Energy Policy in Theory & Practice John P. Holdren Teresa & John Heinz Professor of Environmental Policy John F. Kennedy School of Government Professor.

Energy Policy in Theory & Practice

John P. Holdren

Teresa & John Heinz Professor of Environmental PolicyJohn F. Kennedy School of Government

Professor of Environmental Science & PolicyDepartment of Earth & Planetary Sciences

HARVARD UNIVERSITY

Director

THE WOODS HOLE RESEARCH CENTER

Presentation for the AGI Leadership Forum on Communicating Geoscience to Policymakers

Washington, DC, 30 April 2007

In theory

THE MULTIPLE AIMS OF ENERGY POLICY

ECONOMIC AIMS

• provide reliable fuel & electricity for basic needs & economic growth

• limit consumer costs of energy

• limit cost & vulnerability from imported oil

• help provide energy basis for economic growth elsewhere

THE MULTIPLE AIMS (continued)

ENVIRONMENTAL AIMS

• improve urban and regional air quality

• avoid nuclear-reactor accidents & waste-mgmt mishaps

• limit impacts of energy development on fragile ecosystems

• limit greenhouse-gas contribution to climate-change risks

THE MULTIPLE AIMS (concluded)

HOMELAND- & NATIONAL-SECURITY AIMS

• minimize dangers of conflict over oil & gas resources

• avoid spread of nuclear weapons from nuclear energy

• reduce vulnerability of energy systems to terrorist attack

• avoid energy blunders that perpetuate or create deprivation

POTENTIAL PROBLEMS

• Cumulative consumption resource depletion• Growth of demand outstrips capacity to expand

supply, constrained by needs for…– capital– skills– equipment

• Energy supply becomes too costly…– economically– environmentally– politically

• Unmanageable tensions emerge among economic, environmental, security goals

In practice:Quantitative context

World Energy 1850-2000

050

100150200250300350400450500

1850 1875 1900 1925 1950 1975 2000

Year

EJ/

yea

r

Gas

Oil

Coal

Nuclear

Hydro +

Biomass

Where are we and where are we headed?

Hydro+ means hydropower plus other renewables besides biomass

Energy supply grew 20-fold between 1850 and 2000. Fossil fuels supplied 80% of the world’s energy in 2000.

World primary energy supply 1850-2000

Total = 17,450 billion kWh

World electricity supply by source

About 1/3 of primary energy is used to generate electricity, and 2/3 of this comes from fossil fuels

Other renewable

2004

USA, China, World in 2005

USA China World

Population, millions 297 1306 6420

GDP/pers, 2005$ (ppp) 42000 7300 9150

Total energy supply, EJ 106 80 514

Oil consumption, EJ 42 15 175

Oil imports, Mb/d 12 3.4 50

Electricity generation, TWh4200 2500 18200

Electricity share from coal 50% 80% 40%

C emitted in CO2, MtC 1700 1400 7500

ppp = at purchasing-power parity, EJ = exajoules, TWh = terawatt-hours, MtC = megatons of carbon in CO2. Total energy supply includes biomass fuels. Electricity generation is gross, not net.

Business-as-usual (BAU) forecasts to 2030

2005 2030

Primary energy, exajoules

World 514 750

United States 106 150

China 80 140

Electricity, trillion kWh

World 17.3 30

United States 4.0 6.0

China 2.4 4.8

Energy-related CO2 emissions

Under continuation of BAU

• World use of primary energy reaches 2.5 times the 2000 level by 2050 and 4 times by 2100.

• World electricity generation reaches 3 times the 2000 level by 2050 and 5 times by 2100.

• World CO2 emissions from energy reach 2 times

the 2000 level by 2050 and 3 times by 2100.

In practice:What are the problems?

The problem is not “running out” of energySome mid-range estimates of world energy resources. Units are terawatt-years (TWy). Total world energy use is ~15 TWy/year.

TWy

OIL & GAS, CONVENTIONAL 1,000UNCONVENTIONAL OIL & GAS (excluding clathrates) 2,000COAL 5,000METHANE CLATHRATES 20,000OIL SHALE 30,000

URANIUM in conventional reactors 2,000 ...in breeder reactors 2,000,000

FUSION (if the technology succeeds) 250,000,000,000

RENEWABLE ENERGY (available energy per year)sunlight on land 30,000energy in the wind 2,000energy captured by photosynthesis 120

Nor is the problem running out of money Projected capital investment for energy supply 2001-2030

This is under 1% of projected GWP and only about 5% of projected world investment. (But it could reach 15% of investment in developing countries.)

International Energy Agency 2005

Real problem: intolerable environmental cost

Mid-range scenarios are heading for T‘s last seen 30 million years ago.

Impacts of fossil CO2 on global climate

• cost minimization vs. modernization, increased robustness & reliability, environmental improvements, energy security

• increased domestic fossil-fuel production (for security) vs. protection of fragile ecosystems

• increased nuclear-energy production (for greenhouse-gas abatement) vs. reducing risks of nuclear accidents & terrorism

Real problem: tensions among energy-policy aims

Real problem: No “silver bullet” No known energy option is free of question marks• conventional oil & gas… not enough resources?

