Beyond the Wish: Scaling Up Energy Efficiency

Joe Loper

Alliance to Save Energy

October 22, 2008

What is the Alliance? Mission: The Alliance to Save Energy promotes energy

efficiency worldwide to achieve a healthier economy, a cleaner environment, and greater energy security

Chaired by Senator Mark Pryor (D-AR) and James Rogers (CEO, Duke Energy) with strong bipartisan congressional, corporate & public interest leadership.

What is the Alliance? NGO coalition of 150+ prominent business, government,

environmental and consumer leaders.Conduct policy, education, research, technology deployment, market

transformation and communication initiatives.

Headquartered in Washington, D.C. with operations in Eastern Europe, South Africa, Mexico, India and several states in the U.S.

EE Benefits Concerned about climate, national

security, energy security, high energy prices, other environmental Issues?

EE is often cheapest, cleanest, easiest way to achieve - Cost of measures can be low - No nuclear waste- Less CO2- No battleships required

Everyone’s talking about energy efficiency

Secretary Bodman - "The biggest source of immediately available 'new'

energy is the energy that we waste every day." National Petroleum Council (“Hard Truths”)

- ”The study demonstrates that energy efficiency is a very near-term energy resource, and tapping it is essential to national energy strategy.” (Dan Yergin, Vice Chair of Study)

Jim Rogers (CEO, Duke Energy)- Energy efficiency is “the fifth fuel”

Tom Kuhn (President, EEI)- Energy efficiency is “the first fuel”

America's Greatest Energy Resource Energy Efficiency and Conservation Improvements Since 1973

Have Reduced Annual Energy Consumption by 50 Quads

0.8

3

4

8

23

24

40

50

0 10 20 30 40 50 60

Geothermal, Solar and Wind

Conventional Hydroe lectric

Wood, Waste , Alcohol

Nuclear Electric Power

Coal

Natural Gas

Petroleum

Energy Efficiency and Conservation

Quads

2007 Domestic Production Net ImportsAlliance to Save EnergyAugust 2008

Huge EE Potential Remains

Energy Efficiency Potential 40%

Adapted from McKinsey Analysis

McKinsey mid-range reductions (2030)

McKinsey high-range reductions (2030)

We need all we can get

Adapted from WRI Analysis

EE potential is uncertain Depends- Discount rates

- Economic growth

- Energy prices

- Capital turnover

- Technology development

- Policy

- Market barriers

Note: Supply potential is uncertain too

Latest Potential Study (Draft)

Market Barriers Cause economically inefficient

underinvestment in EE #1 Externality costs- Costs -- Climate, national security risks, risk of

nuclear waste/meltdown, acid rain, local health

#2 Split incentives- Tenant-landlord- Builder-buyer

Market Barriers (Cont’d) #3 Energy Subsidies- $16 billion according to EIA

#4 Lack of informationKnow what – Lack of awarenessKnow-how -- EE can be complicated

#5 Bounded Rationality Others

Lock-in (light fixtures, big cars?)First cost, lack of financing

Job #1: Get prices right Cap or tax Cap and trade dominates discussion

- Cap (beyond BAU) reduces emissions - Trading reduces overall costs of compliance

Elements to watch – stringency- Cap, scope, cost-containment elements

Elements to watch – cost containment- Lower cost -- Safety valves, offsets- Higher cost – Muting of certain price signals through

allocations

Role of EE in Cap n Trade EE is one of many abatement options If excluded, forcing EE can reduce costs of

overall compliance- If “cheaper” than next best option- Doesn’t need to be “negative cost”- Same as other “excluded” (underinvested) options

Note: Forcing EE does not reduce emissions EE can be excluded due to

- Policy elements – e.g., free allowances to regulated entities

- Market barriers

Many “Non-Price” Barriers

Caution …. Barriers may reveal preferences or costs Barriers difficult to quantify Some non-price barriers addressed by carbon

price Fixing barriers is not free – count as cost

Job story good, but challenging too Overall cost of abatement could be higher

If fix barriers that don’t exist Political viability of cap a consideration

Less allowance value for other interests Basic argument for cap and trade undermined

Address non-price barriers Not all barriers must/can be conquered- Still better off than we were

If ignored, cost of overall abatement will be higher!

Different barriers require different approaches- McKinsey, et al pursuing

EE Policies in Brief Carbon Price

- Addresses service demand (e.g., VMT, home size) and appropriate application (e.g., HVAC sizing)

Vehicle, Equipment, Appliance Standards - Addresses lack of information, split incentives,

bounded rationality Building Codes

- Addresses lack of information, split incentives Labeling

- Addresses lack of information, split incentives- Addresses bounded rationality could go up or down

EE Policies in Brief (cont’d) Tax Incentives- Address lack of information

Energy Efficiency Resource Standard- Utilities may be best able to address “local”

barriers Labor Force Education & Training- Needed to respond to policies

R&D Investment - Because we still need game changers

Recap A lot of EE potential – We decide potential EE is often cheapest, cleanest, easiest But….EE is not free- Ability to get people to implement is TBD

Strong and smart policy will be the key- Learn by doing everything NOW

Prospects for Cap and Trade Economy in recession But…oil prices down too Political stars aligned?

- Lieberman-Warner

- Boucher-Dingell

- McCain and Obama

Biggest economic challenge is uncertainty- Indecision on climate adds to uncertainty

Nobody benefits from stand-off

Comments? Suggestions?

Joe Loper

202-530-2223

jloper@ase.org

www.ase.org