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Climate change & US energy policyRecent developments & implications for Australia

Presentation at ASB, UNSW10 September 2009

Sydney, NSW

Perry Sioshansi, Ph.D.

Menlo Energy EconomicsWalnut Creek, CA

Tel 925-256-1484; Mobile 650-207-4902; Fax 925-946-0870

E-mail [email protected]

Pleasure to be here

I was asked to

Provide update on the Waxman-Markey Bill,evolving US position on climate change,implications for Copenhagen, developments inrenewable energy, energy efficiency policy,emission trading, etc., etc.

This is a tall order but …..

MENLO ENERGY ECONOMICS

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M M M Energy Economic

Proposed outline

Climate change problem in context

US climate change policyUnder Bush – no problem, no policy, no leadership

Under Obama – US will lead but others must contribute

US carbon politics 101Highly contentious, uneven impact, fragmented industry

US CongressHouse – Waxman-Markey bill passed 219-212 on June 26

Senate – Vote possibly in Oct? Compromise by Nov?


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Climate change in context

Scientific consensus: one serious problemCost/risk of inaction potentially substantial

Historical vs. future emittersDeveloping countries must play

Kyoto a non-starter?

Good news: Obama replaces Bush

Copenhagen – Great expectations?OECD hypocrisy & credibility crisis


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The evidenceAtmospheric concentration of CO2, parts per million, years before 2005

400

360

320

280

240

10000 8000 6000 4000 2000 0

400

360

320

280

240

10000 8000 6000 4000 2000 0

Source: Energy Information Administration


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Where do we stop?

450 ppm 2050 projection?

400 ppm 2020 projection?

280 ppm Pre-industrial level

387 ppm current level

550 ppm beyond tipping point?


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Big emittersCO2 emissions of selected countries in billion metric tons, 2006

Source: Energy InformationAdministrationn


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Coal power

0

10

20

30

40

2006 '15 '20 '25 '30

Other

sources

Coal

Share of coal in global electricity generation, 1,000 TWHrs

Source International Energy Agency


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Major league

103

162

180

228

283

347

428

529

1,146

2,804

Kazakhstan

Poland

Indonesia

Germany

South Africa

Russia

Australia

India

United States

China

Major coal producing countries, in million metric tons

Source: Energy Information Administration


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Exporting CO2?Australia major coal exporting country, % of world exports

12%

9%

7%

6%

15%

9%

14%

28%

Australia

Indonesia

China*

So. Africa

Russia

Colombia

USA

ROW

* China exports and imports sizable volume of coal, with increased reliance on imports in recent yearsSource: Australian Coal Association


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The numbers gameReduction is greenhouse gas emissions proposed by selected

countries by 2020, in percentage from a given base year

1. Rejected2. 30% if there is an international agreementSource: Compiled based on proposals passed, pending or rejected


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How do we control emissions?

Set priceImpose cost on emissions

Set capLimit emissions


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Set priceQuantity reduction left to market

“Pure” economists favor this approach

Transparent/simple to administer

Technology neutral

Market forces figure out how best torationalize prices

“Sit back & watch it happen”


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Set quantityPrice determined by supply & demand

All other schemes fall in this category

Second-best solution

Not favored by “pure” economists

Price will eventually emerge

Difficult to administer

Requires bureaucratic intervention

Politicians’ & lobbyists’ dream


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Climate policy under Bush

No leadership, no policy, no visionFirst term: What problem?

Second term: Pass the buck to next President

Focus on energy supply, not demand

Feed – instead of fix – the oil addict

EPA was told not to harass polluters

Supreme court defined CO2 as pollutant

John Howard as reliable Bush ally


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Climate policy under Obama

US must assume leadership

Encourage others to follow

Expected to attend Copenhagen

Political realitiesPromised 100% auction of allowances as candidate

Has had to settle for 15% in the House Bill

Facing stiff opposition in SenatePowerful coal/utility lobby, sputtering US economy


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Developing country agenda GHG emissions, BAU scenario, Gigatonnes of CO2 Equiv.

