Assessing Energy Policy Options Portugal
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Transcript of Assessing Energy Policy Options Portugal
Assessing Energy Policy Options
Alan Krupnick, Director, Center for Energy Economics and Policy, Resources for the Future, Portugal, 2011
Resources for the Future
• Since 1952 in Washington, DC
• Academic quality economic research on
environmental and energy issues
communicated to policymakers
• 80 people, 30 PhD economists
• President: Phil Sharp, former U.S.
Congressman and professor at Harvard’s
Kennedy School of Public Policy
Center for Energy Economics and Policy
CEEP Themes:
� Understanding the Present (policies and markets)
� Shaping the Future
� International Dimension
Major completed projects:
� Assessing U.S. Energy Policy Options
� Implications of Abundant Shale Gas Resources
� Policy response to the Macondo well oil spill
Future � Designing Clean Energy Standards, Shale gas risk reductions, Heavy-duty vehicle fuel economy standards, Natural gas vehicles
Outline
• Justification for government policy intervention
• Importance of “true” or social costs
• Evaluation of energy policy instruments� The RFF study
• Policy in the real world: Portugal/EU and the U.S.
• Shale gas – the game changer
• Some issues for Portugal
Policies and market failures
• Market forces on their own will not address
externalities (3rd party effects), such as
pollution
• Government intervention in the market
justified to “internalize” externalities, i.e.,
get prices right.
Goal of Policy
• Maximize social well-being (efficiency: max value of output given scarce resources). Market transactions yield good measures of social well-being for market goods.
• Many “goods” are non-tradable (health, environment) � creates measurement challenges covered by field of “non-market valuation”
• Then costs and benefits of alternative policies and stringencies can be estimated and compared.
• Of course, efficiency is only one criterion for policy
7
Failure to internalize the
externalities
• Inadequate assessment of risks
• Lack of policies to internalize those risks
Combing Non-Climate and Climate Change
Damage Estimates (2005): LifecycleEnergy-Related Activity (fuel type)
Non-climate damage
Climate Damages (per ton CO2-eq)
@$10
@ $30
@ $100
Electricity Generation (coal)
3.2 cents/kWh
1 cents/kWh
3 cents/kWh
10 cents/kWh
Electricity Generation (natural gas)
0.16 cents/kWh
0.5 cents/kWh
1.5 cents/kWh
5 cents/kWh
Transportation
1.1 to ~1.7 cents/VMT
0.15 to ~0.65 cents/VMT
0.45 to ~2 cents/VMT
1.5 to ~6 cents/VMT
Heat production (natural gas)
11 cents/MCF
70 cents/MCF
210 cents/MCF
700 cents/MCF
9
Table X – Summary of estimates from four external cost studies ($2010)
mills/kWh Coal Peat Oil Gas Nuclear Biomass Hydro PV Wind
RFF/ORNL 2.3 - 0.35-2.11 0.35 0.53 3 - - -
Rowe et al. 1.3-4.1 - 2.2 0.33 0.18 4.8 - - 0.02
ExternE 27-202 27-67 40.3-148 13.4-53.8 3.4-9.4 0-67 0-13 8.1 0-3.4
NRC 2-126 - - 0.01-5.78 - - - - -
Cents/kWh
ExternE 3-20 3-7 4-15 1-5 0.3-0.9 0-7 0-2 0.8 0-0.4
Wide Choice of Instruments• Broad-based taxes
• Cap and trade systems
• Taxes on individual fuels (e.g., coal), electricity use, vehicles
• Incentives for renewables
• Emissions per kWh standards for power generation
• Energy efficiency standards
• Combinations of different instruments
Multiple Criteria for Energy
Policy Evaluation
• Cost effectiveness
• Effectiveness
• Ability to deal with uncertainty
• Distributional impacts
• Promotion of clean technology
development and deployment
Cost Effectiveness
Welfare costs/unit effectiveness
• Metric used in cost-benefit analysis by governments around the world
• Money metric of well-being given income, e.g., willingness to pay for a good
• Not GDP
• Not jobs
Figure 5.1 Central C&T Macroeconomic Time Profile relative to Reference Case
-0.9
-0.6
-0.3
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0.6
0.9
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-20.0
-10.0
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20.0
30.0
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20
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20
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28
20
30
mil
lio
ns
of
job
s
bil
lio
n $
20
07
Welfare Cost Decrease in Consumption
Decrease in GDP Employment
Broad-based instruments
• Comprehensive cap and trade and
environmental taxes widely regarded as best
instruments from efficiency perspective.
• Follow rule of “one price,” operate on all
margins of behavior (e.g., tax on fuel affects
vehicle choice, driving, car chosen to drive)
• Narrower tax or C&T policies generally
don’t take advantage of all low-cost options
Cost-Effectiveness
• For cap-and-trade systems to be cost effective, allowances need to be auctioned
• If revenues from pollution taxes/allowance auctions used to reduce other distortionary taxes, this can substantially reduce overall policy costs.
Cost Effectiveness
Regulatory policies• can perform poorly, if they force all firms to
meet the same standard
• to promote cost-effectiveness, extensive credit trading provisions required, including credit trading across sectors (to establish a single emissions price)
• Regulatory policies tend to have a weaker effect on energy prices and overall economic activity – which is good
18
RFF-NEPI Study
Alan Krupnick
Senior Fellow and
Director of the Center for
Energy Economics and
Policy (CEEP)
What’s Distinctive
• POLICIES (not technologies)
• COMPREHENSIVE – 35 (incl. 4 cross-cutting)
• CONSISTENCY (apples to apples) (using NEMS-RFF model across all policies)
• WELFARE COSTS (not GDP or expenditures)
• BOUNDING ASSUMPTIONS FOR MARKET FAILURE (no, partial, complete)• Energy Efficiency Paradox: hidden costs vs market
failure
• TARGET REDUCTIONS FOR OIL AND CO2
19
20
21
NEMS is a simulation model organized by energy
producing, consuming, and conversion sectors.
