Transcript Energy research at RFF

RFF-NEPI Study
Briefing
Alan Krupnick
Senior Fellow and
Director of the Center for
Energy Economics and
Policy (CEEP)
San Francisco Breakfast
November 4, 2010
1
Goals of Study
Consistently assess and score policies
according to
• CO2 emissions reductions
• Reductions in oil use
• Welfare costs and cost-effectiveness
Point to promising policies for an overall energy
strategy for the U.S.
What’s Distinctive
• POLICIES (not technologies)
• COMPREHENSIVE – 35 (incl. 4 cross-cutting)
• CONSISTENCY (apples to apples) (NEMS-RFF
model across all policies)
• WELFARE COSTS (not GDP or expenditures)
• TARGET REDUCTIONS FOR OIL AND CO2
• BOUNDING ASSUMPTIONS FOR MARKET
FAILURE (no, partial, complete)
3
Oil Use mmbd
18
CO2 Emissions GT
124.5
16
12.3
112 .2
2020
2030
2010-2030
Setting Targets
4
INDIVIDUAL POLICIES
OIL POLICIES
TRANSPORTATION ALL
 Gasoline tax
 Café
 Feebate
 Hybrid Subsidies
 LNG Trucks
mandate
 Oil Tax
CO2 POLICIES
POWER
 Renewable
Portfolio
Standards
 Clean Energy
Portfolio
Standards
 Nuclear Loan
guarantees
CONSERVATION
 Building Codes
 Subsidies for
Geothermal heat
pumps
Cross-cutting combinations
ALL
 Cap and
trade
 Carbon tax
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 travel 100,000 miles/yr @ 5 miles/gallon diesel
LNG for range
Operation in Port of Los Angeles
~ $70,000 more expensive investment
Cheaper to operate on natural gas
Still a net cost to society, even assuming complete market failure
Infrastructure issue: hub and spoke system becoming more common,
but resale market could be problematic
 Safety Issues
7
Results
 In almost all cases, subsidy has a strong
effect on hybrid penetration of the fleet….
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010
2020
2030
2020
Core 1
2030
Optimistic battery
costs
2020
2030
Optimistic
battery costs,
subsidies
Conventional Gasoline
Electric-Gasoline Hybrid
Plug-in HEV10
Plug-in HEV40
Results
 But little effect on oil use and GHG emissions
 Reason is that CAFE is binding for the
manufacturers
When there are more hybrids purchased, it is easier to meet
CAFE
 Is this a likely outcome?
 One view that CAFE would just change in response
Counting Costs of Pollution,
Accidents and Congestion
Net present value 2010-2045:
Welfare cost ($ billion)
Cost effectiveness: petroleum
($/bbl)
Cost effectiveness: CO2
($/metric ton)
NPV with external road costs:
Welfare cost ($ billion)
Cost effectiveness: petroleum
($/bbl)
Cost effectiveness: CO2
($/metric ton)
High Fuel
Tax
CAFE
High
Feebate
53
45
42
10
12
12
22
31
35
-183
80
89
-35
22
26
-75
56
74
10
Individual CO2 Policy Ideas
 Cap and Trade/carbon tax is most effective
and cost-effective
 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
11
12
Conclusions
 Getting even 2 mmbpd reduction in oil
consumption is tough
 Not a lot of good options beyond taxes
 Except heavy-duty truck policy
 CEPS-ALL a reasonable CO2 option if CAT is
dead.
 Assumptions about market failure and
external costs really affect overall costs
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Table 1. Crosscutting Combination Policies
1. Pure Pricing
Combines the phased oil tax with the
carbon tax.
2. Pricing + EE Measures
Combines the phased oil tax and carbon
tax with the residential building codes
provisions and the Pavley CAFE policy.
3. Regulatory Alternatives
Combines the LNG trucks policy, the
building codes provisions, the Pavley CAFE
policy, and the CEPS-All.
4. Blended Portfolio
Combines the phased oil tax, the high
feebate, the hybrid subsidy, the building
codes provisions, the GHP subsidy, and the
CEPS-All with a LNG trucks penetration of 5
percent per year
14
$100/person
$45/person
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Concluding message
 We can make progress now. Don’t need to wait
for technology advances.
 From $45-$100 per person per year
vs. welfare costs of congestion per person:
$1,200 per DC commuter*
 At $100/person per year, $30 billion per year
vs. welfare costs of congestion for U.S.: $80
billion*
* Texas Transportation Institute
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Abundant Shale Gas Resources
 Can shale gas lead to long-run price
stability?
 Modeled replacing NEMS gas resource
estimates with those of Potential Gas
Committee
 Scenario 1: 269.3 tcf shale gas resources (EIA 2007)
 Scenario 2: 615.9 tcf shale gas resources (PGC 2009)
 Can keep natural gas prices low—even
with big gains in natural gas demand
17
Scenario Analysis:
Supply and Demand, 2030
25%
Lower prices sustainable, even
with strong demand increases
18
Abundant Shale Gas Resources
Can natural gas be a bridge to low-carbon future?
 Without climate policy, abundant natural gas
increases energy use and CO2 emissions
 With climate policy (C&T), abundant natural gas
increases natural gas use and electricity use falls
 Abundant natural gas moderately reduces cost of
reducing CO2 emissions
 Emissions allowance price falls about 1 percent
 PV cost of carbon policy reduced about 1 percent ($1 billion)
 A “narrow” (flimsy?) bridge to a low carbon future
19
Electricity Prices and Quantities,
2030
Scenario 2: High Gas, No CO2 Policy
Scenario 4: High Gas, CO2 Policy
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Next Steps
 Death of cap and trade doesn’t mean no
movement on CO2 (or oil)
 Clean Air Act for EPA
 Unconnected policies in Congress
 Important that each is reasonably costeffective and that the policies work together
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Next Steps, cont.
 Bechtel Project
 Stakeholder-driven
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



Heavy-Duty CAFÉ standards
Coal generation efficiency and BAT standards
Energy Efficiency loan vs investment subsidies
Alternative Compliance Payments
Clean Energy Development Administration
 Second-best policy/combination policy paper
 Communications: LNG Issue Brief; Hybrid vehicles
Issue Brief; Green jobs, GDP and Welfare Costs Paper
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Other Ideas
 Shale gas preferences, risks and regulations
 Examine geological and operator-based risks
 Identify local preferences for economic/health
and environmental tradeoffs involving shale
gas extraction
 Link to regulatory implications.
 What’s wrong with current energy policies
 Drivers of renewables internationally
24
Welfare Costs
 The concept underpinning government costbenefit analyses
 Lost consumer satisfaction and profits from a
policy and lost tax revenue to government
from pre-existing tax programs
 E.g.’s: gasoline tax: loss in satisfaction from
driving less because of higher prices at the
pump; technology mandate/subsidy: excess of
investment cost over PDV of energy savings
25
Welfare costs vs. GDP
 GDP is the value of all goods and services
produced in an economy.
 Consider a new technology mandate:
 Higher investment costs (I) ADD to GDP,
REDUCE welfare
 Energy savings (S) REDUCE GDP and RAISE
welfare
If I>S  ADD to GDP, REDUCE welfare
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