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Energy and Climate: Are You Ready ?. John T. Disharoon Sustainable Development Manager Caterpillar Inc. Why Now?. Global Population. $~35 - $140+. Drivers > Energy Demand and Concerns about GHGs. Responding to the Challenge. The Key Issues Energy availability drives the global economy
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Energy and Climate: Are You Ready? John T. Disharoon Sustainable Development Manager Caterpillar Inc.
Why Now? • Global Population
$~35 - $140+ Drivers > Energy Demand and Concerns about GHGs
Responding to the Challenge The Key Issues • Energy availability drives the global economy • Global energy needs may increase 70% by 2030 • Reducing demand is not enough • We have access to tremendous energy supplies • The missing link is readily available technology
In the U.S., Electricity Demand has Steadily Climbed since 1950 Source: EIA *Includes power sold directly to transportation sector and self-generating power
Australia Canada Norway Iceland Kuwait Poland United States Russia China Indonesia S. Africa Japan, France, Netherlands, Israel, United Kingdom, Italy India Pakistan Human Development Index Argentina, Mexico, Brazil Nigeria Ethiopia World average HDI = 0.729 World average per capita electricity consumption = 3,427 kWh/person/year Electricity consumption per capita (in kWh) Prosperity is Linked to Electricity Use Source: United Nations Human Development Report 2007/2008
Coal Petroleum Natural Gas Renewables (incl. Hydro) Nuclear Energy Demand will Continue to Grow Around the World • Fossil fuels (oil, gas, and coal) are expected to remain dominant global energy sources through 2030 • Growth will be primarily driven by consumption in China, India, and the United States Projected Growth in Energy Consumption (2005-2030, in quadrillion Btu) Source: IEA World Energy Outlook 2008 and BP Statistical Review of World Energy 2008
Fossil Fuels are the Dominant Fuel Source for Electricity Generation Worldwide U.S. Net Electricity Generation by Source (2006, per billion kWh) Worldwide Net Electricity Generation by Source (2006, per billion kWh) Natural Gas 20% Natural Gas 20% Hydro 16% Nuclear 19% Coal 49% Coal 41% Nuclear 15% Hydro 7% Other Renewables 3% Oil 6% Oil 2% Other Renewables 2% Sources: EIA, IEA World Energy Outlook 2008
To Meet 2050 GHG Reduction Targets, CCS Will Be Essential • CCS technologies aren’t important solely for coal. The reality is that we will need to capture GHG emissions from natural gas – as well as the world’s expanding transportation fleet – to meet the ambitious 2050 reduction targets set by President Obama. • Although lower than coal, domestic natural gas has a sizable CO2 footprint, too. Lifecycle emissions for LNG and fuels derived from oil sands are also significant. CO2 Emissions Normalized by Gross Output (in lb of CO2 per megawatt-hour) Super-critical coal Ultra-super- critical coal IGCC Nat. Gas SC Nat. Gas CC Assumptions include thermal plant efficiencies of 40-45% for a super-critical coal plant, up to 48% for a ultra-super-critical coal plant, ~45% for IGCC, 36-40% for natural gas single cycle, and up to 60% for natural gas combined cycle. Source: EPRI
Climate Change… Three-Dimensional Chess? • Not a linear activity • Must take into account all aspects of: • Energy Security (available when, where, and in the quantity you need it) • Energy Competitiveness ($ per kWh) • Environmental effects
International Responses to Climate Change • Japan – Mandatory GHG emission reductions • EU – GHG allowance allocations tightening 2008-2012 (Kyoto) • EU ETS “warm-up” phase: 05-07 • ~12,000 installations covering 46% of CO2 emissions • Australia – Mandatory GHG reporting in 2008 • ETS by 2011 • Canada – Mandatory reductions sector-by-sector by end 2009 • China and India – National strategies speed up implementation of laws/regulations to cut GHG emissions; no binding targets
CDM CDM CDM CDM JI CDM Proliferation of Cap & Trade 2012? 2011 Market in operation under caps Market participation through CDM/JI projects Market with caps proposed/forthcoming
U.S. Response – 11 Bills on the Floors of Congress Regional Climate Initiatives GHG Emission Targets GHG Reporting Initiatives Sources: World Resources Institute and Pew Center on Global Climate Change
