The energy efficiency potential for cost-effective GHG reductions worldwide: issues and barriers

1. CDM Methodologies and Technical Issues Associated with Power Generation and Power Saving Project Activities The energy efficiency potential for cost-effective GHG reductions worldwide: issues and barriers Paul Waide, PhD Energy Efficiency & Environment Division International Energy Agency

2. What’s Energy Efficiency Done for Greenhouse Gas Abatement?

3. Sector Intensities and Total Economy Effect, IEA-11 Energy intensity declines have slowed in all sectors since the late 1980s

4. Changes in energy/GDP decomposed into changes in energy service/GDP and intensity effect, 1973-1998

5. Actual Energy Use and Hypothetical Energy Use Without Intensity Reductions, IEA-11 Without 25 years of energy savings, energy consumption would have been almost 50% higher

6. Is it real? Macro to mezzo evidence

7. Impacts pre-2001 programmes in CA 40,000 ~ 14% of Annual Use in California in 2001 35,000 30,000 Utility Programs: at a cost of ~1% of Electric Bill 25,000 GWH 20,000 15,000 10,000 Building Standards 5,000 Appliance Standards 0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Public Interest Energy Strategies –CEC #100-03-12F

8. Impacts: US vs. CA electricity use

9. Denmark: gross energy demand by fuel: 35% GDP growth but energy use is slightly lower

10. Is it real? Mezzo to micro end-use evidence

11. United States Refrigerator Use (Actual) and Estimated Household Standby Use v. Time 2000 Estimated Standby 1800 Power (per house) 1600 1400 Refrigerator Use per 1978 Cal Standard Unit 1200 1987 Cal Standard Average Energy Use per Unit Sold (kWh per year) 1000 1980 Cal Standard 800 1990 Federal 600 Standard 400 1993 Federal Standard 2001 Federal 200 Standard 0 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

12. Energy Logo Manufacturer ABC Model 123 A More efficient A B C D E F G Less efficient 350 Energy consumption kWh/year (Based on standard test results for 24h) Actual consumption will depend on how the appliance is used and where it is located Fresh food volume I 200 Frozen food volume I 80 Noise 40 (dB(A)re 1 pW) Further information is contained in product brochures Norm EN 153 May 1990 Refrigerator Label Directive 94/2/EC

13. Can produce major market transformation: e.g. refrigerators in EU

14. From random to order: products are now designed to meet discrete efficiency bands

15. Much more can be saved

16. Global CO2 Emissions in the IEA 2004 World Energy Outlook Scenarios CO2 emissions are 16% less in the Alternative scenario in 2030, a reduction of about 6 Gt of CO2 Source: WEO 2004

17. 15% 17% 20% 21% 5% 4% 10% 21% 12% 7% 5% 1% 8% 7% 10% 67% 63% 58% 49% World OECD Transition economies Developing countries End-use efficiency gains Fuel switching in end uses Changes in the fossil-fuel mix in power generation Increased nuclear in power generation Increased renewables in power generation Contributory Factors in CO2 Reduction, 2002-2030 100% 80% 60% 40% 20% 0% Improvements in end-use efficiency contribute for more than half of decrease in emissions, and renewables use for 20%

18. Efficiency measures Avoided supply-side investment Difference Generation Additional demand-side investment Transmission Distribution Difference in global electricity investment in the Alternative vs. Reference Scenario 2003-2030 1 000 500 0 billion dollars (2000) - 500 -1 000 -1 500 -2 000 Additional investments on the demand side are more than offset by lower investment on the supply side

19. Consider a refrigerator: simple technical solutions exist

20. Example: Tunisian 1-door refrigerator with a 2-star frozen food compartment(useful volume = 220 litres, electricity consumption = 299 kWh/year)