9.2 6.2 3.9 2.8 6.9 8.6 4.2 16.5 6.0 3.6 3.1

7.3 5.4 3.2 2.4 4.9 6.8 3.1 7.6 1.81.6

1.82005

2030

2005

45.9Total

2030

69.9Total

NorthAmerica

WesternEurope

EasternEurope

OECDPacific

LatinAmerica

Rest ofdeveloping

Asia

Africa China India MiddleEast

Global air & sea transportation


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ChinaCoal’s proportion expected to grow


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Likely scenarioMomentum of energy infrastructure hard to change

Per capital carbon emissions

tons per person per year (provisional)

US, Australia, & Canada

2030

Current

China & India

OECD Europe & Japan

20

15

10

5

Population

Millions



2030

Current

China & India

OECD Europe & Japan

20

15

10

5

Population

Millions



US, Australia, & Canada

2030

Current

China & India

OECD Europe & Japan

20

15

10

5

Population

Millions



2030

Current

China & India

OECD Europe & Japan

20

15

10

5

Population

Millions


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US carbon politics 101

Red & blue states dichotomyDifferent than Australia

Power sector fracturedDifferent than Australia

Transportation sector problematicAmerican love affair with car/open road hard to fix

Heavy industry/trade exposed sectors

Green vs. gray jobs


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US electric generation2004 & 2030 projections: virtually unchanged

20044,148 TWh

20305,913 TWh

nuclear31%

Hydro

5%

Oil

2%

Natural gas

16%

Renewable

8%

Nuclear

16%

Coal

53%

Hydro

7%

Oil

3%

Natural gas

18%

Renewable

2%

Nuclear

20%

Coal

50%

20044,148 TWh

20305,913 TWh

nuclear31%

Hydro

5%

Oil

2%

Natural gas

16%

Renewable

8%

Nuclear

16%

Coal

53%

20044,148 TWh

20305,913 TWh

nuclear31%

20044,148 TWh

20305,913 TWh

nuclear31%

Hydro

5%

Oil

2%

Natural gas

16%

Renewable

8%

Nuclear

16%

Coal

53%

Hydro

7%

Oil

3%

Natural gas

18%

Renewable

2%

Nuclear

20%

Coal

50%

Source: International Energy Agency


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PG&E, CA, USElectricity generation mix, PG&E (left), CA (middle) US (right)

Environmentalists do not count “large hydro schemes” as renewable; eligible renewable includes biomass & waste, geothermal,small hydro, solar and windSource: PG&E’s power content label projected for 2008 (left), CEC (middle) & EIA (right)


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Carbon richStates where 50+% of power is coal-based

Source: US Department of Energy


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United but unequal

154.4

94.5

73.5

49.2 45.6 43.8 41.8 41.7 39.7

73.1

0

20

40

60

80

100

120

140

160

180

WY ND AK WV MT LA IN NE KY IA

16.6 16.416

1413.4 13.1 12.8

12.4 12.1

14.9

0

2

4

6

8

10

12

14

16

18

NJ FL WA OR MA CT VT CA NY RI

Carbon Heavy States Carbon Light States

154.4

94.5

73.5

49.2 45.6 43.8 41.8 41.7 39.7

73.1

0

20

40

60

80

100

120

140

160

180

WY ND AK WV MT LA IN NE KY IA

16.6 16.416

1413.4 13.1 12.8

12.4 12.1

14.9

0

2

4

6

8

10

12

14

16

18

NJ FL WA OR MA CT VT CA NY RI

Carbon Heavy States Carbon Light States

Top 10 carbon-intensive and carbon-light states in the US, per capitagreenhouse gas emissions in tons of CO2 equivalent per person*, 2005 data

* Scales vary in this graphSource: Climate Analysis Indicators Database, World Resources Institute


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Green statesStates with restrictions on CO2 emissions

Source: Pew Center on Global Climate Change


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US sources of GHG emissions2004 data

Source: Environmental Protection Agency


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Uneven painEffect of a 25% cut in CO2 emissions, CO2 @ $22.5/tonne

Emissions disclosed tones, m

Cost of 25% cut in emissions at $22.57 $m

% of turnover

Constellation Energy 22.09 124.64 0.73

Exelon 12.61 71.15 0.46

Southern Company 137.00 773.02 5.70

Public Service Energy Group 24.81 139.97 1.13

American Electric Power 146.47 826.43 6.82

FirstEnergy 45.55 255.94 2.13

FPL Group 47.35 267.17 2.26

PG&E 0.54 3.02 0.03

TXU 50.00 282.13 2.70

Progress Energy 58.06 327.60 3.24

Source: The Economist, 2 June 07


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US CongressHow much are you willing to pay per vote?

Special interestsCoal lobby

Renewable lobby

Nuclear lobby

Energy efficiency – no lobby

Vulnerable consumers

Sputtering economy & credit crunch

Politics of green economy/jobs real?


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Current status

Waxman-Markey BillOriginal bill had more teeth & was more coherent

Watered down to pass 219-212 on June 26EEnergy Informer: “Worse than worthless”

85% of allowances given away for free in early years

Huge reliance on problematic offsets

Initial targets: not ambitious; later targets: aspirational

Next steps: US Senate & final billCommittee in Sept? Full Senate in Oct?

