Energy Policy in Theory & Practice

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

2. In theory

3. 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

4. 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

5. 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

6. 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

7. In practice:Quantitative context

8. Where are we and where are we headed? World primary energy supply 1850-2000 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.

9. 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 Total = 17,450 billion kWh

10. 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, TWh 4200 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.

11. 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

12. Energy-related CO2 emissions

13. 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.

14. In practice:What are the problems?

15. The problem is not “running out” of energy Some mid-range estimates of world energy resources. Units are terawatt- years (TWy). Total world energy use is ~15 TWy/year. TWy OIL & GAS, CONVENTIONAL 1,000 UNCONVENTIONAL OIL & GAS (excluding clathrates) 2,000 COAL 5,000 METHANE CLATHRATES 20,000 OIL 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 30,000 energy in the wind 2,000 energy captured by photosynthesis 120

16. Nor is the problem running out of money Projected capital investment for energy supply 2001-2030 International Energy Agency 2005 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.)

17. Real problem: intolerable environmental cost Impacts of fossil CO2 on global climate Mid-range scenarios are heading for T‘s last seen 30 million years ago.

18. Real problem: tensions among energy-policy aims • 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

19. 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?

20. In practice: The tasks for current policy

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

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

23. 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.

24. 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.

25. 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.

26. Recommendations were in 5 categories • Expanding oil & gas supply and strategic petroleum reserves • Dampening growth of demand for liquid fuels • Strengthening & protecting energy-supply infrastructure • Limiting & reducing greenhouse-gas emissions • Accelerating energy-technology innovation

27. 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

28. 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

29. Some key references National 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