short run demand elasticity aboutShort run demand elasticity about

- 0.1 to - 0.2– Percentage price increase will be 5 to 10Percentage price increase will be 5 to 10

times the percentage supply reduction• Sudden oil price increases can lead toSudden oil price increases can lead to

worldwide recession• Petroleum revenues fund terrorist activities

8

World Oil Use (84.7 Million Barrels Per Day): 2006Crude Oil, Natural Gas Plant Liquids, and Other Liquids

North America29%

Asia & Oceania29%

Central & South America

Africa4%

7%

Eurasia

Middle East7%

9

Europe19%

Eurasia5%

World Oil Production (84.5 Million Barrels Per Day): 2007Crude Oil, Natural Gas Plant Liquids, and Other Liquids

North America17%

Asia & Oceania10%

17%

Africa13%

Central & South America

9%

Europe6%

Eurasia15%

Middle East30%

10

15%

Oil and Gas Reserves, Billion Barrels Oil Equivalent

Saudi Aramco (Saudi Arabia) 302 ExxonMobil 23National Iranian Oil Co 302 Pertamina (Indonesia) 22Gazprom (Russia) 198 Lukoil (Russia) 21Gazprom (Russia) 198 Lukoil (Russia) 21Iraqi National Oil Co 136 BP 19Qatar Petroleum 133 Pemex (Mexico) 19( )Kuwait Petroleum Co 109 PetroChina 19Petroleos de Venezuela 105 Shell 16Ad (Ab Dh bi) 80 Y k (R i ) 13Adnoc (Abu Dhabi) 80 Yukos (Russia) 13Nigerian Natnl Petroleum Co 41 Chevron 12Sonatrach (Algeria) 38 Petrobras (Brazil) 12( g ) ( )Libya NOC 31 Total (France) 11Rosneft (Russia) 28 Surgutneftgas (Russia) 9P t (M l i ) 26Petronas (Malaysia) 26

State Owned/Controlling Interest. Private Sector Owned

Energy - Economic Issues

12

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 ppproduction capacity so as to keep prices

• Incentives for dominant suppliers to keep future prices

13

pp p puncertain so as to limit competitive investments

Crude Oil Futures Prices: As of Eight DatesAs of Jan 16 2007 As of May 23 2007A f S t 14 2007 A fJ 10 2008

$135$140$145$150

As of Sept 14, 2007 As ofJan 10, 2008As of May 7 2008 As of May 22, 2008As of June 20, 2008 As of Oct 10 2008

$110$115$120$125$130$135

$85$90$95

$100$105$110

$60$65$70$75$80$85

$50$55$60

Jan-2

Jul-20

Jan-2

Jul-2 0

Jan-2

Jul-2 0

Jan-2

Jul-2 0

Jan-2

Jul-2 0

Jan-2

Jul-2 0

Dec-2

Jul-20

Dec-2

Jun-2

Dec- 2

Jun-2

Dec- 2

Jun-2

Dec- 2007

007

008

008

009

009

010

010

011

011

012

012

2012

013

2013

014

2014

015

2015

016

2016

Delivery Date

Energy Efficiency:

Economically Efficient R d ti i E UReductions in Energy Use

Intensityy

15

US Energy Consumption By Fuel

45

40 40 40

35

40

45

23 2322 2223 2425

30 20052006

Qua

ds)

15

202007

sum

ptio

n (Q

8.1

2.7 3.2

0.3 0.06 0.18

8.2

2.9 3.4

0.3 0.07 0.26

8.4

2.53.6

0.3 0.08 0.32

5

10

Con

s

0.06 0 80.070.080

Petrole

um Coal

Natural

Gas

Nuclea

rHyd

roelec

tric

Biomas

s

Geothe

rmal

Solar/P

V

Wind

16Source: EIA, Annual Energy ReviewN Hy G

Fuel

Energy Efficiency Compared to CO Free Energy SupplyCO2-Free Energy Supply

• A 30% reduction in all energy intensity implies that 25 5 quads of fossil fuels are not used that 25.5 quads of fossil fuels are not used, reducing CO2 emissions by 25.5%

• A 60-fold increase in wind plus solar can displace about 25 quads of fossil fuels.

• A factor of five increase in nuclear power can displace 30 quads of fossil fuels.displace 30 quads of fossil fuels.