Compromise bill possible in Nov prior to Copenhagen?


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What might happen?

Scenario 1: Senate passes bill in OctA compromise is reached in Nov

Obama goes to Copenhagen with a bill in hand

May help persuade others to make concessions

Scenario 2: Senate rejects billObama goes to Copenhagen empty handed

Developing countries doe not play ball

Obama may be forced to play EPA card


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Key provisions of HR 2454as passed on 26 June 2009

Title I: Clean energy

Title II: Energy efficiency

Title III: Reducing GHGs

Title IV: GHG pollution reduction program

Title V: Offsets


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Title I: Clean EnergyMain subtitles highlighted

Combined Efficiency & Renewable EnergyStandard

CCS

Clean Transportation

State Energy & Environment DevelopmentAccounts

Smart Grid Advancement

Transmission Planning


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Renewable electricity standards

Amend 1978 PURPA

Create a federal integrated energy efficiency &renewable electricity standard (RES)

Applies to suppliers > 4 million MWhr

Must earn or acquire renewable electricity credits(RECs); tradable

“Distributed renewable generation” encouragedQualifies for 3 RECs per MWhr


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Mandatory federal RESProposed targets for renewable electricity standard

Footnote 1: FERC to monitor, verified by independent third parties; penalties for non-complianceFootnote 2: States can petition for 40% target


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Renewable portfolio standardsUS states with existing mandatory targets

* Florida now has a 20% RPS by 2020 not reflected in the map. There may be other states as well that haveadopted mandates since the map was publishedSource: Edison Electric Institute, 8 Apr 08


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20% wind in US by 2030?From 16.8 to 304 GW by 2030

Source: DOE 12 May 08


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CCS

EPA, in consultation with DOE, to developcomprehensive CCS strategy

“address key barriers to commercial scale deployment”

Establish Carbon Storage Research Corp.Authority to collect approx $10 billion in 10.5 years

Surcharge based on carbon content of fuelCoal 0.043 cents/kWhr

Natural gas 0.022

Oil 0.032


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CCS eligibility

Electric generators> 200+ MW

Using coal for 50+% of fuel

“Initially permitted” inserted to get votesAfter 1 Jan 2009 but before 1 Jan 2020

50% CO2 reduction by date TBD by future developments

On or after 1 Jan 202065% CO2 reduction

Industrial sourcesEmits > 50,000 tons pa


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Smart Grid Advancements

DOE & EPA to assess cost effectiveness“integrating smart grid capability into all Energy Starproducts” – concept of “prices to devices”

LSEs peak demand goalsSet targets for peak demand reduction for 2012 & 2015

“realistically achievable with an aggressive effort”

Includes DR technologies & methods

FERC to implement/lead


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Title II: Energy EfficiencyImprove US energy productivity >2.5% pa 2012-2030

Building Energy Efficiency Programs

Lighting & Appliance Energy Efficiency Programs

Transportation Efficiency

Industrial Energy Efficiency Programs

Improvements in Energy Savings Performance

Contracts


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Title IIIReducing Global Warming Pollution

Reducing Global Warming Pollution

Disposition of Allowances

Additional Greenhouse Gas Standards

Carbon Market Assurance


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GHG reduction targetsUS GHG emissions relative to 2005 level

Footnote: 2012 goal less stringent than Kyoto (7% below 1990 by 2012)


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Important features

EPA to develop a national carbon labeling& disclosure program

Creates federal GHG emission registry

Sources > 25,000 tons pa included

85% of US GHG emissions covered10,000 tons capture additional 0.6% of emissions

Protection against price volatility“Strategic reserve” of 2.7 billion allowances


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Cost of carbon?

Cost to emit a ton of carbon equiv2012: $11-15 EPA estimate in 2005 $

2025 $22-28

Total value of permits2012 $60 billion

2025 $113

85% ($51 billion) given away initially


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Who gets the freebies?And what are they supposed to do with the monies

El. Dist Cos. 30%

Passed on to consumers; Phase out 2026-30

Energy-intensive industry 15%

Iron, steel, cement, paper thru 2025

State Govt. 10%

Support renewables, EE, mass transit

Gas Dist Cos. 9%

Passed on to consumers; Phase out 2026-30

Merchant coal plants 5%

Those who sell in wholesale market; phase out 2026-30

Auto industry 3%

To support clean cars; 2012-17; scaled back to 1% by 2025

El utilities 2%

To support CCS costs; 2014-2017; 5% thereafter

Oil refineries 2%

Starting 2014; end 2026


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Investment in energy technologiesEstimated targets by 2025

