Energy Efficiency and Carbon Pricing - Dr Lisa Ryan, IEA - EPA June 2010
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Energy Efficiency and Carbon Pricing - Dr Lisa Ryan, IEA - EPA June 2010
- 1. Energy Efficiency and Carbon Pricing Lisa RyanInternational Energy AgencyEnergy Efficiency Unit, Paris, France.30th June 2010EPA Climate Change Conference 2010
- 2. Overview Introduction Carbon mitigation and energy efficiency strategies Addressing energy efficiency gaps Case studies Summing Up
- 3. IEA members International Energy Agency Members Austria Belgium Australia (1979) Czech Republic(2001) Canada Denmark Germany Finland (1992) France (1992) Ireland Hungary (1997) Greece (1977) Italy (1978) Japan Korea (2002) Luxembourg The Netherlands New Zealand (1977) Norway participates in the Agency under a special Agreement Poland (2008) Portugal (1981) Slovak Republic (2007) Spain Sweden United Kingdom Switzerland Turkey (1981) United States
- 4. Energy efficiency- the new wave Countries interested in energy efficiency again for different reasons: Energy security Economic development Greenhouse gas mitigation How are carbon prices impacting EE?
- 6. Historical trends Long-Term Energy Savings from Improvements in Energy Efficiency, All Sectors, IEA11 180 160 Hypothetical energy use without energy efficiency improvements 140 58% 120 Savings 100 EJ 80 Actual energy use 60 40 20 0 1973 2005 1990 2000 1980 Actual energy use Energy savings due to energy efficiency improvements Energy efficiency improvements
- 7. 42 Gt Reference Scenario 40 38 36 34 32 30 28 450 Scenario 26 2010 2015 2020 2025 2030 450 ScenarioWhat role for energy efficiency? 7.2 Gt End-use potential End-useefficiency Power plants Renewables Biofuels Nuclear CCS Full implementation of the IEA 25 energy efficiency recommendations is essential to achieve the 450 scenario.
- 9. End-use energy efficiency policy
- 11. A cost perspective: a rational use of the carbon market €/tCO2e Targeted tech. support Expenditures on the carbon market Market approaches in Copenhagen Accord International price of CO2 Abatement GtCO2e/year Low / no-cost measures requiring separate policy measures
- 12. End-use savings and cap-and-tradeAssuming all potentials can be tapped Price of CO2 €/tCO2e P* Q* MtCO2 Emission reduction goal Energy efficiency potential Under ideal market conditions, all options including end-use energy efficiency would be exploited, through the price signal
- 13. End-use savings and cap-and-tradeAssuming end-use savings are not exploited Price of CO2 €/tCO2e P P* Q* MtCO2 Emission reduction goal Energy efficiency potential No access to end-use energy savings implies relying on higher cost measures in the system higher price of CO2 and higher cost to society
- 14. Carbon mitigation policy measures Fiscal measures – carbon taxes and low carbon tax incentives Market-based instruments – cap and trade Regulation – CO2 regulation for cars Carbon finance – project and sectoral Voluntary approaches Education and training
- 15. Questions Most countries have climate change strategies – many including cross-sectoral policy measures with carbon taxes, emissions trading schemes etc Can carbon pricing address barriers to energy efficiency or are complementary policies needed? What package of policy measures needed – complementary to CO2 pricing?
- 17. Case studies Principal agent problem – principals and agents engaged in a contract have different goals and levels of information Imperfect information – insufficient or incorrect information to enable optimal investment
- 19. 2005 Residential Energy Consumption Survey (2005) in the US: renters significantly less likely to have energy-efficient refrigerators, clothes washers and dishwashers than homeowners; controlling for income, demographics, energy prices, weather and other controls
- 20. Builders, consumers etc may not understand the benefits of EE and know which is the best product (imperfect information):
- 22. Residential price elasticity low across building types, due to split incentives and imperfect information;
- 23. Short-run price elasticity significantly lower in multi-dwelling buildings (more tenants) than in one- and two-dwelling buildings (more home-owners)
- 24. 99% of tenants in multidwellings do not pay individual energy bills – PA issue
- 25. Heating expenses on average between 3 and 4 percent of total household expenditures - energy efficiency improvements have a small impact on the overall household budget
- 26. New buildings EE levels stagnated – builders no incentive for low LLC and information barrier
- 28. Landlord-tenant problem Source: Davis, L. W. (2010) “Evaluating the Slow Adoption of Energy Efficient Investments: are Renters Less Likely to have Energy Efficient Appliances?” NBER Working Paper No. 16114.
- 30. Concluded that standards may be more appropriate for this sector in addition to carbon pricing.* median of ~125 estimates of price elasticity Source: McKinsey Global Institute (2007), Curbing Global Energy Demand Growth: The Energy Productivity Opportunity, McKinsey Global Institute, San Francisco.
- 31. Overcoming energy efficiency barriers
- 32. Policy packages needed Carbon price for least cost carbon mitigation
Notas del editor
- Energy efficiency has shown it can deliverWithout energy efficiency, energy use would have been 58% higher in 2005Interesting quote about effectivenessBut, there is a worrying trend. Energy efficiency improvement rate has reduced recently.