• 1 billion tons per year of celluosic conversion of

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biomass can displace 5 quads of gasoline.

U.S. Energy Use by Sectors: 200745

40

Through Electricity

Renewables

Natural Gas

30

35 Petroleum

Nuclear

Coal

20

25

drillion Btu

15

20

Qua

5

10

18

0

Residential Commercial Industrial Transportation Electric

Decreased Energy Use

Increased E i

Reduced Economic Economic

EfficiencyEconomicEfficiency

19Increased Energy Use

Decreased Energy Use

Energy EfficiencyI ffi i t E Energy Efficiency Improvement

Inefficient Energy Saving Increased

EconomicEconomicEfficiency

Economically EfficientEconomically Efficient Energy IntensificationWaste

20

Decreased Energy Use“Smart” Regional Land

Energy AuditsPlug-In

Hybrids

LED General

“Smart Buildings” Controls

Compact

LED Traffic Lights

Gasoline

Optimized Building Construction

gDevelopment

Reformed CAFE Standards

Halt SUV Sales

Hybrids (Now)

Plug-In Hybrids

Lighting (Future)

Controls

LED Task Compact Fluorescent Penetration Energy

Cost Labeling

Gasoline Rationing

Construction

Overly Strict Building

Efficient AC-DC Converters

y(Future)Lighting

(Now)Old appliance replacement

Appliance Efficiency Standards

Congestion Pricing

Building Standards

Pigouvian Energy Tax

Converters

Hybrid Gas-Electric Vehicles

Behavioral Change:Program ThermostatLights, Tire pressure,Driving Patterns

Personal Computer Penetration

Increased EconomicEfficiencyMany Rapid

Transit S t

LED General

Internet Growth

g

Increased commercial space

Incan-descent

SystemsAirline Deregulation

High Definition

Lighting (Now)

Economic development

Gasoline Price Controls

descent Lighting

High Definition TV Accessible

Business Travel

22

Source: McKinsey & Co.

Why Do Negative Cost Options Continue ?Continue ?

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Market Failures and Market Barriers

Market failures Market barriers Unpriced costs and Low priority of energy

benefits issuesDistortionary regulatory

and fiscal policiesIncomplete markets for

energy efficiencyand fiscal policies energy efficiency

Misplaced incentives Capital market barriersI ffi i t d i t (C iti Skill )Insufficient and inaccurate

information (Cognitive Skills)

Source: Brown, Marilyn. 2001. “Market failures and barriers as a basis for clean energy policies.” Energy Policy

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gy p gy y

Market Failures• Externalities of Energy Use ( “Unpriced costs and benefits”)

Global Climate Change• Global Climate Change• Risks of Energy Price Shocks• Limitations on our Foreign Policy Options

T f T d I t (P i “E t liti ”)• Terms of Trade Impacts (Pecuniary “Externalities”)• Automobile risk shifting by purchase of heavy vehicles

• Pricing Below Marginal CostN ti diff ti t d El t i it P i i• Non-time-differentiated Electricity Pricing

• Information Asymmetry/ Agency Problems• Consumer Product Marketing• New Building Construction

• Suboptimal Technology Options• Incomplete capture of intellectual property• Sub-optimal technology directions, due to externalities

• Non-Convexities • Learning By Doing Technology Spillovers

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• “Chicken and Egg” Problems

Split Incentives: Market Penetration of Energy Efficiency Measures in Owner-Occupied and Rental Housing in California (CEC 2004)

 

8090

(%) Owner occupied

Rental

4050607080

etra

tion

( Rental

10203040

arke

t pen

0

d walls

d attic

ndows

mostat

lamps

rhea

dsM

a

Insulated w

Insulated

uble pane w

indmmab

le therm

t fluores

cent la

flow showerh

27

DoubPro

gramCompac

t f

Low-fl

Market Barriers• Low Priority of Energy Issues

– Generally means that energy costs are so small that it is not worth the effort to try to optimize

• Incomplete markets for energy efficiencyp gy y– Discrete nature of commodities offered for sale– Information problems when offering energy efficiency

services• Capital market barriers

– Simply a recognition of opportunity cost of capital investmentsinvestments

• Cognitive issues– Probably very important for residential, small

commercial and individual transportation decisionscommercial, and individual transportation decisions

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Market Barriers Example• Cognitive issues: automobile purchase

– Automobile purchase decisions• First cost biasFirst cost bias

– Automobile design decisions• Understand first cost bias• Don’t design optimally efficient cars• Don’t design optimally efficient cars

– Consumers don’t have option to choose optimally efficient cars because they are not offered for saleM k t t i ilib i– Market stays in equilibrium

• Cognitive issues: programmable thermostats– 2004 study. Only 20% of Americans own programmable

thermostats. Of those, 70% don’t use programmable features because they're too complicated.

