AMBITIOUS TARGETS FORENERGY RD & D

MEETING PLANETARY

EMERGENCIES

OUTLINE

1. Summarize an exemplary effort (IEA) to set energy technology targets and analyze the cost of achievement

2. Outline the governance issues related to such an effort as well as financial

3. Propose an alternative or supplementary approach

IEA GLOBAL RD&D GAPS STUDY

• The study sets out a clear target: Reduce world CO2 emissions in 2050 to 14GT from 30GT (today) and from 62 GT (business as usual projected for 2050)

• Most impressively, required increases in energy RD &D are specified by technology type

Expenditures And Gaps Table by Wedge

Internal Costs of IEA Wedges• IEA wedges reductions are policy induced and

are likely to induce higher private costs borne by industry and individuals

• A possible exception is end use energy efficiency investment – Consumers are thought to under invest energy

savings investments, so such policies can reduce costs

– But even this will result in higher short run cost

• “No regrets” policies capture such benefits

Carbon Capture and Sequestration

• Not proven this technology can do as projected, but critical to carbon reduction– Capture and retention efficiency– Storage availability

• Less CCS means switching “fuel” to electric power less effective

• CCS cost starts with a 30% penalty with increased parasitic load

Renewables and Energy Efficiency Limits?

• Can very aggressive targets be met or will solar and wind cost curves given evolution of existing technology read a reach a limit (i.e. do we need new renewable technologies)

• Policy is projected to reduce economy wide energy intensity by twice the historical rate sustained indefinitely (Exceeds No Regrets cost gain?)

Summary of Essential Policy Efforts

• Impose CCS requirements for power and industrial coal combustion or strongly incent them

• Impose aggressive energy efficiency requirements so as to double the rate of decline in energy intensity

• Create aggressive incentives or requirements for renewable energy sources

• Impose aggressive requirements for carbon free vehicles• Require fuel switching to reduce carbon• Each of these will increase short run costs and most

require increases in long run costs• Each of these must be coordinated for at least the

largest economies• Attainment requires a substantial increase in RD & D

An Alternative Goal: Reduce Costs so as to Improve Human Welfare

• The last 200 years have witnessed a “miracle” of economic growth which has made huge contributions to human welfare

• Energy technology research and development has been a prime driver by reducing the cost of primary supply, and the cost of using energy

• Growth generating capital investment followed the lead of potential lower cost energy

Can Fossil Fuels Offer Further Gains?

• Clearly oil and gas supply requires recovery of more and more difficult resources

• Energy security costs attach to oil supply• All fossil fuels, especially coal have substantial

external costs (non GHG)– NOX, SOX, particulates, Hg

• Fossil fuel energy conversion technologies reach thermodynamic limits constricting future cost gains

A Lower Cost Future is Not Carbon Driven

• Low cost nuclear

• Low cost renewables, perhaps not now on the table

• Fusion

Can A Manhattan Style Project Create or Accelerate Development

• Some key characteristics– Theory formulated?– Extremely difficult engineering issues

• Huge resources committed– .4% of US GDP 1942-1945– Today=$50 bil per year

• Low cost energy offers worldwide benefits– Worldwide GDP equivalent: $240 bil

Organize Multiple Manhattan Projects

• Senior scientists (i.e. Einstein’s and Szilard’s) and others as needed are gathered to select technology areas to drive toward lower cost energy target

– First order of business: are there such technologies that want for funding and focus?

– Technology areas identified

• Zero to six government “Manhattan” Projects: China, EU, India, Japan, Russia and the US are agreed to

• Each government and its Academy of Sciences (or other as appropriate) is given charge of organizing and funding one effort

• Periodically (every 3 years?) scientists reconvene to assess progress and prospects

• “No regrets” implementation is part of the deal

• Successful technologies are shared with an advantage to the developer

Advantages

• Ultimately provides tangible benefits as perceived directly by consumers around the world: focus on a first best result

• Lower cost energy alternatives will tend to be market implemented, no policy initiatives needed (except end use efficiency as part of “No Regrets” which should also improve welfare)

• Potentially addresses energy poverty• Implementing agreements much simpler

– Less costly, less at stake– Unified purpose: potential benefits for all

Science with a Mission

• Climate debate frames scientists as nags– Tend to become policy advocates rather than

problem solvers– Very little influence, no power, not political– Hard case

• Science has an excellent record pursuing difficult goals

Is This Pollyanna Outcome Possible?