- This graph shows the potential for global CO2 emissions reductions in the energy sector under the 450 Scenario.It shows that potential savings resulting from energy efficiency total 7.1 Gt by 2030. This project assumes that all of the IEA’s 25 Energy Efficiency Policy recommendations are implemented worldwide by 2030 [and other EE policy assumptions?]
- However, analysis conducted by the IEA in the publication“Implementing Energy Efficiency: Are IEA member countries on track?” , which was released in October 2009, shows that IEA countries are not on track to fully implement the 25 recommendations. In fact, even the best countries are not capturing more than 60% of the energy saving benefits of the recommendations. IEA analysis for the G8 summit in L’Aquila produced similar results. Now, if we assume global implementation of the recommendations currently reflects the level of IEA countries (it is probably going to be less, but let’s assume IEA-level of implementation globally because we don’t have data on the rest of the world), then globally we are on track to miss one fifth (2.5 Gt) of the total potential savings (7.2 Gt) from energy efficiency measures by 2030. BACKGROUND INFORMATION ON THE ASSUMPTIONS BEHIND THIS GRAPH – FOR INFORMATION ONLYBased on data collected in Implementing Energy Efficiency Policies, IEA member countries are not on track to implement all of the IEA’s 25 EE Policy Recommendations. The analysis showed that a number of recommendations have either not been implemented or are only planned to be implemented.Given that the best implementation levels are found in the IEA, it is reasonable to consider the average implementation level of IEA countries as a best-case scenario for the rest of the world. Therefore, in the following, data for IEA members is used as a proxy for countries worldwide.If countries do not step up their implementation level, the ultimate end-use potential will end up to be lower than what is expected in the 450 Scenario.To estimate that missed potential, we compute an average of the percentage of the 25 recommendations that are either not implemented or only planned to be implemented for each country and sector. These percentages are then averaged across countries and sector, using their 2008 TPES and the relative CO2 abatement potential of each sector.We finally obtain that 36% of the end-use potential for CO2 abatement by 2030 could be missed if IEA member countries do not step up their implementation level of the IEA 25 Recommendations.]
- From Mind the Gap, two examples:The IEA’s 2007 publication Mind the Gap provides examples of how the principal-agent problem can impact energy usage. Set-top boxes in the US consume significant energy because they are constantly drawing power, and while technological and power management solutions to reduce their consumption are readily available they have not been adopted due to split incentives. The person paying for the device’s electricity consumption – the person using it to watch television – does not choose the box. The television service provider leasing the set-top box has no incentive to provide one with efficiency features, and thus manufacturers have no incentive to produce energy-efficient devices since service providers do not demand them. In contrast, while food and beverage vending machines in Japan could suffer from the same problem of split incentives between three actors, contractual requirements have eliminated the problem. The owner of the space where the vending machine is placed is compensated for electricity costs by the beverage manufacturer and the vending machine operator. In addition, due to their significant energy consumption, vending machine efficiency began to be regulated, with a 34% reduction in electricity use from the prevailing level in 2000 required between 2002 and 2005.Swedish study: Nässen, Sprei and Holmberg, 2008; note 99% of tenants in multi-dwelling buildings in Sweden do not pay directly for energy, as it is a fixed part of the rent.
- 1) Nässen, Sprei and Holmberg, 2008. When examining stagnation in building energy efficiency levels, Swedish researchers found that the correlation between energy prices and specific energy use for heating seen in existing buildings was weak in new buildings. An important cause of this was that information about the life cycle cost of different investments in new buildings affecting energy use was often not available to building sector actors. Builders and clients (landlord, housing federation)– sometimes the same person – have no incentive to reduce life cycle cost (LCC) of buildings (besides negative feedback); focus is on minimising investment costs and budgets for construction and operation are often separated. LCC calculations “quite uncommon” or “negligable”. Building standard is the most common basis for decisions on ee investments, even if can be cost-efficient to go further (using LCC as a basis for example). Lack of knowledge on EE among clients, architects, lack of learning process to create knowledge and competence. 2) Newell, Jaffe and Stavins, 1998. Note that in their study autonomous energy-efficiency improvement is significant, explaining up to 62% of the total change in energy efficiency. However, they acknowledge that this means they cannot exactly explain where such changes came from, and that some portion of them could be exogenous if driven by forces such as government-funded R&D. Also note that Mark Ellis (2007) does not find any clear correlation between electricity prices and appliance performance data for Australia, Japan, the UK, the US and Europe. Some products did show a correlation (US refrigerators and air conditioners, Australian clothes washers), but other products within the same country did not. Since it is difficult to see why certain products would be linked to electricity prices while others are not, generic conclusions on the link between energy price and product performance may be inappropriate. 3) Atkinson, Jackson and Mullings-Smith (2009). The study starts by saying that in theory there is no need to change the current market to encourage efficient design, since even with constant energy prices over 60 years (dream on!) and an average commercial interest rate (8% over 15 years) there is an economic incentive to address the energy efficiency and thermal performance of an existing residential building. In applying an annual increase of 5% and 8% a year on grid electricity and natural gas, the decision framework constructed shows the “typical” design (compliance with 1995 building regulation) as the least favourable economic choice. Typical design and build contracts do not adopt an increasing energy price as a fundamental appraisal assumption, taking a short-term, low-risk view to investment.