John A. “Skip” LaitnerDirector of Economic and Social Analysis

American Council for an Energy-Efficient Economy (ACEEE)

ACEEE Ally Webinar

Washington, DCJanuary 19, 2010

Exploring the Macroeconomic Benefits of Exploring the Macroeconomic Benefits of Smart Climate and Energy Policies:Smart Climate and Energy Policies:

The Role of Productive Investment in Economic Activity

* From the October 2009 ACEEE report , Climate Change Policy as an Economic Re-development Opportunity: The Role of Productive Investments in Mitigating Greenhouse Gas Emissions. See, http://www.aceee.org/press/e098pr.htm.

*

Asking the Right QuestionsAsking the Right Questions

• Physicist and now Princeton Emeritus Professor John Wheeler once commented:

“We shape the world

by the questions we ask.”

• Almost by definition, if we are not asking the right set of questions, then we may be getting less than the best set of answers.

Working Definition: Working Definition: Energy Efficiency InvestmentsEnergy Efficiency Investments

• The cost-effective investment in the energy we don’t use to produce our goods and services.

• Examples include:– New electronic ballasts and lamps, sensors, building and piping

insulation, and heat recovery systems installed to primarily save energy

– Information and communication technologies (ICT) whose secondary value increases overall energy productivity

– Combined heat and power (CHP) and recycled energy systems with efficiencies of 70-90 percent, or more

– Investments in the more innovative, high value-added industries and services that power structural change, but in ways that also lower our overall energy-intensity

• The common denominator in all these examples is productive investment and informed behavior – and now, increasingly enabled by smart materials, semiconductor devices, technology systems and infrastructures.

An Opening CommentaryAn Opening Commentary

• Energy efficiency is the farthest reaching, least-polluting, and fastest growing energy success story of the last 40 years.

• Energy efficiency has met 75 percent of the new demands for energy-related goods and services since 1970 while new energy supplies have met only 25 percent of those new demands.

• But energy efficiency is a highly invisible success story.

• At the same time, we are in the midst of an economic quandary that may be severely impacted by energy and climate constraints, as well as by growing demands from developing economies.

• Moreover, we are on the cusp of what my colleague Jeremy Rifkin refers to as the Third Industrial Revolution:– First era: roughly corresponding to use of print media and coal/steam energy

– Second era: use of telecommunications and petroleum

– Emerging third era: information/communication and clean energy technologies

The Findings in BriefThe Findings in Brief

• Most assessments of climate change policies, and of major economic transitions in the global economy, examine only the costs – with little integration of the full benefits that might logically follow.

• Today we might explore the energy productivity benefits of smart investments in more energy-efficient behaviors, technologies, and infrastructure – including, yes, smart grid and smart infrastructure.

• In effect, we might ask the question: “How do we achieve the multiple goals of a healthy economy, a healthy climate, and a secure future both nationally and internationally?”

• Asking the right questions, we will find that productive investments can generate net savings, increase jobs, and significantly reduce net energy use and greenhouse gas emissions – even before we account for the avoided costs of more extreme weather, rising sea levels, public health impacts, and other effects of climate change.

ACEEE Analysis of Climate Legislation: ACEEE Analysis of Climate Legislation: Net Savings from Efficiency Investments*Net Savings from Efficiency Investments*

Assuming a 76% reduction in GHG Emissions by 2050

*see: http://www.aceee.org/press/e098pr.htm.

ACEEE Analysis of Climate Legislation: ACEEE Analysis of Climate Legislation: Net Jobs from Efficiency Investments*Net Jobs from Efficiency Investments*

Assuming a 76% reduction in GHG Emissions by 2050

*see: http://www.aceee.org/press/e098pr.htm.

Key Insight #1: Purposeful Effort is Required if Key Insight #1: Purposeful Effort is Required if We are to Respond to the Climate ImperativeWe are to Respond to the Climate Imperative

Standard Technology

Performance,Productivityand Returns

Time

Some might say this is Some might say this is about where we are about where we are on the curve at the on the curve at the

momentmoment

Key Insight #1: Purposeful Effort is Required if Key Insight #1: Purposeful Effort is Required if We are to Respond to the Climate ImperativeWe are to Respond to the Climate Imperative

Cumulative Investment and Purposeful Effort

TransformationTransformationStandard

Technology

Smart Grid/Smart Infrastructure

and other ICT-EnabledTechnology

Performance,Productivityand Returns

But, new metrics are required to help us But, new metrics are required to help us understand the full range of opportunities, understand the full range of opportunities,

and to evaluate and verify their impactand to evaluate and verify their impact

Key Insight #2: Efficiency Investments Are Key Insight #2: Efficiency Investments Are Almost Always Less ExpensiveAlmost Always Less Expensive

Key Insight #3: Productive Investments Key Insight #3: Productive Investments Generate a Net Positive ReturnGenerate a Net Positive Return

The Standard “Big MACC “based on left axis with only cost of CO2 perspective

The “Big MACC” based on right axis reflecting amortized energy costs

The Marginal Abatement Cost Curve in 2030

Key Insight #4: Energy Productivity Shifts Key Insight #4: Energy Productivity Shifts Spending To Greater Labor and GDP ImpactsSpending To Greater Labor and GDP Impacts

Source: 2007 IMPLAN data set for the U.S. economy (2009).