EE & renewables $90B

CCS $60B

EVs & adv. auto. techs. $20B

Basic scientific research $20B


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Fate of coal?Read the fine print

New coal COULD be built between 2009-20Expected to adopt CCS tech “when commercially available”

By 2025, ALL coal plants built AFTER 2009 would have tocapture 50% of CO2 emissions

Coal plants built AFTER 2020 would have to capture 65% oftheir CO2 emissions

Early CCS movers rewardedUtilities using coal for 50%+ get bonus emission permits for 10 years forea ton of CO2 sequestered

$1 b/yr spent on CCS demonstration & deploymentFunded by fees on all fossil-based electricity


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Coal standards

New standards

Permitted after 2015: <1,100 pounds of CO2per MWh

Permitted after 2020: <800 pounds of CO2 perMWh

Permitted between 2009-15: 1,100 poundswithin 4 years of start-up if certain targets foroperational CCS capacity are met


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Energy efficiency

New buildings 30% more efficient by 2010

50% more efficient by 2016

New standards for lighting products, commercialfurnaces, and other appliances

New standards for industrial energy efficiency

$3,000 financial support to make residences 20%more energy efficient


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Cost to consumers?

CBO estimateOn average $175 per American household pa

Less than 50 cents per household per day

Lowest of five income brackets $40 net benefit in 2020

Highest bracket would see $245 in extra cost pa

Republicans dispute these figures$770-1,380 per household pa

Heritage Foundation: $11.78 per day

House minority leader Boehner claims annualenergy would rise $3,128 per household by 2015.


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Loopholes?“It leaks like a sieve”

Generous offsets30% of allowance obligations in 2012 met thru offsets

67% by 2050 if everyone maximized use of offsets

2 billion tons initiallyHalf domestic, half international (15% ea for 2012)

International offsets discounted starting in 2018

W/o int’l offsets prices would rise 96%

EPA to create independent offset integrityadvisory board


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Free allowancesPrice of votes

Full auction: $713 b in first 10 years

As passed2016: 16.57% auctioned

2030 65.3% auctioned

Who gets free allowances?Powerful special interests


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Distribution of allowances2016


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Distribution of allowances2030


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Title IV:Transitioning to a Clean Energy

Economy

Ensuring Real Reductions In Industrial Emissions

Green Jobs and Worker Transition

Consumer Assistance

Exporting Clean Technology

Adapting to Climate Change


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Title V:Agriculture & Forestry Offsets

Amendment to satisfy farm lobby

Agriculture Dept, not EPA, in charge


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US-CAP

US Climate Action PartnershipBig oil: BP America, ConocoPhilips, Shell (but not ExxonMobil)

Select utilities: FPL, Duke, PG&E, Exelon, PNM, NRG (but not AEP)

Auto: GM, Ford, Chrysler

Manufacturing: GE, Caterpillar, Deer, DuPont, Siemens

Mining & processing: Rio Tinto, Alcoa

Consumer products: J&J, Pepsi, Xerox, Marsh, AIG, Dow Jones, Boston Scientific

“Moderate” environmental groups: EDF, NRDC, Nature Conservancy, Pew, WRI

Bush-era fragile coalition

Influenced W-M Bill behind the scenes

Positions not changed under Obama


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Different under Obama?

“I absolutely do not know what people are smoking when theyargue that the political climate is different now”

“We have huge parts of this country that generate electricityfrom coal, and that are very dependent onmanufacturing—none of that has changed.”

“Poll after poll is showing that we don’t have a critical mass inthis country who are concerned about the urgency of climatechange.

“Until that changes, I think this bill is truly the best we can getin this economic environment.”

Manik Roy, Pew Center on Global Climate

Change


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Environmentalists’ dilemma

Waxman-Markey is far from ideal

Imperfect bill now or a better one later?Sierra Club: Opposed

“Seriously undermined by the lobbying of industriesmore concerned with profits than the plight of ourplanet,” Greenpeace

Developed nations must cut 25-40% below 1990levels by 2020; 80-95% by 2050

ACES target 4% below 1990 levels by 2020

Polluters get billions in subsidies as free allowances

Unproven CCS gets $10 B taxpayer subsidy


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Sampling of opinions

Yale Environment 360 surveyW-M bill sets the wrong target

Scientific consensus 25-40% below 1990 levels by 2020

ACES aims for 4%

2 billion tons of offsets a “massive loophole”