• coal, tar sands, oil shale… not enough atmosphere?

• biomass… not enough land?

• wind & hydro… not enough good sites?

• photovoltaics… too expensive?

• nuclear fission… too unforgiving?

• nuclear fusion… too difficult?

• hydrogen… energy to make it? means to store it?

• end-use efficiency… not enough smart end-users?

In practice: The tasks for current policy

• to find and implement the best compromise among the most important economic, environmental, & security objectives, given the resources & technologies available at the time;

• to promote technological advances over time that reduce limitations of existing energy options, open new options, and reduce the tensions among energy-policy objectives.

The primary tasks of energy policy in light of current competing objectives are…

• many of the objectives relate to public goods (like national security) & externalities (like pollution) that are not priced in markets unless policies achieve this;

• markets often also need other kinds of help to avoid “market failures” from abuse of monopoly power, lack of information, perverse incentives, short time horizons, etc.

These ends cannot be achieved by markets alone, because...

The National Commission on Energy Policy• Launched in 2002, the Commission…

– was thoroughly bipartisan & multi-sectoral,

– was funded mainly by the William and Flora Hewlett Foundation, with minority participation by MacArthur, Pew, Packard, Energy Foundation.

• Its 1st report, “Ending the Energy Stalemate: A Bipartisan Strategy To Meet America’s Energy Challenges”…

– was released at the end of 2004

– had a significant influence on the national energy legislation passed by Congress and signed by President Bush in summer 2005

• A 2nd report, “Recommendations to the President and the 110th Congress”, was released earlier this month.

Elements of the US energy stalemate• Gap between rising oil demand and declining domestic

production widening since 1985, with little policy action to address it on either supply side or demand side.

• Corporate average fuel economy (CAFÉ) standards unchanged since 1985 for “passenger cars”, constant from 1987 to 2005 for “light duty trucks” (pickups, vans, & SUVs). Whole-fleet average 24 mpg in 2003 (≈ 1981).

• Thirteen years after USA ratifies UN Framework Conven-tion on Climate Change (Rio), no requirement or incentive to reduce CO2 emissions from energy sector in place.

• No new nuclear reactor ordered in the USA since 1978; siting of new LNG terminals and even wind farms increasingly stymied by “Not in my backyard” (NIMBY).

• Real 2004 Federal spending on energy-technology research, development, & demonstration same as in 1987.

The Commission’s formula for overcoming the stalemate

• Adopt a bipartisan, revenue-neutral approach.

• Address both supply and demand in an integrated fashion.

• Don’t try to solve the problem at once, but begin to change the trajectory.

• Recognize there are no silver bullets.

• Wherever possible, rely upon markets – appropriately regulated – to produce the most efficient solutions.

• Invest in technology.

Recommendations were in 5 categories

1. Expanding oil & gas supply and strategic petroleum reserves

2. Dampening growth of demand for liquid fuels

3. Strengthening & protecting energy-supply infrastructure

4. Limiting & reducing greenhouse-gas emissions

5. Accelerating energy-technology innovation

The 2005 energy legislation…

Embraced most of the Commission’s recommen-dations about

• oil & gas supply

• strengthening energy infrastructure

• deployment incentives for renewables, nuclear, clean-coal technology

• R&D incentives for industry

It failed to embrace the recommendations about…

• strengthening CAFE standards

• significantly increasing federal energy R&D

• mandatory, economy-wide GHG restraints

The 2007 Energy Commission update

• Establish new-vehicle fuel-economy improvement target of 4% per year.

• Implement mandatory, economy-wide, market-based program to reduce greenhouse-gas emissions, aiming to return to 2006 emission level by 2020 and fall to 15% below 2006 level by 2030.– $10 / ton CO2 initial safety valve, escalating at 5%/yr real

– production credits for electricity generation with CO2 capture, yielding effective incentive exceeding $30 / ton CO2

• Increase government investments toward commercial-ization of CO2 capture & sequestration

• Enact renewable portfolio standard to achieve 15% of U.S. electricity from renewables by 2020

• Address impasse in radioactive-waste management

Some key referencesNational Commission on Energy Policy, Ending the Energy

Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges, December 2004 http://www.energycommission.org

John P. Holdren, “The energy innovation imperative”, Innovations: Technology/ Globalization/Governance, Vol. 1, No. 2, Spring 2006 http://bcsia.ksg.harvard.edu/BCSIA_content/documents/Innovations_The_Imperative_6_06.pdf

Intergovernmental Panel on Climate Change, Climate Change 2007: The Physical Science Basis. Summary for Policy Makers. 2007. http://www.ipcc.ch/SPM2feb07.pdf

UN Scientific Expert Group on Climate Change & Sustainable Development, Confronting Climate Change: Avoiding the Unmanageable and Managing the Unavoidable, United Nations Foundation, 2007 http://www.unfoundation.org/SEG/

National Commission on Energy Policy, Energy Policy Recommendations for the President and the 110th Congress, April 2007 http://www.energycommission.org