Six Principles: • Account for the global dimensions of climate change • Create incentives for technology innovation • Be environmentally effective • Create economic opportunity and advantage • Be fair to sectors disproportionately impacted • Reward early action
Current Climate Bill Discussions • House: Waxman-Markey • Passed by three votes • Senate: Boxer • Which path will they take? • Administration: • President Obama • EPA – Must regulate GHG emissions • CEQ • DOE
Current Climate Bill Discussions The Transition to a Carbon Constrained U.S. • EPA’s path is a virtual certainty • President Obama has committed to finalizing the first GHG regulations • EPA is currently pursuing three climate change rulemakings simultaneously • Environmental NGOs will use courts to force action • Developments in the Congress, but less certain future: • Passage by Senate appears more challenging • And then there’s Copenhagen…
When Will Controls be Enacted? The Transition to a Carbon Constrained U.S. • EPA intends to enacts finalize first GHG in March 2010 • First GHG rules will apply to cars and light duty trucks, but will trigger regulation for virtually all sectors • EPA currently laying regulatory foundation for broad Clean Air Act regulation • Mandatory GHG reporting rule will take effect January 1, 2010 • HR 2454 would implement cap on emissions in 2012 • 2012 emissions could not exceed 97 percent of 2005 emissions • But 2012 target assumes passage in 2009
HR 2454 – Covered Entities Section 722 prohibits emissions of GHGs unless owner or operator holds necessary allowances for “capped emissions” from the following “covered entities”: • Electricity sources • Fuel producers and importers (>25,000 tons/year) • Industrial gas producers and importers (>25,000) • Nitrogen trifluoride sources (>25,000) • Geological sequestration sites • Industrial stationary sources (see 700(12)(F)-(H)) • Industrial fossil fuel-fired combustion devices (>25,000) • Natural gas local distribution companies • Algae based fuels • Fugitive emissions
Concerns with HR 2454 (Waxman-Markey Bill) • Requires new GHG and other emission regulations on existing non-road machines and engines • Requires the institution of border measures which would result in significant global trade ramifications with our world’s trading partners • Only preempts state climate programs for five years (2012-2017) resulting in the potential proliferation of additional state programs that would cause significant economic dislocation and regulatory uncertainty • Applies the Davis-Bacon Act (prevailing wage) to programs in the bill which would do nothing to advance the emission reduction goals of the legislation • Noticeably short on international engagement • Inequitable allocation of allowances for the refinery sector
HR 2454 (Waxman-Markey Bill) • Heritage Foundation Analysis (6-15-09) • Reduce aggregate gross domestic product (GDP) by $9.4 trillion; • Destroy 1,145,000 jobs on average, with peak years seeing unemployment rise by over 2,479,000 jobs; • Raise electricity rates 90 percent after adjusting for inflation; • Raise inflation-adjusted gasoline prices by 58 percent; • Raise residential natural gas prices by 55 percent; • Raise an average family's annual energy bill by $1,241; and • Result in an increase of $28,728 in additional Federal debt per person.
HR 2454 (Waxman-Markey Bill) • EPA and CBO analyses (6-09) • Job creation and job elimination will be roughly equal; • Electricity rates flat until 2020, +13% by 2030; • Raise gasoline prices by .23/2015, .25/2030, .69/2050; • Moderately raise residential natural gas prices; • Household impact < $200 annually; • Decrease the deficit by $24 billion.
What is Not Known • Specific form that Federal, regional and/or state regulations will take in U.S. (cap & trade, carbon tax) • Regulate the manufacturer? • Regulate the customer/industry sector? • Action by Congress… or EPA? • Specific timeframes when regulations will enter force • How U.S. carbon market will interface with non-U.S. markets (EU, Australia, etc.) • How major non-Annex I emitters (e.g. China, India) will be dealt with post-2012 (post Kyoto) • Specific price of carbon in a “global” market
business citizens INTELLIGENTCHOICES academia NGOs government Must Be Economically Sustainable and Environmentally Sound • Get involved • Talk with your trade associations • Be informed…this will affect you • Let your views be known
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