Full use of offsets would allow polluters to avoid anyreductions in their emissions until 2026

Michael Brune, Ex. Dir. Rainforest Action Network


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EPA’s assessment of billReasonably credible but has a few flaws


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GHG emission scenarios


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Prices rise only marginally


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Less generation needed550 TWhrs less by 2025


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14 GW of new CCS by 2025


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Cost of carbonUnder 2454 US GHG emissions falls between 203-287 GtCO2e by 2050


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Models, models & more models


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Marginal abatement costs


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California GHG emissions

Energy ef f iciency

measures

15%, 26.4

33% Renew able Portfolio

Standards

12%, 21.2

Low carbon fuel

standards

9%, 16.5

High GWP gas

measures*

9%, 16.2

Additional emission

reductions f rom capped

sectors

21%, 35.2

Light duty vehicle GHG

standards

18%, 31.7

All others

16%, 29.4

Source: CARB June 08


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California’s green agendaMulti pronged approach to reduce GHGs

AB32 – reduce GHC to 1990 level by 202025% reduction by 2020 =>Exec. Order 80% by 2050

RPS – 20% renewable by 2010Executive order => 33% by 2030

GHG performance standardProhibits long-term coal contracts even from out ofstate

Aggressive energy efficiency & DR targetsActively supported by CPUC & CEC

Statewide AMI rollout & RTP/CPPAggressive timetable to install electronic meters

Transportation initiatives


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Significant reductions neededImplemented details left to CARB

Source: CARB June 08


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Who will cut back?

0

100

200

300

400

500

600

Projected GHG

emissions in 2020

BAU Scenario

Maximum GHG

emission cap for

2020

512147

365AB 32

Reductions

50 Electricity Sector

60 Transportation Sector

37 Other

Greenhouse Gas

Emissions MtCO2 eq

0

100

200

300

400

500

600

Projected GHG

emissions in 2020

BAU Scenario

Maximum GHG

emission cap for

2020

512147

365AB 32

Reductions

50 Electricity Sector

60 Transportation Sector

37 Other

Greenhouse Gas

Emissions MtCO2 eq

Source: CARB


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Implementation of AB 32

Command & control measures (80%+?)RPS

EE

Terminate “coal-by-wire”

Transport sector

Mass transit

Tailpipe emissions

Planning & urban development initiatives

Market driven measures (may not be needed?)Cap & trade scheme with ETS

Carbon fees – if needed

Strong preference for former


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Why can’t we get by with less?Per capita electricity consumption, kWh/yr

Source: Michael Messenger, CEC, Jul 07

Total Electricity Use, per capita, 1960 - 2001

0

2,000

4,000

6,000

8,000

10,000

12,000

14,0001960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

KW

h

12,000

8,000

7,000

California

U.S.

kWh


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Carbon menu

7

0 500 1000 1500 2000

Lignite

Fuel

CCS

PV

Wind

Min

Max

CO2 emissions, g CO 2eq by kWhe

D. Weisser IAEA May 2006

Coal

Gas

Biomass

Hydro

Nuclear

The brackets show the differences between the various evaluationmethods , thermal output, scopes …

Source: Ana Palacio, AREVA


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China’s demand growthMostly coal


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Uneven pain

Emissions disclosed tones, m

Cost of 25% cut in

emissions at $22.57 $m

% of turnover

Constellation Energy 22.09 124.64 0.73 Exelon 12.61 71.15 0.46 Southern Company 137.00 773.02 5.70

Public Service Energy Group

24.81 139.97 1.13

American Electric Power

146.47 826.43 6.82

FirstEnergy 45.55 255.94 2.13 FPL Group 47.35 267.17 2.26

PG&E 0.54 3.02 0.03 TXU 50.00 282.13 2.70 Progress Energy 58.06 327.60 3.24

Source The Economist, 2 June 07


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Global problemApproximate purchase price, cost to refuel and range of selected cars

1. Prices for Volt and Tesla are estimates/announced2. Based on $2.60/gallon; avg. electricity prices, actual costs vary depending onspecific EV tariffs, time of charging & location 3. Chevy Volt claims an estimated rangeof 1,000 miles on electricity & gasoline hybrid versionSource: The Wall Street Journal, 6 Aug 09 based on information from the companies

Pleasure to be here...PG&E 0.54 3.02 0.03 TXU 50.00 282.13 2.70 Progress Energy 58.06 327.60 3.24...

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Transcript of Pleasure to be here...PG&E 0.54 3.02 0.03 TXU 50.00 282.13 2.70 Progress Energy 58.06 327.60 3.24...