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Levels of InterventionsPolicyPh sical En

Built Env.Physical Env.SocioculturalInterpersonal

BuildingsTechnology

pIndividual

• Interactions between levels• Complementary interventions

Based on the socio-ecological

30

model of health behavior

Thanks to Carrie Armel

• Policy interventions: formal rules instituted by government utility companies– formal rules, instituted by government, utility companies

• Physical environment characteristics: – Built environment: e.g., is a city is walkableBuilt environment: e.g., is a city is walkable– Technology: e.g., are programmable thermostats are

intuitive so people use them.• Sociocultural level: include media communications

– serial dramas and public service announcementsI t l f t f t t• Interpersonal or face-to-face contact– Programs at schools, faith-based organizations, Girl

Scout troops, YMCAsp ,• Individual level:

– people figure out changes themselves

31Thanks to Carrie Armel

Example: Lighting for Residential and g g

Commercial Use

32

Commercial Building Energy Uses

Space CoolingOtherCooling Load Driven by Ligh(42% of Cooling Load)

Electronics

Cooking(42% of Cooling Load)

LightingV til ti

Electronics

W t H ti

Ventilation

S H tiRefrigeration

Water Heating

Heating Assistance from Lighting( % f S )

33Source: 2006 Buildings Energy Data Book

Space Heating (23% of Space Heating Load)

Lighting as Share of U.S. Electricity

• Lighting useg g– About 800 Terawatt hours (1012) per year

• Electricity Generation– 3815 Terawatt hours per year

• Lighting is 21% of all electricity use

34

35

From “U.S. Lighting Market Characterization”prepared for DOE EERE by Navigant Consulting, 2002

36

From “U.S. Lighting Market Characterization”, prepared for DOE EERE by Navigant Consulting, 2002

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

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

The Precourt Institutefor Energy Efficiencygy y

39

Precourt Institute

A h d l i i tit t t St f d• A research and analysis institute at Stanford• Established in October 2006• Initial funding by Jay Precourt• Initial funding by Jay Precourt• Mission

– To improve opportunities for and implementation of p pp penergy efficient technologies, systems, and practices, with an emphasis on economically attractive deploymentdeployment

– Focus on the wise use of energy– Energy efficiency: economically efficient reductionsEnergy efficiency: economically efficient reductions

in energy use (or energy intensity)

40

PIEE Research Matrix

Sectors

Methods B ildings Transpor Electricit Ind str AppliancesMethods Buildings Transpor-tation

Electricity Industry Appliances

Engineering

Modeling

SystemsSystems

Behavior

Policy

42

Current Emphasis Anticipated Additions

Workshops/ConferencesCompleted• 2007 Energy Summit, June 2007. Jointly with Silicon Valley

Leadership Group• Behavior, Energy, and Climate Change. Jointly with ACEEE, California

Institute for Energy and Environment , November 2007• Energy Crossroads. (Stanford Student-Organized Event, partial

support). Spring 2007; Spring 2008• Energy Efficiency Workshop, with Snowmass Workshop on Integrated

Assessment of Global Climate Change, July 2007• 2008 Energy Summit, July 11, 2008. Jointly with Silicon Valley gy y y y

Leadership Group. • Electricity Measurement and Feedback Workshop. Sept. 4th-5th, 2008FutureFuture• Behavior, Energy, and Climate Change. Jointly with ACEEE, California

Institute for Energy and Environment, November 16-19, 2008• 2009 Energy Summit June 29 2009 Jointly with Silicon Valley

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• 2009 Energy Summit, June 29, 2009. Jointly with Silicon Valley Leadership Group.

Precourt Institute for Energy EfficiencyEnergy Efficiency

http://piee.stanford.edu

44