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Changes in the 2050 Resource Costs from Changes in the 2050 Resource Costs from the Adoption of U.S. Climate Policiesthe Adoption of U.S. Climate Policies

Source: Diagnostic Assessment of Case #5 inhttp://www.aceee.org/press/e098pr.htm.

Assuming a 76% reduction in GHG Emissions by 2050

Enabled by ICT, smart-grid, smart Infrastructure, new

materials, new technologies, and innovative behaviors

Key Insight #5: The Energy Efficiency Key Insight #5: The Energy Efficiency Resource Is Larger than Generally BelievedResource Is Larger than Generally Believed

Actual Historical Consumption

Source: DOE 1980 Policy Analysis, AEO 2009, and a 2009 ACEEE report, “The PositiveEconomics of Climate Change Policies: What the Historical Evidence Can Tell Us,” see: http://www.aceee.org/press/e095pr.htm.

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How Big Energy Efficiency?How Big Energy Efficiency?

• Again, since 1970 energy efficiency – in it’s various forms – has satisfied ~75 percent of our nation’s increased demand for energy-related services while new energy supplies only 25 percent of the new demands.

• Preliminary estimates suggest that energy productivity can provide as much as 60 percent of the needed reductions in total greenhouse gas emissions by 2050 – if we choose to develop and invest in that resource.

• Citing two of the many examples omitted from the usual assessments:– Our nation’s electricity generation system is at best 32 percent efficient, a level that is essentially

unchanged since 1960. What we waste in the generation, transmission and distribution of electricity is more than Japan uses to power its entire economy. There are many cost-effective solutions available to recycle this huge level of waste. Smart grid may enable a major shift toward huge productivity improvements.

– A 2007 DOE-sponsored study suggested that if all commercial buildings were rebuilt by applying a comprehensive package of energy efficiency technologies and practices, they could reduce their typical energy use by 60 percent. Adding the widespread installation of rooftop photovoltaic power systems could lead to an average 88 percent reduction in the use of conventional energy resources. Smart materials, smart designs, and smart infrastructure may enable this to happen.

Many Untapped Efficiency Markets Within Many Untapped Efficiency Markets Within the United States – through 2030the United States – through 2030

• End-use technologies– Windows: (>$50 B) low-e>>photochromics>>electrochromics– Lighting: (>$300 B) incandescent>>fluorescent>>solid state– Storage: (>$300 B) batteries>>high-performance capacitors– Building Integrated Photovoltaic Systems (~$300 B potential)

• Semiconductor-enabled and other platform technologies– Information and communication technologies (ICT)– Electricity grid and transportation systems modernization– Building automation/control systems

• Business models– Project development for CHP systems (>$50 B potential)– Recycled energy development (> $100 B potential)– Performance contracting (~$5 B/yr)– Smart grid technologies (~$500 to $800 B potential)– Utility program delivery (~$2 B/yr)

Note: all dollars values presented here are only intended to provide working estimates of scale rather than precision. New and more reliable values to be developed by early 2010.

Good News About the Transition to a More Good News About the Transition to a More Energy Productive, Climate-Friendly EconomyEnergy Productive, Climate-Friendly Economy

• It is does not have to be about ratcheting down our economy;

• Rather, it can be all about:• using innovation and our technological leadership;

• investing in more energy productive technologies (including both existing and new technologies); and

• developing new ways to make things, and new ways to get where we want to go, where we want to work, and where we want to play.

• The opportunities for a robust, smart future are there – if we choose to develop them at a scale that responds to the climate and economic imperatives.

The difficulty lies not with the new ideas, but in escaping the old ones. . . .

John Maynard Keynes

Contact InformationContact Information

John A. “Skip” LaitnerDirector, Economic and Social Analysis

American Council for an Energy-Efficient Economy (ACEEE)529 14th Street NW, Suite 600

Washington, DC 20045o: (202) 507-4029

Email: jslaitner@aceee.org

For more information and updates visit:http://www.aceee.org