21. Residential electricity consumption scenarios in IEA countries 1990-2030 -35%

22. Global lighting electricity use: no-policies, current-policies and LLCC-scenarios

23. Benefits from least life cycle cost compared to current policies Implementing the LLCC scenarios would: • reduce OECD residential electricity demand by 35% and avoid 525 Mt-CO2 emissions in 2020 at a net cost of: -$66/Tonne-CO2 in OECD-North America -169 Euro/Tonne-CO2 in OECD-Europe • reduce global lighting electricity demand by US$156 billion and 971 Mt CO2 in 2030 at a net cost of: -US$158/Tonne-CO2 globally

24. So why doesn’t the market deliver cost-effective savings autonomously? • Missing or partial information on EE performance and lack of common metrics • Lack of awareness re cost-effective savings potentials • Split incentives: Landlord-Tenant issue • EE often a minor determinant of capital-acquisition decisions • EE is bundled-in with more important capital decision factors • All result in emphasis on 1st not Life-cycle costs

25. But what about free-riders? • Waide’s 2nd Law of Energy Efficiency: • for every free-rider there is an at least as equal, but opposite free-driver (spillover) • And the rebound effect? • It exists but is rarely large (energy service expenditure is not hypothecated and is a small proportion of GDP) • treat by applying some simple adjustment factor (e.g. say 5% for refrigerators and 50% for space conditioning) But what about free-drivers?

26. Low first cost rules!Mercury Vapour Vs. High Pressure Sodium Street Lamps • Lamp costs = 2.5 Euro to 12.5 Euro (product price from 750 Euro to 815 Euro)Note: lifetime HPL=3yr and HPS=4yr • Energy consumption from 548 kWh to 328 kWh = 40% less CO2 emissions • Life cycle costs from 2861 Euro to 2266 Euro • Benefit to cost ratio = 9.2 • Simple payback less than 3 years • BUT Mercury Vapour outsell High Pressure Sodium!!! Switch HPS 70W HPL 125W

27. Could CDM finance high efficacy street lights? • How do we know they wouldn’t have installed HPS anyway? Be conservative: only allow 50% of savings benefits to be counted • First year incremental cost is 75 Euro per lamp (110 Euro/20yr) • CO2 savings of from 2.5 to 5 tonnes per lamp (depend on fuel mix) but only credit 1.25 to 2.5 tonnes in calculation • 100% abatement cost = 40 to 80 Euros/tonne (at 50% CER) • Energy bill savings = 250 to 750 Euro per lamp (depends on tariff) • If CER cost too high let CDM pay the first cost increment, but then be repaid through the bill savings • CDM loans 75 Euro per HPS lamp. Energy bill savings used to pay back loan within from 2 to 7 years (depending on tariff) • Municipality has a net benefit of from 154 to 682 Euro per lamp

28. Conclusions • Energy efficiency presents a huge under-exploited cost-effective GHG saving opportunity • It merits being the single greatest focus of GHG abatement strategies in near-term • If mined effectively it allows economic growth with net reductions in GHG emissions in developed economies and much slower growth in GHG emissions in rapidly developing economies • CDM has to make EE projects a major focus

29. How can the CDM manage EE? • Purity vs. action? – the potentials are so big, the costs are so low and the needs so high that action must be the near term priority – CDM needs a fast track to EE project approval • How could this be done? • Compartmentalise – identify narrower groups of clear win-win categories of EE projects, set rules and invite project submissions on a fast track (guidance, speed and certainty are paramount for would be applicants) • Simultaneously, work on widening the project categories and developing the appraisal methodologies • Allow project submissions outside the above framework on a slower track

30. EE, CDM and Policy Environment • Recognise that EE works best if the measures are supported by an unambiguous and comprehensive policy framework • E.g. effective energy labels give market visibility and a common performance benchmark to efficient products, this creates the environment where a CDM project might support the manufacture of such products and the benefits can be both leveraged and more easily determined (the base-case is clearer) • The same can be said of buildings, vehicles, industrial processes etc. • This implies a need for coordinated work between CDM and other UNFCCC programmes and instruments to support development of a favourable international policy environment for EE

31. Contacts and more information www.iea.org(e.g. for IEA publications on energy efficiency) Or contact: Paul.Waide@iea.org