INDIVIDUAL POLICIES
OIL POLICIES
TRANSPORTATION� Gasoline Tax� CAFE � Feebate� Hybrid Subsidies� LNG Trucks mandate
ALL� Oil Tax
CO2 POLICIES
POWER� Renewable Portfolio Standards � Clean Energy Portfolio Standards� Nuclear Loan Guarantees
CONSERVATION� Building Codes� Subsidies for Geothermal heat pumps
ALL� Cap and trade (C&T)� Carbon Tax
Crosscutting combinations
Individual Oil Reduction Policy Ideas
• Power of Pricing: Taxes for reducing oil
• Affects all aspects of consumer and business decisions
• Recycle revenues for political palatability. But take care
• Liquefied natural gas (LNG) heavy-duty trucks
� 18-wheelers can travel 125,000 miles/yr @ 5 miles/gallon diesel
� LNG for range
� Operation in Port of Los Angeles
� ~ $70,000 more expensive investment
� Cheaper to operate on natural gas ($1.50/dge)
� Payback under these conditions � ~3 years
� Infrastructure issue: hub and spoke system becoming more
common
� Safety issues
25
Individual CO2 Policy Ideas
• C&T/Carbon Tax is most effective and cost-
effective. Works on all “margins”�investment,
operation, innovation
• Clean Energy Portfolio Standard (all but coal) does
relatively well if pricing is not an option.
• Subsidizing loans “better” than subsidizing
investment costs for energy efficient investments
26
In almost all cases, subsidy has a strong effect on hybrid penetration of the
fleet….
Are vehicle subsidies a good idea?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2020 2030 2020 2030 2020 2030
Baseline Optimistic battery
costs
Optimistic
battery costs,
subsidies
Conventional Gasoline Electric-Gasoline Hybrid
Plug-in HEV10 Plug-in HEV40
Results
• But little effect on oil use and GHG emissions.
• Reason is that CAFE is binding for the
manufacturersWhen there are more hybrids purchased, it is easier to meet
CAFE
• Subsidies, any policy picking winners, are
generally not recommended.
Change energy investment behavior
• Consumers and businesses demand
unrealistic rates of return
� As high as 40%
� 2-year payback periods
• Eliminate fixed costs: have utility finance
investments, which get paid back on utility
bill
• Use devices to make energy savings
real/visible
CO2 Policy:
Europe vs. U.S.• EU Emissions Trading System (ETS):
� Phase I – Too many allowances made available
to too few sectors
� Phase II – Lack of harmonization of policies
across EU countries becomes stumbling block
� Phase III – To tighten allowances, auction then,
encourage harmonization, broaden scope
• At least you have a policy! The “curse” of
cheap coal
Why can’t the U.S. get its act
together?
• Public opinion
• Linkage of opinion to party position
• Recession
• Perceived lack of vulnerability
• Current situation: Clean Energy Standard,
EPA CO2 standards and other standards
affecting coal plants under the Clean Air
Act
Renewables
Portugal: large increase in renewables (45%
of electricity generation in 2010). Financed
by consumers (feed-in tariffs). Government
purchase of grid to modernize
U.S.: Many states have renewable portfolio
standards; discussions about a federal policy.
Episodic tax credits. Old grid. But half the
electricity prices!!
Oil--Transportation
• Both countries dependent on oil (EU more diesel for light-
duty vehicles (LDVs))
• U.S. subsidies for hybrid-electrics finished; pilot charging
stations for all-electrics. Biofuels mandate being missed
• Portugal: CO2 tax component, tax rebate for vehicle
turnover, electric vehicle subsidy; building charging
stations
• EU biofuels focus
• Natural gas trucks, LDVs?
639 tcf
Cost of Supply vs. Production
39
Goldman Sachs - Cost of Supply vs. Production
-100
100
300
500
700
900
1100
1300
1500
4.50 5.00 5.50 6.00 6.50 7.00
Henry Hub price required for 15% IRR ($/MMBtu)
Avera
ge P
rod
uctio
n (M
CF
D)
Marcellus
Granite Wash - Horizontal
Higher production contribution
Lower mimimum required gas price
Higher production contribution
Higher mimimum required gas price
Lower production contribution
Higher mimimum required gas price
Lower production contribution
Lower mimimum required gas price
Natural Buttes
Appalachia Tight Gas
Pinedale Anticline
Cana Woodford
Eagle Ford
Piñon
Barnett
Wattenberg - Others
Fayetteville
Haynesville
Groesbeck Horizontal
Arkoma Woodford
Carthage Horizontal
Conventional S. Texas
Conv. Appalachia Vertical
Carthage Vertical West Tavaputs
Granite Wash - VerticalConventional E. Texas
Conventional Midcontinent
Groesbeck Vertical
Yellow Jacket
Piceance Basin
December 2012 Projected (Chesapeake Energy website)
Some Issues for Portugal
• Will/should cheap shale gas replace renewables?
• Is EU 20-20 goal realistic/fair/economic for
Portugal?
• Are externalities fully (or more than fully)
internalized? ETS and CO2 and renewable/fossil
price differential. Plus feed-in tariffs
• Are electric vehicles the way to go?