• Maybe, maybe not• One hypothetical scenario:

– Low cost primary energy (electric power) generation– Low cost scalable and transportable energy storage

• Low cost primary energy:– Nuclear: huge resources if they can be accessed at

low cost– Marine energy: huge resources if they can be

accessed at low cost (I think I see possibilities for low cost)

• Progress and perhaps breakthroughs in scalable power storage

External Pollution Costs

• “Traditional” Pollutants (SOX, NOX, particulates, etc) are controlled in many jurisdictions (command and control) or incentive based (tax or cap and trade)– But such control does not generally mean

zero emissions and control increases resource costs

– Emissions are substantially uncontrolled in many jurisdictions

Energy Security Costs

• Most primary energy resources are scattered in a relatively few geographic locations in high concentration– Energy related fuels therefore require substantial transport– Geography and geopolitics create substantial potential for

logistical bottlenecks• Maintaining access to these resources and mitigating

potential bottlenecks is a high priority for most if not all nations– Direct military expenditures to assure safety of transport and

“benign” administration of the resources– Indirect costs associated with competing for “preferred” access

to resources

Cost Benefit Analysis

• By strict economic logic, the benefits of this expenditure should exceed costs

• The IEA asserts with some significant justification that the stated target’s benefits vis a vis the global warming offset will exceed costs

• As an alternative or supplement, I wish to consider a more ambitious target encompassing greater benefits potentially accruing from clean energy RD&D

GHG Related Energy Benefit Minus Internal Costs of Production and

Delivery

But External Costs Are Not Counted

• Internal and external

Induced Global Warming Costs

• As has been amply discussed at the WFS, the science regarding anthropomorphic induced warming is not “proven”– As is for example, quantum mechanical predictions– Even the IPCC states that there is a 95% probability of induced

warming. 95%<100%

• On the other hand, neither does science prove that warming is not induced

• Therefore the problem must be analyzed (for policy purposes) in terms of uncertainty and expected value. Two levels of uncertainty:– How much warming is caused by given GHG– How much harm is caused by such induced warming

Probabilistic GHG Costs

An Interpretation of IEA Cost Benefit From Clean Energy

• Internal resource costs for energy are increased to achieve a larger reduction in warming costs: B>A; clean energy mitigates warming costs by more that the increased cost

Additonal External Costs of GHG Related Energy

There Are Other Benefits

• Displacement of fossil fuels can reduce “traditional” pollutants: NOX, SOX, water pollution, etc.– Emission controls do not imply zero emissions– Many Emissions are not controlled

• Energy Security Costs– Most primary energy resources locations are concentrated– Geography and geopolitics create substantial potential for

logistical bottlenecks– Direct miliatry expenditures help insure access to these

resources and are substantial– Also costly competition for preferred access

Resource Cost (Internal) From Achieving Wedges

Additional Energy Technology Goals

• Set a target to create clean energy technologies that reduce private costs– Pursue “long ball” technologies that can

generate primary energy at lower cost than currently available exclusive of externalities

– Pursue more ubiquitous distributed technologies which reduce the sum of primary generation cost and transport cost and ensure greater access to supplies

Policy Considerations

• Policies that reduce external costs by increasing internal costs must be coerced to some degree– Command and control– Incentive measures (emission taxes, cap and trade, or incentive

subsidies)

• Command and control is least desirable because it tends to require substantial governmental direction of economic production, and knowledge of cost of control, and damages from emissions

• In principle incentive measures only require knowledge of emission damages so that incentives are set appropriately

Policy Considerations

• Policies that reduce external costs by increasing internal costs must be coerced to some degree– Command and control– Incentive measures (emission taxes, cap and trade, or incentive

subsidies)

• Command and control is least desirable because it tends to require substantial governmental direction of economic production, and knowledge of cost of control, and damages from emissions

• In principle incentive measures only require knowledge of emission damages so that incentives are set appropriately

Contrast The Alternative

• The role of RD&D is to sell (better yet give) industry the means to reduce costs and improve profits

• “Here’s a gift…”

Goal Investment

Cost Benefit Analysis

• By strict economic logic, the benefits of this expenditure should exceed costs in order to assume an overall improvement in human welfare

• “Traditional” economic analysis (Nordhaus) suggests these expenditures do not justify such costs: “optimal” expenditures are less

• The IEA analysis is not fundamentally cost benefit: it presents an exhaustive analysis of what must be done to achieve a GHG goal

If Such Policies Were Easy We’d Have Done It Already

• One might compare such policies to requiring industry to begin hitting their collective heads with a hammer

• The role of RD&D is to sell industry (better yet give) access to hammers that don’t hurt as much

• Plan B. A group of eminent scientists (i.e. Einsteins and Szilards) in appropriate fields, along with others as appropriate, are gathered together by at least six governments: China, EU, India, Japan, Russia and the US. They select 6 technologies most appropriate for Manhattan like development that meet the goals as set out (lower cost primary energy, non fossil fuel). By international treaty, each government (in conjunction with the respective Academy of Science or some such) is given charge of organizing and funding one of the six.  (They are encouraged to fund researchers both inside and outside their borders.)  Every 3, 5, 7? years the scientists are gathered to review progress and perhaps change the mix of technology efforts, or suggest greater concentration in a given area.)   In addition the six governments would agree to pursue “No Regrets” which, if you guys are right, will improve welfare in general. First meeting in Erice. :) The Manhattan project over 4 years accounted for .4% of US GDP.  A similar % of today’s US GDP would be $50 Bil  annually, if my horseshoes and hand grenades numbers are close.  For the world this would be $240 Bil.