Getting to 2050

CFA Society PresentationOctober 25, 2011San Francisco, CA

Ren Orans, Managing PartnerEnergy and Environmental Economics, Inc.

Pathways to Deep Reductions in GHG Emissions

Agenda

Climate Change-Why Should I Care?

No Question we have a Monumental Task Ahead

Achievable through Wedges?

Electrification is Key!

Duke Power Example

2

Energy and Environmental Economics, Inc.

San Francisco-based consulting firm since 1989

Deep expertise in electricity sector

Experienced in linking technical-economic analysis to policy decision-making and public process

Skilled at placing near term energy choices in long-term, transformational perspective

3

The Climate Challenge

Climate stabilization (at 450 ppm CO2e) requires global emissions to stop growing by 2015, and to fall 50 – 80% below 2000 levels by 2050

Reducing GHGs will mitigate climate change impacts, but temps will increase no matter what we do today

Source: Intergovernmental Panel on Climate Change, Climate Change 2007: Synthesis Report

Climate Change-Why Should I Care?

Economic Costs- Costs between 1 and 4 percent of GDP in 2050

Investment in Mitigation-Requires huge investment in new Infrastructure.

• Upfront investments are about 3 times economic costs which amounts to about $10 trillion over next 20 years.

Adaptation-What is left over after mitigation, might be something on the order of $100 Billion per year.

• This also introduces a tremendous financing opportunity to mitigate, account for and insure against residual adaptation costs.

National GHG targets developing in the absence of an int’l framework

Governing Body

Source/Declaration Legally binding?

Greenhouse Gas Emissions Reduction Target

G8 G8 Hokkaido Toyako Summit

No 50% below current levels by 2050

Australia Carbon Pollution Reduction Scheme

No 60% below 2000 levels by 2050

European Union

European Parliament Legislative Resolution, 17 December 2008

Yes 20% reduction from 1990 levels by 2020 (goal of 60% to 80% below 1990 levels by 2050 in developed countries)

United Kingdom

Climate Change Act of 2008

Yes 80% below 1990 levels by 2050

United States

Obama administration policy goal, various legislative proposals

Proposal only

80% reduction by 2050

U.S. Federal Proposals Call for Deep Cuts in GHG Emissions by 2050

Source: Pew Center on Global Climate Change, www.pewclimate.org

U.S. States with GHG Targets

Arizona 2000 levels by 2020

50% below 2000 by 2040

California 1990 levels by 2020

80% below 1990 by 2050

Colorado 20% below 2005 by 2020 80% below 2005 by 2050

RGGI states

10% below 1990 by 2020

Florida 2000 levels by 2017, 1990 levels by 2025, and 80% below 1990 levels by 2050

Hawaii 1990 levels by 2020

Minnesota 15% below 2005 by 2015

30% below 2005 by 2025

80% below 2005 by 2050

Oregon 10% below 1990 by 2020

75% below 1990 by 2050

Source: Pew Center on Global Climate Change, www.pewclimate.org

Example states – not full list

California’s GHG Strategy

AB 32: 1990 levels by 2020

• 80% of reductions to come from regulations

• 33% RPS by 2020

• Energy efficiency

• Combined heat and power

• Light-duty vehicle emissions performance standards

• Low-carbon fuel standard for vehicles

• 20% of reductions to come from regional cap and trade

• Western Climate Initiative

Executive Order S-3-05: 80% below 1990 by 2050

10

California 2050 Study

Key question

• What does California need to do to meet the 2050 GHG reduction goal?

Infrastructure modeling approach

• Multi-sector, stock roll-over model• Integrated electricity grid dispatch

algorithms• Use standard projections of CA

population, economic growth• Consistent w/ AB32 Scoping Plan

Independent study sponsored by Hydrogen Energy International (HEI)

10

California’s Big Step ForwardAssembly Bill 32

0

100

200

300

400

500

600

700

1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

Mill

ion

met

ric to

nnes

CO

2e

Today

2020 Goal under AB32

2050 GoalExecutive order

Business as usual projection

Transportation

Electricity

Industry

Greenhouse Gas Savings for 2050

-

100

200

300

400

500

600

700

800

900

1990 2000 2010 2020 2030 2040 2050

Year

MM

t C

O2e

Conservation & Behavior Change

Energy Efficiency: Transportation

Energy Efficiency: Buildings andIndustrial

PV Rooftops

Low Carbon Biofuels

Electrification: Transportation

Low Carbon Generation

Mitigation of Non-Fuel/Non-CO2 GHGs

Remaining CO2e

Source: Energy and Environmental Economics, Inc 2009

Greenhouse Gas Reductions in California

Emissions Reductions by Source

13

0

100

200

300

400

500

600

700

800

900

1990 2000 2010 2020 2030 2040 2050

Year

MM

t C

O2e

Non-Fuel/Non CO2 GHGs

Diesel & Other transport fuels

Gasoline

Fuel - Industrial & Agriculture

Fuel - Residential & Commercial

Electricity - Transportation

Electricity - Non-transport

Baseline

Behavioral Change Technological Change

Types of Change

14

-

2

4

6

8

10

12

14

16

18

20

1990 2000 2010 2020 2030 2040 2050

Re

sid

en

tia

l Ho

me

s (

Mill

ion

s)

Year

New Homes

Retrofit Homes

Homes with Historic Energy Demand

Conservation & Energy Efficiency

“Smart Growth” 10% reduction in vehicle miles traveled relative to baseline

Unprecedented levels of energy efficiency

Transition to zero net energy homes by 2020

Extensive retrofits of existing buildings

15

0

5

10

15

20

25

30

35

40

45

2008 2050 Baseline 2050 CompliantCase

Bill

ion

s o

f g

allo

ns

Conservation

Efficiency

Electrification

BioJet Fuel

Biodiesel

Ethanol

Jet Fuel

Diesel

Gasoline

Low-Carbon Biofuels

100% of California's biomass feedstock for ethanol plus 7% of US feedstocks (DOE EIA 2007)

Feedstocks include Ag Residues, Grasses and Forest Trimmings

7% assumes a distribution proportional to fuel consumption across all 48 States

Assumes 1.8 billion gallons per year of algal biodiesel and bio-jet fuel

Sufficient to meet 25% of biodiesel and 10% of bio-jet fuel demand in 2050 compliant case

California Biofuel Availability

Eliminate consumption of gasoline by 2050 replacing it with some mix of low-carbon electricity and low-carbon fuels

Aggressive biofuel assumptions don’t meet all transportation energy needs – biofuels likely to become premium fuel

16

Electrification & Electricity Demand

Electricity demand could nearly double by 2050

Increase in demand driven by electric vehicles

Nearly all electricity must be from low-carbon generation

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1990 2000 2010 2020 2030 2040 2050

Year

Ele

ctr

ic D

em

an

d a

t th

e G

en

era

tor

(GW

h)

Transportation

Petroleum & Agriculture

Industrial

Commercial

Residential

Baseline

17

18

Electrification and Loads

“Flat” load profile in 2050 Compliant case“Peaky” demand in 2050 Baseline

2050 Baseline Case 2050 Compliant Case

High levels of energy efficiency help to decrease demand and flatten the demand profile

Off-peak electric vehicle “smart charging” & electrification will flatten load shape, increase overall demand & need for baseload generation

18

19

Low-Carbon Generation

1. High Renewable Case 2. High Nuclear Case

3. High CCS Case 4. Blended Case

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Investments to decarbonize electricity are significant in all low-carbon cases

$-

$100

$200

$300

$400

$500

$600

20

09

- 2

05

0 C

um

ula

tiv

e

Ca

pit

al I

nv

es

tme

nt

(Bill

ion

20

08

$)

20

21

Generation Capacity in 2050

-

50

100

150

200

250

Na

me

pla

te C

ap

ac

ity

(G

W)

Gas CT

Biomass

Geothermal

Solar Thermal

Solar PV

Wind

Nuclear

Storage - 4 Hour

Gas w/ CCS

Coal w/ CCS

Coal

Combined Cycle

Hydro

Technology Wish List

EfficiencyZero net energy buildingsExtensive building retrofits

ElectrificationBatteries for electric vehiclesSmart charging for electric vehicles

BiofuelsZero carbon ethanolZero carbon algal fuels

Zero Carbon GenCarbon capture and storageLarge scale energy storageNuclear waste storage

22

Retail Rates, Risk and Greenhouse Gas Reductions

Example fromDuke Energy Carolinas

E3 Case Study

24

Duke Energy Carolinas

Duke Energy Carolinas is focused on coal and nuclear:

1. Energy efficiency and conservation

2. Transition away from coal power

3. Transition from natural gas power renewables

4. Electrification of fossil fuel uses

Source: Duke Energy Carolinas, 2010 Integrated Resource Plan

Investment Decision Timeline

Power plant investments made today have 20 – 40 year lifetime at minimum

Only one to two investment cycles before 2050, when goal is to have a decarbonized energy system

To what degree should utilities tolerate ratepayer risk of future emissions abatement costs?

Solar Nuclear Carbon capture & storage

Wind

26

Duke Energy Carolinas Case Study

Scenario Description 1. Business-as-usual, no CO2

price

Modeled roughly after Duke Carolinas 2010 Integrated Resource Plan, assumes no carbon abatement costs

2. Business-as-usual, w/ CO2

price

Same as #1, but includes moderate carbon abatement costs

3. Coal retirement

Same as #2, including CO2 cost, but coal is replaced with natural

gas fired generation

4. Low risk electrification

Same as #3, but assumes a high penetration of electric vehicles. New loads are served with new natural gas-fired generation. Scenario also assumes off-peak charging of electric vehicles. Electrification does not increase RPS compliance costs. Utility receives 100% of the GHG savings credits achieved in transportation sector from electric vehicles

5. High risk electrification

Same as #4, but assumes uncontrolled charging of electric vehicles. Scenario assumes electrification increases the cost of decarbonizing the utility generation portfolio to meet the RPS, and provides no utility credit for GHG savings achieved in transportation sector from electric vehicles

27

Duke Energy Carolinas Case Study

E3 developed five scenarios for 2011 – 2030

Scenarios test variations in generation mix & vehicle electrification assumptions

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

GW

h

Purchases

Natural gas

Renewables

Hydro

Coal

Nuclear

28

Duke Energy Carolinas Case Study

Assume retired coal is replaced with natural gas

Assume new electrification loads are met with natural gas

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

2030

Cha

nge

in C

apac

ity

Rela

tive

to 2

010

(MW

)

Natural gas

Renewables

Hydro

Coal

Nuclear

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Scenario Results:Greenhouse Gas Emissions

-

10

20

30

40

50

60

2009 2012 2015 2018 2021 2024 2027 2030

Net

Uti

lity

Emis

sion

s (M

MT

CO2)

High-risk Electrification CaseBAU CaseCoal Retirement CaseLow-risk Electrification Case

Emissions are nearly flat in BAU scenario

Emissions risk or benefit from electric vehicles

$0.00

$0.04

$0.08

$0.12

2009 2012 2015 2018 2021 2024 2027 2030

Real

201

0 $/

kWh

High Risk Electrification

BAU

Low Risk Electrification

BAU Without Carbon Price

30

Scenario Results:Retail Rate Impacts

Low risk case: rate impacts are lower than BAU largely because of CO2 cost savings credited from vehicle electrification

High-risk case: If utilities do not receive emissions savings credit from electric vehicle, rate impacts are high

31

Ratepayer Risk & Electrification

Electrification & natural gas pathway can be:

• Lower cost for customers;

• Lower risk (for ratepayers and/or shareholders); and

• Lower emissions than BAU coal and nukes pathway.

Done wrong, electrification represents an emissions and cost risk to utilities

Electrification is unlikely to achieve high penetrations without concerted policy efforts and support of electric utilities

• Current federal incentives for EVs unlikely encourage the market transformation and breakthroughs that are needed

32

Summary of Challenges and Opportunities

GHG reductions pose a substantial financing challenge

• Initially mitigation in both power, buildings and transportation sectors

Utilities and larger customers should account for and possibly hedge against emissions abatement risk and cost

• Similar to sinking fund for disposal of nuclear waste

• Lack of policy does not translate to zero future costs

Electrification is key to mitigation challenge

Thank You

Ren OransEnergy and Environmental Economics, Inc.101 Montgomery Street, Suite 1600San Francisco, CA 94104

(415) 391-5100ren@ethree.com

Presentation Available at:http://ethree.com/documents/E3_2050_CFA_25Oct11.ppt